Bharti Mobile -2

8/12/2019 Bharti Mobile -2

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RESEARCH REPORT

ON

Working Capital Management forBharti Teletech Ltd.

SUMITT! IN "#$TI#L %UL%ILLMNT O%T& $'UI$MNT O% T& !($ O%M#ST$ O% BUSINSS #!MINIST$#TION

MAHAMAYA TECHNICAL UNIVERSITY,NOIDA

SUBMITT! B)* SUBMITT! TO*

Jitendra kumar Mr. Nitin Shrivastav

M.B.A. 4thSem. H.O.D of Management

Roll No.- !!"4#!!$$ De%artment& B'(.

Mu)affernagar

*uide

+uneet Salu,a


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ANO/01D*1M1N(

Indebted to many people who helped throughout the project work and in the preparation of

this report. First of all I would like to offer my sincere gratitude to Mr. Sanjeev Sehgal,

project director and Deputy finance manager of !"#$I $%&%$%'! &$D and IMS for

giving me the opportunity to undertake this project.

I would also wish to special thank my project guide Mr. Sandeep (ain, project guide in

!"#$I $%&%$%'! &$D for his valuable guidance during the course of the project.

I owe special debt to Fellow professionals at !"#$I $%&%$%'! &$D, Mr. "poorv )umar,

Mr. "marender (ena and Mr. #ajeev *uha for having shared the knowledge for providing me

the constant support and valuable suggestions through the project.

My thanks are also to Dr. +radeep Suri who has helped in organiing this project.

I am also thankful to all my friends for providing me the much needed the moral support

during the course of this project.

I$. Muaffernager (itendra )umar

-M"I/ Sem0


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+R12A1

$he present study was undertaken as a part of the organiational training -10 'omponent of

the M" course of masters in business studies in financial management.

$he object of this training was to develop information search skills into students. $his enables

them to gather information on a given subject in a systematic and consciously planned

manner.

$he study was done as the project for %%$%& &td, 2ew Delhi. %%$%& is engaged in

production of range of basic and cordless phones and is also 2ational distributor of Motorola

handsets in India.

$he study was carried out during the months of 2ov.Dec.11 It3s objective was to study the

concept of 4orking 'apital Management in detail in %%$%& and make suggestions about

the study.


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ON(1N(S

ertifi3ateA3knoledgement

+refa3e

1. %5ecutive summary

6. Introduction

7. 'ompany +rofile

!"#$I

%%$%&

8. #eview of &iterature

'omponents of 4orking 'apital

4orking 'apital 'ycle

Financing 4orking 'apital

Financial #atios

9. :bjective of the study

;. #esearch Methodology


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1516('71

S6MMAR8


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1516('71 S6MMAR8

India in a large and growing economy with rapidly e5panding financial service sector.

Managing working capital is a matter of balance. " company must have sufficient cash on

hand to meet its immediate needs while ensuring that idle cash is invested to the

organiation3s best possible advantage. $o avoid tipping the scale, it is necessary to have clear

and accurate reports on each of the components of working capital and awareness of the

potential impact of outside influences.

/OR'N* A+'(A0 96RR1N( ASS1(S:6RR1N( 0'AB'0'('1S

In the analysis for harti $eletech &imited, a harti *roup 'ompany it was found that the

working capital has increased which could be mainly due to increased sales. $he *ross

:perating 'ycle declined significantly but the reduction was nullified due to the reduction in

inventory conversion period. $his is why we see that 2et operating 'ycle for last two years is

almost identical. $he main areas of emphasis were work in progress conversion period and

creditors conversion period. Debtors conversion period reduced but work in progress and

creditors conversion period increased. Few suggestions that are recommended for better

management of working capital are reducing intercorporate deposits and loans, reducing

finished goods inventory, increment in creditors payment period etc.

$he company uses :perating 'ycle Method to calculate its 4orking 'apital method.

$hus, good management of working capital is part of good financial management. %ffective

use of working capital will contribute to the operational efficiency of a company, optimum

use will help to generate ma5imum returns.


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'N(ROD6('ON


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/OR'N* A+(A0 MANA*1M1N(

%very business needs investment to procure fi5ed assets, which remain in use for a long

period. Money invested in these assets is called C&ong term Funds3 or CFi5ed 'apital3.

usiness also needs funds for shortterm purposes to finance current operations. Investment in

short term assets like cash, inventories, debtors etc., is called CShortterm Funds3 or C4orking

'apital3.

$he ;/orking a%ital


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om%an= +rofile

-

BHAR('


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BHAR(' 1N(1R+R'S1

Bharti 1nter%riseshas successfully focused its strategy on telecom while straddling diverse

fields of business. From the creation of E"irtelE, one of IndiaEs finest brands, to becoming the

largest manufacturer and e5porter of world class telecom terminals under its EeetelE brand,

harti has created a significant position for itself in the global telecommunications

sector. harti "irtel &imited is today acknowledged as one of IndiaEs finest companies, and its

flagship brand E"irtelE, has over 8B million customers across the length and breadth of India.

4hile a joint venture with $ele$ech Inc., S" marked harti3s successful foray into the

'ustomer Management Services business, harti %nterprises3 dynamic diversification has

continued with the company venturing into telecom software development. #ecently, harti

has successfully launched an international venture with %& #othschild *roup owned %:

!oldings India &td., to e5port fresh "gri products e5clusively to markets in %urope and S".

harti also has a joint venture Charti "G" &ife Insurance 'ompany &td.3 with "G",

world leader in financial protection and wealth management. harti has recently forayed into

retail business under a company called harti #etail +vt. &td. It also has a Mo with 4al

Mart for the cash = carry business.


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Highlights

harti %nterprises announced new "pe5 level Strategic :rganiation Structure.

harti "nnounced Strategic #oadmap for its #etail /enture

harti *roup made an arrangement to buy 9.;> direct interest of /odafone in harti

"irtel &imited for SH1.; billion

Sunil . Mittal has been chosen for this year3s +adma hushan "wards

harti "irtel received &etter of :ffer to provide 6* and 7* mobile services in Sri

&anka

*rou% Stru3ture
http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=204&tx_ttnews%5BbackPid%5D=116&cHash=b24c2bf6bchttp://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=203&tx_ttnews%5BbackPid%5D=116&cHash=8568c4a979http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=200&tx_ttnews%5BbackPid%5D=116&cHash=dc21c300a7http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=199&tx_ttnews%5BbackPid%5D=116&cHash=5fb656b278http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=199&tx_ttnews%5BbackPid%5D=116&cHash=5fb656b278http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=204&tx_ttnews%5BbackPid%5D=116&cHash=b24c2bf6bchttp://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=203&tx_ttnews%5BbackPid%5D=116&cHash=8568c4a979http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=200&tx_ttnews%5BbackPid%5D=116&cHash=dc21c300a7http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=199&tx_ttnews%5BbackPid%5D=116&cHash=5fb656b278http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=199&tx_ttnews%5BbackPid%5D=116&cHash=5fb656b278


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BHARTI TELETECH


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om%an= %rofile

-

B11(10


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BHAR(' (101(1H

+RO2'01

In 1A@9, hart i $eletech entered into a technical

collaboration with Siemens "*, the *erman

technological giant and set up a plant in &udhiana to

manufacture telephones.

'ome 6BBA and eetel has journeyed across twenty years of creating history. In 1AA1,

eetel manufactured phones for ESprintE, the "merican telecom mammoth. Shortly after,

in 1AA7A8, came IS: ABB16BBB accreditations for the manufacturing units by this time

two in numbers, at *urgaon and &udhiana. "nd in a short span of time, eetel was

already the market leader. 'ornering half of the Indian market, eetel became EIndiaEs

Favorite +honeE.

$oday harti $eletech has two IS: ABBB certified plants with an annual capacity of 9

million units p.a.

harti became the first company to

> Manufacture cordless telephone and telephone answering machines in India.

$> It is also the first to launch SMS phones on fi5ed line in the country thereby

heralding a revolution in fi5ed line SMS telephony.

?> In line with customer needs, harti was also the first to launch backlit &%D and

*SM Interference free phones.

+,


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%%$%&3s products range includes the "SI' +hones, '"&&%# ID +hones, ':#D&%SS

+hones, 1.@ *! D%'$, 6.8 *! phones, /:I+ +hones, broadband -"DS&0 e?uipments

like Modems, routers and set top bo5es.

8 $$& is the first Indian company to manufacture 6B million phones. $oday, one out of everythree phones in India is a eetel. 4ith rapid growth over the years, harti $eletech today is the

largest manufacturer of phones in the *lobe outside 'hina. Bharti (elete3h 3ommands a lion@s

share of over !, in the e5tremely competitive S2&J M$2& segment.

9 harti became the first company to e5port phones to Sprint Inc. S" recognition of our world

class ?uality. $oday, $$& is present in 7B countries across 9 continents

%5ports are a huge thrust area for harti. In 1AA1, harti became the first company to e5portphones to Sprint Inc. S" K recognition of our world class ?uality. $he e5port operations have

been highly successful over the years. In 6BB7B8, e5ports crossed the half million mark a

?uantum jump since we started. $oday, we are present in 7B countries across 9 continents despite

intense competition from the strongest brands in the world. rand building initiatives have also

taken fruit in the global arena. $he eetel brand is present in /ietnam, Iran, 'hile, :man,

angladesh, Mauritius and Sri &anka. $his list continues to grow with each passing month and it is

a matter of time before eetel becomes a truly global brand.

Bharti Teletech Team i- p/eat to create &i-tor0 /0 cro--ing a Sale- Trno1er /e0ond 2333

core- in %) 23+34++ again-t the la-t 0ear5- 678 crore-.

AH'171M1N(S

$rend has won *O0D1N +1AO A/ARDas the only phone with S'M card reader.

$he model Millennium 'lip Ma5 -" high end 'aller ID and $wo way speaker phone0

recently launched in the market /ON a *O0D1N +1AO A/ARD for

'NNO7A('71 D1S'*N.

eetel has a range of over 79 models across basic, feature and cordless segments and

continues to add a new model every month. 4ith a current market share of over 8B>,

+9


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eetel is the first choice of the Indian consumer. In the growing private service provider

segment, harti $eletech commands a lion3s share of over AB>. In the e5tremely

competitive S2&J M$2& segment, we have crossed a market share of 9B>. $$& has

successfully met the challenge of providing ?uality products at competitive prices.

Following are the new products recently introduced in the open market

DB $!! 'aller Id with Speaker

B C!!!!6.8 *! 'ordless +hones

B C!!! 6.8 *! 'ordless +hones with base

dialing

B !!! 6.8 *! 'ordless +hones with color

Screen

+:


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B 4!!! &ow +riced 6.8 *! 'ordless +hones

D2 ""!!'aller Id +hone with large Screen Display

Following are the new products recently introduced for the D:$ market as per new $%'

specifications -*$%&B6JB80 all these models are *SM interference free.

I#IS 6)7

*"#2%$

+%#ID:$ -" '&I +!:2%0

eside this company has maintained its leadership in all chosen markets like +S+, D:$, :+%2

M"#)%$ = %G+:#$ -e5porting to 7B countries across five continents world wide.

DOM1S('

"fter years of careful and focused brandbuilding, eetel is recognied as a trusted brand

in India and is poised to take on global players in the most competitive international

markets.

eetel was the first Indian brand to launch caller ID phones in India and the first to bring

down the price of cordless phones to an affordable range at below #s. 6BBB.

+;


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eetel has also pioneered SMS phones, the f irst in India. 4ith this landmark

development, India now has the pride of joining the select set of countries that offer SMS

on and from fi5edline telephony service platform worldwide. For the consumer in India,

eetel is truly ringing in the future. Indian +$$ has accepted eetel instruments whole

heartedly and the brand has a ;B> share in this market.

$he private service providers have shown great faith in eetelEs products and appreciate

the companyEs ability to customie the phones to their specifications. eetel has garnered

over A9> of this market.

eetel has remained the 2o. 1 brand in the Indian retail market, with a market share of

over9B>.

$he companyEs marketing network encompasses over 9@B distributors and over 7B,BBB

dealers, taking eetel phones to every corner of one of the biggest markets in the world.

'N(1RNA('ONA0

"fter years of careful and focused brandbuilding, eetel is recognied as a trusted brand

in India and is poised to take on global players in the most competitive international

markets.

:verseas, the company has a richly diversified customer base in over 7B countries across

five continents. $he markets include the S", South "merica, %astern %urope, the

Middle %ast, South %ast "sia and "frica. $elephone instruments are supplied to Siemens,

"kai, 'onnair and the Sprint *roup in the S" among many others.

$he %lectronics and 'omputer !ardware %5port +romotion 'ouncil conferred upon

harti $eletech, the award for the $op $elephone Instrument %5porter.

$he company e5emplifies a marketing success story that writes new chapters of

achievement with each passing year.

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OM+AN8


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ommunit= E +artners

We


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F6A0'(8 OBJ1('71S

$o meet customersE re?uirements in terms of functionality, safety, aesthetics, life

e5pectancy and taking effective actions on their feedbackEs.

$o ensure planned results and continual improvements in all operations -processes

and products0.

$o increase productivity by reducing rejections = nonvalue adding activities, and

bringing automation.

$o effect continuous improvements in 'ustomer Satisfaction Inde5.

$o ensure training of employees as per defined targets studying needs and

re?uirements.

$o ensure that all statuary and regulatory re?uirements are complied with.

F6A0'(8 60(6R1

+roviding training on Luality education system right across the entire organiation

to carry out continuous Improvement activity in collaborative way.

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Deployment of Luality policy = Luality :bjectives through out the :rganiation

in a structured way = is headed by '%: as 'hairman of Luality Improvement

$eam.

'rossfunctional Improvement teams to promote Synergy through sharing.

"ll the employees always carry out an Improvement project, which leads to

improvement in their individual efficiency.

#ewardingJ recogniing the good performers -individual as well as teams0 in

monthly J ?uarterly and yearly functions.

%ncouraging innovation by way of giving token reward for each suggestion and

running trophy to department giving ma5imum suggestion per person per month.

%ncouraging people to work as a team in Small *roup "ctivities -$'"s0 and Luality

Improvement +rojects -LI+s0

F6A0'(8 AH'171M1N(S

harti $eletech &imited is a Luality 'onscious organiation = continuously Strives

for Luality Improvement through +rocess Management. Some of the achievements

which have come out of companyEs unstinted faith in investing for ?uality are

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Aards

*olden +eacock Innovative +roductJServices "ward in the $elecommunication

Sector for the year 6BB6, the *olden +eacock For Innovative Management for the

year 6BB8 and Most Innovative +roduct

in 6BB9.

#ecipient of the %S' "ward for %5cellence in %5ports in $elecommunication

%?uipment in 6BB1B6 and 6BB6B7.

4inner of the /oice = Data "ward for $op $elephone Manufacturer in 6BB6B7

and 6BB7B8.

4on the 'onsumer 4orld "ward for 6BB8.

"warded the $op Fi5ed &ine +hones 'ompany6BB; by /oice and Data

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R171'/

O2

0'(R1(6R1

2,


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A%%roa3hes to /orking 3a%ital Management

4orking capital management takes place on two levels

#atio analysis can be used to monitor overall trends in working capital and to identify areas

re?uiring closer management.

$he individual components of working capital can be effectively managed by using various

techni?ues and strategies.

4hen considering these techni?ues and strategies, companies need to recognie that each

department has a uni?ue mi5 of working capital components. $he emphasis that needs to be

placed on each component varies according to the companies. For e5ample, some companies

have significant inventory levels others have little if any inventory.

Furthermore, working capital management is not an end in itself. It is an integral part of the

company3s overall management. $he needs of efficient working capital management must be

considered in relation to other aspects of the company3s financial and nonfinancial

performance.

OM+ON1N(S

$he term working capital refers to the amount of capital which is readily available to an

organiation. $hat is, working capital is the difference between resources in cash or readily

convertible into cash -'urrent "ssets0 and organiational commitments for which cash will soon

be re?uired -'urrent &iabilities0.

'urrent "ssets are resources which are in cash or will soon be converted into cash in the ordinary

course of business.

'urrent &iabilities are commitments which will soon re?uire cash settlement in the ordinary

course of business.

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/OR'N* A+'(A0 9 6RR1N( ASS1(S - 6RR1N( 0'AB'0'('1S

In a departmentEs Statement of Financial +osition, these components of working capital are

reported under the following headings

urrent Assets

&i?uid "ssets -cash and bank deposits0

Inventory

Debtors and #eceivables

urrent 0iailities

ank :verdraft 'reditors and +ayables

:ther Short $erm &iabilities

om%onent of /orking a%ital Basis of 7aluation

i. Stock of raw material

ii. Stock of work in process

iii. Stock of finished goods

iv. Debtors

v. 'ash

+urchase cost of raw

Materials

"t cost or market value,

whichever is lower

'ost of production

'ost of sales or sales

value

4orking e5penses

2:


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/orking a%ital =3le

4orking capital cycle involves conversions and rotation of various constituentsJcomponents of the

working capital. Initially Ccash3 is converted into raw materials.

'ash flows in a cycle into, around and out of a business. It is the businessEs life blood and every

managerEs 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 doesnEt

generate surpluses, the business will eventually run out of cash and e5pire.

$he faster a business e5pands the more cash it will need for working capital and investment. $he

cheapest and best sources of cash e5ist as working capital right within business. *ood management

of working capital will generate cash will help improve profits and reduce risks. $he cost of

providing credit to customers and holding stocks can represent a substantial proportion of a firmEs

total profits.

$he usage of fi5ed assets result in value additions, the raw materials get converted into work in

process and then into finished goods. 4hen sold on credit, the finished goods assume the form ofdebtors who give the business cash on due date. $hus Ccash3 assumes its original form again at the

end of one such working capital cycle but in the course it passes through various other forms of

current assets too. $his is how various components of current assets keep on changing their forms

due to value addition. "s a result, they rotate and business operations continue. $hus, the working

capital cycle involves rotation of various constituents of the working capital. 4hile managing the

working capital, two characteristics of current assets should be kept in mind vi.

-i0 short life span, and

-ii0 Swift transformation into other form of current asset.

%ach constituent of current asset has comparatively very short life span. Investment remains in a

particular form of current asset for a short period. $he life span of current assets depends upon the

time re?uired in the activities of procurement production, sales and collection and degree of

synchroniation among them. " very short life span of current assets results into swift

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transformation into other form of current assets for a running business. $hese characteristics have

certain implications

i Decision regarding management of the working capital has to be taken fre?uently and on

a repeat basis.

ii. $he various components of the working capital are closely related and mismanagement of

any one

component adversely affects the other components too.

iii. $he difference between the present value and the book value of profit is not significant.

If money moves faster around the cycle -e.g. collect monies due from debtors more ?uickly0 or the

amount of money tied up is reduced -e.g. reduce inventory levels relative to sales0, the businesswill generate more cash or it will need to borrow less money to fund working capital. "s a

conse?uence, the cost of bank interest can be reduced or additional freemoney will be available to

support additional sales growth or investment. Similarly, if improved terms with suppliers are

negotiated e.g. longer credit or an increased credit limit, then freefinance to help fund future sales

can be effectively created.

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$husN

If you ....... Then ...... 'ollect receivables -debtors0 faster

Oou release cash from the

cycle

'ollect receivables -debtors0 slowerOour receivables soak up

cash

*et better credit -in terms of duration or amount0

from suppliersOou increase your cash

resources

Shift inventory -stocks0 faster

Oou free up cash

Move inventory -stocks0 slower

Oou consume more cash

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MANA*1M1N( O2 OM+ON1N(S O2 /OR'N*

A+'(A0

'nventor= Management

Inventory includes all types of stocks. For effective working capital management, inventory needs

to be managed effectively. $he level of inventory should be such that the total cost of ordering and

holding inventory is the least. Simultaneously, stock out costs should be minimied. usiness,

therefore, should fi5 the minimum safety stock level, reorder level and ordering ?uantity so that

the inventory cost is reduced and its management becomes efficient.

"verage stockholding periods will be influenced by the nature of the business. For e5ample, a

fresh vegetable shop might turn over its entire stock every few days while a motor factor would be

much slower as it may carry a wide range of rarelyused spare parts in case somebody needs them.

many large manufacturers operate on a just-in-time-(I$0 basis whereby all the components to be

assembled on a particular today, arrive at the factory early that morning, no earlier no later. $his

helps to minimie manufacturing costs as (I$ stocks take up little space, minimie stockholding

and virtually eliminate the risks of obsolete or damaged stock. ecause (I$ manufacturers hold

stock for a very short time, they are able to conserve substantial cash. (I$ is a good model to strive

for as it embraces all the principles of prudent stock management.

Factors to be considered when determining optimum stock levels include

4hat are the projected sales of each productP

!ow widely available are raw materials, components etc.P

!ow long does it take for delivery by suppliersP

'an you remove slow movers from your product range without compromising best

sellersP

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Detors Management

$he objective of any management policy pertaining to debtors would be to ensure that the benefits

arising due to the debtors are more than the cost incurred for debtors and the gap between benefits

and cost increases profits. "n effective control of receivables helps a great deal in property

managing it. %ach business should, therefore, try to find out average credit e5tended to its client

using the below given formula

reditors Management

'reditors are a vital part of effective cash management and should be managed carefully to

enhance the cash position. +urchasing initiates cash outflows and an overealous purchasing

function can create li?uidity problems.

$hus, the following factors should be considered

i. $he purchasing authority in the company and whether it is tightly managed or spread

among a number of people.

ii. $he purchase ?uantities should be geared to demand forecasts.

iii. :rder ?uantities should be used that take into account stockholding and purchasing

costs.

iv. $he cost of carrying stock should be known.

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v. Dependency on a single supplier should be avoided and facilities like best discounts, credit

terms etc. should be used from alternative suppliers.

vi. Suppliers3 returns policy should be considered.

ash Management

'ash is the most li?uid current asset. It is of vital importance to the daily operations of business.

4hile the proportion of assets held in the form of cash is very small, its efficient management is

crucial to the solvency of the business. $herefore, planning cash and controlling its use are very

important tasks.

'ash budgeting is a useful device for this purpose.

2'NAN'A0 RA('O ANA08S'S

'ntrodu3tion

Financial ratio analysis calculates and compares various ratios of amounts and balances taken from

the financial statements.

$he main purposes of working capital ratio analysis are

to indicate working capital management performance and

$o assist in identifying areas re?uiring closer management.

$hree key points need to be taken into account when analying financial ratios

$he results are based on highly summaried information. 'onse?uently, situations which

re?uire control might not be apparent, or situations which do not warrant significant effort might

be unnecessarily highlighted

Different departments face very different situations. 'omparisons between them, or with

global ideal ratio values, can be misleading

#atio analysis is somewhat onesided favorable results mean little, whereas unfavorable

results are usually significant.

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!owever, financial ratio analysis is valuable because it raises ?uestions and indicates directions for

more detailed investigation.

/orking a%ital Ratio

urrent Ratio

urrent Assets divided by urrent 0iailities

$he working capital ratio -or current ratio0 attempts to measure the level of li?uidity, that is, the

level of safety provided by the e5cess of current assets over current liabilities.

Fui3k Ratio

0iGuid Assetsdivided by urrent 0iailities

$his is another measure of li?uidity. It looks at the number of days that li?uid assets -for e5ample,inventory0 could service daily operating e5penses -including salaries0.

Sto3k (urnover Ratio

ost of Sales divided by Average Sto3k 0evel

$his ratio applies only to finished goods. It indicates the speed with which inventory is soldor, to

look at it from the other angle, how long inventory items remain on the shelves. It can be used forthe inventory balance as a whole, for classes of inventory, or for individual inventory items.

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Detor (urnover Ratio

$here is a close relationship between debtors and credit sales to third parties -that is, sales other

than to the 'rown0. If sales increase, debtors will increase, and conversely, if sales decrease

debtors will decrease.

redit Sales %er +eriod 5 Da=s %er %eriod

Average Detors

$he debtor ratio does not solve the collection problem, but it acts as an indicator that an adverse

trend is developing. #emedial action can then be instigated.

reditor (urnover Ratio

It e5presses the relationship between credit purchases and the liability to creditors. It can be stated

as the number of days that credit purchases are carried on the books.

redit +ur3hases %er +eriod 5 Da=s %er %eriod

Average reditors

(husK

Se.

No.

Ratio 2ormulae Result 'nter%retation

-i0

Stock $urnover

-in days0

"verage Stock Q

7;9J

'ost of *oods

Sold

R 5 days

:n average, the value of the entire

stock is turned every 5 days. $here

may be a need to break this down into

product groups for effective stock

management.

:bsolete stock, slow moving lines

will e5tend overall stock turnover

days. Faster

production, fewer product lines, just

8,


37/76

in time ordering will reduce average

days.

-ii0

#eceivables

#atio

-in days0

Debtors Q 7;9J

SalesR 5 days

It takes on an average of 5 days to

collect the due amount of money. If

the official credit terms are 89 day

and it takes ;9 days... then Cwhy3

should be found outP

:ne or more large or slow debts can

drag out the average days. %ffective

debtor management will minimie the

days.

-iii0

+ayables #atio

-in days0

'reditors Q 7;9J

'ost of Sales -or

+urchases0

R 5 days

:n average, the suppliers are paid

every 5 days. If better negotiations are

done regarding the credit terms this

will increase.

If paid earlier to the supplier, say, to

get a discount this will decline.

If there is a deferment in payment to

the suppliers -without agreement0 this

will also increase but the reputation,

the ?uality of service and any

fle5ibility provided by the suppliers

may suffer.

'urrent #atio $otal 'urrent

"ssetsJ

$otal 'urrent

&iabilities

R 5 times

'urrent "ssets are those assets that

can readily be turn into cash or can be

89


38/76

-iv0

done so within 16 months in the

course of business.

'urrent &iabilities are those amounts

which are due to pay within thecoming 16 months. For

e5ample, 1.9 times means that one

should be able to lay hisJher hands on

H1.9B for every H1.BB one owe. &ess

than 1 time e.g. B.


39/76

OBJ1('71S

O2

(H1 S(6D8

8;


40/76

73


41/76

OBJ1('71S O2 (H1 S(6D8

$he objective of working capital management is to maintain the optimum balance of each of the

working capital components. $his includes making sure that funds are held as cash in bank

deposits for as long as and in the largest amounts possible, thereby ma5imiing the interest earned.

!owever, such cash may more appropriately be invested in other assets or in reducing other

liabilities. My objectives of analying working capital management in %%$%& are as follows

$o study the method which %%$%& is using to ascertain its working capital re?uirement.

$o learn about the sources from which %%$%& is procuring funds to fulfill its working

capital re?uirements.

$o study where the procured funds have been used by %%$%&.

$o study whether the company is running effectively with as little money tied up in current

accounts as possible.

$o analye whether the method being used for ascertainment of working capital

re?uirement is efficient or not.

$o have an appreciation of the financial environment within which business operates.

7+


42/76

R1S1ARH

M1(H1DO0O*8

72


43/76

M1(HODO0O*8

$he study is based on personal decision, interview schedules, documentary observation the data

has been collected from the e5ecutives of the organiation and through the published sources.

R1S1ARH

$he research work is restricted only to the %%$%& DIS$#I$I:2 SOS$%M. $he study is

based on the outcomes of personal interviews and documentary observation. ut the e5treme care

has been taken to involve the constructive suggestion from the e5ecutives. $he success of research

basically depends upon the method, which is adopted to solve the research problem i.e.

a0 $o collect desired information and data in a systematic manner.

b0 "ppropriate selection of method is necessary.

$he first = foremost step in any research procedure is

S(1+ L +rolem 2ormulation

It is a very important step which has to be understood properly and clearly on which the study is

based because it tells the scope of the study and it should not go beyond it nor should e5ecute some

irrelevant aspect. In this case the study is based on how %%$%& manages its 4orking capital

re?uirements.

S(1+ $L O,e3tives of the Stud=

"fter the problem formulation the objectives should be clear through which specific type of

information can be collected. $he objective of this is to study about the management of 4orking

'apital for day to day business transactions.

78


44/76

S(1+?L Determine sour3e data

$he third step includes the collection of data, which is from the source i.e. primary secondary data.

"fter the collection of data, it should be organied and analyed to check whether the objectives

are fulfilled or not.

"fter analying the data investigation of research had worked out with the help of following steps

#esearch design

$ools = techni?ues

R1S1ARH D1S'*NL

" research is an arrangement of conditions for the collection = analysis of data in a manner that

aims the research purpose and achievements of goal with economy in procedure depending on

research problem. $he study of 4orking 'apital is generally based on documentary evidences.

(OO0S AND (1HN'F61SL

In order to conduct the study the following methods were adopted.

. +ersonal Dis3ussionL $here is certain information related to the subject which is

known to employees of the office so through connecting with the employees and e5ecutives

the information is gathered. &ike, about the company profile, its inception, growth etc.

$. Dire3t +ersonal 'nterviesL $he investigator personally approaches the concerned

people and asks them to furnish information, which is of material input for the en?uiry.

$herefore these ideas, suggestions views are collected on the topic through interview.

?. Do3umentar= oservationL $he investigator consults the secondary sources like

journals, annual reports, magaines, books, unpublished material from library, internet and

the area office.

77


45/76

O001('ON O2 DA(A

+rimar= dataL are those that are collected for the first time by the investigator and the primary

data used ad collected for this study are

Direct +ersonal Interview with my project guide at %%$%&

Indirect :ral Investigation auditors and other concerned employees at %%$%&

Information through email about the components of operating cycle from the %%$%&

manufacturing units in &udiyana and *oa.

Se3ondar= dataL are not collected but obtained from the published and unpublished sources

and the secondary data collected for this study are

+ublished data about %%$%&, through newspapers, magaines, research institutes,

journals and books.

npublished data through scholars, libraries, area office in %%$%&.

'ompany information from their %%$%&3S official website.

76


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2'ND'N*S

EANA08S'S

7,


47/76

ASS6M+('ONS

"ll calculations have been done taking 7;9 days in a year.

"ll sales are credit sales.

"ll purchases are credit purchases.

For all the years, opening = closing figures have been taken to calculate average debtors,

creditors, etc.

4ages and salaries are paid at a lag of 1month.

-#s CBBB0

79

+arti3ulars ?stMar3h&$!! ?stMar3h& $!! ?stMar3h&$!

6RR1N( ASS1(S& 0OANS EAD7AN1S

Inventories 6,8A,696 18,9A,9BB 91,8@,;9B

Sundry Debtors 6,7;,;9< 8,A;,9;B 16,6B,89B

'ash = ank alances


48/76

Evaluation of various components of Working Capital

Major components of 4orking capital as > of 'apital %mployed are as follows

Inventories 61

'ash = ank 61.89>

&oans = "dvances 68.7;>

(otal urrent Assets - ?.$!

&iabilities [email protected]

+rovisions ;.A9>

(otal urrent 0iailities - $4.4$

Working Capital Ratios

urrent Ratio

$he 'urrent #atio is decreasing over the period i.e for 6BBA it was 9.8@1, it went down to 1.@61

in 6B1B and has now come down to 1.6@1 in 6B11 which is very close to the ideal ratio of 1.771.

$his indicates that there is a perfect balance between current assets = current liabilities that the

company owns. (he ma,or reasons for im%rovement in 3urrent ratio areL

-i0 $he total > of debtors in the 'urrent assets of 6B11 has decreased to 1;.7 from 1 in

6BBA.

-ii0 Moreover, the percentage of money blocked in cash = bank balance has got reduced from

18.B in 6B1B to ;.@B> in 6B11.

-iii0 $he liabilities in 6B11 have increased as compared to liabilities in 6B1B = 6BBA. $his means

that the company is now trading at creditors worth.

7:


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Fui3k Ratio

$he ?uick ratio showed a drastic improvement in 6B1B as compared to 6BBA, but it went below the

ideal ?uick ratio of 11 and in 6B11 it went further down to B.7A1. (he ma,or reasons for

3hanges in Fui3k ratio areL

-i0 $he company is blocking huge amount of money in maintaining their inventories i.e ;A> of

their total investment in current assets.

-ii0 +rovisions have decreased from 8.A> in 6B1B to 6.@> in 6B11.

7;

233;23+3

23++

'ick $atio

Crrent $atio

5.48

1.82

1.28

4.04

0.860.393

+

2

87

6

,

Ye!

"#!$%&' C(%)* R)%#+


50/76

Sto3k (urnover Ratio

Stock $urnover #atio had changed drastically from A.18 times in 6BBA to 8.@9 times in 6B1B, but

still it was way below the ideal of ; to < times, which it achieved in 6B11 by coming at ;.@< times.

(he ma,or reason for im%rovement in Sto3k (urnover Ratio is that the sales have increased

because of the trading business as the company has entered in the fields of M:$:#:&", G:G,

*%, &"')%##O.

63

S)#$ T-!e! R)%#

6.8/

4.85

9.14

3+

2

8

7

6

,

9

:;

+3

233: 233; 23+3 23++ 23+2

Ye!

T%0e+


51/76

Detors (urnover Ratio

$he Debtors $urnover #atio has increased drastically from 17.@6 times in 6B1B to [email protected] times in

6B11.

(he ma,or reason for 3hange in Detors (urnover Ratio isthat the company has entered into

the trading business of M:$:#:&" products and accessories. "s the company is purchasing the

products from the M:$:#:&" company in cash and distributing the same, with the help of their

$D3s, by providing a credit of 7B days.

6+

De)#!+ T-!e! R)%#

28.34

13.82

11.15

3

6

+3

+6

23

26

83

233: 233; 23+3 23++ 23+2

Ye!

T%0e+


52/76

reditors (urnover Ratio

$he creditors $urnover #atio has decreased drastically from 11.8 times in 6BBA to ;.@7 times in

6B1B. $his shows that the company has been paying off its debts earlier than before. $he ratio has

increased to


53/76

/orking a%ital as a of a%ital 1m%lo=ed

4orking 'apital as a > of 'apital %mployed has increased from [email protected];> in 6BBA to ;7.A@> in

6B1B. It further increased to ;A. in 6B11. %ven if we compare the figure of working capital in

these years then it is observed that working capital has increased from #s.


54/76

+rofit After Sales as a to Sales

+rofit "fter $a5 as a > to sales increased from ;.86> in 6BBA to ;.@A> in 6B1B. ut it showed a

drastic fall in 6B11 and came down to 1.1A>.

(he ma,or reason for 3hange in +A( as of sales is that the sales of basic and cordless sets,

manufactured by %%$%& has not increased but the balance sheet of the company shows an

increment of A;.89> on e5penditure over raw materials.

67

+A( as a to Sales

1.19

6.42

6.89

3.33=

+.33=

2.33=

8.33=

7.33=

6.33=

,.33=

9.33=

:.33=

233: 233; 23+3 23++ 23+2

8ear

+er3

ent


55/76

BHAR(' (101(1H 0'M'(1D

BA0AN1 SH11( AS A( ?S( MARH $!

+AR('60ARS S3h- As at

dule ?.!?.$! Rs.>

SO6R1S O2 26NDS

SHAR1HO0D1RS@ 26ND

Share 'apital 9B,


56/76

0ess 6RR1N( 0'AB'0'('1S E +RO7'S'ONS "

&iabilities 9,;8B,


57/76

"dd J -&ess0 %5tra:rdinary = +rior +eriod"djustments 81,1A6,18@

+RO2'( B12OR1 (A5A('ON 4&!"C&C

4ealth $a5 +aid A6,


58/76

'ssued Sus3ried and +aid u%

9B,


59/76

BHAR(' (101(1H 0'M'(1D

SH1D601S (O AO6N(S


dule ?.!?.$! Rs.>

'N71S(M1N(S A( OS( C

0ON* (1RM 'N71S(M1N(S

'n Shares of 3om%anies 2ull= +aid 6%>

(RAD1 6NF6O(1D

a> 'n Susidar= om%anies

8BB,BBB %?uity Shares -+revious Oear 8BB,BBB %?uity Shares0 of*oa$elecommunication = Systems &imited of #s. 1BJeach fully paid

up 66,@6B,;A7

> 'n Other om%an=

2il %?uity Shares -+revious Oear 1;,96@,8B8 %?uity Shares0 of$eletech

Services -India0 &imited of #s. 1BJ each

$$&"$!&C

6RR1N( 'N71S(M1N(S

Refer Note No. # of S3hedule C ENote No. ! of S3hedule

#>

O(H1R (HAN (RAD1

'n Mutual 2unds 6nGuoted> A9,8

6RR1N( ASS1(S&0OANS AND AD7AN1S #

6;


60/76

'N71N(OR'1S

-"s $aken,/alued = 'ertified by the Management0

#aw Material ;7,B76,@BB

Finished *oods9,B9;,7@


61/76

In Margin "ccount -nder &ien0

Saving "ccount with +ost :ffice -nder &ien0 1


62/76

BHAR(' (101(1H 0'M'(1D

SH1D601 (O AO6N(S


dule ?.!?.$! Rs.>

6RR1N( 0'AB'0'('1S E +RO7'S'ONS

6RR1N( 0'AB'0'('1S "

$rade = :ther 'reditors U 9,91


63/76

M'S100AN1O6S 15+1ND'(6R1

-$o the e5tent 2ot written off or adjusted0

7oluntar= Se%eration S3heme

:pening alance 7,19A,@9@

&ess 'harged during the year 6,;


64/76

De3reaseP'n3rease> in /ork-in-%rogress

and 2inished goods

O%ening Sto3k

4orkin+rogress 16,161,@8@

Finished *oods 1,7A8,79B,;76

&4!C&4#$&4"!

0ess losing Sto3k

4orkin+rogress 17,@8B,919

Finished *oods 9,B9;,7@


65/76

'ontribution to +rovident = :ther Funds 66,BB6,96A

4orkman = Staff 4elfare %5penses A,@@6,


66/76

&ess Share of 'entrailsed %5penses to "ssociate'ompanies

&"&"&"4

2ootnoteLU 2et of +rofit on Sale of Fi5ed "ssets #s. 76A thousand -previous year 1 +rior +eriod Ad,ustments Net> 'n3omeP1I%enditure>

+rior +eriod 1I%enses

ank 'harges -9A,9;60

&oss on Sale of Fi5ed "ssets -9,;8A0

#ates = $a5es

"dvertisement = +ublicity

:ther Finance 'harges

'ontribution to +rovident = :ther Funds

,,


67/76

+ostage, $elephone = $ele5

Freight = 'artage

Salaries , 4ages = onus

Miscellaneous %5penses -61,

+rofit on Sale of Fi5ed "ssets 6B,A76

#ent #eceived

Sales

#ates = $a5es

#ecruitment %5penses

DepreciationJ"mortisation 171,B


68/76

Detors onversion +eriod

*ross O%erating Da=s C.4 da=s "$.C# da=s #."# da=s

reditors onversion +eriod 4C.# da=s 4."4 da=s 4 da=s

Net O%erating Da=s !.$? da=s ?#.? da=s ?4."# da=s

No. of O%erating =3les in a 8ear. #.$C ."? !.4#

Ra Material onversion +eriodL Increased from 11.19 days in 6BBA to 69 days in 6B1B and

then it further increased to 8B days in 6B11, which is not a good sign. " constant increment will

lead to higher working capital re?uirement.

,:

O(e!)%&' C*e+

3

+3

23

83

73

63

,3

93

:3

;3

+33

233; 23+3 23++

Ye!

D5+

R M)e!%* C#&e!+%#&

Pe!%#

"#!$7%&7 P!#'!e++

C#&e!+%#& Pe!%#

%&%+e :##+

C#&e!+%#& Pe!%#

De)#!+ C#&e!+%#&

Pe!%#

:!#++ O(e!)%&' C*e

C!e%)#!+ C#&e!+%#&Pe!%#

Ne) O(e!)%&' C*e

C+ C#&e!+%#& C*e


69/76

/ork in +rogress onversion +eriodL Increased from 6.A8 days in 6BBA to 9 days in 6B1B and

again further increased 1B days in 6B11, which is again not a good sign. $his means that the goods

are not worked upon efficiently and there is increment in the time taken to process goods.

2inished *oods onversion +eriodL $his has decreased from 7


70/76

/orking a%ital ReGuired in B11(10

/orking a%ital ReGuired 9 (otal 1I%enses in a 8ear .

No. of O%erating 3=3les in a =ear

/orking a%ital $?&4?&?!4 9 Rs $&$"C&"#4&!!

ReGuired in B11(10 9 !.4#

/orking 3a%ital 3urrentl=

1m%lo=ed in B11(10 9 Rs &C!&C4!&!!!

-"s per broader approach i.e 'urrent assets K 'urrent liabilities0

(he is a huge dis3re%an3= eteen the a3tual orking 3a%ital and the reGuired orking

a%ital i.e of #s ;7;,678,B9B. $his is because they are using factoring services from $I bank

and these 2a3toring servi3es are off alan3e sheet finan3ing s3heme so whichevermethod they

would apply, it will not depict the correct picture of working capital re?uirement because the

factoring services are accounted on mark to market basis. Moreover, %%$%& is not using

separate books of accounts for their trading business of M:$:#:&" handsets and accessories soits accounts does not give the correct amount of debtors and outside liabilities.

93


71/76

S6**1S('ONS

E

R1OMM1NDA('ONS

9+


72/76

Re3ommendations

$he managementof the working capital is e?ually important as the management of longterm

financial investment.$he goal of 4orking capital management is to ensure that the firm is able to

continue itsoperationsand that it has sufficient cash flow to satisfy both maturing shortterm debt

and upcoming operational e5penses.

$he various possible steps that %%$%& may take to improve its working capital management are

as follows

"vailing more credit from its suppliers.

+rompt collection from its debtors.

Moving towards ero working capital.

Improvement in Inventory 'onversion +eriod, mainly reduction in 4ork in +rogress.

#eduction in loans and intercorporate deposits and utiliing the money to pay off debtsand loans taken by the company.

*iven the working loan of #s. 9;,@8,9B,BBB and interest thereon is #s. 8,8B,@B,BBB in6B11 which is almost


73/76

ON06S'ON

98


74/76

on3lusion

In the analysis for harti $eletech &imited, a harti *roup 'ompany it was found that the working

capital has increased which could be mainly due to increased sales. $he *ross :perating 'ycle

declined significantly but the reduction was nullified due to the reduction in inventory conversion

period. $his is why we see that 2et operating 'ycle for last two years is almost identical. $he main

areas of emphasis were work in progress conversion period and creditors conversion period.

Debtors conversion period reduced but work in progress and creditors conversion period increased.

Moreover, the interest and concentration of %%$%& has entirely shifted towards M:$:#:&"

trading business, which is not giving that much amount of returns that they were previously getting

from their basic and cordless manufactured phones, as their previous achievements clearly shows

that in the growing private service provider segment, harti $eletech commands a lion3s share of

over AB>.

Few suggestions that are recommended for better management of working capital are reducingintercorporate deposits and loans, reducing finished goods inventory, increment in creditors

payment period etc.

$hus, *ood management of working capital is part of good financial management. %ffective use of

working capital will contribute to the operational efficiency of a company, optimum use will help

to generate ma5imum returns.

97


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B'B0'O*RA+H8

96


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Biliogra%h=

I.M. +andey, Financial Management, @th %dition

www.bhartiteletech.com

www.treasury.govt.nJpublicsectorJworkingcapitalJfurther.asp

www.planware.orgJworkingcapital.htm

www.wikipedia.org
http://www.treasury.govt.nz/publicsector/workingcapital/further.asphttp://www.planware.org/workingcapital.htmhttp://www.treasury.govt.nz/publicsector/workingcapital/further.asphttp://www.planware.org/workingcapital.htm

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