summer training report on wcm for bhel

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SUMMER TRAINING REPORT ON

WORKING CAPITAL MANAGEMENT IN B.H.E.L. For BHARAT HEAVY ELECTRICAL LIMITED By ARVIND KUMAR F-08In particle fulfillment for the award of the degree Post Graduate Diploma in Business Management 2009-2011

New Delhi Institution of ManagementF -13, Okhla Phase -1, New Delhi, Pin: 110020

1NEW DELHI INSTITUTION OF MANAGEMENT

WORKING CAPITAL MANAGEMENT IN B.H.E.L.

FOR

BHARAT HEAVY ELECTRICAL LIMITEDUnder the supervision Of

Mr. Ashok Kumar Srivastava

Submitted ByArvind Kumar F-08

Submitted toMonika Nijhawan

PREFACE2NEW DELHI INSTITUTION OF MANAGEMENT

Learning categorizes you and practicing on that learning specializes you.Theoretical concepts taught and discussed in the classroom prove useful if they have to remain relevant. Practice orientation of management student is must generating competence to deal with issues at grass root level it is for this reason that training & project study is prescribed as a part of syllabus for MBA Degree in Delhi. This training is the mode of imparting practical training to the student. The objective is to provide a deep insight into practical aspects of the functioning of the organization. The train apprises the student to the actual function, responsibility and problem faced by an organization. It provides him with the knowledge of the various kind of problem that crop up in the day to day functioning of the organization .The way they are solved by the departments and appraisal of the crucial decision taken by the manager at the crucial time. I was fortunate enough to complete my Financial training at Bharat Heavy Electrical Limited (BHEL, HERP), Shivpur Tarna Varanasi. This has given me an altogether new experience, which would be immense help to me in my days to come.

ACKNOWLEDGEMENT3NEW DELHI INSTITUTION OF MANAGEMENT

I wish to acknowledge my specific indebtness to director New Delhi Institution of Management, who made this opportunity to perform financial training as a part of MBA degree Course. I wish to extend my Sincere Gratitude towards Mr. Ashok Shrivastav Accounts Officer (BHEL HERP, Varanasi) for accepting me as a summer trainee and assigning this project to me. I am extremely grateful to Mr. R.K. Sharma for their valuable guidance and best possible help during course of study. I am deeply grateful to my parents who have given me every help and moral support and their constant advice which enabled me to pursue my academic aim. Thanks to other summer trainees for their co-operation and suggestions throughout this project.

ARVIND KUMAR MBA 2009-2011

DECLARATION

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I Arvind Kumar student of New Delhi Institution of Management 2009 2011 declare that every part of the Project Report on Working capital management in Bharat Heavy Electrical Limited that I have submitted is original. I was in regular contact with the nominated guide and contacted from 2pm to5pm for discussing the project.

Date of project submission:_______________ Signature of the Student (Arvind Kumar) Facultys Comment ________________________________________________ __________________________________________________________________ __________________________________________________________________ ___________________________________ Signature of Faculty Name

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TABLE OF CONTENTSS.NO 1 2 3 4 5 6 7 8 9 10 11 TOPIC INTRODUCTION OF PROJECT OVERVIEW OF B.H.E.L UNIT DETAILS WORKING CAPITAL MANAGEMENT COMPONENTS OF WORKING CAPITAL MAJOR OF LEARNING OBJECTIVE OF LEARNING RESEARCH METHODOLOGY RECOMMENDATION & SUGGESTION CONCLUTION BIBLIOGRAPHY PAGE 8 10 32 37 47 61 62 63 64 65 67

Executive summery

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Working capital is the capital required for maintenance of day-to-day business operations. The present day competitive market environment calls for an efficient management of working capital. The reason for this is attributed to the fact that an ineffective working capital management may force the firm to stop its business operations, may even lead to bankruptcy. Hence the goal of working capital management is not just concerned with the management of current assets & current liabilities but also in maintaining a satisfactory level of working capital. Holding of current assets in substantial amount strengthens the liquidity position & reduces the riskiness but only at the expense of profitability. Therefore achieving risk-return trade off is significant in holding of current assets. While cash outflows are predictable it runs contrary in case of cash inflows. Sales program of any business concern does not bring back cash immediately. There is a time lag that exists between sale of goods & sales realization. The capital requirement during this time lag is maintained by working capital in the form of current assets. The whole process of this conversion is explained by the operating cycle concept. This study gives in detail the working capital management practices in BHEL. Management of each current asset, namely inventory management, cash management, accounts receivable management is studied permanent to BHEL. Similarly management of accounts payable is studied to understand the managing of current liabilities. A part from this concept of operating cycle is studied. The research methodology adopted for this study is mainly from secondary sources of data which include annual reports of BHEL, & website of the company. The use of primary sources is limited to interviews with few of the employees in finance department. The study of working capital management has shown that BHEL has a strong working capital position. The company is also enjoying reasonable profits. BHEL has corporate tie up with maximum leading Banks in India for providing short and medium term finance to the company. For financial requirement of projects outside India, BHEL has arranged for ex funds. BHEL sales position is also very good. Its excellent performance is attributed to reduced cost of product The overall position of BHEL is good & the same is expected by continuum of existing management policies, checking exchange rate risk, competing with domestic and global players in terms of quality & quantity.

IntroductionCapital is essential for the setting up and smooth running of any business. Investments made on fixed assets will yield excess cash inflows apart from the payback amount and is spread over a longer period of time. Hence the cash inflows (or) benefits associated are not immediate7NEW DELHI INSTITUTION OF MANAGEMENT

but are expected in the future. Cash inflows & outflows occur on a continuous basis in case of current assets. Credit forms an essential feature in the business (credit given to customers & credit from suppliers). Since there is some time lag from the time of sales & sales realization current assets & current liabilities, which together constitute the net working capital, supports the business in its normal of operations. This calls for an efficient management of working capital. The policies, procedures and measures taken for managing of working capital gain further importance in an organization like BHEL where the working capital requirements runs in crores of rupees. Any mismanagement on the part of authority will not just cause loss but may even impair business operations. It is in this context working capital has gained importance. The growth of any organization depends on overall performance of all the departments. A firms financial performance reflects its strength, weaknesses, opportunities and threats of the organization with respect to profits earned, investments, sales realization, turnover, turn on investment, net worth of capital. Efficient management of financial resources and analysis of financial results are prerequisite for success of an enterprise. In that working capital management is one of the major areas of financial management. Managing of working capital implies managing of current assets of the company like cash, inventory, accounts receivable, loans and advances and current liabilities like sundry creditors, interest payment and provision.

HISTORICAL BACKGROUND AND MILESTONES OF BHEL

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December 1946 : August 1952: August 1952 :

Scope of setting up Heavy Electrical Industry in India. Project revived by the ministry of production. Gadkari Committee formed of examining Feasibility of state owned Heavy Electrical Industry. Gadara Committee recommends establishing of State owned factory. Collaboration agreement entered with EI,UK For 15 years. BHEL registered. Foundation stone laid. Production started in Bhopal. Break even reached. Merger with BHEL and ISO 9001 certificate. TQM assessment undertaken that is the first Among all the BHEL units.

January 1955 : November1955 : 29th Aug 1956: 15th NOV. 1958: 1st July 1960: 1972-1973: 1st Jan 1974: 23rd to 28th 1998 :

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BHEL as an overviewBHEL is largest engineering and manufacturing enterprise in India in the energy related/infrastructure sector. BHEL was established more than four decades ago ushering in the indigenous Heavy Electrical Equipment industry in India. BHEL has built over the years, a robust domestic market position by becoming the largest supplier of power plant equipment in India, and by developing strong market presence in select segment of the industry sector and the Railway. Currently, 80% of the Nuclear power generation in the country is through BHEL sets. BHEL caters to core sector of the Indian Economy viz.., power Generation and Transmission, Industry, Transportation Renewable Energy, Defense, etc. The wide network of BHELs 14 manufacturing division, 4