working capital management in hcl infosystem

8/12/2019 Working Capital Management in Hcl Infosystem

1/30

CHAPTER I

INTRODUCTION

Working Capital Management is concerned with problems that arise in attempting to manage thecurrent assets, the current liabilities and the interrelationship that exist between them. The term

current assets refer to those assets which in ordinary course of business can be, or will be

converted into cash within one year without undergoing a diminution in value and without

disrupting the operations of the firm. The major current assets are cash, marketable securities,

accounts receivable and inventory. Current liabilities are those liabilities which are intended, at

their inception, to be paid in the ordinary course of business, within a year, out of current assets

or earnings of the concern. The basic current liabilities are accounts payable, bills payable, bank

overdraft and outstanding expenses. The goal of Working Capital Management is to manage the

firm s current assets and current liabilities in such a way that a satisfactory level of Working

Capital is maintained. This is so because if the firm cannot maintain a satisfactory level of

Working Capital, it is likely to become insolvent and may even be forced into bankruptcy. The

current assets should be large enough to cover its current liabilities in order to ensure a

reasonable margin of safety. !evertheless the level of current assets should not be too high since

in that case it will affect the overall profitability of the firm. The interaction between current

assets and current liabilities is, therefore the main theme of Working Capital Management.Conceptual Framework

"nderstand #evel $f Current %ssests %nd Current #iabilities

Working Capital Cycle $f &C# '!($)*)T+M)

Cash Management

'nventory Management

eceivables Management

(inancial Condition $f &C# '!($)*)T+M

')- +T" ! %!%#*)')

(inancial /erformance

1.3Indu rt!"Compan! Pro#$le

0


2/30

&C# 'nfosystems #td. 's one of the pioneers in the 't market, with its origin in 0123. The

company has been in the forefront in introducing new technologies and solutions. 't has

drawn its strength since 45 years of experience in handling the ever changing 'T scenario,

strong customer relationships, ability to provide the cutting edge technology at best value

for money and on the top of it, an excellent service and support infrastructure. Today

&C# is the country s premier information enabling company. 't offers one stop shop

convenience to its diverse customers having a diverse set of re6uirements.

)ince, last 45 years &C# has been continuing the relationship with the customer, thereby

increasing customer confidence in it.

The strengths of the company are7

%bility to understand customers business and offer right technology.

#ong standing relationship with customers.

8est value for money offerings.

%COPE OF THE %TUD&

(rom this project we have a broad knowledge on different aspects of working capital

management. )ome of the aspects of working capital management are7

To -now Concepts of working capital management.

What 's The !eed of working capital

What 's $perating cycle or working capital cycle9

What are (actors affecting working capital re6uirements9

:


3/30

CHAPTER II

OPERATIN' C&C(E

TRADE)OFF *ET+EEN PROFITA*I(IT& AND RI%,-

The level of net working capital has a bearing on profitability as well as risk. &ence in evaluating

firms working capital position an important consideration is the trade off between profitability

and risk. /rofitability refers to the net profits and risk refers to the probability of being insolvent

so that the firm will not be able to meet its obligations when they become due for payment.

DETER ININ' FINANCIN' I/-

$ne of the most important decisions involved in the management of working capital is how

current assets will be financed. There are broadly two sources from which funds can be raised for

asset financing7 i; short term sources


4/30

=


5/30

%0ort)Term " (on2 Term F$nanc$n2

Computat$on o# Operat$n2 C!cle

$perating Cycle > ?W?(?@ C

> aw material storage period

W> Work in progress period

(> (inished goods storage period

@> @ebtors collection period

C>Creditors deferral /eriod

The various components of operating cycle may be calculated as shown below7

A

%0ort)Term (on2)Term

%0ort)Term

Temporar!4oderate

R$ k)Pro#$ta5$l$t!

(ow

R$ k)Pro#$ta5$l$t!

(on2)Term

Permanent4

H$20

R$ k)Pro#$ta5$l$t!

oderate

R$ k)Pro#$ta5$l$t!

F$nanc$n2atur$t!

A etatur$t

%verage stock of raw material

%verage cost of raw material consumed perday


6/30

aw Material )torage /eriod >

Work in progress holding period >

(inished goods storage period >

@ebtors collection period >

Credit collection period >

Trade Cred$t-

Trade credit refers to the credit extended by the supplier of goods and services in the normalcourse of transactionBbusinessBsale of the firm i.e., cash is not paid immediately for purchases but

after an agreed period of time. Thus, deferral of payment represents a source of finance for credit

purchases.

There is however, no formal formalBspecific negotiation for trade credit. 't is an informal

arrangement between the buyer and seller without any legal instruments or acknowledgements of

debts. )uch credit appears in the record of buyer of goods as sundry creditorsBaccounts payable.

CHAPTER III

3

%verage work in progress inventory

%verage cost of production per day

%verage stock of finished goods

%verage cost of goods sold per day

%verage book debts

%verage credit sales per day

%verage trade creditors

%verage credit purchases per day


7/30

CA%H ANA'E ENT

Introduct$on to t0e concept o# Ca 0 ana2ement

Cash management is one of the key areas of working capital management. %part from the fact

that it is the most current li6uid assets, cash is the most common denominator to which all the

current assets can be reduced because the other major li6uid assets, that is, receivables and

inventory get eventually converted into cash. This underlines the significance of cash

management.

RECEI A*(E% ANA'E ENT

Introduct$on to t0e concept o# Rece$6a5le ana2ement-

The receivables represent an important component of the current assets of any firm. The term

receivables are defined as debt owe to the firm by the customers arising from sale of goods and

services in the ordinary course of business . When a firm makes an ordinary sale of goods or

services and does not receive payment, the firm grants trade credit and creates accountsreceivable. 't is also referred as trade credit management. Management should way the benefits

as well as the costs to determine the goal of receivables management.

IN ENTOR& ANA'E ENT

Introduct$on to t0e concept o# In6entor! ana2ement

The term inventory refers to the stock of the products a firm is offering for sale and the

components that make up the product. That is, inventory is composed of assets that will be sold

in future in the normal course of business operations. These assets are i; aw materials, ii;

Work in progress and iii; (inished goods. The views concerning the appropriate level of

inventory would differ among the different functional areas.

2


8/30

(ive *ear (inancial $verview

D

:504 :50: :500 :505 :551sB#acs


9/30

%ssets E #iabilities

1

:5504 :50: :500 :505 :551F& 78 F& 79 F&7:F& 78 F& 79 F&7: F& 78 F& 79 F&7:F& 78 F& 79 F&7: %pril 5D%pril 5D

sB#akhs

:504 :50: :500 :505 :551


10/30

CHAPTER I

FINANCIA( PERFOR ANCE

1. 'ro Re6enue-

evenue grew by 23F from s. ==0: crores in the previous year to s. 22D= crores in

the current year.

evenue for the /arent Company grew by :1F from s. 0A:: crores in the previous

year to s. 0132 crores in the current year.

;. Ot0er Income-

$ther 'ncome for the current year is s. A0 crores as against s. :1 crores in the

previous year. 't includes income from investment in Mutual (unds s.00 crores


11/30

%ell$n2> D$ tr$5ut$on and ot0er -

+xpenses amounted to s. 015 crores, as against s. 0:2 crores in the previous year.

The expenses as a F to sales declined to :.=F from 4.5F.

8. Operat$n2 Pro#$t E*IDT4-

$perating profit excluding $ther income grew by :DF from s. :51 crores in the

previous year to s. :3D crores.

9. F$nance C0ar2e -

(inance charges for the year is s. D crores as against s. 1 crores in the previous

year.

:. Pro#$t *e#ore Ta?-

/8T grew by =5F from s. :0: crores in the previous year to s. :13 crores in thecurrent year.

/8T for /arent Company grew by 03F from s. 0:D crores in the previous year to

s. 0=1 crores in the current year.

@. Pro#$t A#ter Ta?-

00


12/30

/rofit after tax grew by 45F from s. 02A crores in the previous year to s. ::D

crores. The profits for the current year are after a provision for s. 3A crores for

current tax expenses, s. : crores for deferred tax expenses and s. 0 crore for (ringe

8enefit Tax applicable from %pril 5A.

/rofit after tax for the /arent Company grew by 05F from s. 0:0 crores in the

previous year to s. 044 crores.

17. D$6$dend-

The company continued with the practice of declaring 6uarterly dividend accordingly.

't distributed dividends I 25F in each of the first three 6uarters. The company

proposes to pay a final dividend of s 055F per fully paid up e6uity share s. :B

each. The interim dividends paid together with proposed final dividend total to 405 F

for the current year, entailing an outflow of s. 002 crores including distribution tax.

11. Earn$n2 Per %0are-

Consolidated 8asic +/) grew from s 05.1 in the previous year to s. 04.2 in the

current year. @iluted +/) grew from s. 05.: in the previous year to s. 0:.1 in the

current year.

8asic +/) of the /arent Company grew from s. 2.A in the previous year to s. D.5 in

the current year. @iluted +/) grew from s. 2.5 in the previous year to s. 2.A in the

current year.

0:


13/30

CHAPTER

FINANCIA( CONDITION%

1. Net +ort0" %0are0older Fund - !et Worth as on 45th

Hune :505 is ). AAAcrores. )hare capital as at 45 th Hune :505 is s. 44.= crores divided into 03.2 crores

share of s. :B each. eserves E surplus as at 45 th Hune :505 is s. A5 Crores after

appropriating s. 002.4 crores for three 6uarterly interim and final dividends.

!et worth of the /arent Company is s. =4A crores. The book value per s :B share

of the /arent Company increase from s. := as on 45 th Hune :505 to s. :3 as on 45 th

Hune :505.

@uring the year, the Company allotted A.=3 lakh share of s. 05B each


14/30

3. In6entor$e - 'nventories increased from s. :D5 crores as on 45 th Hune :551 to s

4=1 crores as on 45 th Hune :505 . The inventory turn over on sales grew from 0A.2

times in the previous year to ::.4 times in the current year.

'nventories of /arent Company increased from s. 030 crores as on 45 th Hune :551 to

s. 0DD crores as on 45 th Hune :505. The inventory turn over on sales grew from 1.=

times in the the previous year to 05.A in the current year.


15/30

$ther current assets of the /arent Company increased from s. =5 crores as on 45 th

Hune :551 to s 000 crores as on 45 th Hune :505. #ease rent recoverable as on 45 th

Hune :505 is s. 35 crores.

9. Current ($a5$l$t$e B Pro6$ $on - Current #iabilities E /rovisions increased from

s. 312 crores as on 45 th Hune :551 to s. D34 crores as on 45 th Hune :505.

Current liabilities and provisions of the /arent Company increased from s . 41D

crores as on 45 th Hune :551 to =3D crores as on 45 th Hune :505.

:. Ca 0 Flow- The Cash generation from operating activities in the current year is s.

0:2 crores.

The cash generation of /arent Company from operating activities in the current year

is s. :2 crores.

0A


16/30

8alance )heet for the *ear +nded as on March 048alance )heet for the *ear +nded as on March 04

03

*alance %0eet #or t0e &ear Ended a on 31*alance %0eet #or t0e &ear Ended a on 31 tt arc0 ;713arc0 ;713

;713;713 ;71; ;71;


17/30

02

CA%H F(O+ %TATE ENT FOR THE &EAR ENDED 31CA%H F(O+ %TATE ENT FOR THE &EAR ENDED 31 %T%T ARCH> ;713ARCH> ;713

:504:504 :50::50:


18/30

0D

CA%H F(O+ %TATE ENT FOR THE &EAR ENDED 31CA%H F(O+ %TATE ENT FOR THE &EAR ENDED 31 %T%T ARCH ;713ARCH ;713

;713;713

;71; ;71;

. Cash (low )tatement for the *ear +nded 40. Cash (low )tatement for the *ear +nded 40 stst March :50:March :50:


19/30

+OR,IN' CAPITA( PO%ITION $n crore 4

Working Capital /osition

The 0=4 percent increase in !et Current %ssets is due to the fact that there has been an increase

in the Current %ssets by A5.24F and increase in Current #iability has been only 02.A5F over

that of the previous year. The firm s level of li6uidity being high we need a check on whether it

affects the return on assets. !ow there is a substantial increase in the current assets to total

assets. This could be less profitable on the assumption that current assets generate lesser return as

compared with return on fixed assets.

01

;713 ;71; ;711 ;717

CURRENT A%%ET% D0A44 A=510 =A5=: AA1DA

NET FI/ED A%%ET% A4:1 =1:A =1A= AAA:

TOTA( A%%ET% 11041 D2523 20:DA 2A:5A

CA " TA D:.:= 3:.00 34.0D 2=.==

NET CURRENT A%%ET% 4=2=: 0=450 0D2A: :253A


20/30

RI%,)RETURN ANA(&%I%

;713 ;71; ;713%A(E% 011DD3 0A=:1A 03335=

E*IT 0A34= 0=A:4 00=10RETURN ON IN E%T ENT 4 41 2A.A

isk eturn %nalysis

'n case instead of !et Current assets and net block if total assets had been used in computation of

$' then

TOTA( A%%ET% A:4=D =2:D3RETURN ON IN E%T ENT 4 35.43 45.4

CURRENT A%%ET %CENARIO

CO PONENT ;713 ;71;'!L+!T$ * :4.52 :1.D0)"!@ * @+8T$ ) =A.42 A=.=AC%)& %!@ 8%!- %))+T) 02.DD D.:A

$T&+ C" +!T %))+T) 1.2= :.3D#$%! %!@ %@L%!C+) 4.14 =.21

While there has been increase in the value of all components of the Current %ssets the proportion

of inventory debtors and loans and advances to the current assets have declined. Whether this

proportionate decline to current assets is as a result of reduced lead time and better operating

cycle9 This might directly implicate better receivables management and inventory control.

IN ENTOR& ANA'E ENT

CO PO%ITION ;713 ;71; INC

:5


21/30

%W M%T+ '%# =0.=4 4D :2.:

)T$ +) %!@ )/% +) 0A.DD 03.:A 04.1=

('!')&+@ G$$@) 4D.A0 =5.4= 00.43

W$ - '! / $G +)) =.03 A.= 05.54

'nventory Management

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.

To the 6uestion as to whether the increasing costs in inventory are justified by the returns from it

the answer could be found in the &C# retail expansion. They are more into it than earlier and at

present more than 3A5 retail outlets branded with &C# signages and more are in the pipeline.

This also ensures availability of products to meet the increasing sales.

% negative growth in W'/ could be because of

0; 8etter and efficient conversion of raw materials to finished goods i.e. the time taken

to convert raw materials after procurement to the end product is very minimal.

:; This also is due to capacity being not utiliJed at the optimum which should mean that

more of goods are stagnant at the operations. 8ut this is not the scenario witnessed here

as could be easily seen from the increased utiliJation of plant capacity.

The 31.AF rise in value is primarily due to the increase in the consumption of raw materials in

processors. This shifting value has to be traced back to the sales of computers B micro processor

based systems i.e. whether sales justify this increase.

:0


22/30

The sales in value have increased by 45F


23/30

&@(C 8%!- 0:55 35:A

)T%!@% @ C&% T+ +@ 8%!- 0:55 =555

)T%T+ 8%!- $( )%" %)&T % 20A =555

)T%T+ 8%!- $( /%T'%#% 0455 44A5

C%!% % 8%!- 0:54 :44A

)$C'+T+ G+!+ %#+ 0555 0555

T$T%# 00A55 4DA55

The consortium of banks provide a fund based limit of 00A crores which comprises of cash credit

and working capital demand loans and non fund based limits which has bank guarantee and letter

of credit subject to a limit of 4DA crores.%ny issue of the commercial paper in the part of the firm

leads to a decline in the limit of fund based limits. Currently the firm having issued commercial

papers worth rs45crores for the year :500 has asked the lead bank to deduct the fund based limit

from 00A crores to DA crores.

'n terms of desirability the commercial papers are cheaper and advantageous to the firm

compared to the consortium financing. 8ut the firm depends on both and for working capital

financing is depended on the banks for funds such as working capital demand loans and cash

credits.

%ECURED (OAN% ;713 ;71; ;711)&$ T T+ M =110.:D 3154.2 =1D2.A:

#$!G T+ M A45.52 5 4=30.43

T$T%# AA:0.4A 3154.2 D==D.DD

F )&$ T T+ M 15.= 055 A1.54

:4


24/30

UN%ECURED (OAN% ;711 ;717 ;77@

)&$ T T+ M :A14.41 34.1= 23.D=

#$!G T+ M 02 031.A0 4:30.=:

T$T%# :305.41 :44.=A 444D.:3

F )&$ T T+ M 11.4=D :2.4D :.4

The preference of short term financing to long term as such is not the part of any policy

employed by the firm but due to the reason that they were cheaper and the interest rates lower.

The other notable feature in &C# statements has been the growing dividend policy of the firm

which has meant that the firm doesn t have at its disposal too much cash in hand. That is the firm

disburse as dividends profits which could have either been retained in the business for capital

expenditure. 8ut rather than investing more in plant and machine which they can at any point in

time by adding on a additional line if need be they would like to optimiJe their utiliJation in

fixed assets at present.

DI IDEND PO(IC&

;713 ;71; ;711

@'L'@+!@ /%'@ < '!C#"@'!@ C@T; 002:1.31 22:4.:: 4A11.21

/ $('T %(T+ T% 04:23.2A 0:5D1.3= 302:.D1

@'L'@+!@ /%* $"T %T'$ DD.4= 34.DD AD.40

:=


25/30

The dividend pay out ratio is increasing tremendously over the years. @ividends imply outflow

of cash and lowers future growth. &owever a high dividend pay out ratio may lead to a rise in

prices of shares.

(OAN% AND AD ANCE%

)+C" +@ #$%!)

;713 ;71; ;711

T$T%# 8$ $W'!G) AA:0.4A 3154.2 D==D.DD

)&$ T T+ M =110.:D 3154.2 =1D2.A:

/+ C+!T%G+ )&$ T T+ M 15 055 A1

"! )+C" +@ #$%!)

;713 ;71; ;711

T$T%# 8$ $W'!G) :305.41 :44.=A 444D.:3

)&$ T T+ M :A14.41 34.1= 23.D=

/+ C+!T%G+ )&$ T T+ M 11.43 :2.41 :.4

The company is going for more and more shore term financing, could be because of the fact that

it is considered as a cheaper source than long term financing.

:A


26/30

CHAPTER I

CONC(U%ION


27/30

All t0e a5o6e rat$o 0ow a decrea ed or un#a6ora5le $tuat$on 5ecau e o# t0e work o#

ent$re replacement o# coolant c0annel> due to w0$c0 t0e product$on proce 0ad 5een

topped.


28/30

% study may be conducted if re6uired by experts to pinpoint reason behind &C# '!($)*)T+M

#T@. high correction period of 1A days in :505 00 against A5 days of TC) 't is due to 6uality

of products, 6uality of customer, the segment of customers marketing effort, distribution pattern

or other reasons.

Cred$tor

Though high payout days may be apparently beneficial for the company. 't has it very heavy

long term cost like high interest cost, bad credit ratings and shyness of good 6uality B standard

suppliers.

Ca 0 B *ank

This is the most li6uid element in current asset and target shall be fixed most cautiously. Too low

a figure of =.=F of total current assets of &C# 'nfosystems #td. in :505 00 as against 0A.AF of

TC) may be apparently too good to look at, but this may be lead to payment crisis at various

sorts.

Rat$o

The company should try to improve its current situation. The ratios, which are taken in this

research to evaluate the company s position, are Current ratio, Ouick ratio and %ctivity ratio.

These ratios show the actual position of the company. The Ouick ratio is declining since :553 52

till now. There is a drastic declining in the working capital turnover ratio. This ratio goes to

negative position in current year compared to previous. The @ebts collection period is 4A1 days

for +xporters. This shows the poor collection policy. The current ratio is 0.5: in :55D 51, which

:D


29/30

is not upto the ideal ratio. This shows that the current assets are e6ual to the current liabilities.

!ot satisfactory.

:1


30/30

*I*(IO'RAPH&

Re#erred %$te

0. www.google.com:. www.answers.com

4. www.yahoo.com

=. www.amaJon.com

A. www.hclinfosystems.com

Re#erence *ook

3. -han and Hain (inancial Management.

2. 'C%' s Module.
http://www.yahoo.com/http://www.hclinfosystems.com/http://www.yahoo.com/http://www.hclinfosystems.com/

working capital management in hcl infosystem

Documents