bhel (finance)

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BHARAT HEAVY

ELECTRICALS LIMITEDJHANSI 2010-2011

REPORT ON WORKING

CAPITAL MANAGEMENT

UNDER THE GUIDANCE OF

J.K.VERMA

Submited to-


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INTRODUCTION OF B.H.E.L JHANSI

j It was established in 1974

j This unit of Jhansi was established around 14 km from the city on the N.H.No. 26 on Jhansi- Lalitpur road .

j

It is called second generation plant of BHEL set up in 1974 at an estimatedcost of Rs.16.22 crores inclusive of Rs. 2.1 crores for township. Its foundationwas laid by Late Mrs. Indira Gandhi the Prime Minister on 9th January 1974.

j This unit of BHEL is basically engaged in the production and manufacture oftransformers of various types and capacities

j BHEL has many departments, while production and Administrative departments areseparate.

j Broadly speaking BHEL, Jhansi has two production categories.

j Transformer

j Loco s


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FINANCE DEPARTMENTS IN BHEL JHANSI

The finance department is very broad in this unit and has also many sub

department under finance department

j Administration

j Pay

j Sales and sales bill

j Cash , P.F , T.A

j P.S.L,

j Costing

j Budget & books

j Miscellaneous expenses


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WORKINGCAPITAL

MANAGEMENT

`` Working capital is the amount of funds necessary to cover the cost of

operating the enterprises``

Types of working capital -

-. Permanent working capital.

. Temporary working capital

. Balance sheet working capital

. Cash working capital

There are two concepts of working capital.

1.Gross working capital

2. Net working capital


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GROSSWORKINGCAPITAL

Gross working capital may be defined as a firms investment in total current

assets. Current assets are the assets which can be easily converted into cash

and include cash, short term securities, debtors (accounts receivable or book

debts) bill receivable and stock.

NETWORKINGCAPITAL

Net working capital refers to :-

1 Conversion of cash into raw materials;

(2) Conversion of raw materials into work-in-process;

(3) Conversion of work-in-process into finished goods;

(4) Conversion of finished goods into accounts receivable, and

(5) Conversion of accounts receivable into cash


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OBJECTIVEOFWORKINGCAPITAL MANAGEMENT

The basic objective of working capital is to provide adequate support for

smooth functioning of business operation of a company. The term adequate

working capital is subjective depending on managements attitude towardsuncertainty/ risk.

1. Maintenance of working capital.

2. Availability of ample fund at the time of need.

OBJECTIVES OF STUDY

MAJOR OBJECTIVES

To understand the financial position of BHEL

.ANCILLARY OBJECTIVES

j To identify the financial soundness of BHEL.

j To identify the liquidity position of BHEL.

j To identify the trend of sales during last five years of BHEL.

j To identify the trend of working capital for last five years of BHEL.


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SOURCESOFFUNDS FORWORKING

CAPITAL REQUIREMENTOF BHEL

1. CASH CREDIT FROM BANKS

The requirements of working capital will be met either from internal sources or

borrowings from banks.

2. WORKINGCAPITAL LOANFROM GOVT

The funds for working capital over and above cash credit limits may

also be arranged through government loans.

3. RECEIPTS FROM CUSTOMERS

The bulk of the working capital requirements is also met through

advances from customers in accordance with the contract conditions

as approved by the board. The receipts are deposited in the centralized

account.


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CASH MANGEMENT

Cash is the important current assets for the operation of business. Cash is the

amount which a firm can disburse immediately without any restriction.

Cash management is concerned with managing of

1. Cash inflow and outflow of the firm.

2. Cash balances held by the firm at particular point of time.

CASH MANANGEMENT IN BHEL Jhansi

1. In BHEL, the centralized cash credit system is followed.i.e From 24-07-75

all the banking transaction of the company have been centralized from

corporate office,Delhi.

2. Under this system all the sales proceeds of the units are deposited in a

centralized account. This account number is universal for all the units.

3. For meeting day to day expenses, the units have to prepare the estimates

of such expenses, which are sent to corporate office weekly, monthly

or both.

4. The cash budget is prepared on yearly basis .

5. Arrangement have already been made with state bank of India , HDFCbank, Canara bank, Bank of Baroda for centralizing cash credit limit at


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INVENTORY MANAGEMENT

Inventories are the most significant part of current assets of companies in India.

The large size of inventory maintained by the firms a considerable amount of funds isrequired to be committed to them. A firm neglecting the management of inventories

will be jeopardizing its long run profitability and may fail ultimately.

In a manufacturing firm the level of inventory depends on the operation cycle.

A manufacturing firm with a long operating cycle has to maintain a high inventory

level.

NATUREOFINVENTORIES

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

that make up the product.

Different types of inventory are

j Raw material

j Work in progress

j Finished goods S

j Supplies or stores and spares


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INVENTORY MANAGEMENT IN BHEL Jhansi

Production planning and control department plays a pivotal role in inventory

management. In BHEL the inventory control is perform in the following manner

1. Planning

This is done by PPC department is consultation with purchase; commercial, manufacturing

department prepares the planning schedule.

2. Procurement The procurement is done by purchase department.

3. Receipt & Custody-

For the proper inventory control on receipt of material in store, quality control department

checks the material as per specification.

4. Issue- Full record of every issuing of material is kept for the proper inventory control.

5.Accounting

The record of every transaction regarding the use of material in every department is kept.


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ANALYSIS OFWORKINGCAPITAL MANAGEMENT

The analysis of working capital is primarily a test of short term solvency.

There are dangers in having too little or too much working capital. The

financial manager has to be very vigilant.

TOOLSOFWORKINGCAPITAL ANALYSIS

1. Ratio analysis

2. Fund flow analysis

3. Cash flow analysis

4. Working capital budget

5. Working capital report

We are using the technique of ratio analysis how efficiently the working

capital is being used in the company. These ratios would increase or decrease

that measure the working capital management of BHEL Jhansi,

which are as follows


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(1) CURRENTRATIO

Current ratio represent margin of safety for creditors. The higher the current

ratio, the greater the margin of safety, the larger the amount of current assets in

relation to current liabilities, the more the firm ability to meet its currentobligations. This ratio is calculated as follows:

Current ratio = Current assets / Current liabilities

Current ratio of 2:1 is satisfactory. In BHEL, Jhansi unit this ratio

is1.99 in 2004-05,which has difference of only 0.01 from standard ratio. Thisreflects that the working capital is sufficient. Observing the current ratio of last

five year 2004 to 2009 it was seen that unit is having sufficient working

capital.

2) QUICKRATIO:

This ratio provides a better measure of over all liquidity. A firms inventory

cannot be easily converted into cash so it is not taken into account. A ratio of

1:1 is considered satisfactory. Ratio is computed as under

Quick ratio= Current asset - Inventory / Current liabilities


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Inventory turnover ratio:

It shows how rapidly the inventory is turning into receivable through sales. High ratio is

indicator of good inventory management. Ratio should neither be low nor too high.

It is computed as follows

ITR= Sales / Average inventory

In BHEL,Jhansi unit the ratio in 2005-06 is 2.30 which shows total inventory turnover of

that year, during last five year there is fluctuation in inventory turnover ratio.


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j BHELS financial performance

That graph show whole net sales, net profit, EPS of BHEL units working in whole country

this position is checked by corporate office Delhi. in this we can see that the sales is

increasing which indirectly shows that net profit is also increasing.

0

10

20

30

40

50

60

70

80

90

1s Q r 2nd Q r 3rd Q r 4th Qtr

E stWest

North


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RESEARCH AND METHODOLOGY

SOURCEOF DATA

For the purpose of analyzing the financial position of the company The study

is based on the (assumed) secondary data available with the company.

SECONDARY DATA

Secondary data (assumed) is related to already published data by the company.

To analyze the financial position data is taken from the published annual

reports of the company. The data relating to the current asset, current

liabilities, gross profit, net sales, operating profit, selling expenses, cost ofgood sold, shareholder fund, Capital employed, total assets, debt were

collected from the annual report of BHEL.


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LIMITATIONS

j The researcher was not able to focus on qualification factors, which influences

the financial position of the organization.

j The study is limited to BHEL So the result could not be generalized on macro

level.

j Ratio analysis is only tools used for the financial statement analysis.

j Since the finance section in the organization being sensitive, analysis is based

on the assumed data of BHEL.


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CONCLUSION

j It should be borne in mind that the tool applied in the study to analyse the

efficiency and effectiveness in financial management are most appropriateones.

j The firms Liquidity position is good.

j The efficiency of the company is also good.


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FINDINGS

During the training extracted the following distinctive features of BHEL.

j BHEL overseas business is going to increase more in the next five years.

j Market distribution in international market can be increased by entering into

the new foreign countries.

j BHEL is the main market holder in the domestic market but faces a fierce

competition at international level.

j The quality control & quality assurance is major concerning area of BHEL.

j Financial strategy adopted by BHEL is best.


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jRecommendation & suggestion

jEstimation 0f working capital requirement

should be done on the basis of the length of

operating cycle of different products.

jWorking capital requirement can be

minimized by decreasing the length ofoperating cycle of different product


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BIBLIOGRAPHY

ANNUAL REPORTS OF BHEL

WEBSITES VISITED

j WWW.GOOGLE. COM

j WWW.BHEL.COM.

j WWW.WIKIPEDIA.IN


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