Hcl - Finance - Working Capital Management in Hcl12222223

8/11/2019 Hcl - Finance - Working Capital Management in Hcl12222223

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PROJECT REPORTON

"WORKING CAPITAL MANAGEMENT IN HCL"WORKING CAPITAL MANAGEMENT IN HCL

Repot is submitted in partial fulfillment of the requirementfor the award of degree

Of

2011201!

"nder the super#ision of$ %"&'(TTE) &*$+++++ ,20111!-

Roll no.

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TABLE OF CONTENTS

CHAPTER 1 INTRODUCTION

1.1 Introdut!on o t#$ Or%&n!'&t!on( L!t$r&tur$ r$)!$*.

1.+ O,-$t!)$ o t#$ Pro-$t.

1./ N$$d o t#$ 0ro-$t

1. So0$ &nd L!2!t&t!on o t#$ tud3.

CHAPTER + RESEARCH METHODOLOG4

+.1 R$$&r# D$!%n

+.+ D&t& Co55$t!on Sour$

+./ D&t& o55$t!on M$t#od

CHAPTER / FINDING ANAL4SIS/.1 Con$0t o *or6!n% &0!t&5

/.+ F!nd!n% 7 An&53!

CHAPTER CONCLUSION AND

RECOMMENDATION

Con5u!on

R$o22$nd&t!on

CHAPTER 8 BIBLIOGRAPH4

B!,5!o%r&0#3.

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C/PTER 1

(NTRO)"CT(ON

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1.1 INTRODUCTION OF THE ORGANI9ATION

HCL Infosystems Ltd. Is one of the pioneers in the It market, with its origin in 1976.

the company has een in the forefront in introd!cing new techno"ogies and

so"!tions. It has drawn its strength since 3# years of e$perience in hand"ing the e%er

changing I& scenario, strong c!stomer re"ationships, ai"ity to pro%ide the c!tting

edge techno"ogy at est %a"!e for money and on the top of it, an e$ce""ent ser%ice

and s!pport infrastr!ct!re. &oday HCL is the co!ntry's premier information

ena"ing company. It offers one stop shop con%enience to its di%erse c!stomers

ha%ing a di%erse set of re(!irements.

)ince, "ast 3# years HCL has een contin!ing the re"ationship with the c!stomer,

therey increasing c!stomer confidence in it.

T#$ tr$n%t# o t#$ o20&n3 &r$:

*i"ity to !nderstand c!stomers !siness and offer right techno"ogy.

Long standing re"ationship with c!stomers.

+est %a"!e for money offerings.

T$#no5o%3 L$&d$r#!0:


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HCL Info systems is known to haringer of techno"ogy in the co!ntry. &he company

has done techno"ogy introd!ctions in the co!ntry either thro!gh research and

de%e"opment or thro!gh partnerships with wor"d techno"ogy "eaders. -sing ownresearch and de%e"opment the company has

Created own -/I0 and +) capai"ity 4in'5#s.

e%e"oped firewa""s for enterprise and persona" system sec!rity.

La!nched own range of enterprise storage prod!cts.

La!nched own range of enterprise networking prod!cts.

HCL Info systems Ltd. has initiated se%era" pioneer techno"ogies. )ome of

them are as !nder

.Co!ntry's first desktop C8 +!sy +ee in 195.

Co!ntry's first home C8 +eansta"k in 199

Co!ntry's first enti!m I: ased C at s! #k price point.

Co!ntry's first media centre C.


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/C

(N3O%*%TE'%T).

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;ISION AND MISSION

;ISION STATEMENT;&ogether we create the enterprises of tomorrow;

MISSION STATEMENT

;&o pro%ide wor"d8c"ass information techno"ogy so"!tions and ser%ices to ena"e o!rc!stomers to ser%e their c!stomers etter;


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HISTOR4 OF THE COMPAN4

HCL Info systems Ltd is one of the pioneers in the Indian I& market, with its origins

in 1976. or o%er (!arter of a cent!ry, we ha%e de%e"oped and imp"emented so"!tionsfor m!"tip"e market segments, across a range of techno"ogies in India. ?@

8 o!ndation of the Company "aid8 Introd!ces microcomp!ter8ased programma"e ca"c!"ators with wide

acceptance in the scientific D ed!cation comm!nity

1>??

8 La!nch of the first microcomp!ter8ased commercia" comp!ter with aE 8ased +asic interpreter8 -na%ai"ai"ity of programming ski""s with c!stomers res!"ts in HCLde%e"oping espoke app"ications for their c!stomers

1>?8 Initiation of app"ication de%e"opment in di%erse segments s!ch aste$ti"es, s!gar, paper, cement , transport

1>

8 ormation of ar Fast Comp!ters Ltd., a pioneer in the )ingapore I&

market, for )I 4)ystem Integration so"!tions

1>18 )oftware F$port i%ision formed at Chennai to s!pport the espokeapp"ication de%e"opment needs of )ingapore

1>/

8 HCL "a!nches an aggressi%e ad%ertisement campaign with the theme >e%en a typist can operate> to make the !sage of comp!ters pop!"ar in the)F 4)ma"" G edi!m Fnterprises segment. &his proposition in%o"%edmen!8ased app"ications for the first time, to increase ease of operations.&he response to the ad%ertisement was phenomena".

8 HCL de%e"ops specia" program generators to speed !p the de%e"opmentof app"ications

1>8 8 +ank trade !nions a""ow comp!teri@ation in anks. Howe%er, acomp!ter can on"y r!n one app"ication s!ch as )a%ings +ank, C!rrentacco!nt, Loans etc.

8 HCL sets !p core team to de%e"op the re(!ired software 8 *L4*d%anced Ledger osting achines. &he team !ses re!sa"e code tored!ce de%e"opment efforts and prod!ce more re"ia"e code. *L

ecomes the "argest se""ing software prod!ct in Indian anks

8 HCL designs and "a!nches -ni$8 ased comp!ters and I+ C c"ones

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8 HCL promotes 3rd party C app"ications nationa""y

1>@

8 ona" offices of anks and genera" ins!rance companies adoptcomp!teri@ation

8 !rchase specifications demand the a%ai"ai"ity of +) prod!cts onthe s!pp"ied so"!tion 4-nify, Erac"e. HCL arranges for s!ch prod!cts to

e ported to its p"atform.

8 HCL assists c!stomers to migrate from f"at8fi"e ased systems to+)

1>>1

8 HCL enters into a =oint %ent!re with Hew"ett ackard

8 H assists HCL to introd!ce new ser%ices )ystems Integration, I&cons!"ting, packaged s!pport ser%ices 4asic "ine, team "ine

8 HCL esta"ishes a esponse Centre for H prod!cts, which is connectedto the H esponse Centre in )ingapore.

8 &here is a %ertica" segment foc!s on &e"ecom, an!fact!ring andinancia" )er%ices

1>>

8 HCL ac(!ires and e$ec!tes the first offshore pro=ect from I+ &hai"and

8 HCL sets !p core gro!p to define software de%e"opment methodo"ogies

1>>8

8 )tarts e$ec!tion of Information )ystem "anning pro=ects

8 F$ec!tion pro=ects for Bermany and *!stra"ia

8 +egins He"p desk ser%ices

1>>@

8 )ets !p the )& 4 )oftware &echno"ogy ark at Chennai to e$ec!te

software pro=ects for internationa" c!stomers8 +ecomes nationa" integration partner for )*

1>>?

8 o"kata and /oida )&s set !p

8 HCL !ys ack H stake in HCL Hew"ett ackard

1>> 8 Chennai and CoiBtore de%e"opment faci"ities get I)E 9##1certification

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1>>>

8 *c(!ires and sets !p f!""y owned s!sidiaries in -)* and -

8 )ets !p f!""y owned s!sidiary in *!stra"ia

8 HCL ties !p with +road %ision as an integration partner

+

8 )ets !p f!""y owned s!sidiary in *!stra"ia

8 Chennai and CoiBtore de%e"opment faci"ities get )FI Le%e" certification

8 +ags *ward for &op C :endor In India

8 +ecomes the 1st I& Company to e recommended for "atest %ersion of

I)E 9##1 2###

8 +ags *I&>s *ward for +!siness F$ce""ence

8 ated as /o. 1 I& Bro!p in India

+1

8La!nched enti!m I: Cs at e"ow s #,###

8IC rated HCL Info systems as /o. 1 esktop C Company of 2##1

++

8ec"ared as &op C :endor y ata(!est

8HCL Info systems G )!n icrosystems enters into a Fnterpriseistri!tion *greement

8 ea"igns !sinesses, increasing foc!s on domestic I&, Comm!nicationsG Imaging prod!cts, so"!tions G re"ated ser%ices

+/

8 +ecame the first %endor to register sa"es of #,### Cs in a (!arter

8 irst Indian company to e n!mero !no in the commercia" C market

8 Fnters into partnership with *

8 La!nched Home C for s 19,999

8 HCL Info systems> Info )tr!ct!re )er%ices i%ision recei%ed I)E9##12### certification

8 La!nches Infiniti oi"e esktops on Inte" "atform

8 La!nched Infiniti Cs,


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+

8 1st to anno!nce C price c!t in India, post d!ty red!ction, offersF@eeee at s. 1799#

8 IC India8A C!stomer )atisfaction *!dit rates HCL as /o.1 +rand in

esktop Cs

8 aintains /o.1 position in the esktop C segment for year 2##3

8 Fnters into partnership with ort


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2004

La!nch of HCL C for India, a f!""y f!nctiona" C priced at s.9,99#D8

ated as the /o.1 esktop C' company y IC India Mata(!est

+est Fmp"oyer 2##' with fi%e star ratings y IC India Mata(!est

&he ost C!stomer esponsi%e Company 2##'

I& Hardware Category y the Fconomic &imes 8 *%aya B"oa"Connect

7th IF&F MCorporate *ward 2##' for performance e$ce""encein the fie"d of Comp!ters G &e"ecomm!nication )ystems y IF&F

+est +hoomi +rand 2##' y 36# maga@ine

In c Category In the LC onitor Category

India's /o.1 %endor' for sa"e of *3 si@e &oshia !"ti!nctiona" e%ices for the year #8# y IC

&oshia )!per *ward 2##' towards !siness e$ce""ence indistri!tion of &oshia !"tif!nctiona" rod!cts

)trategic artners in F$ce""ence *wards y Infoc!s Corporationfor pro=ectors

ost :a"!ed +!siness artner' *ward for pro=ectors y Infoc!sCorporation in 2##

2005 La!nches +eansta"k 2##7 co""ection M a range of fo!r new HCL+eansta"k igi"ife ena"ers, +eansta"k /ano, +eansta"k )"im,+eansta"k Lifesty"e G +eansta"k ominator

N7,### machines prod!ced in a sing"e month

Fnters into a partnership with &oshia to he"p them e$pand theirretai" presence in India y !n%ei"ing shop&oshia'

/okia Corporation and HCL Infosystems anno!nce a "ong term

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distri!tion strategy

-n%ei"s India's first segment specific range of noteooks' randHCL Leaptops'

)howcases Comp!ter )o"!tions for the r!ra" market in India

irst in India to "a!nch the new generation of high performanceser%er p"atforms powered y Inte" !a" M Core 0eon ###

processor

orms a strategic partnership with *pp"e to pro%ide sa"es Gser%ice s!pport for iods in India

ated as n!mer one esktop C Company y IC, si$th years!ccessi%e"y

)!stains its Commercia" esktop C Leadership for the fifthconsec!ti%e year

La!nches India's first high performance Fnterprise )er%er"atform powered y d!a" core Inte" titani!m processors

Creates !a" Core 0eon )er%er at a price point of s. 3,9##D8

Comp"etes 3# years in India

In association with &he !sic *cademy, Chennai rings HCLConcert )eries' to the city

Fnter into partnership with Casio

Fsta"ishes its man!fact!ring faci"ity in -ttarancha"

&op # fastest growing &echno"ogy Companies in India' G&op ## fastest Browing &echno"ogy Companies in *sia acific'

y e"oitte G &o!che

20062007

2##7

+reaks the one terayte storage arrier in comp!ters y"a!nching India's first one terayte' persona" comp!ter

Introd!ces eco8efficient /oteook Cs comp"ying with

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oH) directi%e

-n%ei"s initiati%e to create ind!stry ready IC& professiona"sM "a!nches HCL Career e%e"opment centers

odak and HCL ink agreement to distri!te digita" camerasin India

La!nches India's first m!"ti"ing!a" E) printer HCL )tar' M&) 7##, designed e$c"!si%e"y for the needs of r!ra" retai"ers

-n%ei"s enterprise c"ass 16 core ser%er M India's first ser%erwith 16 comp!ting cores in a 78inch 4! form factor

La!nches a new range of eco8efficient desktop Cs,comp"ying with oH) directi%e

La!nches /F&*0 s!ite of networking prod!cts Gso"!tions e$panding its portfo"io for emerging enterprises

*nno!nces 36# egrees &echno"ogy efresh rogram' Mnew initiati%e aimed at capt!ring "atest trends in techno"ogyG de"i%ering them to Indian enterprises

*nno!nces "a!nch of its workstation 2##5 series for C*G CC professiona"s

I+I se"ects HCL as )I partner for 1## ranches IC&infrastr!ct!re ro""o!

2##5 -n%ei"s the f!t!re of persona" comp!ting M ne$t generation,

!"tra porta"e, s! s. 1,##D8 "aptops for the first time inIndia.

Connect India8*frica to imp"ement I& infrastr!ct!re forprestigio!s an8*frican e8network pro=ect for &e"e8ed!cationG &e"e8medicine.

La!nches ne$t generation atacentre in a +o$' M simp"ifiedI& infrastr!ct!re with power8packed "ade ser%ers in onesystem that integrates storage, comp!ting G networking

*nno!nces a pioneering initiati%e in the India IC& sector tof!rther strengthen its C!stomer Care )er%ices

Introd!ces )afe )tate' M a 1##J s!sidiary to pro%ide

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)ystem Integration )o"!tions for sec!rity G s!r%ei""ance

Introd!ces Laptop )eries 39' M e$ce""ent therma"s, Fnergy)tar .# comp"iance and imprint designs c!stomi@ed forIndian cons!mers

F(!ips e"hi o"ice with techno"ogy to fight crime

La!nches iLeap H #.'

artners with Fche"on to ring )mart etering' to India Mimpro%ing e"ectricity s!pp"y and red!cing energy theft arekey goa"s

Connect India8*frica to imp"ement I& infrastr!ct!re forprestigio!s an8*frican e8network pro=ect for &e"e8ed!cationG &e"e8medicine

)trengthens its +)I system integration portfo"io yac(!iring a niche anking software prod!ct company

-n%ei"s the f!t!re of persona" comp!ting M ne$t generation,!"tra porta"e, s! s. 1,##D8 "aptops for the first time inIndia

20082010 *warded +est &e"ecom )!pport )er%ices Company' at the

th /ationa" &e"ecom *ward y C*I *ssociation of India. HCL awarded F"ectronics Company of the Oear 2##9. HCL Infosystems rated /o.1 Fmp"oyer y A8IC 2##9 /okia Corporation anno!nces a =oint %ent!re with HCL

Infosystems to se"" moi"e %a"!e added ser%ices direct"y to

cons!mers in India

ick8starts Breen +ag' campaign to faci"itate e


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Epen and istance Learning ractices in Higher Fd!cation>

+agged the Q


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+agged the prestigio!s Go5d$n P$&o6 Eo Inno)&t!onA*&rd +1/for e/+* pro=ect d!ring the 18t# Wor5d Con%r$ onEn)!ron2$nt M&n&%$2$nt .HCL was honored for pro%iding I&)o"!tions to /ationa" +oard of *ccreditation which res!"ted in ecoinno%ation, cost sa%ing and transparency in the accreditation

process

*warded PC


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1.+ OB=ECTI;E OF THE PRO=ECT


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rom this pro=ect we ha%e a road know"edge on different aspects of

working capita" management. )ome of the aspects of working capita" management

are Concepts of working capita" management.

/eed of working capita".

&ypes of working capita" management.

Eperating cyc"e or working capita" cyc"e

actors affecting working capita" re(!irements.

:ario!s components of working capita" and hydro power p"ants.

1./ NEED OF THE PRO=ECT

*t HCL a s!stantia" part of the tota" assets are co%ered y c!rrent assets.

C!rrent assets form aro!nd 5#J of the tota" assets. Howe%er this co!"d e "ess

profita"e on the ass!mption that c!rrent assets generate "esser ret!rns as compared

to fi$ed assets.

+!t in today's competition it ecomes mandatory to keep "arge c!rrent assetsin form of in%entories so as to ens!re smooth prod!ction an e$ce""ent management

of these in%entories has to e maintained to strike a a"ance etween a"" the

in%entories re(!ired for the prod!ction.

)o, in order to manage a"" these in%entories and determine the in%estments in

each in%entories, the system ca"" for an e$ce""ent management of c!rrent assets

which is rea""y a to!gh =o as the amo!nt of in%entories re(!ired are "arge in

n!mer.

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Here comes the need of working capita" management or managing the

in%estments in c!rrent assets. &h!s in ig companies "ike HCL it is not easy at a"" to

imp"ement a good working capita" management as it demands indi%id!a" attentionon its different components.

)o, I ha%e een gi%en this topic to make an in8depth ana"ysis and detai"ed

st!dy to come o!t with a c"ear magnified %iew as to whether the management of

working capita" at HCL is so!nd or not.

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1. LIMITATIONS AND SCOPE OF THE STUD4:

&he topic working capita" management is itse"f a %ery %ast topic yet %ery

Important a"so. !e to time restraints it was not possi"e to st!dy in depth

in get know"edge what practices are fo""owed at HCL Info systems.

/e%erthe"ess, many facts and data are s!ch that they are not to e

disc"osed eca!se of the confidentia" nat!re of the same. Hence

eca!se of that I cannot e$press any opinions !pon %ario!s iss!es which

itse"f "imits the scope of my st!dy. Howe%er I ha%e tried to gi%e an

-nderstanding of


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CHAPTER +

RESEARCH

METHODOLOG4

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RESEARCH METHODOLOG4

ethodo"ogy inc"!des the o%era"" research proced!res, which are fo""owed in the

research st!dy. &his inc"!des esearch design, the samp"ing proced!res, and the

data co""ection method and ana"ysis proced!res. &o road methodo"ogies can e

!sed to answer any research (!estion8e$perimenta" research and non8

e$perimenta" research. &he ma=or difference etween the two methodo"ogies

"ies in the contro" of e$traneo!s %aria"es y the inter%ention of the in%estigator

in the e$perimenta" research.

+.1 RESEARCH DESIGN

* research design is defined, as the specification of methods and

proced!res for ac(!iring the Information needed. It is a p"ant or organi@ing

framework for doing the st!dy and co""ecting the data. esigning a research p"an

re(!ires decisions a"" the data so!rces, research approaches, esearch instr!ments,

samp"ing p"an and contact methods.

esearch design is main"y of fo""owing types 8

1. F$p"oratory research.

2. escripti%e st!dies3. Cas!a" st!dies

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EPLORATOR4 RESEARCH

&he ma=or p!rposes of e$p"oratory st!dies are the identification of

pro"ems, the more precise orm!"ation of pro"ems and the form!"ations of new

a"ternati%e co!rses of action. &he design of e$p"oratory st!dies is characteri@ed y a

great amo!nt of f"e$ii"ity and ad8hoc %eracity.

DESCRIPTI;E STUDIES

escripti%e research in contrast to e$p"oratory research is marked y the

prior form!"ation of specific research A!estions. &he in%estigator a"ready knows a

s!stantia" amo!nt ao!t the research pro"em. erhaps as a es!"t of an

e$p"oratory st!dy, efore the pro=ect is initiated. escripti%e research is a"so

characteri@ed y a rep"anned and str!ct!red design.

CASUAL OR EPERIMENTAL DESIGN

* cas!a" design in%estigates the ca!se and effect re"ationships etween

two or more %aria"es. &he hypothesis is tested and the e$periment is done. &here

are fo""owing types of cas!a" designs

I. *fter on"y design

II. +efore after design

III. +efore after with contro" gro!p design

I:. o!r gro!ps, si$ st!dies design

:. *fter on"y with contro" gro!p design.

:I. Cons!mer pane" design

:II. F$posit facto design

+.+ DATA COLLECTION SOURCES

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PRIMAR4 DATA

&hese data are co""ected first time as origina" data. &he data is recorded as oser%ed

or enco!ntered. Fssentia""y they are raw materia"s. &hey may e comined, tota"ed

!t they ha%e not e$tensi%e"y een statistica""y processed. or e$amp"e, data

otained y the peop"es.

SECONDAR4 DATA

)o!rces of )econdary ata

o""owing are the main so!rces of secondary data

1. O!!&5 Pu,5!&t!on !"ications of the HCL INFOS4STEM LTD. orthe y the corporate office of HCL INFOS4STEM LTD..

2. Pu,5!&t!on R$5&t!n% to Tr&d$ !"ications of the trade associations,

stock e$change, trade !nion etc.

3. =ourn&5( N$*0&0$r $t. )ome newspapersD Po!rna"s co""ect and p!"ish

their own data, e.g. Indian Po!rna" of economics, economist, Fconomic

&imes.

. D&t& Co55$t$d ,3 Indutr3 Ao!&t!on or e$amp"e, data a%ai"a"e with

HCL INFOS4STEM LTD..

. Un0u,5!#$d D&t& ata may e otained from se%era" companies,

organi@ations, working in the same areas. or e$amp"e, data on HCL

INFOS4STEM LTD.y maga@ines.

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D&t& Co55$t!on M$t#od

&he fo""owing methods of data co""ection are genera""y !sed

4i Eser%ation ethod

4ii ersona" Inter%iew

4iii Case )t!dy ethod

O,$r)&t!on M$t#od:

&his is the most common"y !sed method of data co""ection especia""y in st!dies

re"ating to eha%io!ra" sciences. *cc!rate watching and noting of phenomenon as

they occ!r in nat!re with regard to ca!se and effect or m!t!a" re"ation is ca""ed

oser%ation method of data co""ection.

C#&r&t$r!t! o O,$r)&t!on M$t#od&hese are as fo""ows

1. D!r$t M$t#od: In oser%ation method data is co""ected thro!gh direct

contact with phenomenon !nder st!dy. In this method sensory organs

partic!"ar"y eye, ear, %oice are !sed.

R$u!r$ !nd$0t# tud3: In this method, the oser%er goes to the fie"d and

makes the st!dy of the phenomenon in an in8depth company to ac(!ire data.

Co55$t!on o55o* o,$r)&t!on: In this method, the in%estigator first of a""

oser%es the things and then co""ects the data.

R$5&t!on#!0 ,$t*$$n t#$ &u$ &nd $$t: Eser%ation method "eads to

de%e"opment of re"ationship etween the ca!se and effect of the e%ents.

S!$nt!! 2$t#od or o55$t!n% d$0$nd&,5$ d&t&: &his is the most

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scientific method for co""ection of dependa"e data. Eser%ations are p"anned

and recorded systematica""y. &here sho!"d e checks and a"ances on this

methodo"ogy.

S$5$t!)$ &nd 0ur0o$u5 o55$t!on: &he oser%ations are made with definite

p!rpose. Co""ection of materia"s is done according to a partic!"ar p!rpose.

+. Int$r)!$* M$t#od

-nder this method of we co""ect data in HCL INFOS4STEM LTD.and face toface contact with the persons from whom the information is to e otained

4known as informants. &he inter%iewer asks them (!estions pertaining to

the s!r%ey and co""ects the desired information. &h!s, the we co""ect data

ao!t the working conditions of the workers of HCL INFOS4STEM LTD.? we

worked at HCL INFOS4STEM LTD. contact the workers and otain the

information. &he information otained are first hand or origina" in character.

CHARACTERISTICS OF INTER;IEW METHOD:

a It is c"ose contact or interaction inc"!ding con%ersation etween the manageria"

"e%e" and F$ec!ti%es of HCL INFOS4STEM LTD..

&he inter%iew we took in the HCL INFOS4STEM LTD., s!ch as knowing

the ideas and %iews of others.

/. C&$ Stud3 M$t#od

Case st!dy method may e defined as sma"" inc"!si%e and intensi%e st!dy of an

indi%id!a" in which in%estigator rings to ear a"" his ski""s and methods or as a

systematic gathering of eno!gh information ao!t a person to permit one to

!nderstand how he or she f!nctions as !nit of society. &he case st!dy is a form of

(!a"itati%e ana"ysis in%o"%ing a %ery caref!" and comp"ete oser%ation of a person,

sit!ation or instit!tion.

29


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Case st!dy is a method of e$p"oring and ana"y@ing !siness aspects of an

ind!stria" !nit, e%en entire ind!stry.

CHARACTERISTIC OF A CASE STUD4

&he important characteristics of case st!dy method are as !nder

i Stud3 o & un!t: &he case st!dy method st!dies a s!=ect matter which forms a

cohesi%e, who"e and may e treated as a !nit. &he !nit can e indi%id!a", a fami"y,

an instit!tion.

ii Int$n!)$ or Ind$0t# tud3: Case st!dy attempts a deep and detai"ed st!dy of

the !nit. It is a method of st!dy in depth rather than readth. It p"aces moreemphasis on the f!"" ana"ysis of a "imited n!mer of e%ents or conditions and their

inter8re"ations.

6i Kno*5$d%$ o ,$#&)!our 0&tt$rn: &he case st!dy method dea"s with oth

what and why of the s!=ect. It tries to descrie the comp"e$ eha%io!ra" pattern

of a !nit and ha%ing done this, tries to disco%er the factor which wi"" rationa""y

acco!nt for them. In rief, case st!dy method aims at description as we"" as

e$p"anation of the !nit it st!dies. It a"so e$p"ains the p"ace and ro"e of a !nit in itss!rro!nding socia" mi"ie!.

i% T#$ tud3 o t#$ *#o5$ un!t: &he case st!dy method tries to percei%e the

!nitary forces of the s!=ect matter and organi@es

3#


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C/PTER 9

3(N)(N: N) )TN*%(%

31


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Con$0t o *or6!n% &0!t&5


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CONCEPT AND DEFINITIONS OF WORKING CAPITAL:

&here are two concepts of working capita" gross and net.

&he term gross working capita", a"so referred to as working capita", means

the tota" c!rrent assets.

&he term net working capita" is asica""y the difference etween c!rrent

assets and c!rrent "iai"ities. Ffficient working capita" management re(!ires that the

firm sho!"d operate with some amo!nt of net working capita", the e$act amo!nt

%arying from firm to firm and depending, among other things, on the nat!re of the

ind!stry. &he theoretica" =!stification for the !se of net working capita" is ased on

the premise that greater the margin y which the c!rrent assets co%er the short term

o"igations, the more is the ai"ity to pay o"igations when they ecome d!e for

payment. &he net working capita" is necessary eca!se cash o!tf"ows and inf"ows

do not coincide. &he cash o!tf"ows are re"ati%e"y predicta"e, howe%er cash inf"ows

are diffic!"t to predict. &he more predicta"e the cash inf"ows are, the "ess net

working capita" is re(!ired.

/et working capita" can a"ternati%e"y e defined as that portion of c!rrent

assets which is financed with "ong8term f!nds. )ince c!rrent "iai"ities represent

so!rces of short8term f!nds, as "ong as the c!rrent assets e$ceed the c!rrent

"iai"ities, the e$cess m!st e financed with "ong8term f!nds.

&he task of financia" manager in managing working capita" efficient"y is to

ens!re s!fficient "i(!idity in the operations of the enterprise. &he "i(!idity of a

!siness is meas!red y the firm's ai"ity to satisfy short8term o"igations as they

ecome d!e. &he three asic meas!res of a firm's o%era"" "i(!idity are i the c!rrent

ratio, ii the acid test ratio, and iii the net working capita".

&h!s the goa" of working capita" management is to manage the c!rrent assets

and "iai"ities in s!ch a way that an accepta"e "e%e" of net working capita" is

maintained.

33


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TRADEOFF BETWEEN PROFITABILIT4 AND RISK:

&he "e%e" of net working capita" has a earing on profitai"ity as we"" as risk.

Hence in e%a"!ating firms net working capita" position an important consideration is

the trade8off etween profitai"ity and risk. rofitai"ity refers to the net profits and

risk refers to the proai"ity of eing inso"%ent so that the firm wi"" not e a"e to

meet its o"igations when they ecome d!e for payment.

DETERMINING FINANCING MI:

Ene of the most important decisions in%o"%ed in the management of working

capita" is how c!rrent assets wi"" e financed. &here are road"y two so!rces fromwhich f!nds can e raised for asset financing i short8term so!rces 4c!rrent

"iai"ities ii "ong8term so!rces, s!ch as share capita", "ong term orrowings,

interna""y generated reso!rces "ike retained earnings and so on. /ow what portion of

c!rrent assets sho!"d e financed y c!rrent "iai"ities and how m!ch y "ong8term

reso!rcesS

&here are asica""y three approaches to determine an appropriate financing

mi$ i Hedging approach 4or atching approach ii Conser%ati%e approach iii&rade8off etween these two.

3


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36

Hedging (or MaturityHedging (or MaturityMatching) ApproachMatching) Approach

0 method of finan;ing where ea;h asset would be offset with0 method of finan;ing where ea;h asset would be offset with

a finan;ing instrument of the same appro>imate maturitimate maturit


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Con$r)&t!)$ A00ro:

&his approach s!ggests that the estimated re(!irements of tota" f!nds sho!"d

e met y "ong8term so!rces. &he !se of short8term so!rces sho!"d e restricted to

on"y emergency sit!ations or when there is an !ne$pected o!tf"ow of f!nds. &his

approach is high cost "ow risk approach to determine an appropriate financing mi$.

37

"is#s vs. osts Trade"is#s vs. osts Trade--$%%$%%(onservative Approach)(onservative Approach)

3irm ;an redu;e ris=s asso;iated with short3irm ;an redu;e ris=s asso;iated with shortterm borrowingterm borrowing

b< using a larger proportion of longb< using a larger proportion of longterm finan;ing.term finan;ing.

T('E

R"PEE%0'O"

NT

ongterm finan;ing

Fixed assetsFixed assets

urrent assetsurrent assets

ShortShort--term %inancingterm %inancing


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Tr&d$o ,$t*$$n t*o:

/either of the ao%e two approaches wo!"d ser%e the p!rpose of efficient

working capita" management eca!se of their e$treme nat!re. * trade8off etween

these two wo!"d gi%e an accepta"e financing strategy.

A%%r$!)$ &00ro:

&his approach towards risk and profitai"ity is s!ch where the firm !ses tota"

short term orrowings for financing its working capita" needs. &his approach is %ery

risky and a"ways there is a chance of ankr!ptcy.

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WORKING CAPITAL C4CLE:

&he term operating cyc"e refers to the "ength of time necessary to comp"ete the

fo""owing cyc"e of e%ents

1. Con%ersion of cash into in%entory.

2. Con%ersion of in%entory into recei%a"es.

3. Con%ersion of recei%a"es into cash.

Cash f"ows in a cyc"e into, aro!nd and o!t of a !siness. It is the !siness>s

"ife "ood and e%ery manager>s primary task is to he"p keep it f"owing and to !se

the cash f"ow to generate profits. If a !siness is operating profita"y, then itsho!"d, in theory, generate cash s!rp"!ses. If it doesn>t generate s!rp"!ses, the

!siness wi"" e%ent!a""y r!n o!t of cash and e$pire.

&he faster a !siness e$pands the more cash it wi"" need for working capita"

and in%estment. &he cheapest and est so!rces of cash e$ist as working capita"

right within !siness. Bood management of working capita" wi"" generate cash

wi"" he"p impro%e profits and red!ce risks. Ene m!st ear in mind that the cost of

pro%iding credit to c!stomers and ho"ding stocks can represent a s!stantia"

proportion of a firm>s tota" profits.

&here are two e"ements in the !siness cyc"e that asor cash 8 In)$ntor3

4stocks and work8in8progress and R$$!)&,5$4detors owing yo! money. &he

main so!rces of cash are P&3&,5$4yo!r creditors and Eu!t3 &nd Lo&n.

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Fach component of working capita" 4name"y in%entory, recei%a"es andpaya"es has two dimensions........ T!2$ ......... and Mon$3. "" ha%e additiona" free money a%ai"a"e to s!pport additiona" sa"es growth orin%estment. )imi"ar"y, if yo! can negotiate impro%ed terms with s!pp"iers e.g. get

"onger credit or an increased credit "imit? yo! effecti%e"y create free finance to

he"p f!nd f!t!re sa"es.

#


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It can e tempting to pay cash, if a%ai"a"e, for fi$ed assets e.g. comp!ters, p"ant,

%ehic"es etc. If yo! do pay cash, rememer that this is no "onger a%ai"a"e for working capita".

&herefore, if cash is tight, consider other ways of financing capita" in%estment 8 "oans, e(!ity,

"easing etc. )imi"ar"y, if yo! pay di%idends or increase drawings, these are cash o!tf"ows and,

"ike water f"owing downs a p"!g ho"e, they remo%e "i(!idity from the !siness.

Co20ut&t!on o O0$r&t!n% C35$:

Eperating Cyc"e T N


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T aw materia" storage period


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working capita" is temporary, f"!ct!ating or %aria"e working capita". &his portion of the

re(!ired working capita" is needed to meet f"!ct!ations in demand conse(!ent !pon changes

in prod!ction and sa"es as a res!"t of seasona" changes.

DETERMINANTS OF WORKING CAPITAL:

G$n$r&5 n&tur$ o ,u!n$:&he working capita" re(!irements of an enterprise depend !pon

the nat!re of the !siness. &he proportion of c!rrent assets to tota" assets meas!res the re"ati%e

re(!irements of working capita" of %ario!s ind!stries. )ome pec!"iar feat!res app"ica"e in

3

TemporaryTemporary&or#ing apita'&or#ing apita'

The amount of ;urrent assets that #ariesThe amount of ;urrent assets that #aries

with seasonal requirements.with seasonal requirements.

Permanent current assetsPermanent current assets

T('E

R"PEE%0

'

O

"NT

Temporary current assetsTemporary current assets


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Cr$d!t 0o5!3:&he credit po"icy re"ating to sa"es and p!rchases a"so affects the working

capita" in two ways i thro!gh credit terms granted y the firm to its c!stomersD !yers of

goods ii credit terms a%ai"a"e to the firm from its creditors. &he credit sa"es res!"t in higherook dets. Higher ook dets mean more working capita". En the other hand, if "iera" credit

terms are a%ai"a"e from the s!pp"iers of goods 4trade creditors, the need of working capita" is

"ess. Hence, adoption of rationa"i@ed credit po"icies wo!"d e a significant factor in

determining the working capita" needs of an enterprise. Howe%er s!ch discretion may not e

a%ai"a"e to a company which operates in a high"y competiti%e market. &he degree of

competition is, therefore, an important factor inf"!encing working capita" re(!irements.

Gro*t# &nd $0&n!on: *s a company grows, it is o%io!s to e$pect a "arger amo!nt of

working capita". Howe%er, it is diffic!"t to determine precise"y the re"ationship etween the

growth and %o"!me of the !siness of a company and the increase in its working capita".

*d%ance p"anning of working capita" is, therefore, a contin!ing necessity for a growing

concern.

;&%&r!$ &nd &)&!5&,!5!t3 o r&* 2&t$r!&5: In case of chances of interr!ption of a%ai"ai"ity

of certain raw materia"s on a contin!o!s asis wo!"d sometimes affect the re(!irement ofworking capita". &here may e some materia"s which cannot e proc!red easi"y either eca!se

of their so!rces are few or they are irreg!"ar. Hence to s!stain smooth prod!ction, therefore,

the firm might e compe""ed to p!rchase and stock them far in e$cess of gen!ine prod!ction

needs. &his wi"" res!"t in e$cessi%e in%entories of s!ch materia"s. *"so some raw materia"s

may e a%ai"a"e on"y d!ring certain seasons. &hey wo!"d ha%e to e necessari"y otained,

when a%ai"a"e, to pro%ide for a period when s!pp"ies are "ean.

Pro!t L$)$5: &he net profit is a so!rce of working capita" to the e$tent it has een earned in

cash. Higher profit margin wo!"d impro%e the prospects of generating more interna" f!nds,

therey contri!ting to the working capita" poo". Cash profit refers to the profit earned after

ad=!sting non8cash items s!ch as depreciation, o!tstanding e$penses, and "osses written off.

&he a%ai"ai"ity of interna" f!nds for working capita" re(!irements is determined not mere"y

y the profit margin, !t a"so y the manner of appropriating profits. &he a%ai"ai"ity of s!ch

f!nds wo!"d depend !pon the profit appropriations for ta$ation, di%idend, and reser%es. or

e.g. the ta$es to e paid is determined y the pre%ai"ing ta$ reg!"ations. &he management has


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no discretion in this respect. any times ta$es ha%e to e paid in ad%ance on the asis of the

profit and management has no discretion in regard to the payment of ta$es, in some cases non8

payment may attract pena" action.

&a$ p"anning can, therefore, e said to e an integra" part of working capita" p"anning.

)imi"ar"y, di%idend po"icy a"so has a earing on working capita" re(!irements. &he payment of

di%idend cons!mes cash reso!rces and, therey, affects working capita" to that e$tent.

Con%erse"y, if the firm does not pay di%idends !t retains the profit, working capita" increases.

In theory, a firm sho!"d retain profits to preser%e cash reso!rces and, at the same time, it m!st

pay di%idends to satisfy the e$pectations of the in%estor. &he choice whether to retain or

dis!rse profits m!st e made after taking into consideration a"" the re"e%ant factors. i%idend

po"icy, is th!s, a significant e"ement in determining the "e%e" of working capita" in an

organi@ation. epreciation po"icy a"so e$erts an inf"!ence on the (!ant!m of working capita".

epreciation charges do not in%o"%e any cash o!tf"ow. &he effect of depreciation po"icy on

working capita" is, therefore, indirect. epreciation affects the ta$ "iai"ity and retention of

profits. Fnhanced rates of depreciation "ower the profits and, therefore, the ta$ "iai"ity and,

th!s, more cash profits. Higher depreciation a"so means "ower disposa"e profits and,

therefore, a sma""er di%idend payment. &h!s, cash is preser%ed.

Pr!$ 5$)$5 #&n%$: Changes in price "e%e" a"so affects the re(!irement of working capita".

ise in prices necessitate the !se of more f!nds for maintaining an e$isting "e%e" of acti%ity.

or the same "e%e" of c!rrent assts, higher cash o!t"ays are re(!ired. &he effect is that higher

working capita" is re(!ired. Howe%er, if the firm is a"e to increase the prices proportionate"y,

there is no serio!s pro"em as regards working capita".

O0$r&t!n% E!!$n3: &he operating efficiency of the management is a"so an important

determinant "e%e" of working capita". &he management can contri!te to a so!nd working

position thro!gh operating efficiency. *"tho!gh the management cannot contro" the rise in

prices, it can ens!re the efficient !ti"i@ation of reso!rces y e"iminating waste, impro%ing co8

ordination, and a f!""er !ti"i@ation of e$isting reso!rces, and so on.

&o conc"!de the "e%e" of working capita" is determined y a wide %ariety of factors

which are part"y interna" to the firm and part"y e$terna" to it. Ffficient working capita"management re(!ires efficient p"anning and a constant re%iew of the needs for an appropriate

6


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working capita" strategy

COMPUTATION OF WORKING CAPITAL:

&he two components of working capita" are c!rrent assets and c!rrent "iai"ities. In order

to ca"c!"ate the working capita" needs what is re(!ired is the ho"ding period of %ario!s types

of in%entories, the credit co""ection period and the credit deferra" period. &he working capita"

a"so depends on the !dgeted "e%e" of acti%ity in terms of prod!ctionDsa"es. &he ca"c!"ation is

ased !pon the ass!mption that the prod!ctionDsa"es is carried o!t e%en"y thro!gho!t the year

and a"" costs accr!e simi"ar"y. &he steps in%o"%ed in estimating the different items of c!rrent

assets and c!rrent "iai"ities are as fo""ows

ESTIMATION OF CURRENT ASSETS :

R&* M&t$r!&5 In)$ntor3: &he f!nds to e in%ested in raw materia"s in%entory may e

estimated on the asis of prod!ction !dget, the estimated cost per !nit and an a%erage

ho"ding period raw materia" in%entory y !sing the fo""owing form!"a

+!dgeted prod!ction $ Cost of raw materia"s per !nit $ *%erage raw materia"

ho"ding

period in daysDmonths

12monthsD36 days

Wor6!n 0ro%r$ In)$ntor3 : &he f!nds to e in%ested in work8in8progress can e estimated

y the fo""owing form!"a

+!dgeted prod!ction $ Cost of


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F!n!#$d %ood: &he f!nds to e in%ested in finished goods can e estimated y the fo""owing

form!"a

+!dgeted prod!ction $ Cost of rod!ction per !nit $ *%erage finished goods

ho"ding


12monthsD36 days

D$,tor :&he f!nds to e in%ested in detors can e estimated y the fo""owing form!"a

Fstimated credit sa"es $ Cost of )a"es per !nit $ *%erage detors co""ection


12monthsD36 days

C B&5&n$: inim!m desired cash and ank a"ances to e maintained y the firm has to

e added in c!rrent assets for comp!tation of comp!tation of working capita"

Et!2&t!on o Curr$nt L!&,!5!t!$ : &he amo!nt of working capita" is "owered to the e$tent ofc!rrent "iai"ities arising in the norma" co!rse of !siness.

Tr&d$ Cr$d!tor:&his can e estimated y the fo""owing form!"a

Fstimated credit p!rchases $ aw ateria"s e(!irement per !nit $ Credit period granted

y

s!pp"iers in

daysDmonths

12monthsD36 days

D!r$t W&%$: &his can e estimated y the fo""owing form!"a

+!dgeted prod!ction $ irect Lao!r per !nit $ *%erage time "ag in

payment in daysDmonths

5


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12monthsD36 days

O)$r#$&d: &his can e estimated y the fo""owing form!"a

Fstimated year"y prod!ction $ E%erhead costs per !nit $ *%erage time "ag in

payment in daysDmonths

12monthsD36# days

/ote &he amo!nt of o%erheads may e separate"y ca"c!"ated for different types of o%erheads.

In case of se""ing o%erheads the re"e%ant item wo!"d e sa"es %o"!me instead of

prod!ction %o"!me.

WORKING

9


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CAPITAL

FINANCING

#


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Tr&d$ Cr$d!t:

&rade credit refers to the credit e$tended y the s!pp"ier of goods and

ser%ices in the norma" co!rse of transactionD!sinessDsa"e of the firm. i.e. cash is not

paid immediate"y for p!rchases !t after an agreed period of time. &h!s, deferra" of

payment represents a so!rce of finance for credit p!rchases.

&here is howe%er, no forma" forma"Dspecific negotiation for trade credit. It is

an informa" arrangement etween the !yer and se""er witho!t any "ega" instr!ments

or acknow"edgements of dets. )!ch credit appears in the record of !yer of goods

as s!ndry creditorsDacco!nts paya"e.

Ad)&nt&%$:

&rade credit, as a so!rce of short working capita" finance has certain ad%antages.

&hese are as fo""ows.

1 It is easi"y, a"most a!tomatica""y a%ai"a"e.

2 It is f"e$i"e and spontaneo!s so!rce of finance.

3 It is free from restrictions associated forma" negotiated so!rce of

finance.

&rade credit does not in%o"%e any e$p"icit charges.

B&n6 Cr$d!t:

+ank credit is the primary instit!tiona" so!rce of working capita" finance in India. In

fact, it represents the most important so!rce of financing c!rrent assets.

For2 o r$d!t:


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orrower can orrowDdraw !p to the stip!"ated creditDo%erdraft "imit.


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1 Hypothecation -nder this mode the anks pro%ide credit to

orrowers against the co""atera" sec!rity of mo%a"e property, !s!a""y

in%entory of goods. &he goods hypothecated howe%er, contin!e to e

in the possession of the owner of these goods i.e. the orrower.*"tho!gh the ank does no ha%e the physica" possession of the

goods, it has the "ega" right to se"" the goods to rea"i@e the

o!tstanding "oan.

2 "edge "edge, as a mode of sec!rity, is different from hypothecation

eca!se in case of p"edge the goods are transferred to the physica"

possession of the "ender. &he orrower, who offers the sec!rity is,

ca""ed a pawnor' 4p"edgor, whi"e the ank is ca""ed the pawnee'4p"edgee. Howe%er the ank m!st take reasona"e care of the goods

p"edged with it i.e. care which a pr!dent person wo!"d take to protect

his property.

3 Lien it refers to a right of a party to retain goods e"onging to

another party !nti" a det d!e to him is paid. It can e of two types i

partic!"ar "ien, and ii genera" "ien. artic!"ar "ien is a right to retain

goods !nti" a c"aim pertaining to these goods is f!""y paid.


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s!ch as acco!nts recei%a"eand in%entory.at!ritiestypica""y range from 2 to 27#

days. Commercia" paper is a%ai"a"e in a wide range of denominations, can e either

disco!nted or interest8earing, and !s!a""y ha%e a "imited or none$istent secondary

market.Commercia" paper is !s!a""y iss!ed y companies with high credit ratings,meaning that the in%estment is a"most a"ways re"ati%e"y "ow risk.

Fr&2$*or6 o Ind!&n CP 2&r6$t: Commercia" papers are reg!"ated y the

+I. &he main e"ements of the present framework are as fo""ows

Cs can e iss!ed for a period ranging etween 1 days and 1 year. enewa"

of Cs is treated as fresh iss!e. &he minim!m si@e of an iss!e is 2 "akhs and minim!m !nit of s!scription

is "akhs.

&he ma$im!m amo!nt that a company can raise y way of Cs is 1##J of

the working capita" "imit.

* company can iss!e Cs on"y if it has a minim!m tangi"e net worth of s.

crores, a f!nd ased working "imit of s. crores or more, at "east a rating

of 2 4 CI)IL , *24IC*,etc. &he ho"der of Cps wo!"d present them for payment to the iss!er on mat!rity

FACTORING:

actoring pro%ides reso!rces to finance recei%a"es as we"" as faci"itates the

co""ection of recei%a"es. actoring can e road"y defined as an agreement in

which recei%a"es arising o!t of sa"e of goodsDser%ices are so"d y a firm4c"ient to

the factor4a financia" intermediary as a res!"t of which the tit"e of goodsDser%ices

represented y the said recei%a"es passes on to the factor. Hence, factor ecomesresponsi"e for credit contro", sa"es acco!nting and det co""ection from the !yers.
http://www.investorwords.com/52/accounts_receivable.htmlhttp://www.investorwords.com/2589/inventory.htmlhttp://www.investorwords.com/3017/Maturities.htmlhttp://www.investorwords.com/3017/Maturities.htmlhttp://www.investorwords.com/4422/secondary_market.htmlhttp://www.investorwords.com/4422/secondary_market.htmlhttp://www.investorwords.com/4422/secondary_market.htmlhttp://www.investorwords.com/1209/credit_ratings.htmlhttp://www.investorwords.com/1209/credit_ratings.htmlhttp://www.investorwords.com/4292/risk.htmlhttp://www.investorwords.com/4292/risk.htmlhttp://www.investorwords.com/52/accounts_receivable.htmlhttp://www.investorwords.com/2589/inventory.htmlhttp://www.investorwords.com/3017/Maturities.htmlhttp://www.investorwords.com/4422/secondary_market.htmlhttp://www.investorwords.com/4422/secondary_market.htmlhttp://www.investorwords.com/1209/credit_ratings.htmlhttp://www.investorwords.com/4292/risk.html


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In case of factoring witho!t reco!rse faci"ity, if any detor fai"s to pay the d!es as a

res!"t of financia" inai"ity or inso"%ency the factor has to asor the "oss.

FUNCTIONS OF THE FACTOR:

inancing faci"ity.

aintenance and administration of sa"es "edger.

Co""ection of acco!nt recei%a"es.

ro%ision of ad%isory ser%ices.

*ss!mption of credit risk and contro".

AD;ANTAGES OF FACTORING:

O B&5&n$ #$$t F!n&n!n% )ince the c"ient's dets are p!rchased y the

factor, the finance pro%ided y him is off the a"ance sheet and appears in

the a"ance sheet on"y as a contingent "iai"ity in case of reco!rse factoring. R$dut!on o urr$nt L!&,!5!t!$

I20ro)$2$nt !n urr$nt r&t!o *s the factoring transaction off the a"ance

sheet, it remo%es from the asset side the recei%a"es factored to the e$tent of

the pre8payment made and on the "iai"ities' side the c!rrent "iai"ities are

a"so red!ced.

H!%#$r r$d!t t&nd!n%:


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Mor$ t!2$ or 05&nn!n% &nd 0rodut!on: &he factor !ndertakes the

responsii"ity for credit contro", sa"es "edger administration and det

co""ection pro"ems. &h!s, the c"ient can concentrate on f!nctiona" areas ofthe !siness p"anning, p!rchase, prod!ction, marketing and finance.

R$dut!on o ot &nd $0$n$:)ince the c"ient need not ha%e a specia"

administrati%e set!p to "ook after the credit contro" he can ha%e the enefit of

red!ced o%erheads y way of sa%ings on man8power, time and effort.

6


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&he term cash with reference to cash management is !sed in two senses. In a

narrow sense, it is !sed to co%er c!rrency and genera""y accepted e(!i%a"ents of

cash, s!ch as che(!es, drafts, demand deposits in anks. &he road %iew of cash

a"so inc"!des near8cash s!ch as marketa"e sec!rities and time deposits in anks.&he main characteristics of these are that they can e readi"y so"d and con%erted into

cash. Here, the term cash management is emp"oyed in the roader sense.

Irrespecti%e of the form in which it is he"d, a disting!ishing feat!re of cash, as an

asset, is that it has no earning power. If cash does not earn any ret!rn why it is he"dS

&here are fo!r primary moti%es for maintaining cash a"ances

1 Tr&n&t!on Mot!)$:&his is a moti%e of ho"ding cashDnear8cash to meet ro!tine cash re(!irements

to finance the transactions which a firm carries on in the ordinary co!rse of the

!siness. * firm enters into a %ariety of transactions to accomp"ish its o=ecti%es

which ha%e to e paid for in the form of cash. or e.g. cash payments ha%e to e

made for p!rchases, wages, operating e$penses, financia" charges, and so on.

)imi"ar"y, there is a reg!"ar inf"ow of cash to the from sa"es operations, ret!rns on

in%estments and so on. &hese receipts and payments constit!te a contin!o!s twoway of cash, !t they do not coincide or synchroni@e. Hence, in case, the

dis!rsements are in e$cess of c!rrent receipts the need of cash a"ance is o%io!s.

2 Pr$&ut!on&r3 Mot!)$:

In addition to the non8synchroni@ation of anticipated cash inf"ows and

o!tf"ows in the ordinary co!rse of !siness, a firm may ha%e to pay the cash for the

p!rposes which cannot e predicted or anticipated. &he !ne$pected cash needs at

the short notice may e the res!"t of f"oods, strikes, and i""s may e presented for

sett"ement ear"ier than e$pected, !ne$pected s"owdown in co""ection of acco!nts

recei%a"es, cance""ation of some order of goods from c!stomers, sharp increase in

cost of raw materia"s, etc. hence preca!tionary a"ances to meet !npredicta"e

o"igations are re(!ired to pro%ide a c!shion to meet !ne$pected contingencies.

)!ch cash a"ances are !s!a""y he"d in the form of marketa"e sec!rities so that they

earn a ret!rn.

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It ena"es a firm which has s!fficient cash to take ad%antage of cash

disco!nts on its acco!nts paya"e, to pay o"igations when d!e, to take

di%idend decisions.

It he"ps to arrange needed f!nds on the most fa%o!ra"e terms and pre%ents

the acc!m!"ation of e$cess f!nds.

ELEMENTS OF CASH BUDGET:

&he principa" aim of cash !dget, as a too" to predict cash f"ows o%er a gi%en

period of time, is to ascertain whether at any point of time there is "ike"y to e an

e$cess or shortage of cash. &he e"ements of cash !dget are as fo""ows

&he first e"ement of cash !dget is the se"ection of the period of time to eco%ered y the !dget. It is referred to as the p"anning hori@on. &he

co%erage of the cash !dget wi"" differ from firm to firm depending !pon its

nat!re and the degree of acc!racy with which the estimates can e made.

Howe%er, the period se"ected sho!"d neither e too short or too "ong. If it is

too short, many important e%ents which "ie =!st eyond the period cannot e

acco!nted for and the work associated with the preparation of the !dget

ecomes e$cessi%e. If it is too "ong, the chances of inacc!racy wi"" e high.&he p"anning hori@on of cash !dget depends !pon the circ!mstances and

re(!irements of a partic!"ar case. If the f"ows are e$pected to e sta"e and

dependa"e, s!ch from may prepare a cash !dget co%ering a "ong period.

Howe%er, in case of a firm whose f"ows are !ncertain a short period !dget

may e appropriate.

&he second e"ement of cash !dget is the se"ection of the factors that ha%e a

earing on the cash f"ows. &he items inc"!ded in cash !dget are on"y cashitems? non8cash items s!ch as depreciation and amorti@ation are e$c"!ded.

&*+LF 1Cash +!dget for the UUUonths

Fnded UUUUUUUUUUUUUU

Worksheet Oct. Nov. Dec. Jan. Feb.

June July Aug.

)a"esCo""ections

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irst month 43#J)econd month 4#J&hird month 42#J

&ota"

!rchasesayments 4one8month "agCash receiptsCo""ectionsCash dis!rsements!rchases


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of acco!nts recei%a"e can e considera"y acce"erated, y red!cing transit,

processing and co""ection time. *n important cash management techni(!e is

red!ction in deposit f"oat. &his co!"d e possi"e if the firm adopts a po"icy of

decentra"i@ed co""ections. &he princi9pa" methods of esta"ishing a decentra"i@edco""ection network are

Con$ntr&t!on ,&n6!n%: In this system of decentra"i@ed co""ection of

acco!nts recei%a"e, "arge firms ha%ing "arge ranches, se"ect strategica""y

some of the ranches as co""ection centre for recei%ing payments from

c!stomers. Instead of a"" the payments eing co""ected at head office, the

che(!es are co""ected at the "oca" co""ection centre and the c!stomers arere(!ired to send their payments to the co""ection centre co%ering the area in

which they "i%e. &he f!nds co""ected are then transferred to concentration or

centra" ank.

Lo6 Bo: &his is asica""y a co""ection proced!res in which payers send

their paymentsD che(!es to a neary post o$ that is emptied y the firm's

ank se%era" times and the ank deposits the che(!es in the firm's acco!nt.&h!s, the "ock o$ system is "ike concentration anking in that the co""ection

is decentra"i@ed. &his arrangement is an impro%ement o%er concentration

anking as some e$tra sa%ing in the mai"ing time is pro%ided y this system

as the che(!es recei%ed in the post o$ are not de"i%ered y the firm itse"f to

the ank? rather the ank itse"f co""ects them !p.

S5o*!n% D!,ur$2$nt:*part from speedy co""ections of acco!nts recei%a"e,the operating cash re(!irements can e red!ced y s"ow dis!rsements of acco!nts

paya"es. &he %ario!s techni(!es to de"ay payment of acco!nts paya"e are

A)o!d&n$ o $&r53 0&32$nt: It is not ad%isa"e for a firm to make

payments to the parties ear"y, that is, efore its d!e date. Howe%er payments

sho!"d not e de"ayed after d!e date otherwise the credit standing may e

ad%erse"y affected and the firm wi"" not e a"e to sec!re trade credit in

f!t!re.

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C$ntr&5!'$d D!,ur$2$nt:&he payments sho!"d e made y the head

office from a centra"i@ed dis!rsement acco!nt. )!ch an arrangement wo!"d

ena"e a form to de"ay payments and in t!rn wi"" e a"e to conser%e cashsince it wi"" increase the transit time. &he remittance from the head office to

its c!stomers at distant p"aces wo!"d in%o"%e more mai"ing time than a

decentra"i@ed payment y a "oca" ranch. /ot on"y this ha%ing a centra"i@ed

dis!rsement arrangement, is a re"ati%e"y sma""er cash a"ance needed since

there is no need to maintain cash a"ance at ranches.

F5o&t: * %ery important techni(!e of s"ow dis!rsement is f"oat. &he termf"oat refers to the amo!nt of money tied !p in che(!es that ha%e een

written, !t ha%e yet to e co""ected and en8cashed.

P&3!n% ro2 & d!t&nt ,&n6:&he firm may iss!e a che(!e on anks away

from its creditors. &his wo!"d in%o"%e "onger transit time for the creditor's

ank to get payment and, th!s, ena"e a firm to !se its f!nds "onger.

C#$u$$n$nt &n&53!: *nother way to make !se of f"oat is to

ana"y@e, on the asis of past e$perience, the time "ag in the iss!e of che(!es

and their encasements.

Aru&5: ina""y, a potentia" too" for stretching acco!nts paya"e is accr!a"s

which are defined as c!rrent "iai"ities that represent a ser%ice or goods

recei%ed y a firm !t not yet paid for. or instance, payro"", i.e.rem!neration to the emp"oyees who render ser%ice in ad%ance and recei%e

payment "ater. In a way, they e$tend credit to the firm for a period at the end

of which they are paid, say, a week or a month.

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RECEI;ABLESMANAGEMENT

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INTRODUCTION:

&he recei%a"es represent an important component of the c!rrent assets ofany firm. &he term recei%a"es are defined as det owe to the firm y the c!stomers

arising from sa"e of goods and ser%ices in the ordinary co!rse of !siness'.


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credit rating, credit references, a%erage payment period, and financia" ratios.

&he trade8off with reference to credit standards co%er i the co""ection costs

ii a%erage co""ection periodDcost of in%estment in acco!nts recei%a"e iii

"e%e" of ad det "osses i% "e%e" of sa"es. &he imp"ications of the fo!r factorsare e$p"ained e"ow.

Co55$t!on ot: &he imp"ications are i more credit ii a "arge

credit department to ser%ice acco!nts recei%a"e iii increase in

co""ection cost.

In)$t2$nt !n r$$!)&,5$: &he in%estment in acco!nt recei%a"ein%o"%es a capita" cost as f!nds ha%e to e arranged y the firm to

finance them ti"" c!stomers make payments. Higher the a%erage

acco!nts recei%a"e, the higher wi"" e the capita" or carrying costs.

B&d d$,t 5o$: &hese can e e$pected to increase with re"a$ation

in credit standards and decrease if credit standards ecome more

restricti%e.

L$)$5 o S&5$: *s standards are re"a$ed, sa"es are e$pected to

increase? con%erse"y, a tightening is e$pected to ca!se a dec"ine in

sa"es.

Cr$d!t &n&53!:It in%o"%es otaining credit information

and ana"ysis of credit information. It is on the asis of credit ana"ysis that thedecisions to grant credit to a c!stomer as we"" as the (!ant!m of credit

wo!"d e taken.

O,t&!n!n% r$d!t !nor2&t!on: &he first step is to

otain credit information on which the ase is the e%a"!ation of the

c!stomer. &he so!rces of information are i interna" ii e$terna".

Int$rn&5: &he firm re(!ires the c!stomers to fi"" %ario!s forms anddoc!ments gi%ing detai"s ao!t financia" operations. *nother interna"

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so!rce is deri%ed from the records of the firm contemp"ating an

e$tension of credit.

Et$rn&5:&he a%ai"ai"ity of information from e$terna"? so!rces toassess the credit worthiness of the c!stomers depends !pon de%e"opment

of instit!tiona" faci"ities and ind!stria" practices. &he e$terna" so!rces are

financia" statements, ank references, trade references and credit !rea!

reports.

An&53! o r$d!t !nor2&t!on: Ence the credit information has

een co""ected from different so!rces, it sho!"d e ana"ysed to determine

the credit worthiness of the app"icant. It co%ers two aspects i(!antitati%e and ii (!a"itati%e.


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IN;ENTOR4MANAGEMENT

7#


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Introdut!on:

&he term in%entory refers to the stock of the prod!cts a firm is offering for

sa"e and the components that make !p the prod!ct. &hat is, in%entory is composedof assets that wi"" e so"d in f!t!re in the norma" co!rse of !siness operations.

&hese assets are i aw materia"s, ii


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in%entory order. Inc"!ded in the ordering costs are costs in%o"%ed in one

ipreparing a p!rchase order or re(!isition form and ii recei%ing,

inspecting and recording of the goods recei%ed to ens!re oth (!a"ity and

(!antity. &hese are genera""y fi$ed irrespecti%e of the amo!nt of order.Hence, s!ch costs can e minimi@ed y p"acing fewer orders for a "arger

amo!nt. Howe%er, ac(!isition of "arge (!antity wo!"d increase the costs

associated with the maintenance of the in%entory, that is, carrying costs.

C&rr3!n% ot: these costs are the %aria"e costs per !nit of ho"ding an

item in in%entory for a specified time period. &hese costs can e di%ided

into two categories. i those that arise d!e to storing of in%entory the maincomponents of this category of costs are a the storage costs, ins!rance,

maintenance of the !i"ding ins!rance of in%entories against fire and

theft, c deterioration in in%entory eca!se of pi"ferage, fire, technica"

oso"escence, d ser%ing costs s!ch as "ao!r for hand"ing, ii opport!nity

costs this consists of e$penses in raising f!nds. If f!nds were not "ocked

!p in in%entory, they wo!"d ha%e earned a ret!rn. &his is the opport!nity

cost of f!nds.

&he s!m of ordering and carrying costs represents the tota" cost of in%entory.

B$n$!t o #o5d!n% !n)$ntor3:

&he secondary e"ement in the optim!m in%entory decision dea"s with the

enefits associated with ho"ding in%entory. &he ma=or enefits of ho"ding in%entory

is that they ena"e firms in the short r!n to prod!ce at a rate greater than p!rchase of

raw materia"s and %ice8%ersa, or se"" at rate greater than prod!ction and %ice8%ersa.

IN;ENTOR4 MANAGEMENT TECHNI


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any sophisticated mathematica" techni(!es are a%ai"a"e to hand"e

in%entory management pro"ems.

C5&!!&t!on S3t$2: A B C S3t$2 &he *+C system is a wide"y !sedc"assification techni(!e to identify %ario!s items of in%entory for the

p!rposes of in%entory contro". &his techni(!e is ased on the ass!mption

that firm sho!"d not e$ercise the same degree of contro" on a"" items of

in%entory. It sho!"d rather keep a more rigoro!s contro" on items that are

most cost"y and or s"owest t!rning, whi"e items that are "ess e$pensi%e

sho!"d e gi%en a "ess contro". Hence, *+C system is an in%entory

management techni(!e that di%ides in%entory into three categories ofdescending importance ased on r!pee in%estment in each. &he items

inc"!ded in gro!p * in%o"%e the "argest in%estment. &herefore, in%entory

contro" sho!"d e most rigoro!s and intensi%e and the most sophisticated

in%entory contro", techni(!es sho!"d e app"ied to these items. &he C gro!p

items consist of items of in%entory which in%o"%e re"ati%e"y sma""

in%estments, a"tho!gh the n!mer of items is fair"y "arge. &hese items

deser%e minim!m attention. &he gro!p + stands mid8way. It deser%es "essattention than * !t more than C. It can e contro""ed y emp"oying "ess

sophisticated techni(!es.

&he task of in%entory management is to c"assify a"" the in%entory

items into one of these gro!psDcategories.

Ord$r u&nt!t3 0ro,5$2: EO< 2od$5 Fconomic order (!antity mode" is

the in%entory management techni(!e for determining items optim!m order

(!antity which is the one that minimi@es the tota" of its ordering and

carrying costs. It a"ances fi$ed ordering cost against %aria"e ordering

costs. It is a"so known as economic "ot si@e. athematica""y it can e

ca"c!"ated y the fo""owing e(!ation

FEAT W2 *E WC


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+T Erdering Cost

CT Carrying Cost

S$tt!n% o )&r!ou to6 5$)$5:

M!n!2u2 5$)$5It indicates the "owest fig!re of in%entory a"ance,

which m!st e maintained in hand at a"" times so that there is no

stoppages of prod!ction d!e to non8a%ai"ai"ity of in%entory. &he

main considerations for fi$ation of minim!m "e%e" of in%entory are

as fo""ows

1. Information ao!t ma$im!m cons!mption period andma$im!m de"i%ery period in respect of each item to

determine its re8order "e%e".

2. *%erage rate of cons!mption for each in%entory.

3. *%erage de"i%ery period for each item.

&he form!"a for ca"c!"ation is as !nder

M!n!2u2 5$)$5 o !n)$ntor3 R$ord$r 5$)$5 A)$r&%$ r&t$ o

onu20t!on A)$r&%$ t!2$ o !n)$ntor3 d$5!)$r3

M&!2u2 L$)$5: It indicates the ma$im!m fig!re of in%entory

(!antity he"d in stock at any time. &he important considerations

which sho!"d go%ern the fi$ation of ma$im!m "e%e"s of in%entory are

as fo""ows

1. &he information ao!t its re8order "e%e" since it itse"f depends

!pon its ma$im!m rate of cons!mption and ma$im!mde"i%ery period.

2. now"edge ao!t minim!m cons!mption and minim!m

de"i%ery period for each in%entory sho!"d a"so e known.

3. &he fig!re of FEA.

. *%ai"ai"ity of f!nds, storage space, nat!re of items and their

price per !nit are a"so important for the fi$ation of ma$im!m

"e%e".

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M&!2u2 5$)$5 o !n)$ntor3 R$ord$r 5$)$5 r$ord$r u&nt!t3

M!n!2u2 onu20t!on M!n!2u2 r$ord$r 0$r!od

R$ord$r L$)$5: &his "e%e" "ies etween the ma$im!m andminim!m "e%e"s in s!ch a way that efore the materia" ordered is

recei%ed into the stores, there is s!fficient (!antity on hand to co%er

oth norma" and anorma" cons!mption sit!ations. In other words, it

is the "e%e" at which fresh order sho!"d e p"aced for rep"enishment

of the stock.


R$ord$r 5$)$5 o !n)$ntor3 M&!2u2 r$ord$r 0$r!od

M&!2u2 u&%$ OR M!n!2u2 L$)$5 A)$r&%$ R&t$ o

onu20t!on A)$r&%$ T!2$ to o,t&!n r$# u005!$

D&n%$r L$)$5: It is the "e%e" at which norma" iss!es of the raw

materia" in%entory are stopped and on"y emergency iss!es are made.


D&n%$r 5$)$5 o !n)$ntor3 A)$r&%$ onu20t!on L$&d t!2$ or

$2$r%$n3 0ur#&$

Cont!nuou to6 )$r!!&t!on: &he checking of physica" in%entory is an

essentia" feat!re of e%ery so!nd system of materia" contro". )!ch a checking

may e periodic or contin!o!s.

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76


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77

2#1# 2##9 2##5 2##7 2##6


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75


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79


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51

+a"ance )heet for the Oear Fnded as on 31stmarch 2#13

2#13 2#12


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52

rofit and Loss *cco!nt for the Oear Fnded as on 31stmarch 2#132#13 2#12


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53

C%/ 3O@ %TTE'ENT 3OR T/E *ER EN)E) 91%T'RC/A 2019

+1/ +1+


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5

C%/ 3O@ %TTE'ENT 3OR T/E *ER EN)E) 91%T'RC/A 2019

+1/ +1+


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F!nd!n% &nd An&53!WORKING CAPITAL POSITION

+1/ +1+ +11 +1

C-F/& *))F&) 5133 #91 #2 95/F& I0F *))F&) 329 92 9 2&E&*L *))F&) 99139 57#76 7125 72#C* D &* 52.2 62.11 63.15 7.

/F& C-F/& *))F&) 372 13#1 1572 27#6

&he 13 percent increase in /et C!rrent *ssets is d!e to the fact that there

has een an increase in the C!rrent *ssets y #.73J and increase in C!rrent

Liai"ity has een on"y 17.#J o%er that of the pre%io!s year. &he firm's "e%e" of

"i(!idity eing high we need a check on whether it affects the ret!rn on assets. /ow

there is a s!stantia" increase in the c!rrent assets to tota" assets. &his co!"d e "ess

profita"e on the ass!mption that c!rrent assets generate "esser ret!rn as comparedwith ret!rn on fi$ed assets.

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RISKRETURN ANAL4SIS

+1/ +1+ +11)*LF) 199556 129 1666#F+I& 163 123 1191F&-/ E/ I/:F)&F/& 4J 39 7.

In case instead of /et C!rrent assets and net "ock if tota" assets had een !sed in

comp!tation of EI then

&E&*L *))F&) 235 7256F&-/ E/ I/:F)&F/& 4J 6#.36 3#.3

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CURRENT ASSET SCENARIO

COMPONENT +1/ +1+I/:F/&EO 23.#7 29.51)-/O F+&E) .37 .C*)H */ +*/ *))F&) 17.55 5.2E&HF C-F/& *))F&) 9.7 2.65LE*/ */ *:*/CF) 3.93 .79


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scenario witnessed here as co!"d e easi"y seen from the increased !ti"i@ation

of p"ant capacity.

&he 69.J rise in %a"!e is primari"y d!e to the increase in the cons!mption of raw

materia"s in processors. &his shifting %a"!e has to e traced ack to the sa"es of

comp!ters D micro processor ased systems i.e. whether sa"es =!stify this increase.

&he sa"es in %a"!e ha%e increased y 3#J 425.7D1215.6. this is a marked

increase from the pre%io!s year where despite the increase in the %a"!e of raw

materia"s cons!med there was a dec"ine in the %a"!e of sa"es.

&he c!rrent ratio after a dec"ine in 2## has increased which means an increase in

"i(!idity and so"%ency position of the firm. &his reaffirms what had een stated

ear"ier firms c!rrent assets are at an a"" time high. &his they might ha%e done to

co%er the risk in%o"%ed in their e$panding operations. &he present ratio of 1.721

co!"d e c"aimed to e optima" as the desired ratio of the company is ao!t is ao!t

1.331. !t how far has een the ratio s!ccessf!" in indicating the re"ati%e "i(!idity

of c!rrent assets and "iai"ities ha%e not een answered.

&he %a"!e of imported and indigeno!s raw materia" cons!med gi%e a c"ear

pict!re that if there is a change in the F0I po"icy of the go%ernment it is o!nd to

affect the company ad%erse"y as more than7#Jof their cons!mption is from

imports. +!t this is a scenario witnessed in the ind!stry as a who"e and tho!gh HCL

is into e$panding its operations to -ttarancha" it is a"so o!nd to e affected y a

change in the import d!ty str!ct!re.

CASH MANAGEMENT

In cash management the co""ect f"oat taken for the che(!es to e rea"i@ed

into cash is irre"e%ant and non8 interfering here eca!se anks s!ch as )tandard

Chartered, HC and CI&I who gi%e credit on the asis of these che(!es after

charging a %ery sma"" amo!nt. F%en otherwise the time taken for the che(!es to e

processed is instantaneo!s. &heir Cash anagement )ystem is (!ite efficient.

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WORKING CAPITAL 7 SHORT TERM FINANCING

NAME OF THE BANK

FUND

BASED

NON FUND

BASED)&*&F +*/ E I/I* 36## 13###ICICI +*/ 1252 79#HC +*/ 12## 6#2)&*/* CH*&FF +*/ 12## ###)&*&F +*/ E )*-*)H&* 71 ###)&*&F +*/ E *&I*L* 13## 33#C*/** +*/ 12#3 233)ECIF&F BF/F*LF 1### 1###&E&*L 11## 35##

&he consorti!m of anks pro%ide a f!nd ased "imit of 11 crores which

comprises of cash credit and working capita" demand "oans and non f!nd ased

"imits which has ank g!arantee and "etter of credit s!=ect to a "imit of 35

crores.*ny iss!e of the commercia" paper in the part of the firm "eads to a dec"ine in

the "imit of f!nd ased "imits. C!rrent"y the firm ha%ing iss!ed commercia" papers

worth rs3#crores for the year 2##6 has asked the "ead ank to ded!ct the f!nd ased

"imit from 11 crores to 5 crores.

In terms of desirai"ity the commercia" papers are cheaper and ad%antageo!s

to the firm compared to the consorti!m financing. +!t the firm depends on oth and

for working capita" financing is depended on the anks for f!nds s!ch as working

capita" demand "oans and cash credits.

SECURED LOANS +1 +> +

)HE& &F 991.25 69#3.7 957.2LE/B &F 3#.#7 # 361.36&E&*L 21.3 69#3.7 55.55J )HE& &F 9#. 1## 9.#3UNSECURED LOANS +1 +> +

)HE& &F 293.39 63.9 76.5LE/B &F 17 169.1 3261.2

&E&*L 261#.39 233. 3335.26J )HE& &F 99.35 27.35 2.3

9#


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&he preference of short term financing to "ong term as s!ch is not the part of

any po"icy emp"oyed y the firm !t d!e to the reason that they were cheaper and

the interest rates "ower.

&he other nota"e feat!re in HCL statements has een the growing di%idend

po"icy of the firm which has meant that the firm doesn't ha%e at its disposa" too

m!ch cash in hand. &hat is the firm dis!rse as di%idends profits which co!"d ha%e

either een retained in the !siness for capita" e$pendit!re. +!t rather than in%esting

more in p"ant and machine which they can at any point in time y adding on a

additiona" "ine if need e they wo!"d "ike to optimi@e their !ti"i@ation in fi$ed assets

at present.

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DI;IDEND POLIC4

+1 +> +

I:IF/ *I 4 I/CL-I/ C& 11729.69 7723.22 399.79EI& *&F &*0 13276.7 12#59.6 6172.59I:IF/ *O8E-& *&IE 55.3 63.55 5.31

&he di%idend pay8o!t ratio is increasing tremendo!s"y o%er the years.

i%idends imp"y o!tf"ow of cash and "owers f!t!re growth. Howe%er a high

di%idend pay8o!t ratio may "ead to a rise in prices of shares.

LOANS AND AD;ANCES

)FC-F LE*/)

+1 +> +

&E&*L +EE +

&E&*L +EE


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/.+ANAL4SIS

&he *na"ysis of working capita" is primari"y a test of short8term so"%ency. &here is

danger in ha%ing too "itt"e or too m!ch working capita".

Objective of Analysis

&o maintain ade(!ate working capita" at e%ery time.

&o minimi@e the cost of short term financing.

&o p"ant the %ario!s so!rces of short8term finance we"" in ad%ance in

case of the need.

&o st!dy the trends in the working capita" positions.

G$nd$r R&t!o

Ino2$ r&t!o

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A%$ Grou0 o r$0ond$nt

9


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9


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&here has een a significant dec"ine in %o"!me o%er the years from

2##8#6 to 2##981# as can e seen in the graph e"ow

&he %o"!me decreased y 17## in 2##68#7 as compared to that in

2##8#6.

&here has een increased in the %o"!me y 39 in 2##78#5 as

compared to

that in 2##68#7.

&here has een increased in the %o"!me y 616 in 2##58#9 as

compared to

that in 2##78#5.

&he %o"!me decreased y 2271 in 2##981# as compared to that in 2##58#9.

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&he *B co!"d on"y achie%e the fo""owing percentage of its !dgeted

%o"!mes

OF* J of +-. :EL-F2##68#7 76

2##78#5 #.#32##58#9 73

2##981# 76

&hese percentages can e e$p"ained y the graph.

&hese differences can e e$p"ained d!e to drop in act!a" sa"es as per the fo""owing

reasons

)"!mp in the market

)tiff competitions

Fmergence of foreign p"ayers

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CHAPTER

CONCLUSION 7RECOMMENDA

TION

95


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RECOMMENDATION

Lo&n 7 Ad)&n$

)pecia" efforts sho!"d e made to ana"y@e "oans G ad%ances, which are etween

3J to 6J of c!rrent assets. &his can e c"assified etween prod!ction D operation

re"ation re"ated and non8prod!ction D operation re"ated. /o prod!ction re"ated cases

might e financed from other so!rces "ike deent!re etc. and treated separate"y.

In)$ntor3

In%entory sho!"d e re%iewed constant"y to identify show D dead D oso"ete item and

then disposed !nti" 2###8#1 "e%e" is again achie%ed.

Eptim!m "e%e" sho!"d e re%ised periodica""y, keeping in %iew, distance of

s!pp"iers, prod!ction "ead time of s!pp"ier, transport pro"em if any and re"iai"ity

of s!pp"iers. &his wi"" he"p to a%oid oso"esce and dead in%entory.

D$,tor

* st!dy may e cond!cted if re(!ired y e$perts to pinpoint reason ehind HCL

I/E)O)&F L&. high correction period of 9 days in 2##8# against # days

of &C) It is d!e to (!a"ity of prod!cts, (!a"ity of c!stomer, the segment of

c!stomers marketing effort, distri!tion pattern or other reasons.

Cr$d!tor

&ho!gh high payo!t days may e apparent"y eneficia" for the company. It has it

%ery hea%y "ong term cost "ike high interest cost, ad credit ratings and shyness of

good (!a"ity D standard s!pp"iers.

C 7 B&n6

1##


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&his is the most "i(!id e"ement in c!rrent asset and target sha"" e fi$ed most

ca!tio!s"y. &oo "ow a fig!re of .J of tota" c!rrent assets of HCL I/E)O)&F

L&. in 2##38# as against 1.J of &C) may e apparent"y too good to "ook at,

!t this may e "ead to payment crisis at %ario!s sorts.

R&t!o

&he company sho!"d try to impro%e its c!rrent sit!ation. &he ratios, which are taken

in this research to e%a"!ate the company's position, are C!rrent ratio, A!ick ratio

and *cti%ity ratio. &hese ratios show the act!a" position of the company. &he A!ick

ratio is dec"ining since 2##18#2 ti"" now. &here is a drastic dec"ining in the workingcapita" t!rno%er ratio. &his ratio goes to M%e position in c!rrent year compared to

pre%io!s. &he ets co""ection period is 39 days for F$porters. &his shows the

poor co""ection po"icy. &he c!rrent ratio is 1.#2 in 2##8#6, which is not !pto the

idea" ratio. &his shows that the c!rrent assets are e(!a" to the c!rrent "iai"ities. /ot

satisfactory.


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F)IB/*&IE/

CE*/O

I/)&I&-&FDCEE*&F HE-)F

A1.


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ILFc )*LL

A6.*F OE- *


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BIBLIOGRAPH4

R$$rr$d S!t$

1. www.goog"e.com

2. www.answers.com

3. www.yahoo.com

. [email protected]

. www.hc"infosystems.com

R$$r$n$ Boo6

1. I andey

2. IC*I's od!"e.

Ot#$r M&t$r!&5

1. +a"ance )heet of HCL Infosystems Ltd.

2. rofit and Loss *Dc for the year ending.

3. *nn!a" eport of HCL Infosystems .
http://var/www/apps/conversion/tmp/scratch_3/www.google.comhttp://var/www/apps/conversion/tmp/scratch_3/www.answers.comhttp://www.yahoo.com/http://var/www/apps/conversion/tmp/scratch_3/www.amazon.comhttp://www.hclinfosystems.com/http://var/www/apps/conversion/tmp/scratch_3/www.google.comhttp://var/www/apps/conversion/tmp/scratch_3/www.answers.comhttp://www.yahoo.com/http://var/www/apps/conversion/tmp/scratch_3/www.amazon.comhttp://www.hclinfosystems.com/

Documents

Hcl - Finance - Working Capital Management in Hcl12222223