my finalllll project

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Project Report

OnWorking Capital Management of HCL

Infosystem Ltd.

POST GRADUATE DIPLOMA IN

MANAGEMENT

SUBMITTED TO: SUBMITTED BY:

MRS.MAMTA SHAH MEHAK RAHEJA

ROLL 6568


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GURU NANAK INSTITUTE OF MANAGEMENT,PUNJABI BAGH (w), NEW DELHI

Certificate of Origin

This is to certify that Ms. Mehak Raheja of Guru Nanak Institute Of

Managemeny has completed project work on Working Capital Management of

HCL. Under my guidance and supervision

I certify that this is an original work and has not been copied from any source.

Signature of the guide_________________

Name of the project guide

MRS .MAMTA SHAH


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ACKNOWLEDGEMENT

The satisfaction that accompanies the successful completion of the taskwould be incomplete without mentioning the people who made it possibleand whose constant guidance and encouragement crown all the efforts ofsuccess. My experience with each one of them has been enriching and

provided me with a lot of insights about corporate culture. I s incerelyhope that these acquaintances develop further in the future.

I wish to take great pleasure in recording my profound gratitude and to my guideMrs Mamta Shah who has guided me through this project, with invaluableinsights despite their busy schedule to continuously push me harder for betterefforts. His supervision with valuable advice, his inspiring guidance keen interestand critical evaluation of the work for the successful completion of the projectwork.

Mehak Raheja

Date :


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HCL

InfosystemLtd .


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INTRODUCTION ABOUT

STUDY

This project is based on the study of working capital management in HCL Infosystems. An

insight view of the project will encompass what it is all about, what it aims to achieve, what

is its purpose and scope, the various methods used for collecting data and their sources,

including literature survey done, further specifying the limitations of our study and in the last,

drawing inferences from the learning so far.

HCL Infosystems Limited (HCL) is a leading domestic computer hardware and hardware

services company. HCL is engaged in selling manufactured (like PCs, servers, monitors and

peripherals) and traded hardware (like notebooks, peripherals) to institutional clients as well

as in retail segment. It also offers hardware support services to existing clients through annual

maintenance contracts, network consulting and facilities management.

The working capital management refers to the management of working capital, or precisely to

the management of current assets. A firms working capital consists of its investments in

current assets, which includes short-term assets cash and bank balance, inventories,

receivable and marketable securities. This project tries to evaluate how the management of

working capital is done in HCL Infosystems through inventory ratios, working capital ratios,

trends, computation of cash, inventory and working capital, and short term financing.


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OBJECTIVES OF STUDY

To formulate out the need of actual working capital requirements in the enterprise

To determine whether we need short-term or long term financing of funds.

To determine the liquidity position n the enterprise.

To determine the actual current asset level requirements.

In judging out the true and trustworthy clients of the company.


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6.3 TYPE OF METHODOLOGY USED

The research is done through secondary source of data, which has been collected through

press release & other sources.

RESEARCH DESIGN

A research design is defined, as the specification of methods and procedures for acquiring the

Information needed. It is a plant or organizing framework for doing the study and collectingthe data. Designing a research plan requires decisions of all the data sources, research

approaches, Research instruments, sampling plan and contact methods.


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DATA SOURCES

The following sources have been sought for the preparation of this report:

Secondary sources such as business magazines, current annual reports, book on

Financial Management by various authors and internet websites the imp amongst

them being: www.hcl.com, www.indiainfoline.com, www.studyfinance.com .

Secondary sources like previous years annual reports, reports on working capital for

research, analysis and comparison of the data gathered. While doing this project, the data relating to working capital, cash management,

receivables management, inventory management and short term financing was

required.

This data was gathered through the companys websites, its corporate intranet, HCLs

annual reports of the last five years.

A detailed study on the actual working processes of the company is also done through

direct interaction with the employees and by timely studying the happenings at thecompany.

Also, various text books on financial management like ICFAIs bo ok, Ravi M.

kishore, Prasanna Chandra and I.M.Pandey were consulted to equip ourselves with the

topic.
http://www.hcl.com/http://www.indiainfoline.com/http://www.studyfinance.com/http://www.studyfinance.com/http://www.indiainfoline.com/http://www.hcl.com/


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1. HCL INFOSYSTEMS AN OVERVIEW

4.1 Companys history

4.2 HCL at a glance

4.3 Alliances and partnerships

4.4 Corporate information.


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HISTORY

HCL Infosystems Ltd is one of the pioneers in the Indian IT market,

with its origins in 1976. For over quarter of a century, we have

developed and implemented solutions for multiple market segments,

across a range of technologies in India. We have been in the forefront

in introducing new technologies and solutions. The highlights of the

HCL saga are summarized below:

4.2 HCL AT A GLANCE

VISION STATEMENT:

"Together we create the Enterprises of Tomorrow"

MISSION STATEMENT :

"To provide world-class Information Technology solutions and services

in order to enable our customers to serve their customers better"


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CORE VALUES:

Nothing transforms life like education. We shall honor all commitments

We shall be committed to Quality, Innovation and Growth in every endeavor

We shall be responsible corporate citizens

QUALITY POLICY:

"We shall deliver defect-free products, services and solutions to meet the requirements of our

external and internal customers, the first time, every time."

COMPANY OBJECTIVES

MANAGEMENT OBJECTIVES

To fuel initiative and foster activity by allowing individuals, freedom of action and

innovation in attaining defined objectives.

PEOPLE OBJECTIVES

To help people in HCL Infosystems Ltd., share companys success, which they

make possible; to provide job security based on their performance; to recognize

their individual achievements; and help them to gain a sense of satisfaction and

accomplishment from their work.


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4.4 CORPORATE INFORMATION

BOARD OF DIRECTORS Chairman & Chief Executive Officer

Harsh Chitale

Whole-time Director

J.V. Ramamurthy

Directors

S. Bhattacharya

D.S. Purl

R.P. Khosla

E.A. K shirsagar

Anita Ramachandran

T.S. Purushothaman

Narasimhan Jegadeesh

V.N. Koura

COMPANY SECRETARY Sushil Kumar Jain

REGISTERED OFFICE 806, Siddhartha, 96, Nehru Place, New Delhi - 110 019.

CORPORATE OFFICE E - 4, 5, 6, Sector XI, Noida - 201 301 (U.P.)


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Hindustan Computers Limited , also known as HCL Enterprise , is one of India' s largest

electronics, computing and information technology company. Based in Noida, near Delhi, the

company comprises two publicly listed Indian companies, HCL Technologies and HCL

Infosystems.HCL was founded in 1976 by Shiv Nadar, Ajai Chowdhry and four of their

colleagues. HCL was focused on addressing the IT hardware market in India for the first two

decades of its existence with some sporadic activity in the global market. In 1981, HCLseeded a company focused on addressing the computer training industry, NIIT, though it has

currently divested its stake in the company. In 1991, HP took minority stake in the company

(26%) and the company was known as HCL HP for the five years of the joint venture. On

termination of the joint venture in 1996, HCL became an enterprise which comprises HCL

Technologies (to address the global IT services market) and HCL Infosystems (to address the

Indian and APAC IT hardware market). HCL has since then operated as a holding company.

Type Public

(BSE: 500179 ,BSE: 532281)

Founded 11 th August 1976

Headquarters Noida, India

(Delhi metropolitan area) , India

Key People Shiv Nadar, Founder, Chairman & CEO

Sanjay Kumar Choudhary , Vineet Nayar

Industry Information Technology Services

Revenue R2095 crore

Website www.hclinfosystems.in
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Electronicshttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Noidahttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/HCL_Technologieshttp://en.wikipedia.org/wiki/Shiv_Nadarhttp://en.wikipedia.org/w/index.php?title=Ajai_Chowdhry&action=edit&redlink=1http://en.wikipedia.org/wiki/1981http://en.wikipedia.org/wiki/NIIThttp://en.wikipedia.org/wiki/1991http://en.wikipedia.org/wiki/1996http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://www.bseindia.com/price_finder/stockreach.asp?scripcd=500179http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://www.bseindia.com/price_finder/stockreach.asp?scripcd=532281http://en.wikipedia.org/wiki/New_Okhla_Industrial_Development_Authorityhttp://en.wikipedia.org/wiki/Delhi_metropolitan_areahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Shiv_Nadarhttp://en.wikipedia.org/wiki/Shiv_Nadarhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Delhi_metropolitan_areahttp://en.wikipedia.org/wiki/New_Okhla_Industrial_Development_Authorityhttp://www.bseindia.com/price_finder/stockreach.asp?scripcd=532281http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://www.bseindia.com/price_finder/stockreach.asp?scripcd=500179http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/1996http://en.wikipedia.org/wiki/1991http://en.wikipedia.org/wiki/NIIThttp://en.wikipedia.org/wiki/1981http://en.wikipedia.org/w/index.php?title=Ajai_Chowdhry&action=edit&redlink=1http://en.wikipedia.org/wiki/Shiv_Nadarhttp://en.wikipedia.org/wiki/HCL_Technologieshttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Noidahttp://en.wikipedia.org/wiki/Information_technologyhttp://en.wikipedia.org/wiki/Computinghttp://en.wikipedia.org/wiki/Electronicshttp://en.wikipedia.org/wiki/India


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WORKINGC PIT L

M N GEMENT


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CONCEPTUAL FRAMEWORK

5.1 Introduction

5.2 Significance of working capital management

5.3 Liquidity Vs profitability: Risk Return trade off

5.4 Classification of working capital

5.5 Types of working capital needs

5.6 Financing of working capital

5.7 Factors determining working capital requirements

5.8 Working capital cycle

5.9 Sources of working capital

5.10 HCL financials

5.11 Working capital position

5.12 Inventory management

5.13 Cash management

5.14 Receivables management

5.15 Managing payables (Creditors)

5.16 Financing current assets

5.17 Working capital & short-term financing


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5.1 INTRODUCTION TO WORKING CAPITAL

Working Capital is the Life - Blood and Controlling Nerve Centre of a business

The working capital management precisely refers to management of current assets. A

firms working capital consists of its investment in current assets, which include short-

term assets such as:

Cash and bank balance, Inventories,

Receivables (including debtors and bills),

Marketable securities.

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

liabilities.

WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

There are two major concepts of working capital:

Gross working capital

Net working capital


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LIQUIDITY VS PROFITABILITY:

RISK - RETURN TRADE OFFAnother important aspect of a working capital policy is to maintain and provide sufficient

liquidity to the firm. Like the most corporate financial decisions, the decision on how much

working capital be maintained involves a trade off- having a large net working capital may

reduce the liquidity risk faced by a firm, but it can have a negative effect on the cash flows.

Therefore, the net effect on the value of the firm should be used to determine the optimal

amount of working capital.

Sound working capital involves two fundamental decisions for the firm. They are the

determination of:

The optimal level of investments in current assets.

The cost advantage

Flexibility

The appropriate mix of short-term and long-term financing used to support thisinvestment in current assets, a firm should decide whether or not it should use short-

term financing. If short-term financing has to be used, the firm must determine its

portion in total financing. Short-term financing may be preferred over long-term

financing for two reasons:

But short-term financing is more risky than long-term financing. Following table will

summarize our discussion of short-term versus long-term financing.


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CLASSIFICATION OF WORKING

CAPITAL

Working capital can be classified as follows:

On the basis of time

On the basis of concept


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TYPES OF WORKING CAPITAL NEEDS

Another important aspect of working capital management is to analyze the total working

capital needs of the firm in order to find out the permanent and temporary working capital.

Working capital is required because of existence of operating cycle. The lengthier the

operating cycle, greater would be the need for working capital. The operating cycle is a

continuous process and therefore, the working capital is needed constantly and regularly.

However, the magnitude and quantum of working capital required will not be same all the

times, rather it will fluctuate.

The need for current assets tends to shift over time. Some of these changes reflect

permanent changes in the firm as is the case when the inventory and receivables increases as

the firm grows and the sales become higher and higher. Other changes are seasonal, as is the

case with increased inventory required for a particular festival season. Still others are

random reflecting the uncertainty associated with growth in sales due to firm's specific or

general economic factors.

The working capital needs can be bifurcated as:

Permanent working capital

Temporary working capital


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Permanent working capital :

There is always a minimum level of working capital, which is continuously required by a

firm in order to maintain its activities. Every firm must have a minimum of cash, stock and

other current assets, this minimum level of current assets, which must be maintained by any

firm all the times, is known as permanent working capital for that firm. This amount of

working capital is constantly and regularly required in the same way as fixed assets are

required. So, it may also be called fixed working capital.

Temporary working capital :

Any amount over and above the permanent level of working capital is temporary,

fluctuating or variable working capital. The position of the required working capital is

needed to meet fluctuations in demand consequent upon changes in production and sales as

a result of seasonal changes.

The permanent level is constant while the temporary working capital is fluctuating

increasing and decreasing in accordance with seasonal demands as shown in the figure.

In the case of an expanding firm, the permanent working capital line may not be horizontal.

This is because the demand for permanent current assets might be increasing (or decreasing)

to support a rising level of activity. In that case line would be rising.


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FINANCING OF WORKING CAPITAL

There are two types of working capital requirements as discussed above. They are:

Permanent or Fixed Working Capital requirements

Temporary or Variable Working Capital requirements

Therefore, to finance either of these two working capital requirements, we have long-term

as well as short-term sources.

5.7 FACTORS DETERMINING WORKING CAPITAL

REQUIREMENTS

There are many factors that determine working capital needs of an enterprise. Some of these

factors are explained below:

Nature or Character of Business.

The working capital requirement of a firm is closely related to the nature of its

business. A service firm, like an electricity undertaking or a transport corporation,

which has a short operating cycle and which sells predominantly on cash basis, has a

modest working capital requirement. Oh the other hand, a manufacturing concern

like a machine tools unit, which has a long operating cycle and which sells largely

on credit, has a very substantial working capital requirement.

HCL Infosystems carry on activities related to computer systems. Though they are

primarily an assembling firm they also have manufacturing facilities in Chennai and

Pondicherry. This requires them to keep a very sizeable amount in working capital.


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Size of Business/Scale of Operations.

HCL is the leader in its segment in both consumer as well as commercial market

share. They have increased their share in the consumer segment notably in the last

four years. This they have achieved through retail expansion. The scale of operations

and the size it holds in the Indian IT market makes it a must for them to hold their

inventory and current asset at a huge level.

Figure :2 Representation of market share

Rate of Growth of Business.

The rate of growth of sales indicates a need for increase in the working capital

requirements of the firm. As the firm is projected to increase their sales by 80%

from what it was in 2011 it is required to guard them against the increasing

requirements of the net current asset by way of efficient working capital


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management. The sales and projected sales level determine the investment in

inventories and receivables.

HCL Infosystems Limited 2013 2012 2011 2010 2009

PROJECTED

Gross Sales/Income from

Operations

5000 4100 3478 2895 2222.03

Price Level Changes.

Changes in the price level also affect the working capital requirements. It was the

reduced margins in the price of the raw materials that had prompted them to go for

bulk purchases thus making on additions to their net current assets. They might have

gone for this large-scale procurement for availing discounts and anticipating a rise in

prices, which would have meant that more funds are required to maintain the same

current assets.


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Working Capital Cycle

The term operating cycle refers to the length of time necessary to complete the following

cycle of events:

1. Conversion of cash into inventory.

2. Conversion of inventory into receivables.

3. Conversion of receivables into cash.

Cash flows in a cycle into, around and out of a business. It is the business's life blood

and every manager's primary task is to help keep it flowing and to use the cash flow to

generate profits. If a business is operating profitably, then it should, in theory, generate

cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash

and expire.

The faster a business expands the more cash it will need for working capital and

investment. The cheapest and best sources of cash exist as working capital right within

business. Good management of working capital will generate cash will help improve

profits and reduce risks. One must bear in mind that the cost of providing credit to

customers and holding stocks can represent a substantial proportion of a firm's total

profits.

There are two elements in the business cycle that absorb cash - Inventory (stocks

and work-in-progress) and Receivables (debtors owing you money). The main sources o

cash are Payables (your creditors) and Equity and Loans .


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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 o

bank interest or you'll have additional free 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 create free finance to help fund

future sales.


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HCL FINANCIALS

CONSOLIDATED FINANCIAL PERFORMANCE

Particulars 2013 2012Gross Business Income 11855 11455less: Excise Duty 170 87Net Business Income 11685 11368Total ExpenditureCost of Sales (Net) 10801 10589Staff Cost 227 181Administration, Selling and Others 253 221Depreciation 15 12Operating Profit 389 365

WORKING CAPITAL POSITION

CURRENT ASSET TOTAL ASSET

PARTICULARS 2013 2012 2011 2010 2009

CURRENT ASSETS 100970 81533 54091 45042 55985

NET BLOCK 7970 5329 4925 4954 5552

TOTAL ASSETS 122479 99139 87076 71285 75205

CA/TA 82.44 82.24 62.12 63.18 74.43


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The current asset percentage on total asset is the highest over the years. This increasing

percentage of current assets to the total assets at first might indicate a preference for

liquidity in place of profitability, but a look into the nature of the business carried on by

HCL Infosystems reveal the reason behind it. How far their preference to current assets has

affected the sales is shown below.

NET CURRENT ASSET SALES

PARTICULARS 2013 2012 2011 2010 2009

NET CURRENT

ASSETS

40343 34742 14301 18752 27065

SALES 238136 199886 154295 166604 127003

WORKING

CAPITAL %INCREASE

16.12 142.93 -23.736 -30.7 -0.46

SALES %

INCREASE

19.14 29.54 -7.38 31.18 8.7

The sales has increased and the profits risen despite the 16.12% increase in working capital.

But what is noteworthy here is that the firm has managed to maintain the trend of an

increase in net current assets. Whether the change has worked for the company has to be

analysed in the context of the growth in sales as compared to the previous year. There has

been a 19.14% rise in the sales or revenue generated. This would automatically suggest

towards a very efficient working capital management where the assets of the firm which are

short-term in nature have been utilized optimally in connection to their fixed assets. The

firm has gone towards such a dramatic shift in their working capital position might be

because of the tremendous growth witnessed in the domestic IT market.


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PARTICULARS 2013 2012 2011 2010 2009

NET CA/NET BLOCK 5.062:1 6.519:1 2.903:1 3.785:1 4.875:1

The ratio of the net current asset to the fixed ones is an indicator as to the liquidity position of

the firm. This ratio has declined for the firm compared to the previous year. There could be

an argument as to whether the increased ratio of working capital to net block is a conservative

policy and whether it would be detrimental to the interest of the company. Or whether it

would have been proper if the company invested more into the capital expenditure in the

form of plant and machinery or invested in any other form that would have got them an

internal rate of return. What has to be kept in mind before coming to a conclusion as to the

policy of the company is the fact that the firm being primarily into assembling, its investment

in the fixed asset segment need not be high. A look into the capacity utilization of the plant

would reaffirm this point. It would be ideal for the firm to continue in the same line and not

have excessive investment in the fixed asset as they can easily add onto this part.


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INVENTORY MANAGEMENTnventories

Inventories constitute the most important part of the current assets of large majority of

companies. Because of the large size of inventories maintained by the firms, a considerable

amount of funds is committed to them. It is therefore, imperative to manage the inventories

efficiently and effectively in order to avoid unnecessary investment.

Nature of Inventories

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

components make up of the product. The various forms of the inventories in the

manufacturing companies are:

Raw Material : It is the basic input that is converted into the finished product through

the manufacturing process. Raw materials are those units which have been purchased

and stored for future production.

Work-in-progress : Inventories are semi-manufactured products. They represent

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

Finished Goods : Inventories are those completely manufactured products which are

ready for sale. Stocks of raw materials and work-in-progress facilitate production,

while stock of finished goods is required for smooth marketing operations. Thus,

inventories serve as a link between the production and consumption of goods.

Inventory Management Techniques

In managing inventories, the firms objective should be to be in consonance with the

shareholder wealth maximization principle. The firm should determine the optimum level of

inventory. Efficiently controlled inventories make the firm flexible. Inefficient inventory


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Ordering cost increase with the number of orders placed; thus the more

frequently inventory is acquired, the higher the firms ordering costs. On the

other hand, if the firm maintains large inventorys level, there will be few

orders placed and ordering costs will be relatively small. Thus, ordering costs

decrease with the increasing size of inventory.

Carrying Costs: Costs are incurred for maintaining a given level of

inventory are called carrying costs. These include the following activities:

Warehousing Cost

Handling

Administrative cost

Insurance

Deterioration and obsolescence

Carrying costs are varying with inventory size. This behaviour is contrary to

that of ordering costs which decline with increase in inventory size. The

economic size of inventory would thus depend on trade-off between carrying

costs and ordering cost.

Composition 2013 2012 2011

Raw Material 6349 7749 6127

Stores and Spares 3713 2987 2622

Finished Goods 13374 7245 6506

Work-in-progress 595 784 871


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The increasing component of raw materials in inventory is due to the fact that the

company has gone for bulk purchases and has increased consumption due to a fall in

prices and reduced margins for the year. Another reason might be the increasing sales,

which might have induced them to purchase more in anticipation of a further increase

in demand of the product.

To the question as to whether the increasing costs in inventory are justified by the

returns from it the answer could be found in the HCL retail expansion. HCL caters to

the need of the two separate segments:

a) Institutions for which they manufacture against orders and,

b) Retail segment of the market.

The company in order to meet its raw materials requirements could have gone for

frequent purchases, which would have resulted in lesser cash flows for the firm rather

than the high expenditure involved when procuring in at bulk. The reason why thefirm has gone for these bulk purchases because of the lower margins and the discounts

it availed because of procuring in bulk quantities.

A negative growth in WIP could be because:

a) The time taken to convert raw materials to finished goods is very minimal

b) This is also due to capacity being not utilized at the optimum.

ABC System : ABC system of inventory keeping is followed in the factories. Various

items are categorized into three different levels in the order of their importance. For

e.g. items such as memory, high capacity processors and royalty are placed in the A

category. Large number of firms has to maintain several types of inventories. The

firm should pay maximum attention to those items whose value is highest. The firm


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should therefore, classify inventories to identify which items should receive the most

effort in controlling. The firm should be selective in approach to control investment in

various types of inventories. This analytical approach is called ABC Analysis . The

high- value items are classified as A items and would be under tightest control. C

items represent relatively least value and would require simple control. B items

fall in between the two categories and require reasonable attention of management.

JIT : The relevance of JIT in HCL Info system can be questioned. This is because

they procure materials on the basis of projections made at least two or three months

before. Even at the time of procurement they ensure that they procure much more

than what actually is required by the firm that is they hold significant amount ofinventory as safety stock. This is done to counter the threat involved in default and

accidental breakdowns. The levels of safety stock usually vary according to the

usage.

Conversion Periods

Raw Material

Particulars 2013 2012 2011

Raw Material Consumption 121077 97971.31 57775.14

Raw Material Consumption/day 332 268.41 158.28

Raw Material Inventory 7072 6960.275 4364.735

Raw Material Holding Days 21 26 27.57

The raw material conversion period or the raw material holding cost has reduced from

26 to 21. This is despite an increase in its consumption. This indicates that the firm is able to

convert the raw material at its disposal to the work-in-progress at a lesser time as compared to

the last year.


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CASH MANAGEMENTSources of Cash:

Sources of additional working capital include the following:

Existing cash reserves

Profits (when you secure it as cash!)

Payables (credit from suppliers)

New equity or loans from shareholders Bank overdrafts or lines of credit.

Long-term loans

CASH MANAGEMENT IN HCL INFOSYSTEMS:

The cash management system followed by the HCL Infosystems is mainly lock box

system.

Cash Management System involves the following steps:

1. The branch offices of the company at various locations hold the collection of cheques

of the customers.

2. Those cheques are either handed over to the CMS agencies or bank of the particular

location take charge of whole collection.

3. These CMS agencies or bank send those cheques to the clearing house to make them

realized. These cheques can be local or outstation.

4. The CMS agencies or bank send information to the central hub of the company

regarding realization/cheque bounced.


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5. The central hub passes on the realized funds to the company as per the agreed

agreements.

6. The CMS agencies or concerned bank provides the necessary MIS to the company as per requirement.

Cash-Current Liability


Absolute Liquid Ratio 0.24:1 0.31:1 0.11:1

The absolute liquid ratio is the best for three years and the cash balances as to the current

liability has improved for the firm. Firm has large resources in cash and bank balances. While

large resources in cash and bank balances may seem to affect the revenue the firm could have

earned by investing it elsewhere as maintenance of current assets as cash and in near cash

assets and marketable securities may increase the liquidity position but not the revenue or

profit earning capacity of the firm.


PBIDT 14284 15634 14523

Equity Dividend% 400 310 210

This could mean two things for the firm the amount of cash retained in the business for

capital expenditure purposes are minimal or nil. But rather than investing more in plant and

machine which they can at any point in time by adding on a additional line if need they would

like to optimize their utilization in fixed assets at present. This also means that the percentage


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of cash in hand maintained by the firm as a source of liquidity could be reduced, i.e. the

amount of idle cash in the business could be made to a level which the firm feels optimum.

The firm feels that they should retain cash and it would be in the interest of the firm as wellas the shareholders. This would automatically mean as decrease in Earning/share (EPS). It

would prompt more of investors being interested in the shares of the company, which would

boost the purchase of the securities and increase the market price/share thus being beneficial

for the firm.

Cash Flows

Cash Flows 2013 2012 2011

Net Cash from Operating activities 6924 2675.57 13706.34

Net Cash from Investing activities -3515 15661.29 -2169.16

Net Cash from Financing activities -3512 -8217.68 -11412.1

The firm has disposed of investments worth around 655 Crores to meet its growing needs.

The other notable feature is decline is the firms inflows from operations primarily due to the

reason that the cash generated from the operations is the lowest in three years. And the firms

growing dividend policy has contributed to the outflows in financing activities.

Cash Flow in Operating Activities

Working Capital Changes

Working Capital Changes 2013 2012 2011

Trade and other receivables -14166 -14510.69 -7106.68

Inventories -5221 -2683.92 -7221.11

Trade Payables and other Liabilities 13026 6419.13 14311.5


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The cash from the operation has been subject to considerable change due to the changes that

could be adjusted towards trade receivables and trade payables. The outflows in inventory

have become as low as 37% of what it was last year despite an increase in the inventory

consumption by 16.64%. The resulting reduction in the cash outflows might be because of the

inventories being procured more on credit.

Cash Flow in Investing Activities

Investments in Mutual Funds 2013 2012 2011

Investments (year end) 65458.8 53010.16 59169.04Purchase of Investment -65992 -53075.99 -59249.81

Disposal/Redemption of Investment -533.20 -65.83 80.77

The investments have reduced from the last year due to the redemption of investments taken

place to meet various needs such as increasing demand in stock or inventory and to ensure

better credit and receivables policy. We can see that the firm has in these three years

increased their cash inflow from the investing activities by way of disposal of investments

when in need.

The investments in mutual funds are beneficial to the firm in the context that they contain

interest bearing securities which add up as a source of revenue for the firm unlike cash which

remains idle and unproductive when not in use. This reduction of dividend could be attributed

to disposal of investments in mutual funds and subsidiary

Liquid Cash Balance

The liquid cash maintained in the business is only that much as is required to satisfy the daily

requirements of the firm and not more. The rest of the cash is invested into mutual funds and

also held in fixed deposits and current accounts.


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Instruments Used

The instrument used here are primarily cheques comprising of around 97% of what is used in.

The rest 2-3% comprise of the letters of credit.

Thus working capital is the lifeline for every business. The main advantages of sufficient

working capital are:

It helps in prompt payment

Ensures high solvency in the company and good credit standing.

Regular supply of material and continuous production.

Ensures regular payment of salaries and wages and day to day commitments.


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RECEIVABLES

MANAGEMENT

Cash flow can be significantly enhanced if the amounts owing to a business are collected

faster. Every business needs to know.... who owes them money.... how much is owed.... how

long it is owing.... for what it is owed.

Late payments erode profits and can lead to bad debts.

Slow payment has a crippling effect on business; in particular on small businesses whom

can least afford it. If you don't manage debtors, they will begin to manage your business as

you will gradually lose control due to reduced cash flow and, of course, you could

experience an increased incidence of bad debt.

The following measures will help manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets the

priority it deserves.

2. Establish clear credit practices as a matter of company policy.

3. Make sure that these practices are clearly understood by staff, suppliers and customers.

4. Be professional when accepting new accounts, and especially larger ones.

5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank

references, industry sources etc.


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6. Establish credit limits for each customer and stick to them.

7. Consider charging penalties on overdue accounts.

8. Consider accepting credit /debit cards as a payment option.

Recognize that the longer someone owes you, the greater the chance you will never get

paid. If the average age of your debtors is getting longer, or is already very long, you may

need to look for the following possible defects.

Poor collection procedures.

Lax enforcement of credit terms.

Slow issue of invoices or statements. Errors in invoices or statements.

Customer dissatisfaction.

Weak credit judgement.

Debtors due over 90 days (unless within agreed credit terms) should generally demand

immediate attention. Look for the warning signs of a future bad debt. For example..

1. Longer credit terms taken with approval, particularly for smaller orders.

2. Use of post-dated checks by debtors who normally settle within agreed terms.

3. Evidence of customers switching to additional suppliers for the same goods.

4. New customers who are reluctant to give credit references.

5. Receiving part payments from debtors.


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Profi ts only come from paid sales.

The act of collecting money is one, which most people dislike for many reasons and therefore put on the long finger because they convince themselves that there is something more urgent or

important that demand their attention now. There is nothing more important than getting paid

for your product or service. A customer who does not pay is not a customer.

HERE ARE FEW WAYS IN COLLECTING MONEY FROM DEBTORS : -

Develop appropriate procedures for handling late payments.

Track and pursue late payers

Dont feel guilty asking for money. I ts yours and you are entitled to it.

Make that call now. And keep asking until you get some satisfaction.

In difficult circumstances, take what you can now and agree terms for the remainder.

When asking for your money, be hard on the issue but soft on the person. Dont give the

debtor any excuses for not paying.

Make sure that your objective is to get the money, not to score points.

R ECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS :

Debtor Turnover Ratio = Net Credit Sales / Average Debtors

A better turnover ratio implies for the firm, more efficiency in converting the accounts receivable

to cash. A firm with very high turnover ratio can take the freedom of holding very little balances

PARTICULARS 2013 2012 2011 2010

DEBTORS TURNOVER RATIO 5.21 5.80 5.53 6.62

AVERAGE COLLECTION PERIOD 70 63 66 55


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Initiating legal actions

Real Time Gross Settlement (RTGS)

Real Time Gross Settlement as such is a concept new in nature and though the firm uses the

system with all the members of the consortium, it is still in its primal stage and will take time

before all of the clients of the firm are willing to accept it. The firm has made a proposal to the

consortium of the banks during appraisal for faster implementation of internet based banking

facility by all the banks and adoption of RTGS payment system through net.

The debtors turnover ratio is completely dependent upon the credit policy followed by the firm.

The credit policy followed by the firm should be such that the threat of bad debts and the default

rate involved should be terminated.

PARTICULARS 2013 2012 2011 2010

CREDITORS TURNOVER RATIO 16.44 15.68 21.29 21.14

PAYMENT PERIOD 22 23 17 16

CREDITORS TURNOVER RATIO = Net Credit Purchase / Average Account Payable

That the creditors turnover ratio has declined and payment period has increased indicate that the

company has got a leeway in making the payment to the creditors by way of increased time.

With creditors they are having pre-agreements and have undertaken arrangements with them,

which they believe to be the best in the business and these are fixed.

(NOTE: Acceptances are not included in the computation of creditors turnover)


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MANAGING PAYABLES

Creditors)

Creditors are a vital part of effective cash man agement and shou ld be managed careful ly to

enh ance the cash posit ion .

Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity

problems.

Consider the following: -

Who authorizes purchasing in your company - is it tightly managed or spread among a

number of (junior) people?

Are purchase quantities geared to demand forecasts?

Do you use order quantities, which take account of stock holding and purchasing costs?

Do you know the cost to the company of carrying stock?

Do you have alternative sources of supply? If not, get quotes from major suppliers and shop

around for the best discounts, credit terms as it reduces dependence on a single supplier.

How many of your suppliers have a return policy?

Are you in a position to pass on cost increases quickly through price increases to your

customers?

If a supplier of goods or services lets you down can you charge back the cost of the delay?

Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-

time basis?


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In this, the firm follows a financial plan, which matches the expected life of assets with the

expected life of source of funds raised to finance assets. When the firm

Follows this 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.

Conservative Approach

In this, the firm finances its permanent assets and also a part of temporary current assets with

long term financing. In the periods when the firm has no need for temporary current assets, the

long-term funds can be invested in tradable securities to conserve liquidity. In this the firm has

less risk of facing the problem of shortage of funds.

Aggressive Approach

In this, the firm uses more short term financing than warranted by the matching plan. Under an

aggressive plan, the firm finances a part of its current assets with short term financing.

Relatively more use of short term financing makes the firm more risky.

Current asset to fixed asset ratio:

The financial manager should determine the optimum level of current assets so that the wealth

of shareholders is maximized. A firm needs fixed and current assets to support a particular level

of output.

The level of current assets can be measured by relating current assets. Dividing current assets

by fixed assets gives CA/FA ratio. Assuming a constant level of fixed assets, a higher CA/FA


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FINDINGS AND

SUGGESTIONS

The management of working capital plays a vital role in running of a successful business. So,

things should go with a proper understanding for managing cash, receivables and inventory.

HCL Infosystems is managing its working capital in a good manner, but still there is some

scope for improvement in its management. This can help the company in raising its profit level

by making less investment in accounts receivables and stocks etc. This wil l ultimately

improve the efficiency of its operations. Following are few recommendations given to the

company in achieving its desired objectives:

The business runs successfully with adequate amount of the working capital but the

company should see to it that the cash should not be tied up in excessive amount of

working capital.

Though the present collection system is near perfect, the company as due to the

increasing sales should adopt more effective measures so as to counter the threat of bad

debts.

The over purchasing function should be avoided as it could lead to liquidity problems.

The investment of cash in marketable securities should be increased, as it is very

profitable for the company.

Holding of excessive and insufficient stock must be avoided as it creates a burden on

the cash resources of a business and results in lost sales, delays for customers, etc

respectively.


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LIMITATIONS OF THE STUDY We cannot do comparisons with other companies unless and until we have the

data of other companies on the same subject.

Only the printed data about the company will be available and not the back end

details.

Future plans of the company will not be disclosed to the trainees.

Lastly, due to shortage of time it is not possible to cover all the factors and details

regarding the subject of study.

The latest financial data could not be reported as the companys websites have not

been updated.


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COCLUSIONS

The working capital position of the company is sound and the various sources throughwhich it is funded are optimal.

The company has used its dividend policy, purchasing, financing and investment

decisions to good effect can be seen from the inferences made earlier in the project.

The doubtful debts have been doubled over the years but their percentage on the debts

has almost become half. This implies a sales and collection policy that get along with the

receivables management of the firm.

The returns have been affected by a marked growth in working capital and though a

29.75% in 2012 return on investment is good, but it got reduced as compared to 39.01%

return in 2011.

The various ratios calculated are an indicator as to the fact that the profitability of the

firm and sales are on a rise and also the deletion of the inefficiencies in the working

capital management.

The firm has not compromised on profitability despite the high liquidity is commendable.

HCL Infosystems has reached a position where the default costs are as low as negligible

and where they can readily factor their accounts receivables for availing finance is

noteworthy


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12.1 Last 5 years Balance Sheet:

Balance sheet(Rs crore)

Jun ' 13 Jun ' 12 Jun ' 11 Jun ' 10 Jun ' 09

Sources of funds

Owner's fund

Equity share capital 44.58 44.58 44.58 43.65 34.24

Share application money - - - 17.67 -

Preference share capital - - - - -

Reserves & surplus 1,791.25 1,872.58 1,902.46 1,860.94 1,098.12

Loan funds

Secured loans 502.01 65.94 110.43 152.02 101.85

Unsecured loans 453.97 534.62 467.11 357.91 125.00

Total 2,791.81 2,517.72 2,524.58 2,432.19 1,359.21

Uses of funds

Fixed assets

Gross block 414.94 389.29 364.05 274.88 234.10

Less : revaluation reserve - - - - -

Less : accumulated depreciation 154.67 137.13 131.99 103.66 83.47


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Net block 260.27 252.16 232.06 171.22 150.63

Capital work-in-progress 38.91 46.06 19.95 25.69 9.50

Investments 1,059.10 549.59 705.05 911.19 276.10

Net current assets

Current assets, loans & advances 4,065.93 4,019.39 3,620.19 3,625.87 2,904.68

Less : current liabilities & provisions 2,632.40 2,349.48 2,052.67 2,301.78 1,981.70

Total net current assets 1,433.53 1,669.91 1,567.52 1,324.09 922.98

Miscellaneous expenses not written - - - - -

Total 2,791.81 2,517.72 2,524.58 2,432.19 1,359.21

Notes:

Book value of unquoted investments 1,000.67 610.66 648.46 911.19 276.10

Market value of quoted investments 58.43 56.75 56.59 - -

Contingent liabilities 562.79 - 338.98 113.65 57.18

Number of equity sharesoutstanding (Lacs) 2228.80 2228.80 2228.80 2182.59 1712.12

Profit nd Loss account


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(Rs crore)


Sources of funds

Owner's fund

Equity sharecapital 44.58 44.58 44.58 43.65 34.24

Share applicationmoney - - - 17.67 -

Preference sharecapital - - - - -

Reserves &surplus 1,791.25 1,872.58 1,902.46 1,860.94 1,098.12

Loan funds

Secured loans 502.01 65.94 110.43 152.02 101.85

Unsecured loans 453.97 534.62 467.11 357.91 125Total 2,791.81 2,517.72 2,524.58 2,432.19 1,359.21

Uses of funds

Fixed assets

Gross block 414.94 389.29 364.05 274.88 234.1

Less : revaluationreserve - - - - -

Less :accumulateddepreciation 154.67 137.13 131.99 103.66 83.47

Net block 260.27 252.16 232.06 171.22 150.63

Capital work-in-progress 38.91 46.06 19.95 25.69 9.5

Investments 1,059.10 549.59 705.05 911.19 276.1

Net current assets

Current assets,loans & advances 4,065.93 4,019.39 3,620.19 3,625.87 2,904.68

Less : currentliabilities &provisions 2,632.40 2,349.48 2,052.67 2,301.78 1,981.70

Total net currentassets 1,433.53 1,669.91 1,567.52 1,324.09 922.98

Miscellaneousexpenses notwritten - - - - -

Total 2,791.81 2,517.72 2,524.58 2,432.19 1,359.21

Notes:


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Book value ofunquotedinvestments 1,000.67 610.66 648.46 911.19 276.1

Market value ofquotedinvestments 58.43 56.75 56.59 - -

Contingentliabilities 562.79 - 338.98 113.65 57.18

Number of equitysharesoutstanding(Lacs) 2228.8 2228.8 2228.8 2182.59 1712.12


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Cash flow Statement

(Rs crore)Jun ' 13 Jun ' 12 Jun ' 11 Jun ' 10 Jun ' 09

Profit before tax -126.87 61.54 237.1 368.65 373.86

Net cashflow-operatingactivity 275.24 183.55 18.12 24.6 267.55

Net cash used ininvesting activity -533.2 -65.43 80.77 -730.78 -73.62

Netcash used in fin. Activity 259.37 -128.12 -156.81 795.8 -309.08

Net inc/dec in cash andequivlnt 1.41 -10 -57.92 89.62 -115.15

Cash and equivalntbegin of year 220.5 230.5 292.61 202.99 318.14

Cash and equivalnt endof year 221.91 220.5 234.69 292.61 202.99

my finalllll project

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