ashutosh parmar hcc report
TRANSCRIPT
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SUMMER TRAINING PROJECT REPORT
(MBA-035)
On
WORKING CAPITAL MANAGEMENT
AT
HINDUSTAN CONSTRUCTION COMPANY LTD.
LMNHP-EW-II (WB)BARABANKI
Submitted in partial fulfilment of Master of Business Administrationprogramme: (2009-011)
Of
Uttar Pradesh Technical University, Lucknow
SUBMITTED BY
ASHUTOSH PARMAR
MBA 3RD SEMESTER
0901470013
FACULTY OF MANAGEMENT SCIENCE
Sri Ram Murti Smarak College of Engineering & Technology, Bareilly
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Sri Ram Murti Smarak College of Engineering & Technology, Bareilly
FACULTY OF MANAGEMENT SCIENCE
CERTIFICATE
This is to certify that Mr. ASHUTOSH PARMAR, a regular student of M.B.A. 2009 Batch has
undergone Summer Training in HINDUSTAN CONSTRUCTION COMPANY LTD. On the topic of
WORKING CAPITAL MANAGEMENT for a period of 4 weeks commencing from 28-june-2010
to 28-july-2010.
This Summer Traning Project Report embodies the facts and figures collected and
interpreted by him during the course of Training.
(Dr. Kunwar S Chandra)
Faculty Guide
(ANANT KUMAR SRIVASTAVA) (Dr. S.P. GUPTA)
HOD - MBA DIRECTOR GENERAL
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PREFACE
To start any business, First of all we need finance and the success of that business entirely depends on
the proper management of day-to-day finance and the management of this short-term capital or finance
of the business is called Working capital Management.
Working Capital is the money used to pay for the everyday trading activities carried out by the business
- stationery needs, staff salaries and wages, rent, energy bills, payments for supplies and so on.
Several professors throughout our formal finance education shaped the way we think about corporate
finance, and part of their contribution can probably be traced in the pages that follow. A considerable
number of MBA students and executives have been exposed, along the past several years, to the
discussion in this Report. The interaction with them, their interest and passion, and their real-life
examples and cases surely helped me to refine and redefine the ideas that we present in this Report. I
am indebted to them all.
I have tried to put my best effort to complete this task on the basis of skill that I have achieved during
the last one year study in the institute.
I have tried to put my maximum effort to get the accurate statistical data. However
I would appreciate if any mistakes are brought to my by the reader
Finally, we would like to thank our families for supporting us unconditionally.
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ACKNOWLEDGEMENT
It is my pleasure to place on record my sincere gratitude towards Mr. Manish Agarwal (HR Manager)
& Mr. Sudershan Kadari (Head of Account Dept.) HCC Limited my supervisor who spent his
precious time providing continuous ideas and expert guidance to my Report work. It was his direction
and encouragement at every moment and step that motivated me to steer the research work confidently
and successfully.
I am thankful to faculty guide K.S Chandra whose encouragement, moral support provides the
valuable guidance, which has been a source of inspiration to us.
I especially thankful to Dr. S.P Gupta who provides me valuable guidance, which helpful to fulfilment
my Project Report.
I would also like to thanks All Member of Account Department of HCC & my friends who directly or
indirectly helped me lot to fulfilment my Project Report.
Last but not the least, I would like to pray our divine source of inspiration Shri Ram Murti whose
blessing always behind us.
(ASHUTOSH PARMAR)
MBA (FINANCE)
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DECLARATION
I am Ashutosh Parmar, Roll no. 09011470013 a student of MBA third Semester of Shri Ram Murti
Smarak College of Engineering and Technology, Bareilly hereby declare that the summer training
project report on the topic WORKING CAPITAL MANAGEMENT is my original work and the
same has not been submitted for the award of any other diploma or degree.
PLACE
Bareilly (ASHUTOSH PARMAR)
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CONTENTS
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Sr.No Particulars Page no.
PART 1
1 Company Profile1.1 Indian Construction Industry 11
1.2 Company Brief 141.3 Group Profile 18
1.4 Vision & Mission 271.5 Awards and honours 29
1.6 CSR 321.7 Lucknow Works 38
2 Introduction of Working Capital
2.1 Meaning of Working Capital 432.2 Concept of Working Capital 45
2.3 Importance of Adequate of Working Capital 482.4 Disadvantage of Excess of Working Capital 49
2.5 Disadvantage of Inadequate Working Capital 502.6 Factor determining requirement of Working Capital 51
2.7 Working Capital Management 542.8 Working Capital Analysis 56
PART 2
3 RESEARCH METHODOLOGY
3.1 Research Methodology 59
3.2 Objective of Study 60
3.3 Data Analysis & Interpretation 61
3.4 Conclusion & Suggestion 86
3.5 Bibliography 88
3.6 Annexure 89
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LIST OF FIGURES
TOPIC PAGE NO.
FIG 1 CURRENT ASSETS RATIO 63
FIG 2 QUICK RATIO 65
FIG 3 ABSOLUTE LIQUID RATIO 67
FIG 4 INVENTORY TURNOVER RATIO 70
FIG 5 INVENTORY CONVERSION RATIO 71
FIG 6 WORKING CAPITAL TURNOVER RATIO 76
FIG 7 INVENTORIES 77
FIG 8 CASH AND BANK BALANCE 78
FIG 9 CURRENT ASSETS 80
FIG 10 CURRENT LIABILITIES 81
FIG 11 NET WORKING CAPITAL 82
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PART 1
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CHAPTER 1 - COMPANY BREIF
1.1 INDIAN CONSTRUCTION INDUSTRY
The evolution of Indian Construction Industry was almost similar to the construction industry
evolution in other countries: founded by Government and slowly taken over by enterprises.
After independence the need for industrial and infrastructural developments in India laid the
foundation stone of construction, architectural and engineering services.
The period from 1950 to mid 60s witnessed the government playing an active role in the
development of these services and most of construction activities during this period were
carried out by state owned enterprises and supported by government departments. In the first
five-year plan, construction of civil works was allotted nearly 50 per cent of the total capital
outlay.
The first professional consultancy company, National Industrial Development Corporation
(NIDC), was set up in the public sector in 1954. Subsequently, many architectural, design
engineering and construction companies were set up in the public sector (Indian Railways
Construction Limited (IRCON), National Buildings Construction Corporation (NBCC), Rail
India Transportation and Engineering Services (RITES), Engineers India Limited (EIL), etc.)
and private sector (M N Dastur and Co., Hindustan Construction Company (HCC), Ansals,
etc.).
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In the late 1960s government started encouraging foreign collaborations in these services. The
Guidelines for Foreign Collaboration, first issued in 1968, stated that local consultant would be
the prime contractor in such collaboration.
The objective of such an imposition was to develop local design capabilities parallel with the
inflow of imported technology and skills. This measure encouraged international construction
and consultancy organisations to set up joint ventures and register their presence in India.
In India Construction has accounted for around 40 per cent of the development investment
during the past 50 years. Around 16 per cent of the nation's working population depends on
construction for its livelihood. The Indian construction industry employs over 3 crore people
and creates assets worth over Rs 20,000 crore.
It contributes more than 5 per cent to the nation's GDP and 78 per cent to the gross capital
formation. Total capital expenditure of state and central govt. will be touching Rs.
8,02,087crores in 2011 12 from Rs. 1,43,587 crores (1999 2000).
The share of the Indian construction sector in total gross capital formation (GCF) came down
from 60 per cent in 1970-71 to 34 per cent in 1990-91. Thereafter, it increased to 48 per cent in
1993-94 and stood at 44 per cent in 1999-2000. In the 21 st century, there has been an increase
in the share of the construction sector in GDP and capital formation.
The main reason for this is the increasing emphasis on involving the private sector
infrastructure development through public-private partnerships and mechanisms like build-
operate-transfer (BOT), private sector investment has not reached the expected levels.
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1.2 COMPANY BREIF
Hindustan Construction Company (HCC) was incorporated in 1926 is a part of HCC group.
HCC is one of the largest private sector construction companies in India. As a pre-eminent
Indian infrastructure company, established over eight decades ago, HCC has, over the years,
strongly anchored itself to Indias development effort. Today it is acknowledged as a company
that continues to empower India, enabling the nation to surge ahead in different core sectors. At
the heart of all our development efforts is the attempt to touch and improve the quality of life of
people across the length and breadth of the country.
In fact, HCC, as an industry leader in engineering construction, currently nurtures projects that
span across such diverse segments as transportation, power, marine projects, oil and gas
pipeline constructions, irrigation and water supply, utilities and urban infrastructure, all of
which impact the nation of India, and the progress of its people.
HCC, even as you read this, is bringing to bear its wealth of engineering and construction
expertise to develop infrastructure aimed at further propelling the nation forward, into the 21st
century and beyond.
With 80 years of experience in construction, it has successfully executed 300 Bridges, 42 Dams
and Barrages, 13 Hydel and 4 Nuclear Power plants, 140 Kms of Tunnelling and 1,000 Kms of
Roads and expressways.
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HCC executed a majority of Indias landmark infrastructure projects, having constructed more
than 25% of Indias hydro power, and over 50% of Indias nuclear power generation capacities,
2,227 kms of Roads & Expressways and over 200 kms of complex tunnelling in addition to
hundreds of Bridges, Dams and Bridges.
It has receives various certifications such as ISO 9001, ISO 14001 and OHSAS 18001 for its
Quality, Environmental and Occupational Health and Safety Management System
Having established robust Corporate Governance norms, the Company has also set global
benchmarks in the construction industry with the fastest implementation of SAP-ERP coupled
with high levels of complexity across 28 diverse project locations. The complex
implementation of ERP at HCCs hydroelectric projects under construction at altitudes of more
than 11,000 feet in Leh, Jammu and Kashmir, remains the highest location of SAP-ERP
operations in the world.
The Companys real estate subsidiary, HREL, is currently developing a state-of-the-art IT Park
at Mumbai as well as free Indias largest Hill City, Lavasa, a 3 hour drive away from Mumbai.
Lavasa is spread across a picturesque landscape of 12,500 acres, set amidst 7 hills and 60 kms
of lakefront.
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Date of Establishment 1926
Revenue 761.213 (USD in Millions)
Market Cap 38044.383494 (Rs. In Millions)
Corporate Address Hincon House, Lal Bahadur Shastri Marg, Vikhroli
(West) Mumbai-400083, Maharashtra
Business Operation Engineering-Construction
Background Hindustan Construction Company (HCC) was
incorporating in 1926 is a part of HCC group. HCC is
one of the largest private sector construction
companies in India.
With 80 years of experience in construction, it has
successfully executed 300 Bridges, 42 Dams and
Barrage, 13 Hydel and 4 Nuclear Power Plants, 140
Km
Financials Total Income Rs.34478.8 Million (year ending Mar
2010)
Net Profit Rs. 814.4 Million (year ending Mar
2010)
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HISTORY
SETH WALCHAND HIRACHAND (FOUNDER)
Walchand Hirachand, the son of a cloth merchant in Sholapur, Maharashtra, dared to dream big. As a
nationalist, he found British rule offensive and resolved early in his life to fight it - not by joining the
political struggle but by breaking the rules that forbade Indian businessmen from entering areas of
enterprise that challenged British monopolies. By the end of his life, he left behind an empire that is
considering the foundation of modern transport in India.
The empire included companies that built aircraft, ships and automobiles, and companies that
specialized in heavy engineering and construction. For his endeavors and achievements, Seth
Walchand Hirachand is known as the Father of the Indian Transportation Industry.
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1.3 HCC GROUP
HCC Construction
HCC is an integrated group spanning Engineering & Construction, Real Estate, Infrastructure
and Urban development & Management. The HCC group of companies comprises HCC Ltd
(Engg & Construction), and its subsidiaries HCC Real Estate Ltd, HCC Infrastructure Ltd,
Lavasa Corporation Ltd. and Karl Steiner AG, a recent acquisition in Switzerland.
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Corporate Responsibility remains intrinsic to HCC, encompassing HIV, Education, Water, and
Disaster Management initiatives. With a view to create a greater AIDS awareness in the
industry, the company has been instrumental in launching a Work Place Intervention (WPI)
program, covering more than 21,000 construction workers across HCC's countrywide project
locations.
In line with its commitment to making water sustainability and stewardship a corporate priority,
HCC is the only Company in India which endorses the United Nations Global Compact's CEO
Water Mandate of which its Chairman & Managing Director Mr. Ajit Gulabchand is a
signatory, joining business leaders around the world in urging key governments to take action
in a number of areas - Direct Operations; Supply Chain and Watershed Management;
Collective Action; Public Policy; Community Engagement; and Transparency.
HCC's most important asset is its talented manpower, which is committed to construction
standards of the highest quality. The group has a knowledge asset of more than 3,000 officers,
including approximately 2,000 engineers; and employs more than 35,000 workers at its 50
project sites across India.
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HCC infrastructure, a wholly owned subsidiary of HCC Ltd, is a leading infrastructure
developer engaged in the creation and management of assets in the areas of Transportation,
Power, Water and Social Infrastructure.
HCCs belief in the Public Private Partnership (PPP) model and its decision to enter the Design,
Build, Finance, Operate and Transfer (DBFOT) business is part of a larger business plan. While
investing in infrastructure assets is a natural progression of HCCs inherent ability to operate in
most domains of engineering & construction, HCC Infrastructure is building expertise in asset
development and management that extends to concept innovation, evaluation of risk and return
and delivering the brands promise to the customer over the life of the asset.
HCC Infrastructure remains committed to developing a premium portfolio of infrastructure
assets that will serve Indias needs while creating shareholder value for the Company by
generating stable diversified and growing cash flow streams over the long-term. Since its
inception two years ago, HCC Infrastructure has grown its portfolio to Rs. 5,539 crore in 2009-
10. Its current assets under management include six NHAI road concessions, of which one is
operational.
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Badarpur Elevated Highway on NH-2 is a 4.4 km elevated road connecting Delhi to Haryana
and is scheduled for completion in October 2010, three months ahead of schedule.
Dhule Palesner on the NH-3 Maharashtra / MP Border is an 89 kms four lane highway
scheduled to be completed in June 2012. This project is being developed in partnership with
John Laing of UK and Sadbhav Eng Ltd.
Nirmal annuity road project in Andhra Pradesh on NH-7 is a 30 km four lane highway, and
executed three months ahead of schedule. It is currently operational.
In February 2010, the NHAI awarded three contiguous sections of approximately 256 km for
the development of the existing two lanes to four lanes between Bahrampore to Dakhola on
NH-34 in West Bengal. These concessions, worth Rs 3,231 crore, were awarded to HCC
Infrastructure on a DBFOT toll basis with a cumulative grant of Rs 1,033 crore.
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The company plans to grow its road portfolio to Rs 15,000 crore in the next 24 to 30 months,
and will ensure adequate financial tie-ups to fund equity requirements of such projects and also
bid for the newer mega-highway projects. Recently, HCC Infrastructure signed a MoU with
Orascom Construction Industries (OCI), a leading Middle Eastern construction contractor, for
bidding and developing large NHAI projects in India. HIL and OCI will also explore a broader
scope of partnership with the intent of jointly creating a premium portfolio of infrastructure
assets across different sectors in India.
HCC Infrastructure is concurrently evaluating opportunities in Hydro Power and Water, where
HCC has an inherent edge given its EPC capabilities. It is also evaluating opportunities in
Airports and Ports.
HCC Real Estate Ltd. (HREL) is a 100% subsidiary of Hindustan Construction Company Ltd.
(HCC). With inherent skills and resources to develop and execute high - value projects within
stringent compliances, HREL is helping build communities across India. HREL is proud to
Touch the lives of many.
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HREL believes in investing for the future - providing world class quality and using innovative
technology that creates trends through value engineering. The Company strongly believes in
striking a balance between efficient engineering and thoughtful design for sustained
development across all project sites in India.
HREL has developed 247 Park, a state-of-the-art business destination at the heart of the
upcoming IT corridor at Vikhroli (West) in Mumbai. The 1.8 million square feet building,
247Park is India's largest standalone LEED Gold certified green building and is designed to
lower energy costs by 23% while offering a clean and green work environment. HREL has
pioneered new standards for environmental conservation in construction in India, setting
Exemplary standards for efficiency in energy resources.
247 Park was conferred the CNBC AWAAZ-CRISIL- CREDAI Real Estate Awards-2009 in
the category Best Commercial Property in Western Region. It is India's most distinguished
award for excellence in the real estate sector. Among the several features which contributed to
the selection of 247Park for the award were: LEED Gold certification of 247 Park as the largest
stand-alone Green commercial building, central location from major residential areas, excellent
work environment, high standards of safety and security, ample parking, retail and other tenant
friendly 24x7 conveniences, energy savings of 23.89%, zero waste discharge and a roof top
helipad.
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With the zeal to execute projects to world class levels, we plan to foray into integrated
townships, hospitality and resorts, corporate and IT Parks and campus developments in the
future.
Lavasa is Free India's first and largest Hill city, which is being developed by HCC. Located in
the picturesque landscape of the Sahayadri Mountains, Lavasa, is an all- new city in the
making, with a master plan of 12,500 acres, and is set amidst 7 hills and 60 km. of lakefront. It
is a 3 hours drive from Mumbai and an hour away from Pune.
The master plan of Lavasa has been developed by internationally renowned design consultant
HOK, USA. Lavasa's design has received three international awards Best Master Plan from
the Congress of the New Urbanism, USA, and Award of Excellence for the Dasve master plan
and an Honor Award for the Mugaon Master Plan from the American Society of Landscape
Architects.
The Lavasa Master Plan, based on the principles of new urbanism, brings together all the
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components essential to daily life in a more organized manner thus creating spaces within
walking distance from each other
Lavasa offers exceptional infrastructure and is the first Indian city developed using
Geographical Information System (GIS). Biomimicry, a new science that uses nature as a
model, measure and mentor is also actively incorporated in the development of Lavasa. Lavasa
aims to provide a perfect work - life balance with a unique combination of technology and
infrastructure advancements. It also offers a diversity of work possibilities designed to appeal
to the IT and biotech industry, KPOs and R&D companies, as well as the world of art, fashion
and animation
A complement of global leaders in Hospitality (Accor, ITC), Health and Wellness (Apollo
Hospitals) and Education (Said Business School, Oxford University, Ecole Hoteliere de
Lausanne - Switzerland, GDST - UK, International Business Relations (IBR) - Germany,
NSHM Knowledge Park - Kolkata, Symbiosis, Christ University Bangalore, Christel House)
have already been tied up. Space World, a 65-acre edutainment park powered by technology
from USSRC and NASA, will offer a space-like experience to visitors, and will be operational
by the 2010.
Lavasa is planned for a permanent population of 2 lakh residents and a tourist inflow envisaged
at 20 lakh per annum. The first town Dasve is slated to be ready by 2010. Lavasa is a prime
offering from HCC, with a level of city infrastructure yet to be experienced in India, thus
setting a new benchmark in planning, construction and service delivery.
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1.4 MISSON
y To be a leading construction company in the global market.
y To become the customers most preferred choice by attaining excellence in
quality and timely complete value added projects.
y To continually innovate, develop and adopt state-of-the-art technology in methods
and materials to enhance productivity and cost effectiveness.
y To continually improve the competence of our people and make them proud to
work at HCC.
y To build a safety culture aimed at continually reducing the frequency severity rate
towards achieving zero accidents.
y To identify and mitigate all the environmental impacts arising from our activities
and comply with applicable environmental norms.
y To develop and adopt eco-friendly concrete technology to reduce one million tons
of greenhouse gas (GHG) emissions in the next 10 years.
y To contribute to the development of the local community and society at large as a
part of our corporate social responsibility.
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VISION
"To be the Industry Leader and a Market - Driven Engineering Construction Company
renowned for excellence, quality, performance and reliability in all types of construction"
The Vision Statement has been inspired by the global infrastructure development needs of
tomorrow, with the Customer as the central focus. It was developed after conducting a series of
in-house workshops. Senior Leaders within the organization are actively involved in
developing and maintaining an effective and efficient management system to disseminate the
Vision across HCC in order to achieve Customer Delight".
The HCC Corporate Mission is derived from the Vision Statement to encompass the overall
strategies, objectives and goals of the Organization.
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1.5 AWARDS & RECOGNITION
2009
Infrastructure Leader of the Year to Mr Ajit Gulabchand under Infrastructure Excellence
Awards 2009 in association with CNBC TV18
2008
Best Concrete Structure Award for the year 2007-2008: To Gosikhurd Spillway Project, the
award is conferred by the India Concrete Institute
Golden Peacock Innovation Award for the year 2008 for Kudankulam Nuclear Power Project
by the Golden Peacock Awards Jury, under the Chairmanship of Justice P N Bhagwati, former
Chief Justice of India and Member UN Human Rights Commission
Most Outstanding Bridge National Award for the year 2008 for Bandra Worli Sea Link Project
by an independent jury of bridge engineering experts from the Indian Institution of Bridge
Engineers (IIBE).
2007
Golden Peacock Award for Excellence in Corporate Governance - 2007 conferred by the
Institute of Directors (IOD), under the Chairmanship of Justice P N Bhagwati, former Chief
Justice of India and Member of Human Rights Commission
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Golden Peacock Award for Occupational Health & Safety - 2007 by IOD (Institute of
Directors) in association with World Environment Foundation (WEF)
Bandra - Worli Sea Link Project, Mumbai
DemoJAM - SAP Summit 2007: 1st prize for best innovation at handling Construction Aids
(CONA) material in SAP implementation
2006
Golden Peacock National Quality Award for the Year 2006 in the category for Private Large
Service by IOD (Institute of Directors) in association with World Environment Foundation
(WEF)
International Star Award for Quality in the Gold Category for the year 2006 by Business
Initiative Directions (BID), Madrid, Spain
2005
National Award for Fly Ash Utilization for the year 2005 for Use of Flyash Based Self
Compacting Concrete at Nuclear Power Projects from the Ministry of Power, Ministry of
Environment & Forest and Department of Science & Technology, Government of India
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2004
Indian Concrete Institute, U.P. Allahabad Centre - Best Structure Award for the year 2004
Concrete Cable Stayed Bridge across river Yamuna at Allahabad
1998
Overseas Construction Council of India - Export Award for the year 1998-99: Maximum
Overseas Construction Contracts Secured
1997
Association of Consulting Civil Engineers (India) - Innovative Design of Structures 1997
Bow String Girder Bridge over river Godavari, A.P. - Somdatt Award
Indian Institution of Bridge Engineers 1995
Godavari Bridge, A.P. - Category II: Steel Superstructure - 1st Prize
Varanasi Bridge, U.P. - Category I: Prestressed Concrete Superstructure - 3rd Prize
Association of Consulting Civil Engineers (India) - Excellence in construction in the field of
Civil Engineering:
Metro Railway Project, Calcutta - Sarvamangala Award
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1.6CORPORATE SOCIAL RESPONSIBILITY
The HIV/AIDS initiative at HCC was launched in the year 2004 and since then, their program
has seen a huge rise in the awareness and acceptance levels for the cause. The program includes
the creation of a group of Peer Educators at a particular project site amongst the workers,
drivers, cleaners, cook, contractors foreman and employees. Under the WPI Program model
we conduct awareness sessions, condom demonstrations and distribution followed by question
and answer sessions. So far, over 21000 workers have been covered through the targeted WPI
program at HCC sites. So far, over 22000 HCC employees and workers have been covered
through the targeted WPI program at HCC sites.
In addition to increasing awareness in the local communities, HCC observe World AIDS Day
on December 1 every year to disseminate information on HIV/AIDS through rallies and
programs with local government hospitals by involving local NGOs, district administration and
local communities.
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Schools and colleges continue to play an important role in shaping the future of tomorrows
society. At HCC, it believes that "Teachers can never truly teach unless they are still learning
themselves". HCC provides opportunities for the faculty of selected colleges (Walchand
Institute of Technology, Sholapur and College of Engineering, Karad) to undergo site execution
training at our sites. Currently we have 2 faculty members from the above institutes undergoing
six weeks training at our sites, with a purpose to expand their knowledge base in their
respective subjects and to enable them to transfer this knowledge to their students.
HCC are also one of the few companies in the construction industry that provide structured
industrial training to the students from different engineering and management institutes. This
practical training is designed to provide the students with the opportunity to put theory into
practice and thus reduce the existing gap between theory and practice. It benefits the students
by helping them develop skills and abilities that support professional studies and prepare them
for work later on.
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For this propose HCC open two institutes which help in this mission of HCC
1. NICMAR
National Institute of Construction Management and Research (NICMAR), founded in
1983, is a pioneering management institute catering to the needs of the construction
industry. In collaboration with peers in the industry, HCC has taken the lead in founding
NICMAR.
2. Walchand College of Engineering
Walchand College of Engineering (WCE) was set up in 1947 at Sangli. Presently, it
offers 6 undergraduate, 9 post-graduate and 4 diploma programmes in various branches
of engineering. In all, about 2500 students are enrolled for all these courses. The
National Board of Accreditation has already accredited the UG programmes.
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The Engineering and Construction Disaster Resource Network (E&C DRN) is a network that
enables mobilising the existing capacities of the E&C community during and after crises to
reduce suffering and save lives. It also helps in safeguarding man, machine and other assets of
the Company during a disaster. HCCs Managing Director, Mr. Ajit Gulabchand is on the
Board of Directors of DRN
Global and serves as the Chairman of the Indian Chapter. Through DRN India, HCC has
provided relief for several natural calamities. In 2009, it helped in the floods in Andhra
Pradesh.
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Water scarcity is prevalent throughout most parts of
The world. Business survival also depends on ensured
Water availability. There is a compelling business case to
Pursue water stewardship and become a water conscious
Company. Therefore, in March 2008, HCC endorsed
United Nations Global Compacts The CEO Water
Mandate initiative.
HCC commits to become a water conscious Company
By implementing the core elements of The CEO
Water Mandate comprising:
(i) water efficiency in its direct operations,
(ii) replenishing watersheds in project areas,
(iii) collective action with other companies and professional bodies for promoting
sewage reuse,
(iv) community engagement for improving water services and water environment and
(v) Constructive contribution for improving long-term public policies on water.
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Highlights 2009-10
Order book increases by 15% to Rs. 18,810 crore
New orders worth Rs. 5,748 crore received during the year
Turnover improves by 10% to Rs. 3,863 crore
Lavasa posts turnover of Rs. 482 crore and PAT of Rs. 140 crore
HCC Infrastructure asset portfolio expands to Rs. 5,539 crore
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1.7 LUCKNOW PROJECT
LMNHP-EW-II (WB)-1
DATE OF AGREEMENT
5 October 2005
EMPLOYER
NATIONAL HIGHWAY AUTHORITY OF INDIA, PLOT NO. G-5&6 SECTORS 10, DWARKA
NEW DELHI 110075
CONTRACTOR
HINDUSTAN CONSTRACTION COMPANY LTD. HINCON HOUSE, LAL BAHADUR SHASTRI
MARG, VIKHROLI (WEST), MUMBAI 4008
CONTRACT
According to contract a 4 laning from km. 09.00 to km 45.00 of Lucknow ayodhya section of
NH-28 in Uttar Pradesh, contract pkg no. LMNHP-EW-II (WB)-1
PRICE
Contract price 198, 06, 99,196/- (Rupees one Hundred Ninety Eight Crore Six Lac Ninety
Thousand One Hundred Ninety Six Only)
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LMNHP-EW-II (WB)-2
DATE OF AGREEMENT
5 October 2005
EMPLOYER
NATIONAL HIGHWAY AUTHORITY OF INDIA, PLOT NO. G-5&6 SECTORS 10, DWARKA
NEW DELHI 110075
CONTRACTOR
HINDUSTAN CONSTRACTION COMPANY LTD. HINCON HOUSE, LAL BAHADUR SHASTRI
MARG, VIKHROLI (WEST), MUMBAI 4008
CONTRACT
According to contract a 4 laning from km. 45.00 to km 92.00 of Lucknow ayodhya section of
NH-28 in Uttar Pradesh, contract pkg no. LMNHP-EW-II (WB)-2
PRICE
Contract price 212, 33, 44,969/- (Rupees Two Hundred Twelve Crore Thirty Three Lac Forty
Four Thousand Nine Hundred Sixty Nine only)
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Contact Us
HEAD OFFICE
Hincon House, Lal Bahadur Shastri Marg
Vikhroli (West), Mumbai - 400 083
BRANCH OFFICE
(a) 9 Syed Amir Ali Avenue,
4th Floor, Kolkata
(b) 102, Tolstoy House 1st Floor
Connaught Place, New Delhi, Delhi 110001
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BOARD OF DIRECTOR
1. Ajit Gulabchand (Chairman & Managing Director)
2. Y. H. Malegam (Director)
3. Rajas R. Doshi (Director)
4. D.M. Popat (Director)
5. Ram P. Gandhi (Director)
6. Fred Moavenzadeh (Director)
7. Sharad M. Kulkarni (Director)
8. Nirmal P. Bhogilal (Director)
9. Anil C. Singhvi (Director)
10. K.G. Tendulkar (Director)
COMPANY SECRETARY
Vithal P. Kulkarni
AUDITORS
K.S. Aiyar & Co., Chartered Accountants
ADVOCATES & SOLICITORS
Mulla & Mulla & Craigie Blunt & Caroe, Kanga & Co.
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REGISTRAR & SHARE TRANSFER AGENT
TSR Darashaw Ltd.
6-10 Haji Moosa Patrawala Industrial Estates,
20, Dr. E. Moses Road, Mahalaxmi, Mumbai - 400 011
BANKERS
ICICI Bank Ltd. Punjab National Bank
State Bank of India IDBI Bank Ltd.
Indian Bank Oriental Bank of Commerce
The Jammu & Kashmir Bank Canara Bank
State Bank of Patiala Union Bank of India
Bank of Baroda Vijaya Bank
ING Vysya Bank Ltd. Standard Chartered Bank
The Federal Bank Ltd. HSBC
Axis Bank Ltd. Exim Bank of India
State Bank of Travancore Bank of Maharashtra
DBS Bank Ltd. State Bank of Bikaner & Jaipur
Catholic Syrian Bank
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CHAPTER 2 WORKING CAPITAL MANAGEMENT
2.1Meaning ofWorking Capital
Working capital could be defined as the portion of assets used in current operations. The
movements of the funds from capital to income and profits and back to working capital are one
of the most important characteristics of the business. This cyclical operation is concerned with
utilization of the funds with the hope that will return with an additional amount called income.
If the operations of the company are to run smoothly, a proper relationship between fixed
capital and current capital has to maintain.
Sufficiently liquidity is important and must be achieved and maintained to provide that
funds to pay off obligation as they arise.
The adequacy of cash and other current assets together with their efficient handling,
virtually determine the survival or demise of the company. A businessman should be able to
judge the accurate requirement of working capital and should be quick enough to raise the
enquired funds to finance he working capital needs.
Working capital is also called as net current assets, it is the excess of current assets over
current liabilities. All organization has to carry working capital. It is important from the point
of view of both liquidity and profitability. Poor management of working capital means that
funds that unnecessarily tied up in idle assets hence educing liquidity and also reducing ability
to invest in productive assets such as plant and machinery. So affecting profitability.
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The term working capital refers to current assets, which may be defined as:
i) Those which are convertible into cash or equivalents with the period of one year and
ii) Those which are required to meet day to day operations,
The fixed as well as current assets, both requires investment of Funds. So the
management of working capital and fixed assets apparently seem to involve it type of
consideration but it is no so. The management of working capital involve different concept and
methodology than the techniques used in fixed assets management.
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2.2 CONCEPT OFWORKING CAPITAL
There are two concepts of working capital:
1. Gross Working Capital
2. Net 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 convert in to cash within a short period normally one accounting year.
CONSTITUENTS OF CURRENT ASSETS
1. Cash in hand and cash at bank
2. Bills receivables
3. Sundry debtors
4. Short term loans and advances
5. Inventories of stock as
a. Raw material
b. Work in process
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c. Stores and spares
d. Finished goods
6. Temporary investment of surplus funds
7. Prepaid expenses
8. Accrued incomes
9. Marketable securities
In a narrow sense, the term working capital refers to the net working. Net working capital is
the excess of current assets over current liability, or, say:
NET WORKING CAPITAL = CURRENT ASSENTS CURRENT LIABILITIES
Net working capital can be positive or negative. Current liabilities are those liabilities,
which are intended to be paid in the ordinary course of business within a short period of
normally one accounting year out of the current assets or the income business.
CONSITITUENTS OF CURRENT LIABILITIES
1. Accrued or outstanding expenses
2. Short term loans, advances and deposits
3. Dividends payable
4. Bank overdraft
5. Bills payable
6. Sundry creditors
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The gross working capital concept is financial or going concern whereas net working capital
is an accounting concept of working capital. Both the concepts have their own merits.
The gross concept is sometimes preferred to the concept of working capital for the following
reasons:
(A) It enables the enterprise to provide correct amount of working capital at correct
time.
(B) Every management is more interested in total current assets with which it has to operate
then the source from where it is made available.
(C) It take into consideration of the fact every increase in the funds of the enterprise would
increase its working capital.
(D) This 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 following reasons:
1. It is qualitative concept, which indicates the firms ability to meet to its operating
expenses and short-term liabilities.
2. It indicates the margin of protection available to the short term creditors.
3. It is an indicator of the financial soundness of enterprises.
4. It suggests the need of financing a part of working capital requirement out
of the permanent sources of funds.
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2.3 IMPORTANCE OR ADVANTAGE OF ADEQUATEWORKING CAPITAL
1. Solvency of the business: Adequate working capital helps in maintaining the solvency of
the business by providing uninterrupted of production.
2. Goodwill: Sufficient amount of working capital enables a firm to make prompt payments
and makes and maintain the goodwill.
3. Easy loans: Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favourable terms.
4. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts
on the purchases and hence reduces cost.
5. Regular Supply of Raw Material: Sufficient working capital ensures regular supply of
raw material and continuous production.
6. Regular Payment of Salaries, Wages and Other Day TO Day Commitments: It leads
to the satisfaction of the employees and raises the morale of its employees, increases their
efficiency, reduces wastage and costs and enhances production and profits.
7. Exploitation of Favourable Market Conditions: If a firm is having adequate working
capital then it can exploit the favourable market conditions such as purchasing its requirements
in bulk when the prices are lower and holdings its inventories for higher prices.
8. Ability to Face Crises: A concern can face the situation during the depression.
9. Quick And Regular Return On Investments: Sufficient working capital enables a
concern to pay quick and regular of dividends to its investors and gains confidence of the
investors and can raise more funds in future.
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6. Due to lower rate of return n investments, the values of shares may also fall.
7. The redundant working capital gives rise to speculative transactions
2.5 DISADVANTAGES OF INADEQUATE WORKING CAPITAL
Every business needs some amounts of working capital. The need for working capital arises
due to the 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:
1. For the purpose of raw material, components and spares.
2. To pay wages and salaries
3. To incur day-to-day expenses and overload costs such as office expenses.
4. To meet the selling costs as packing, advertising, etc.
5. To provide credit facilities to the customer.
6. To maintain the inventories of the raw material, work-in-progress, stores and spares and
finished stock.
For studying the need of working capital in a business, one has to study the business under
varying circumstances such as a new concern requires a lot of funds to meet its initial
requirements such as promotion and formation etc. These expenses are called preliminary
expenses and are capitalized. The amount needed for working capital depends upon the size of
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the company and ambitions of its promoters. Greater the size of the business unit, generally
larger will be the requirements of the working capital.
The requirement of the working capital goes on increasing with the growth and expensing of
the business till it gains maturity. At maturity the amount of working capital required is called
normal working capital.
There are others factors also influence the need of working capital in a business.
2.6 FACTORS DETERMINING THEWORKING CAPITAL REQUIREMENTS
1. NATURE OF BUSINESS: The requirements of working is very limited in public utility
undertakings such as electricity, water supply and railways because they offer cash sale only
and supply services not products, and no funds are tied up in inventories and receivables. On
the other hand the trading and financial firms requires less investment in fixed assets but have
to invest large amt. of working capital along with fixed investments.
2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of
working capital.
3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating
inventories it will require higher working capital.
4. LENGTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw
material and other supplies have to be carried for a longer in the process with progressive
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increment of labour and service costs before the final product is obtained. So working capital is
directly proportional to the length of the manufacturing process.
5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger
working capital than in slack season.
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.
7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the
question of working capital and the velocity or speed with which the sales are affected. A firm
having a high rate of stock turnover will needs lower amt. of working capital as compared to a
firm having a low rate of turnover.
8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its
product / services on cash requires lesser amt. of working capital and vice-versa.
9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need
for larger amt. 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 debtor and the firm may have a large amt. of working
capital.
10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large
amt. of working capital.
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11. EARNING CAPACITY AND DIVIDEND 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 affects the requirement of working capital. A firm maintaining a steady high rate of
cash dividend irrespective of its profits needs working capital than the firm that retains larger
part of its profits and does not pay so high rate of cash dividend.
12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital
requirements. Generally rise in prices leads to increase in working capital.
OTHERS FACTORS: These are:
a. Operating efficiency.
b. Management ability.
c. Irregularities of supply.
d. Import policy.
e. Asset structure.
f. Importance of labour.
g. Banking facilities, etc.
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2.7 MANAGEMENT OFWORKING CAPITAL
Management of working capital is concerned with the problem that arises in attempting to
manage the current assets, current liabilities. The basic goal of working capital management is
to manage the current assets and current liabilities of a firm in such a way that a satisfactory
level of working capital is maintained, i.e. it is neither adequate nor excessive as both the
situations are bad for any firm. There should be no shortage of funds and also no working
capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm has a
great on its probability, liquidity and structural health of the organization. So working capital
management is three dimensional in nature as
1. It concerned with the formulation of policies with regard to profitability, liquidity and risk.
2. It is concerned with the decision about the composition and level of current assets.
3. It is concerned with the decision about the composition and level of current liabilities.
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2.8WORKING CAPITAL ANALYSIS
As we know working capital is the life blood and the centre of a business. Adequate amount of
working capital is very much essential for the smooth running of the business. And the most
important part is the efficient management of working capital in right time. The liquidity
position of the firm is totally effected by the management of working capital. So, a study of
changes in the uses and sources of working capital is necessary to evaluate the efficiency with
which the working capital is employed in a business. This involves the need of working capital
analysis.
The analysis of working capital can be conducted through a number of devices, such as:
1. Ratio analysis.
2. Fund flow analysis.
1. RATIO ANALYSIS
A ratio is a simple arithmetical expression one number to another. The technique of ratio
analysis can be employed for measuring short-term liquidity or working capital position of a
firm. The following ratios can be calculated for these purposes:
1. Current ratio.
2. Quick ratio
3. Absolute liquid ratio
4. Inventory turnover.
5. Debtors Turnover Ratio
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6. Working capital turnover ratio.
2. FUND FLOW ANALYSIS
Fund flow analysis is a technical device designated to the study the source from which
additional funds were derived and the use to which these sources were put. The fund flow
analysis consists of:
a. Preparing schedule of changes of working capital
It is an effective management tool to study the changes in financial position (working capital)
business enterprise between beginning and ending of the financial dates.
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PART 2
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CHAPTER-3 RESEARCH METHODOLOGY
3.1 Research Methodology
The methodology, I have adopted for my study is the various tools, which basically analyze
critically financial position of to the organization. It is basically secondary data provided by my
supervisor:
I. PROFIT AND LOSS A/C
II. BALANCE SHEET
III. FUND FLOW STATEMENT
V. RATIO ANALYSIS
The above parameters are used for critical analysis of financial position. With the evaluation of
each component, the financial position from different angles is tried to be presented in well and
systematic manner. By critical analysis with the help of different tools, it becomes clear how
the financial manager handles the finance matters in profitable manner in the critical
challenging atmosphere, the recommendation are made which would suggest the organization
in formulation of a healthy and strong position financially with proper management system.
I sincerely hope, through the evaluation of various percentage, ratios and comparative
analysis, the organization would be able to conquer its inefficiencies and makes the
desired changes.
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3.2 OBJECTIVE OF STUDY
Working capital management is very important in modern business. The analysis of working
capital is also very useful for short-term management of funds. The following are objective of
study:
1) To make items wise analysis of the elements or component of working capital to identify
the items responsible for change in working capital.
2) To make study of requirement of working capital in last four year
3) To study increase or decrease in working capital.
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3.3 DATA ANALYSIS & INTERPRETATION
A) LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its current obligations as and when these become
due. The short-term obligations are met by realizing amounts from current, floating or
circulating assts. The current assets should either be liquid or near about liquidity. These should
be convertible in cash for paying obligations of short-term nature. The sufficiency or
insufficiency of current assets should be assessed by comparing them with short-term liabilities.
If current assets can pay off the current liabilities then the liquidity position is satisfactory. On
the other hand, if the current liabilities cannot be met out of the current assets then the liquidity
position is bad. To measure the liquidity of a firm, the following ratios can be calculated:
1. CURRENT RATIO
2. QUICK RATIO
3. ABSOLUTE LIQUID RATIO
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1. CURRENT RATIO
Current Ratio, also known as working capital ratio is a measure of general liquidity and its most
widely used to make the analysis of short-term financial position or liquidity of a firm. It is
defined as the relation between current assets and current liabilities. Thus,
CURRENT RATIO = CURRENT ASSETS
CURRENT LIABILITES
The two components of this ratio are:
1) CURRENT ASSETS
2) CURRENT LIABILITES
Current assets include cash, marketable securities, bill receivables, sundry debtors, inventories
and work-in-progresses. Current liabilities include outstanding expenses, bill payable, dividend
payable etc.
A relatively high current ratio is an indication that the firm is liquid and has the ability to pay
its current obligations in time. On the hand a low current ratio represents that the liquidity
position of the firm is not good and the firm shall not be able to pay its current liabilities in
time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current
liabilities is considered to be satisfactory.
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TABLE 1 CURRENT RATIO
Year 2008 2009 2010
Current Assets 6501.88 9290.21 5421.63
Current Liabilities 4009.45 4871.63 5095.09
Current Ratio 1.62:1 1.90:1 1.06:1
FIG-1 CURRENT RATIO
Interpretation:-
As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the company for
last three years it has increased from 2008 to 2009 but decrease in 2010. The current ratio of company
is less than the ideal ratio. This depicts that companys liquidity position is not so good. But its current
assets are more than its current liabilities.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2008 2009 2010
1.62
1.9
1.06
CURRENT RATIO
CURRENT RATIO
Rs in Lacs
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2. QUICK RATIO
Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be defined as
the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to
be liquid if it can be converted into cash with a short period without loss of value. It measures
the firms capacity to pay off current obligations immediately.
QUICK RATIO = QUICK ASSETS
CURRENT LIABILITES
Where Quick Assets = CURRENT ASSETS PREPAID EXPENSES STOCK
A high ratio is an indication that the firm is liquid and has the ability to meet its current
liabilities in time and on the other hand a low quick ratio represents that the firms liquidity
position is not good.
As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if quick
assets are equal to the current liabilities then the concern may be able to meet its short-term
obligations. However, a firm having high quick ratio may not have a satisfactory liquidity
position if it has slow paying debtors. On the other hand, a firm having a low liquidity position
if it has fast moving inventories.
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TABLE 2 QUICK RATIOS
Year 2008 2009 2010
Quick Assets 4580.24 4761.42 4253.76
Current Liabilities 4009.45 4871.63 5095.09
Quick Ratio 1.14 .97 .83
FIG 2 QUICK RATIO
Interpretation:
A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in
time. The ideal quick ratio is 1:1. Companys quick ratio is more than ideal ratio in 2008 but in 2009
and 2010 it is low form idle ratio. This shows company has now suffer from liquidity problem and not
able to meet its current liabilities in time.
0
0.2
0.4
0.6
0.8
1
1.2
2008 2009 2010
1.14
0.97
0.83
QUICK RATIO
QUICK RATIO
Rs in Lacs
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3. ABSOLUTE LIQUID RATIO
Although receivables, debtors and bills receivable are generally more liquid than inventories,
yet there may be doubts regarding their realization into cash immediately or in time. So
absolute liquid ratio should be calculated together with current ratio and acid test ratio so as to
exclude even receivables from the current assets and find out the absolute liquid assets.
Absolute Liquid Assets includes:
ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS
CURRENT LIABILITES
ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.
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TABLE 3 ABSOLUTE LIQUID RATIOS
FIG 3 ABSOLUTE LIQUID RATIO
Interpretation:
These ratio shows that company carries a sufficient amount of cash. And there is increase in this ratio
which means company is in good position and nothing to worry about cash
0
0.05
0.1
0.15
0.2
0.25
2008 2009 2010
0.0096
0.17
0.22
ABSOLUTE LIQUID RATIO
ABSOLUTE LIQUID RATIO
Year 2008 2009 2010
Absolute Liquid Assets 38.52 828.87 1168.39
Current Liabilities 4009.45 4871.63 5095.09
Absolute Liquid Ratio .0096:1 .17 : 1 .22:1
Rs in Lacs
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B) CURRENT ASSETS MOVEMENT RATIOS
Funds are invested in various assets in business to make sales and earn profits. The efficiency
with which assets are managed directly affects the volume of sales. The better the management
of assets, large is the amount of sales and profits. Current assets movement ratios measure the
efficiency with which a firm manages its resources. These ratios are called turnover ratios
because they indicate the speed with which assets are converted or turned over into sales.
Depending upon the purpose, a number of turnover ratios can be calculated. These are:
1. Inventory Turnover Ratio
2. Debtors Turnover Ratio
3. Working Capital Turnover Ratio
The current ratio and quick ratio give misleading results if current assets include high amount
of debtors due to slow credit collections and moreover if the assets include high amount of slow
moving inventories. As both the ratios ignore the movement of current assets, it is important to
calculate the turnover ratio.
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1. INVENTORY TURNOVER OR STOCK TURNOVER RATIO:
Every firm has to maintain a certain amount of inventory of finished goods so as to meet the
requirements of the business. But the level of inventory should neither be too high nor too low.
Because it is harmful to hold more inventory as some amount of capital is blocked in it and
some cost is involved in it. It will therefore be advisable to dispose the inventory as soon as
possible.
INVENTORY TURNOVER RATIO = CONSUMPTION
AVERAGE INVENTORY
Inventory turnover ratio measures the speed with which the stock is converted into sales.
Usually a high inventory ratio indicates an efficient management of inventory because more
frequently the stocks are sold; the lesser amount of money is required to finance the inventory.
Whereas low inventory turnover ratio indicates the inefficient management of inventory. A low
inventory turnover implies over investment in inventories, dull business, poor quality of goods,
stock accumulations and slow moving goods and low profits as compared to total investment.
AVERAGE STOCK = OPENING STOCK + CLOSING STOCK
2
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TABLE 4 INVENTORY TURNOVER RATIOS
FIG 4 INVENTORY TURNOVER RATIO
Interpretation:
This ratio shows how rapidly the inventory is turning into receivable through sales. From 2008 to 2010
the company has high inventory turnover ratio and consecutive it is increasing. This shows that the
companys inventory management technique is efficient.
0
1
2
3
4
5
6
7
2008 2009 2010
4.36
5.31
6.87
INVENTORY TURNOVER RATIO
INVENTORY TURNOVER RATIO
Year 2008 2009 2010
Consumption 7437.09 9122.22 9064.04Average Stock 1704.96 1717.51 1318.26
Inventory Turnover Ratio 4.36 times 5.31 times 6.87 times
Rs in Lacs
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2. INVENTORY CONVERSION PERIOD:
INVENTORY CONVERSION PERIOD = 365 (net working days)
INVENTORY TURNOVER RATIO
TABLE 5 INVENTORY CONVERSION PERIOD
Year 2008 2009 2010
Days 365 365 365
Inventory Turnover Ratio 4.36 times 5.31 times 6.87 times
Inventory Conversion Period 84 day 67 day 53 day
FIG 5 INVENTORY CONVERSION PERIOD
Interpretation: Inventory conversion period shows that how many days inventories takes to convert
from raw material to finished goods. In the company inventory conversion period is decreasing. This
shows the efficiency of management to convert the inventory into cash.
0
10
20
3040
50
60
70
80
90
2008 2009 2010
84
67
53
INVENTORY CONVERSION PERIOD
INVENTORYCONVERSION PERIOD
Rs in Lacs
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3. DEBTORS TURNOVER RATIO:
A concern may sell its goods on cash as well as on credit to increase its sales and a liberal
credit policy may result in tying up substantial funds of a firm in the form of trade debtors.
Trade debtors are expected to be converted into cash within a short period and are included in
current assets. So liquidity position of a concern also depends upon the quality of trade debtors.
Two types of ratio can be calculated to evaluate the quality of debtors.
a) Debtors Turnover Ratio
b) Average Collection Period
DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)
AVERAGE DEBTORS
Debtors velocity indicates the number of times the debtors are turned over during a year.
Generally higher the value of debtors turnover ratio the more efficient is the management of
debtors/sales or more liquid are the debtors. Whereas a low debtors turnover ratio indicates
poor management of debtors/sales and less liquid debtors. This ratio should be compared with
ratios of other firms doing the same business and a trend may be found to make a better
interpretation of the ratio.
AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR
2
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Interpretation:
Because Hindustan Construction Company Ltd. Have only one Client National Highway Authority of
India and all payment made my NHAI are in Advance for construction of Highway thats why there is
no Debtor for HCC. So that this ratio cant be calculated.
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4. AVERAGE COLLECTION PERIOD:
Average Collection Period = No. of Working Days
Debtors Turnover Ratio
The average collection period ratio represents the average number of days for which a firm has
to wait before its receivables are converted into cash. It measures the quality of debtors.
Generally, shorter the average collection period the better is the quality of debtors as a short
collection period implies quick payment by debtors and vice-versa.
Average Collection Period = 365 (Net Working Days)
Debtors Turnover Ratio
Interpretation:
Because Hindustan Construction Company Ltd. Have only one client National Highway
Authority of India and all payment made by NHAI are in Advance for construction of
Highways thats why there is no Debtor for HCC. So that this ratio cant be calculated.
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5.WORKING CAPITAL TURNOVER RATIO:
Working capital turnover ratio indicates the velocity of utilization of net working capital. This
ratio indicates the number of times the working capital is turned over in the course of the year.
This ratio measures the efficiency with which the working capital is used by the firm. A higher
ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a
very high working capital turnover is not a good situation for any firm.
Working Capital Turnover Ratio = Cost of Sales
Net Working Capital
Working Capital Turnover = Sales
Networking Capital
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TABLE 6 WORKING CAPITAL TURNOVER RATIOS
Year 2008 2009 2010
Sales 5429.76 5053.56 4932.11
Networking Capital 2492.43 1418.58 326.54
Working Capital Turnover 2.17 3.56 15.10
FIG 6 WORKING CAPITAL TURNOVER RATIO
Interpretation:
This ratio indicates low much net working capital requires for sales. In 2010, the reciprocal of
this ratio (1/15.10 = .066) shows that for sales of Rs. 1 the company requires 06 paisa as
working capital. Thus this ratio is helpful to forecast the working capital requirement on the
basis of sale.
0
2
4
6
8
10
12
14
16
2008 2009 2010
2.17
3.56
15.1
WORKING CAPITAL TURNOVER
WORKING CAPITAL TURNOVER
Rs in Lacs
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TABLE 7 INVENTORIES
Year 2007-2008 2008-2009 2009-2010
Inventories 1921.64 1513.40 1160.71
FIG 7 INVENTORIES
Interpretation:
Inventories are a major part of current assets. If any company wants to manage its working
capital efficiency, it has to manage its inventories efficiently. The graph shows that inventory in
2007-2008 is 29%, in 2008-2009 is 24% and in 2009-20010 is 21% of their current assets. The
company have sufficient part of inventories so company have to maintain this.
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2008 2009 2010
1921.64
1513.4
1160.71
INVENTORIES
INVENTORIES
Rs in Lacs
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TABLE 8 CASH BANK BALANCE
Year 2007-2008 2008-2009 2009-2010
Cash Bank Balance 38.52 828.87 1168.39
FIG 8 CASH & BANK BALANCE
Interpretation:
Cash is basic input or component of working capital. Cash is needed to keep the business running on a
continuous basis. So the organization should have sufficient cash to meet various requirements. The
above graph is indicate that in 2007-08 the cash is 38.52 lakh but in 2008-09 it has increase up to
828.87 lakh. The result of that is good because it cant disturb the firms manufacturing operations. In
2009, it is increased upto 1168.39 lakh. So from 2007-08 to 2009-10, the company has increased its
cash balance which shows there is no problem for company to meeting its requirement and company
have sufficient amount of cash.
0
200
400
600
800
1000
1200
2008 2009 2010
38.52
828.87
1168.39
CASH & BANK BALANCE
CASH & BANK BALANCE
Rs in Lacs
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DEBTORS
Interpretation:
Because Hindustan Construction Company Ltd. Have only one Customer National Highway
Authority of India and all payment made by NHAI are in Advance for construction of
Highways thats why there is no Debtor for HCC. So that this ratio cant be calculated.
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TABLE 9 CURRENT ASSETS
Year 2007-2008 2008-2009 2009-2010
Current Assets 6501.88 6290.21 5421.63
FIG 9 CURRENT ASSETS
Interpretation:
As graph shows that there is continuous decrease in current assets from 2007-09 to 2009-10
and in 2009-10 Company current assets are had greater fall from 6290.21 lac to 5421.63 lac
which can decrease companys efficiency.
4800
5000
5200
5400
5600
5800
6000
6200
6400
6600
2008 2009 2010
6501.88
6290.21
5421.63
CURRENT ASSETS
CURRENT ASSETS
Rs in Lacs
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TABLE 10 CURRENT LIABILITY:
Year 2007-2008 2008-2009 2009-2010
Current Liability 4009.45 4871.63 5095.09
FIG 10 CURRENT LIABILITIES
Interpretation:
Current liabilities shows company short term debts pay to outsiders. From 2008 to 2010 the current
liabilities of the company increased. As current assets decreased from 2008 to 2009 but still current
assets are more than its current liabilities. But company have to take step to increase its current assets
as we see in 2010 there is not a big difference between current assets and current liabilities which is
cant ignore because its decrease efficiency of company and may create halt in short term debts pay to
outsiders.
0
1000
2000
3000
4000
5000
6000
2008 2009 2010
4009.45
4871.635095.09
CURRENT LIABILITY
CURRENT LIABILITY
Rs in Lacs
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TABLE 11 NETWOKRING CAPITAL:
Year 2007-2008 2008-2009 2009-2010
Net Working Capital 2492.43 1418.58 326.54
FIG 11 NETWORKING CAPITAL
Interpretation:
Working capital is required to finance day to day operations of a firm. There should be an optimum
level of working capital. It should not be too less or not too excess. In the company there is decrease in
working capital. The decrease in working capital arises because the company has taken more time than
agreement.
0
500
1000
1500
2000
2500
2008 2009 2010
2492.43
1418.58
326.54
NET WORKING CAPITAL
NET WORKING CAPITAL
Rs in Lacs
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TABLE 12 STATEMENT OF CHANGE IN WORKING CAPITAL
PARTICUALAR PREVIOUSYEAR
CURRENTYEAR INCREASE DECREASE
CURRENT ASSETS (A)
CASH & BANK BALANCE
RETENTION DEPOSIT
NET WORKING IN PROGRESS
LOAN AND ADVANCE
STOCK OF MATARIALS
SUNDRY DEBTORS
DEPOSITS
TDS
JV PARTNER RECIVABLE
VAT RECEIVABLE (NET)/WCT
OTHER CURRENT ASSETS
TOTAL CURRENT ASSETS (A)
CURRENT LIABILITIES
BANK OD
DUE TO CLIENT
SUPPLIERS LIABILITIES
DUE TO PIECE RATE
CONTRACTORS
DUE TO SUB CONTRACTORS
AND MACH HIRED
PRW/SUB CONTRACTOR
828.87
915.74
2860.56
77.97
1528.79
(1.66)
7.34
1.38
-
52.94
18.28
6290.21
-
928.66
860.96
32.35
959.16
1168.39
688.66
2014.92
33.46
1167.87
-
7.34
1.38
-
72.93
266.67
5421.63
-
702.49
1628.77
17.11
1447.76
339.52
1.66
19.99
248.39
226.17
15.24
227.08
845.64
44.51
360.92
767.81
488.60
Rs in Lacs
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RETENTION
PAYABLE TO JV PARTNERS
OTHER CURRENT LIABILITIES
PROVISION LIABILITY FOR HO
EXPN.
TOTAL CURRENT LIABILITIES
(B)
WORKING CAPITAL (A-B)
NET INCREASE/DECREASE IN
WORKING CAPITAL
493.33
-
1597.17
-
4871.63
1418.58
716.36
-
582.60
-
5095.09
326.54
1092.04
1014.57
1092.04
223.03
1418.58 1418.58 2957.59 2957.59
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INTERPRETATION
Statement of changes in the working capital is prepared to show the changes in the working
capital between the two balance sheet dates. This statement is prepared with the help of the
current asset and current liabilities derived from the 2 balance sheets
So,
i) An increase in current asset increases working capital
ii) A decrease in current assets decreases in working capital
iii) An increase in current liabilities decreases working capital.
iv) A decrease in current liabilities increase working capital
It is worth noting that schedule of changes in working capital is prepared only from current
assets and current liabilities and the other information is not of any use for preparing this
statement.
The company should look in to the proper current liabilities.
As company current assets are more than current liabilities it can be said that company is in
good health and able to meet its current liabilities
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3.4 CONCLUSION & SUGGESTION
SUGGESTION
1. Company have to see over its debtors
2. Company have to increase its current assets because its current assets are just above to the
safe level.
3. Company have to increase its quick assets so that it can resolve its liquidity problem.
4. Company have to complete its project as soon as possible.
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CONCLUSION
From the above analysis of Hindustan Construction Company ltd. Lucknow Project Working
Capital Management
It is observed that current asset decrease in 2009-10 as compare to 2006-07 to 2008-09 but in
the year 2006-07 to 2008-09 it had been increase from 4173.84 lac to 6290.21 lac and the
current liabilities has been increase from 2006-07 to 2009-10. Current asset decreases in 2009-
10. It shows fluctuation in these years. Working capital of HCC ltd at only in the 2007-08 it
increased reaming year i.e. 2008-09 and 2009-10 it decreases, it means that in the year
excluding 2007-08 working capital falls down which shows the current liabilities
increasing in greater percentage as compare to current asset.
In the 2008-09 and 2009-10 working capital shows the negative trend due to the
increase in the current liability in the condition of the year 2007-08 is increased it shows the
positive trend.
This is happen due to company take more time to complete its project till now company unable
to complete its project. But beside this company is in good position.
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3.6ANNEXURE
PROFIT AND LOSS STATEMENT FOR THE YEAR ENDING 31 MARCH 2010
SR NO PARTICULARS ACTUAL
1 WORK BILL RECIPTS PURE 4932.11
2 ADD CLOSING WIP PURE 2348.34
3 LESS OPENING WIP PURE 3390.70
4 SUB TOTAL PURE 3889.76
5 WORK BILL RECIPTS ESCL 1420.35
6 ADD CLOSING WIP ESCL 43.33
7 LESS OPENING WIP ESCL 59.64
8 SUB TOTAL ESCL 1404.0419 INSURANCE CLAIMS 59.29
MISC. WORK BILL RECEIPTS 589.10
20 ANY OTHER ITEM/ DGFT CLAIM 280.13
21 WORK DONE (INCL. ENCL.)
4+8+20+19
6222.32
22 LESS CLIENTS MATERIAL
23 HCC WORK DONE 6222.32
24 DIRECT VARIABLE COST
A. BUILDING MATERIALS 497.67
B. BOUGHTOUT MATERIALS
C. STORES MATERIALS 251.49D. CONSUMABLE ACCESSORIES 290.72
E. SPARES 149.85
F. POL 974.66
G. MSE ITEMS
H. ELECTRICITY 95.56
I. SUB CONTRACT EXPENSES 5657.10
J. PIECE RATE CONTRACT EXP 476.36
K. WAGES AND SALARIES 566.37
L. OVERTIME 104.27
SUB TOTAL (ATO L) 9064.04
25 CONTRIBUTION (23-24) (2841.72)26 INDIRECT COST
M. EQUIPMENT REPARIS (OUTSIDE 13.74
N. EQUIPMENT HIRE (OUTSIDE 197.77
O. EQUIPMENT LEASE ( OUTSIDE
P. REVENUE EXPENSES 1218.02
Q. INTREST TO CLIENT
R. INTEREST TO OTHERS 6.94
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WORKING CAPITAL STATEMENT FOR THE YEAR ENDING 31 MARCH
2010
SR.NO WORKING CAPITAL ACTUAL
A CURRENT ASSETS
1 CASH & BANK BALANCE 1168.39
2 RETENTION DEPOSIT 688.66
3 WORKING IN PROGRESS
A. PURE 2348.34
B. ESCALATION 43.33
C. OTHERS
D TOTAL WIP A+B+C 2391.67
E. LESS: WORK BILL ADVANCE 376.75
4 NET WIP 3D-3E 2014.92SUB TOTAL 3871.98
5 LOAN AND ADVANCE
A. PIECE RATE CONTRACTORS
B. SUB CONTRACTORS 7.94
C. STAFF AND LABOUR IMPREST 12.84
D. SUPPLIER 12.68
E. OTHERS
SUB TOTAL (A TO E) 33.46
6 STOCK OF MATARIALS
A. HCC MATERIALS 1160.71
B. CLIENT MATERIALSC. MATERIAL IN TRANSIT 7.16
SUB TOTAL A TO C 1167.87
7 SUNDRY DEBTORS
8 DEPOSITS 7.34
9 TDS 1.38
10 JV PARTNER RECIVABLE
11 VAT RECEIVABLE (NET)/WCT 72.93
12 OTHER CURRENT ASSETS 266.67
13 TOTAL CURRENT ASSETS (A) 5421.63
B CURRENT LIABILITIES
14 BANK OD15 DUE TO CLIENT
A. MATERIAL ADVANCE 702.49
B. FOR MATERIAL SUPPLY
C. INTEREST ON ADVANCES
D. ELECTRICITY/RENT/OTHER
E. SUB TOTAL ATO D 702.49
16 SUPPLIERS LIABILITIES 1628.77
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17 DUE TO PIECE RATE CONTRACTORS 17.11
18 DUE TO SUB CONTRACTORS AND
MACH HIRED
1447.76
19 PRW/SUB CONTRACTOR RETENTION 716.36
20 PAYABLE TO JV PARTNERS
21 OTHER CURRENT LIABILITIES 582.60
22 PROVISION LIABILITY FOR HO EXPN.
23 TOTAL CURRENT LIABILITIES B 5095.09
24 NET WORKING CAPITAL (13-23) 326.54
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