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Analysis of operating cycle with special reference to bharti teletech ltd.

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Analysis of operating cycle with special reference to bharti teletech ltd.

Analysis of operating cycle with special reference to bharti teletech ltd.

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Analysis of operating cycle with special reference to bharti teletech ltd. Analysis of operating cycle with special reference to bharti teletech ltd. Document Transcript

  • A CASE STUDY ON “ANALYSIS OF OPERATING CYCLE WITH SPECIAL REFERENCE TO BHARTI TELETECH LTD.”SUMITTED IN PARTIAL FULFILLMENT OFTHE REQUIREMENT OF THE DEGREE OFMASTER OF BUSINESS ADMINISTRATION UTTARAKHAND TECHNICAL UNIVERSITY, DEHRADUNSUBMITTED BY: SUBMITTED TO:
  • Projectsformba.blogspot.com CERTIFICATEI have the pleasure in certifying that ………………………… is a bonafide student of 4thSemester of Institute of management studies, Dehradun University Roll no………………She has completed her project work entitled………………………………. Under mysupervision.I certify that this is her original effort. It has not been copied from any other source. Thisproject has not been submitted in any other university for the purpose of award of any degree.This project fulfills the requirement of the curriculum prescribed by UK. TECH. University,for the said course. I recommend this project work for evaluation and consideration for theaward of degree to the student.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com ACKNOWLEDGEMENTIndebted to many people who helped throughout the project work and in the preparation ofthis report. First of all I would like to offer my sincere gratitude to ……………………projectdirector and Deputy finance manager of BHARTI TELETECH LTD and IMS for giving methe opportunity to undertake this project.I would also wish to special thank my project guide ……………………., project guide inBHARTI TELETECH LTD for his valuable guidance during the course of the project.I owe special debt to Fellow professionals at BHARTI TELETECH LTD, …………………..………………………………. for having shared the knowledge for providing me the constantsupport and valuable suggestions through the project.My thanks are also to …………………….. who has helped in organizing this project.I am also thankful to all my friends for providing me the much needed the moral supportduring the course of this project.IMS DehradunProjectsformba.blogspot.com
  • Projectsformba.blogspot.com PREFACEThe present study was undertaken as a part of the organizational training (1) Component ofthe MBA course of masters in business studies in financial management.The object of this training was to develop information search skills into students. This enablesthem to gather information on a given subject in a systematic and consciously plannedmanner.The study was done as the project for BEETEL Ltd, New Delhi. BEETEL is engaged inproduction of range of basic and cordless phones and is also National distributor of Motorolahandsets in India.The study was carried out during the months of February-March’07. The objective was tostudy the concept of Working Capital Management in detail in BEETEL and makesuggestions about the study.Projectsformba.blogspot.com
  • Projectsformba.blogspot.comCONTENTSCertificateAcknowledgementPreface 1. Executive summary 2. Introduction 3. Company Profile - BHARTI - BEETEL 4. Review of Literature - Components of Working Capital - Working Capital Cycle - Financing Working Capital - Financial Ratios 5. Objective of the study 6. Research Methodology 7. Findings & Analysis in BHARTI TELETECH LTD. - Evaluation of various components of Working Capital - Working Capital Ratios - Turnover Ratios - Working Capital and Capital Employed - Profit After Sales as a % to sales 8. Case Analysis (Operating Cycle) 9. Suggestions and Recommendations for improving the operating cycle 10. Conclusion 11. BibliographyProjectsformba.blogspot.com
  • Projectsformba.blogspot.com EXECUTIVE SUMMARYProjectsformba.blogspot.com
  • Projectsformba.blogspot.comEXECUTIVE SUMMARYIndia in a large and growing economy with rapidly expanding financial service sector.Managing working capital is a matter of balance. A company must have sufficient cash onhand to meet its immediate needs while ensuring that idle cash is invested to theorganization’s best possible advantage. To avoid tipping the scale, it is necessary to have clearand accurate reports on each of the components of working capital and awareness of thepotential impact of outside influences.WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIESIn the analysis for Bharti Teletech Limited, a Bharti Group Company it was found that theworking capital has increased which could be mainly due to increased sales. The GrossOperating Cycle declined significantly but the reduction was nullified due to the reduction ininventory conversion period. This is why we see that Net operating Cycle for last two years isalmost identical. The main areas of emphasis were work in progress conversion period andcreditors conversion period. Debtors conversion period reduced but work in progress andcreditors conversion period increased. Few suggestions that are recommended for bettermanagement of working capital are reducing inter-corporate deposits and loans, reducingfinished goods inventory, increment in creditors payment period etc.The company uses Operating Cycle Method to calculate its Working Capital method.Thus, good management of working capital is part of good financial management. Effectiveuse of working capital will contribute to the operational efficiency of a company, optimumuse will help to generate maximum returns.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com INTRODUCTIONWORKING CAPTAL MANAGEMENTProjectsformba.blogspot.com
  • Projectsformba.blogspot.comEvery business needs investment to procure fixed assets, which remain in use for a longperiod. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed Capital’.Business also needs funds for short-term purposes to finance current operations. Investment inshort term assets like cash, inventories, debtors etc., is called ‘Short-term Funds’ or ‘WorkingCapital’.The ‘Working Capital’ can be categorized, as funds needed for carrying out day-to-dayoperations of the business smoothly.The management of the working capital is equally important as the management of long-termfinancial investment. The goal of Working capital management is to ensure that the firm isable to continue its operations and that it has sufficient cash flow to satisfy both maturingshort-term debt and upcoming operational expenses.Every running business needs working capital. Even a business which is fully equipped withall types of fixed assets required, is bound to collapse without (i) adequate supply of raw materials for processing; (ii) cash to pay for wages, power and other costs; (iii) creating a stock of finished goods to feed the market demand regularly; and, (iv) the ability to grant credit to its customers.All these require working capital. Working capital is thus like the lifeblood of a business. Thebusiness will not be able to carry on day-to-day activities without the availability of adequateworking capital.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com Company Profile - BHARTIBHARTI ENTERPRISEProjectsformba.blogspot.com
  • Projectsformba.blogspot.comBharti Enterprises has successfully focused its strategy on telecom while straddling diversefields of business. From the creation of Airtel, one of Indias finest brands, to becoming thelargest manufacturer and exporter of world class telecom terminals under its Beetel brand,Bharti has created a significant position for itself in the global telecommunicationssector. Bharti Airtel Limited is today acknowledged as one of Indias finest companies, and itsflagship brand Airtel, has over 40 million customers across the length and breadth of India.While a joint venture with TeleTech Inc., USA marked Bharti’s successful foray into theCustomer Management Services business, Bharti Enterprises’ dynamic diversification hascontinued with the company venturing into telecom software development. Recently, Bhartihas successfully launched an international venture with EL Rothschild Group owned ELROHoldings India Ltd., to export fresh Agri products exclusively to markets in Europe and USA.Bharti also has a joint venture - ‘Bharti AXA Life Insurance Company Ltd.’ - with AXA,world leader in financial protection and wealth management. Bharti has recently forayed intoretail business under a company called Bharti Retail Pvt. Ltd. It also has a MoU with Wal-Mart for the cash & carry business.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com Group StructureHighlights  Bharti Enterprises announced new Apex level Strategic Organization Structure.  Bharti Announced Strategic Roadmap for its Retail Venture  Bharti Group made an arrangement to buy 5.6% direct interest of Vodafone in Bharti Airtel Limited for US$1.6 billion  Sunil B. Mittal has been chosen for this year’s Padma Bhushan Awards  Bharti Airtel received Letter of Offer to provide 2G and 3G mobile services in Sri LankaProjectsformba.blogspot.com
  • Projectsformba.blogspot.comProjectsformba.blogspot.com
  • Projectsformba.blogspot.comProjectsformba.blogspot.com
  • Projectsformba.blogspot.com BHARTI TELETECH Company profile - BEETELProjectsformba.blogspot.com
  • Projectsformba.blogspot.comBHARTI TELETECH PROFILE In 1985, Bharti Teletech entered into a technical collaboration with Siemens AG, the German technological giant and set up a plant in Ludhiana to manufacture telephones. Come 2005 and Beetel has journeyed acrosstwenty years of creating history. In 1991, Beetel manufactured phones forSprint, the American telecom mammoth. Shortly after, in 1993-94, came ISO9001-2000 accreditations for the manufacturing units - by this time two innumbers, at Gurgaon and Ludhiana. And in a short span of time, Beetel wasalready the market leader. Cornering half of the Indian market, Beetel becameIndias Favorite Phone.Today Bharti Teletech has two ISO 9000 certified plants with an annual capacityof 5 million units p.a.Bharti became the first company to: 1) Manufacture cordless telephone and telephone answering machines in India. 2) It is also the first to launch SMS phones on fixed line in the country thereby heralding a revolution in fixed line SMS telephony.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com 3) In line with customer needs, Bharti was also the first to launch backlit LED and GSM Interference free phones.BEETEL’s products range includes the BASIC Phones, CALLER ID Phones,CORDLESS Phones, 1.8 GHz DECT, 2.4 GHz phones, VOIP Phones, broadband(ADSL) equipments like Modems, routers and set top boxes.4 BTTL is the first Indian company to manufacture 20 million phones. Today, one out ofevery three phones in India is a Beetel. With rapid growth over the years, Bharti Teletechtoday is the largest manufacturer of phones in the Globe outside China. Bharti Teletechcommands a lions share of over 90%, in the extremely competitive BSNL/ MTNLsegment.5 Bharti became the first company to export phones to Sprint Inc. USA - recognition ofour world class quality. Today, BTTL is present in 30 countries across 5 continentsExports are a huge thrust area for Bharti. In 1991, Bharti became the first company toexport phones to Sprint Inc. USA – recognition of our world class quality. The exportoperations have been highly successful over the years. In 2003-04, exports crossed thehalf million mark - a quantum jump since we started. Today, we are present in 30countries across 5 continents despite intense competition from the strongest brands in theworld. Brand building initiatives have also taken fruit in the global arena. The Beetelbrand is present in Vietnam, Iran, Chile, Oman, Bangladesh, Mauritius and Sri Lanka.This list continues to grow with each passing month and it is a matter of time beforeBeetel becomes a truly global brand.Bharti Teletech Team is upbeat to create History by crossing a Sales Turnover beyond 2000 cores in FY2006-07 against the last years 543 crores.ACHIEVEMENTSProjectsformba.blogspot.com
  • Projectsformba.blogspot.comTrend has won GOLDEN PEACOCK AWARD as the only phone with SIMcard reader. The model Millennium Clip Max (A high end Caller ID and Twoway speaker phone) recently launched in the market WON a GOLDENPEACOCK AWARD for INNOVATIVE DESIGN.Beetel has a range of over 35 models across basic, feature and cordless segmentsand continues to add a new model every month. With a current market share ofover 40%, Beetel is the first choice of the Indian consumer. In the growingprivate service provider segment, Bharti Teletech commands a lion’s share ofover 90%. In the extremely competitive BSNL/ MTNL segment, we have crosseda market share of 50%. BTTL has successfully met the challenge of providingquality products at competitive prices.Following are the new products recently introduced in the open market:- DB 9200 - Caller Id with Speaker CB 60000 -2.4 GHz Cordless PhonesProjectsformba.blogspot.com
  • Projectsformba.blogspot.com CB 61000 -2.4 GHz Cordless Phones with base dialing CB 59000 -2.4 GHz Cordless Phones with color Screen CB 49000 - Low Priced 2.4 GHz Cordless Phones DF 8800 -Caller Id Phone with large Screen DisplayFollowing are the new products recently introduced for the DOT market as pernew TEC specifications (GTEL-02/04); all these models are GSM interferencefree. • IRIS 2K3 • GARNET • PERIDOT (A CLI PHONE)Projectsformba.blogspot.com
  • Projectsformba.blogspot.comBeside this company has maintained its leadership in all chosen markets like PSP, DOT,OPEN MARKET & EXPORT (exporting to 30 countries across five continents worldwide.DOMESTICAfter years of careful and focused brand-building, Beetel is recognized as atrusted brand in India and is poised to take on global players in the mostcompetitive international markets.Beetel was the first Indian brand to launch caller ID phones in India and the firstto bring down the price of cordless phones to an affordable range at below Rs.2000.Beetel has also pioneered SMS phones, the first in India. With this landmarkdevelopment, India now has the pride of joining the select set of countries thatoffer SMS on and from fixed-line telephony service platform worldwide. For theconsumer in India, Beetel is truly ringing in the future. Indian PTT has acceptedBeetel instruments whole heartedly and the brand has a 60% share in this market.The private service providers have shown great faith in Beetels products andappreciate the companys ability to customize the phones to their specifications.Beetel has garnered over 95% of this market.Beetel has remained the No. 1 brand in the Indian retail market, with a marketshare of over 50 %.The companys marketing network encompasses over 580 distributors and over30,000 dealers, taking Beetel phones to every corner of one of the biggestmarkets in the world.Projectsformba.blogspot.com
  • Projectsformba.blogspot.comINTERNATIONALAfter years of careful and focused brand-building, Beetel is recognized as atrusted brand in India and is poised to take on global players in the mostcompetitive international markets.Overseas, the company has a richly diversified customer base in over 30countries across five continents. The markets include the USA, South America,Eastern Europe, the Middle East, South East Asia and Africa. Telephoneinstruments are supplied to Siemens, Akai, Connair and the Sprint Group in theUSA among many others.The Electronics and Computer Hardware Export Promotion Council conferredupon Bharti Teletech, the award for the Top Telephone Instrument Exporter.The company exemplifies a marketing success story that writes new chapters ofachievement with each passing year. COMPANY’S VISION’S AND VALUESVISIONProjectsformba.blogspot.com
  • Projectsformba.blogspot.com To be a leader in Telecom and allied productsin chosen global market.VALUESCustomer We will be responsive to the needs of ourcustomerPeople We will trust and respect our employeesLearning We will continuously improve our products andservices-innovatively and expeditiouslyProjectsformba.blogspot.com
  • Projectsformba.blogspot.comCommunity & Partners We will be transparent and sensitive in ourdealing with all stakeholdersQUALITY POLICY At Bharti Teletech quality has always been among the top priority .QUALITY OBJECTIVESProjectsformba.blogspot.com
  • Projectsformba.blogspot.com • To meet customers requirements in terms of functionality, safety, aesthetics, life expectancy and taking effective actions on their feedbacks. • To ensure planned results and continual improvements in all operations (processes and products). • To increase productivity by reducing rejections & non-value adding activities, and bringing automation. • To effect continuous improvements in Customer Satisfaction Index. • To ensure training of employees as per defined targets studying needs and requirements. • To ensure that all statuary and regulatory requirements are complied with. QUALITY CULTURE • Providing training on Quality education system right across the entire organization to carry out continuous Improvement activity in collaborative way. • Deployment of Quality policy & Quality Objectives through out the Organization in a structured way & is headed by CEO as Chairman of Quality Improvement Team.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com • Cross-functional Improvement teams to promote Synergy through sharing. • All the employees always carry out an Improvement project, which leads to improvement in their individual efficiency. • Rewarding/ recognizing the good performers (individual as well as teams) in monthly / quarterly and yearly functions. • Encouraging innovation by way of giving token reward for each suggestion and running trophy to department giving maximum suggestion per person per month. • Encouraging people to work as a team in Small Group Activities (TCAs) and Quality Improvement Projects (QIPs)QUALITY ACHIEVEMENTS Bharti Teletech Limited is a Quality Conscious organization & continuously Strives for Quality Improvement through Process Management. Some of the achievements which have come out of companys unstinted faith in investing for quality are :AwardsProjectsformba.blogspot.com
  • Projectsformba.blogspot.com • Golden Peacock Innovative Product/Services Award in the Telecommunication Sector for the year 2002, the Golden Peacock For Innovative Management for the year 2004 and Most Innovative Product in 2005. • Recipient of the ESC Award for Excellence in Exports in Telecommunication Equipment in 2001-02 and 2002-03. • Winner of the Voice & Data Award for "Top Telephone Manufacturer" in 2002-03 and 2003-04. • Won the Consumer World Award for 2004. • Awarded the "Top Fixed Line Phones Company-2006" by Voice and DataBEETEL’S GROWTHBeetel has established itself as a leader in "Modems". Beetel has also entered the "SetTop Box" market and is on foray in this segment.Bharti Teletech has joined hands with world leaders in their categories for manufacturingand Distribution of their products through its Channel.In addition to being manufactures and Distributors of "GE Phones" in India and selectSAARC countries, today BTTL are National Distributors for-"Motorola" GSM mobile Handsets and Accessories"Polycom" Audio and Video Conferencing Systems"Microsoft X Box" gaming devices .Projectsformba.blogspot.com
  • Projectsformba.blogspot.com REVEIW OF LITRETUREProjectsformba.blogspot.com
  • Projectsformba.blogspot.comApproaches to Working capital ManagementWorking capital management takes place on two levels: • Ratio analysis can be used to monitor overall trends in working capital and to identify areas requiring closer management. • The individual components of working capital can be effectively managed by using various techniques and strategies. When considering these techniques and strategies, companies need to recognize that each department has a unique mix of working capital components. The emphasis that needs to be placed on each component varies according to the companies. For example, 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 company’s overall management. The needs of efficient working capital management must be considered in relation to other aspects of the company’s financial and non-financial performance.COMPONENTSThe term working capital refers to the amount of capital which is readily available to anorganization. That is, working capital is the difference between resources in cash orreadily convertible into cash (Current Assets) and organizational commitments for whichProjectsformba.blogspot.com
  • Projectsformba.blogspot.com cash will soon be required (Current Liabilities). Current Assets are resources which are in cash or will soon be converted into cash in "the ordinary course of business". Current Liabilities are commitments which will soon require cash settlement in "the ordinary course of business". WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES In a departments Statement of Financial Position, these components of working capital are reported under the following headings: Current Assets• Liquid Assets (cash and bank deposits)• Inventory• Debtors and Receivables Current Liabilities• Bank Overdraft• Creditors and Payables• Other Short Term Liabilities Component of Working Capital Basis of Valuation i. Stock of raw material Purchase cost of raw Materials ii. Stock of work in process At cost or market value, whichever is lower iii. Stock of finished goods Cost of production Projectsformba.blogspot.com
  • Projectsformba.blogspot.com iv. Debtors Cost of sales or sales value v. Cash Working expensesWorking Capital CycleWorking capital cycle involves conversions and rotation of variousconstituents/components of the working capital. Initially ‘cash’ is converted into rawmaterials.Cash flows in a cycle into, around and out of a business. It is the businesss life blood andevery managers primary task is to help keep it flowing and to use the cash flow togenerate profits. If a business is operating profitably, then it should, in theory, generatecash surpluses. If it doesnt generate surpluses, the business will eventually run out ofcash and expire.The faster a business expands the more cash it will need for working capital andinvestment. The cheapest and best sources of cash exist as working capital right withinbusiness. Good management of working capital will generate cash will help improveprofits and reduce risks. The cost of providing credit to customers and holding stocks canrepresent a substantial proportion of a firms total profits.The usage of fixed assets result in value additions, the raw materials get converted intowork in process and then into finished goods. When sold on credit, the finished goodsassume the form of debtors who give the business cash on due date. Thus ‘cash’ assumesits original form again at the end of one such working capital cycle but in the course itpasses through various other forms of current assets too. This is how various componentsof current assets keep on changing their forms due to value addition. As a result, theyrotate and business operations continue. Thus, the working capital cycle involves rotationProjectsformba.blogspot.com
  • Projectsformba.blogspot.comof various constituents of the working capital. While managing the working capital, twocharacteristics of current assets should be kept in mind viz. (i) short life span, and (ii) Swift transformation into other form of current asset. Each constituent of current asset has comparatively very short life span. Investmentremains in a particular form of current asset for a short period. The life span of currentassets depends upon the time required in the activities of procurement; production, salesand collection and degree of synchronization among them. A very short life span ofcurrent assets results into swift transformation into other form of current assets for arunning business. These characteristics have certain implications: i Decision regarding management of the working capital has to be taken frequently and on a repeat basis. ii. The various components of the working capital are closely related andmismanagement of any one component adversely affects the other components too. iii. The difference between the present value and the book value of profit is not significant.Projectsformba.blogspot.com
  • Projectsformba.blogspot.comIf money moves faster around the cycle (e.g. collect monies due from debtors morequickly) or the amount of money tied up is reduced (e.g. reduce inventory levels relativeto sales), the business will generate more cash or it will need to borrow less money tofund working capital. As a consequence, the cost of bank interest can be reduced oradditional free money will be available to support additional sales growth or investment.Similarly, if improved terms with suppliers are negotiated e.g. longer credit or anincreased credit limit, then free finance to help fund future sales can be effectivelycreated.Thus…. If you ....... Then ...... • Collect receivables (debtors) faster You release cash from the cycleProjectsformba.blogspot.com
  • Projectsformba.blogspot.com • Collect receivables (debtors) slower Your receivables soak up cash • Get better credit (in terms of duration or You increase your cash amount) from suppliers resources • Shift inventory (stocks) faster You free up cash • Move inventory (stocks) slower You consume more cashMANAGEMENT OF COMPONENTS OF WORKINGCAPITALInventory ManagementInventory includes all types of stocks. For effective working capital management,inventory needs to be managed effectively. The level of inventory should be such that thetotal cost of ordering and holding inventory is the least. Simultaneously, stock out costsshould be minimized. Business, therefore, should fix the minimum safety stock level, re-order level and ordering quantity so that the inventory cost is reduced and itsmanagement becomes efficient.Average stock-holding periods will be influenced by the nature of the business. Forexample, a fresh vegetable shop might turn over its entire stock every few days while amotor factor would be much slower as it may carry a wide range of rarely-used spareparts in case somebody needs them.many large manufacturers operate on a just-in-time (JIT) basis whereby all thecomponents to be assembled on a particular today, arrive at the factory early thatmorning, no earlier - no later. This helps to minimize manufacturing costs as JIT stockstake up little space, minimize stock-holding and virtually eliminate the risks of obsoleteor damaged stock. Because JIT manufacturers hold stock for a very short time, they areable to conserve substantial cash. JIT is a good model to strive for as it embraces all theProjectsformba.blogspot.com
  • Projectsformba.blogspot.comprinciples of prudent stock management. Factors to be considered when determining optimum stock levels include: • What are the projected sales of each product? • How widely available are raw materials, components etc.? • How long does it take for delivery by suppliers? • Can you remove slow movers from your product range without compromising best sellers?Debtors ManagementThe objective of any management policy pertaining to debtors would be to ensure that thebenefits arising due to the debtors are more than the cost incurred for debtors and the gapbetween benefits and cost increases profits. An effective control of receivables helps agreat deal in property managing it. Each business should, therefore, try to find outaverage credit extended to its client using the below given formulaCreditors ManagementCreditors are a vital part of effective cash management and should be managed carefullyto enhance the cash position. Purchasing initiates cash outflows and an over-zealouspurchasing function can create liquidity problems.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com Thus, the following factors should be considered: i. The purchasing authority in the company and whether it is tightly managed or spread among a number of people. ii. The purchase quantities should be geared to demand forecasts. iii. Order quantities should be used that take into account stock-holding and purchasing costs. iv. The cost of carrying stock should be known. v. Dependency on a single supplier should be avoided and facilities like best discounts, credit terms etc. should be used from alternative suppliers. vi. Suppliers’ returns policy should be considered. Cash Management Cash is the most liquid current asset. It is of vital importance to the daily operations of business. While the proportion of assets held in the form of cash is very small, its efficient management is crucial to the solvency of the business. Therefore, planning cash and controlling its use are very important tasks. Cash budgeting is a useful device for this purpose. FINANCIAL RATIO ANALYSIS Introduction Financial ratio analysis calculates and compares various ratios of amounts and balances taken from the financial statements. The main purposes of working capital ratio analysis are:• to indicate working capital management performance; and• To assist in identifying areas requiring closer management. Projectsformba.blogspot.com
  • Projectsformba.blogspot.com Three key points need to be taken into account when analyzing financial ratios:• The results are based on highly summarized information. Consequently, situations which require control might not be apparent, or situations which do not warrant significant effort might be unnecessarily highlighted;• Different departments face very different situations. Comparisons between them, or with global "ideal" ratio values, can be misleading;• Ratio analysis is somewhat one-sided; favorable results mean little, whereas unfavorable results are usually significant. However, financial ratio analysis is valuable because it raises questions and indicates directions for more detailed investigation. Working Capital Ratio Current Ratio Current Assets divided by Current Liabilities The working capital ratio (or current ratio) attempts to measure the level of liquidity, that is, the level of safety provided by the excess of current assets over current liabilities. Quick Ratio Liquid Assets divided by Current Liabilities This is another measure of liquidity. It looks at the number of days that liquid assets (for example, inventory) could service daily operating expenses (including salaries). Stock Turnover Ratio Cost of Sales divided by Average Stock Level Projectsformba.blogspot.com
  • Projectsformba.blogspot.comThis ratio applies only to finished goods. It indicates the speed with which inventory issold-or, to look at it from the other angle, how long inventory items remain on theshelves. It can be used for the inventory balance as a whole, for classes of inventory, orfor individual inventory items.Debtor Turnover RatioThere is a close relationship between debtors and credit sales to third parties (that is, salesother than to the Crown). If sales increase, debtors will increase, and conversely, if salesdecrease debtors will decrease. Credit Sales per Period X Days per period Average DebtorsThe debtor ratio does not solve the collection problem, but it acts as an indicator that anadverse trend is developing. Remedial action can then be instigated.Creditor Turnover RatioIt expresses the relationship between credit purchases and the liability to creditors. It canbe stated as the number of days that credit purchases are carried on the books. Credit Purchases per Period X Days per period Average CreditorsThus…Se. Ratio Formulae Result InterpretationNo. Average Stock On average, the value of the Stock * 365/ entire stock is turned every x Turnover = x days Cost of Goods days. There may be a need to (in days) Sold break this down into productProjectsformba.blogspot.com
  • Projectsformba.blogspot.com groups for effective stock management. Obsolete stock, slow moving(i) lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce average days. It takes on an average of x days to collect the due amount of money. If the official credit Receivables Debtors * 365/ terms are 45 day and it takes 65 = x days Ratio Sales days... then ‘why’ should be (ii) (in days) found out? One or more large or slow debts can drag out the average days. Effective debtor management will minimize the days. On average, the suppliers are paid every x days. If better(iii) Creditors * negotiations are done regarding Payables Ratio 365/ = x days the credit terms this will (in days) Cost of Sales increase. (or Purchases) If paid earlier to the supplier, say, to get a discount this will decline. If there is a deferment inProjectsformba.blogspot.com
  • Projectsformba.blogspot.com payment to the suppliers (without agreement) this will also increase - but the reputation, the quality of service and any flexibility provided by the suppliers may suffer. Current Assets are those assets that can readily be turn into cash or can be done so within 12 months in the course of business. Current Liabilities are those Total Current amounts which are due to pay Assets/ within the coming 12 months.(iv) Current Ratio = x times Total Current For example, 1.5 times means Liabilities that one should be able to lay his/her hands on $1.50 for every $1.00 one owe. Less than 1 time e.g. 0.75 means that one could have liquidity problems and be under pressure to generate sufficient cash to meet oncoming demands.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com OBJECTIVES OF THE STUDYOBJECTIVES OF THE STUDYThe objective of working capital management is to maintain the optimum balance of eachof the working capital components. This includes making sure that funds are held as cashin bank deposits for as long as and in the largest amounts possible, thereby maximizingProjectsformba.blogspot.com
  • Projectsformba.blogspot.comthe interest earned. However, such cash may more appropriately be invested in otherassets or in reducing other liabilities. My objectives of analyzing working capitalmanagement in BEETEL are as follows:  To study how BEETEL can improve its operating cycle.  To study the current discrepancies in their current Working Capital Management structure and ways to overcome them.  To study the method which BEETEL is using to ascertain its working capital requirement.  To learn about the sources from which BEETEL is procuring funds to fulfill its working capital requirements.  To study where the procured funds have been used by BEETEL.  To study whether the company is running effectively with as little money tied up in current accounts as possible.  To analyze whether the method being used for ascertainment of working capital requirement is efficient or not.  To have an appreciation of the financial environment within which business operates.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com RESEARCH METHEDOLOGYMETHODOLOGYThe study is based on personal decision, interview schedules, documentary observation;the data has been collected from the executives of the organization and through thepublished sources.RESEARCHProjectsformba.blogspot.com
  • Projectsformba.blogspot.comThe research work is restricted only to the BEETEL DISTRIBUTION SYSTEM. Thestudy is based on the outcomes of personal interviews and documentary observation. Butthe extreme care has been taken to involve the constructive suggestion from theexecutives. The success of research basically depends upon the method, which is adoptedto solve the research problem i.e. a) To collect desired information and data in a systematic manner. b) Appropriate selection of method is necessary.The first & foremost step in any research procedure is:-STEP 1: Problem FormulationIt is a very important step which has to be understood properly and clearly on which thestudy is based because it tells the scope of the study and it should not go beyond it norshould execute some irrelevant aspect. In this case the study is based on how BEETELmanages its Working capital requirements.STEP 2: Objectives of the StudyAfter the problem formulation the objectives should be clear through which specific typeof information can be collected. The objective of this is to study about the management ofWorking Capital for day to day business transactions.STEP3: Determine source dataThe third step includes the collection of data, which is from the source i.e. primarysecondary data. After the collection of data, it should be organized and analyzed to checkwhether the objectives are fulfilled or not.Projectsformba.blogspot.com
  • Projectsformba.blogspot.comAfter analyzing the data investigation of research had worked out with the help offollowing steps: • Research design • Tools & techniquesRESEARCH DESIGN:A research is an arrangement of conditions for the collection & analysis of data in amanner that aims the research purpose and achievements of goal with economy inprocedure depending on research problem. The study of Working Capital is generallybased on documentary evidences.TOOLS AND TECHNIQUES:In order to conduct the study the following methods were adopted. 1. Personal Discussion: There is certain information related to the subject which is known to employees of the office so through connecting with the employees and executives the information is gathered. Like, about the company profile, its inception, growth etc. 2. Direct Personal Interviews: The investigator personally approaches the concerned people and asks them to furnish information, which is of material input for the enquiry. Therefore these ideas, suggestions views are collected on the topic through interview. 3. Documentary observation: The investigator consults the secondary sources like journals, annual reports, magazines, books, unpublished material from library, internet and the area office.COLLECTION OF DATAProjectsformba.blogspot.com
  • Projectsformba.blogspot.comPrimary data: are those that are collected for the first time by the investigator and theprimary data used ad collected for this study are:-  Direct Personal Interview with my project guide at BEETEL  Indirect Oral Investigation auditors and other concerned employees at BEETEL  Information through e-mail about the components of operating cycle from the BEETEL manufacturing units in Ludiyana and Goa.Secondary data: are not collected but obtained from the published and unpublishedsources and the secondary data collected for this study are:-  Published data about BEETEL, through newspapers, magazines, research institutes, journals and books.  Unpublished data through scholars, libraries, area office in BEETEL.  Company information from their BEETEL’S official website. FINDINGSProjectsformba.blogspot.com
  • Projectsformba.blogspot.com & ANALYSISASSUMPTIONS • All calculations have been done taking 365 days in a year. • All sales are credit sales. • All purchases are credit purchases. • For all the years, opening & closing figures have been taken to calculate average debtors, creditors, etc. • Wages and salaries are paid at a lag of 1month.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com (Rs ‘000)Evaluation of various components of Working CapitalMajor components of Working capital as % of Capital Employed are as follows:Particulars 31st March,2005 31st March, 2006 31stMarch,2007CURRENT ASSETS, LOANS &ADVANCESInventories 2,49,252 14,59,500 51,48,650Sundry Debtors 2,36,657 4,96,560 12,20,450Cash & Bank Balances 77,069 3,89,130 5,07,380Other Current Assets 11,461 7,820 2,830Loans & Advances 3,73,321 4,11,800 5,76,470Total Current Assets 9,47,760 27,64,810 74,55,780Less CURRENT LIABILITIES &PROVISIONSLiabilities 1,55,038 14,40,230 56,40,720Provisions 17,844 75,170 1,64,420Total Current Liabilities 1,72,882 15,15,400 58,05,140Working Capital 7,74,878 12,49,410 16,50,640  Inventories - 217.67%  Debtors - 51.60%  Cash & Bank - 21.45%  Loans & Advances - 24.36%Projectsformba.blogspot.com
  • Projectsformba.blogspot.com  Total Current Assets - 315.20%  Liabilities - 238.47%  Provisions - 6.95%  Total Current Liabilities - 245.42%Working Capital RatiosCurrent RatioThe Current Ratio is decreasing over the period i.e for 2005 it was 5.48:1, it went downto 1.82:1 in 2006 and has now come down to 1.28:1 in 2007 which is very close to theideal ratio of 1.33:1. This indicates that there is a perfect balance between current assets& current liabilities that the company owns. The major reasons for improvement incurrent ratio are: (i) The total % of debtors in the Current assets of 2007 has decreased to 16.37% from 17.96% in 2005.(ii) Moreover, the percentage of money blocked in cash & bank balance has got reduced from 14.07% in 2006 to 6.80% in 2007.(iii) The liabilities in 2007 have increased as compared to liabilities in 2006 & 2005. This means that the company is now trading at creditors worth.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com Working Capital Ratios 6 5 5.48 4 3 4.04 2 1.82 1 1.28 0.86 Current Ratio 0 0.39 2005 Quick Ratio 2006 2007 YearQuick RatioThe quick ratio showed a drastic improvement in 2006 as compared to 2005, but it wentbelow the ideal quick ratio of 1:1 and in 2007 it went further down to 0.39:1. The majorreasons for changes in Quick ratio are: (i) The company is blocking huge amount of money in maintaining their inventories i.e 69% of their total investment in current assets.(ii) Provisions have decreased from 4.9% in 2006 to 2.8% in 2007.Stock Turnover RatioProjectsformba.blogspot.com
  • Projectsformba.blogspot.com Stock Turnover Ratio 10 9 9.14 8 7 6.87 6 Times 5 4 4.85 3 2 1 0 2004 2005 2006 2007 2008 YearStock Turnover Ratio had changed drastically from 9.14 times in 2005 to 4.85 times in2006, but still it was way below the ideal of 6 to 7 times, which it achieved in 2007 bycoming at 6.87 times.The major reason for improvement in Stock Turnover Ratio is that the sales haveincreased because of the trading business as the company has entered in the fields ofMOTOROLA, XBOX, GE, BLACKBERRY.Debtors Turnover RatioProjectsformba.blogspot.com
  • Projectsformba.blogspot.com Debtors Turnover Ratio 30 28.34 25 20 Times 15 13.82 10 11.15 5 0 2004 2005 2006 2007 2008 YearThe Debtors Turnover Ratio has increased drastically from 13.82 times in 2006 to 28.34times in 2007.The major reason for change in Debtors Turnover Ratio is that the company hasentered into the trading business of MOTOROLA products and accessories. As thecompany is purchasing the products from the MOTOROLA company in cash anddistributing the same, with the help of their TD’s, by providing a credit of 30 days.Creditors Turnover RatioProjectsformba.blogspot.com
  • Projectsformba.blogspot.com Creditors Turnover Ratio 12 11.4 10 8 7.59 Times 6 6.83 4 2 0 2004 2005 2006 2007 2008 YearThe creditors Turnover Ratio has decreased drastically from 11.4 times in 2005 to 6.83times in 2006. This shows that the company has been paying off its debts earlier thanbefore. The ratio has increased to 7.59 times in 2007.The major reason for change in Creditors Turnover Ratio is that the MOTOROLAcompany is not providing any kind o credit to BEETEL for distributing the MOTOROLAhandsets.Working Capital as a % of Capital EmployedProjectsformba.blogspot.com
  • Projectsformba.blogspot.com Working Capital as a % of Capital Employed 72.00% 70.00% 69.78% 68.00% Percent 66.00% 64.00% 63.98% 62.00% 60.00% 58.96% 58.00% 2004 2005 2006 2007 2008 YearWorking Capital as a % of Capital Employed has increased from 58.96% in 2005 to63.98% in 2006. It further increased to 69.78% in 2007. Even if we compare the figure ofworking capital in these years then it is observed that working capital has increased fromRs. 7, 74,878 in 2005 to Rs. 12, 49,410 in 2006 to Rs. 16, 50,640 in 2007. Thus thisincrease of 32.11% in working capital of 2007 had effect on the overall profitability ofthe company.Profit After Sales as a % to SalesProjectsformba.blogspot.com
  • Projectsformba.blogspot.com PAT as a % to Sales 8.00% 7.00% 6.89% 6.00% 6.42% 5.00% Percent 4.00% 3.00% 2.00% 1.00% 1.19% 0.00% 2004 2005 2006 2007 2008 YearProfit After Tax as a % to sales increased from 6.42% in 2005 to 6.89% in 2006. But itshowed a drastic fall in 2007 and came down to 1.19%.The major reason for change in PAT as % of sales is that the sales of basic andcordless sets, manufactured by BEETEL has not increased but the balance sheet of thecompany shows an increment of 96.45% on expenditure over raw materials. BHARTI TELETECH LIMITED BALANCE SHEET AS AT 31ST MARCH 2007PARTICULARS Sch- As at dule 31.03.2007 (Rs.)Projectsformba.blogspot.com
  • Projectsformba.blogspot.com SOURCES OF FUNDS SHAREHOLDERS FUND Share Capital 1 50,700,070 Reserve & Surplus 2 1,746,223,282 1,796,923,352 LOAN FUNDS Secured Loan 3 560,099,122 Unsecured Loan 4 8,350,486 568,449,608 Deferred Tax Liability - TOTAL >> 2,365,372,960 APPLICATION OF FUNDS FIXED ASSETS 5 Gross Block 513,406,244 Less : Depreciation/Amortisation 231,900,454 Net Block 281,505,790 Capital Work in Process 140,591,016 INVESTMENTS 6 245,221,290 DEFERRED TAX ASSETS 46,924,182 CURRENT ASSETS, LOANS & ADVANCES 7 Inventories 5,148,654,309 Sundry Debtors 1,220,447,390 Cash & Bank Balances 507,383,049 Other Current Assets 2,830,564 Loans & Advances 576,465,133 7,455,780,445 Less CURRENT LIABILITIES & PROVISIONS 8 Liabilities 5,640,727,557 Provisions 164,408,934 5,805,136,491 NET CURRENT ASSETS 1,650,643,954Projectsformba.blogspot.com
  • Projectsformba.blogspot.com MISCELLANEOUS EXPENDITURE 9 486,729 TOTAL >> 2,365,372,960 SIGNIFICANT ACCOUNTING POLICIES 16 0 NOTES TO ACCOUNTS 17BHARTI TELETECH LIMITEDPROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2007PARTICULARS Sch- As at dule 31.03.2007 (Rs.) INCOME Gross Sales 24,572,389,810 Less :Excise Duty 238,438,125 Net Sales 24,333,951,685 Other Income 10 166,738,699 24,500,690,384 EXPENDITURE Cost of Materials 11 22,719,069,689 Manufacturing Expenses 12 34,601,721 Personnel,Administration & Selling Expenses 13 1,189,899,894 23,943,571,304PROFIT BEFORE FINANCIAL EXPS,DEPRECIATION & AMORTISATION 557,119,079Financial Expenses 14 68,326,817PROFIT BEFORE DEPRECIATION &AMORTISATION 488,792,262Less : Depreciation/Amortisation 38,897,795PROFIT BEFORE EXTRA ORDINARY ITEMS 449,894,467Add / (Less) :Extra-Ordinary & Prior PeriodAdjustments 15 41,192,148 PROFIT BEFORE TAXATION 491,086,615 Wealth Tax Paid 92,700Projectsformba.blogspot.com
  • Projectsformba.blogspot.com Provision for Income Tax: (Refer note no 20 of Schedule 17) -Current Tax 243,581,089 - Deferred Tax (52,880,620) - Fringe Benefit Tax 8,647,244 199,347,713 PROFIT AFTER TAX 291,646,202 Surplus as per last Balance Sheet 824,124,500 PROFIT AVAILABLE FOR APPROPRIATION 1,115,770,702 APPROPRIATIONS 1,115,770,702 Proposed Dividend - Provision for Dividend Tax - Dividend Tax for Earlier Years - Transfer to General Reserve - Profit Carried Forward 1,115,770,702 1,115,770,702 EARNING PER SHARE (BASIC & DILUTED) 57.52 Significant Accounting Policies 16 Notes to Accounts 17BHARTI TELETECH LIMITEDSCHEDULES TO ACCOUNTSPARTICULARS Sch- As at dule 31.03.2007 (Rs.) SHARE CAPITAL 1 Authorised 55,00,000 Equity Shares (Previous Year 55,00,000) of Rs. 10each 55,000,000Projectsformba.blogspot.com
  • Projectsformba.blogspot.com Issued Subscribed and Paid up 50,70,007 (Previous Year 50,70,007) Equity Shares of Rs.10/-each { (Of the above Equity Shares : i) 5,070,000 shares are alloted as fully paid up pursuant toscheme of arrangement without payment being received in cash) ii) 3615529 Shares are held by Holding Company - BhartiEnterprises (Holdings) Private Limited } 50,700,070 RESERVES AND SURPLUS 2 CAPITAL RESERVE As per last Balance Sheet 132,191,500 SHARE PREMIUM ACCOUNT As per last Balance Sheet 400,289,221 GENERAL RESERVE 97,971,85 As per last Balance Sheet 9 Add: Transferred from Profit & Loss Account - 97,971,859 Surplus in Profit & Loss Account 1,115,770,702 1,746,223,282 SECURED LOANS 3 From Banks # Cash Credit & Foreign Currency Working Capital Loan 560,099,122 UNSECURED LOANS 4 Short Term Loans and Advances 7,250,00 From Holding Company 0 1,100,48 Interest accured and due thereon 6 8,350,486Projectsformba.blogspot.com
  • Projectsformba.blogspot.comFootnote: # Secured against the hypothecation of Stocks & Bookdebts of the company and Firstcharge on the all the Fixed Assets of the company except Land and Building at Gurgaon & therelated fixed assets.BHARTI TELETECH LIMITEDSCHEDULES TO ACCOUNTS PARTICULARS Sch- As at dule 31.03.2007 (Rs.) INVESTMENTS AT COST 6 LONG TERM INVESTMENTS In Shares of companies (Fully Paid Up) TRADE UNQUOTED (a) In Subsidary Companies 400,000 Equity Shares (Previous Year 400,000 Equity Shares) of Goa Telecommunication & Systems Limited of Rs. 10/-each fully paid 22,820,69 up 3 b) In Other Company Nil Equity Shares (Previous Year 16,528,404 Equity Shares) of Teletech Services (India) Limited of Rs. 10/- each - 22,820,693 CURRENT INVESTMENTS (Refer Note No. 7 of Schedule 16 &Note No. 10 of Schedule 17) OTHER THAN TRADE In Mutual Funds (Unquoted) 95,470,580 In Equity Shares of Companies (Quoted) 126,930,017 222,400,597 245,221,29 0 Aggregated value of quoted investment 126,930,017 Aggregated value of unquoted investment 118,291,273 Market Value of Quoted Investments 147,210,594Projectsformba.blogspot.com
  • Projectsformba.blogspot.comBHARTI TELETECH LIMITEDSCHEDULE TO ACCOUNTSPARTICULARS Sch- As at dule 31.03.2007 (Rs.) CURRENT ASSETS,LOANS AND ADVANCES 7 INVENTORIES (As Taken,Valued & Certified by the Management) 63,032,80 Raw Material 0 5,056,387,25 Finished Goods 5 13,840,51 Work-in- Progress 5 15,393,73 Stores and Spare Parts 9 5,148,654,309 (Raw Material amounting to Rs.21,398 thousand (PY Rs. 9,271thousand), Finished Goods amounting to Rs.1,370,420 thousand (PY Rs. 126,106thousand) & Stores & Spare parts amounting to Rs. Nil (PY Rs 128 thousand ) were intransit at year end.) SUNDRY DEBTORS Debts outstanding for a period exceeding Six Months : 3,258,95 Considered Good 0 25,610,83 Considered Doubtful 1 28,869,78 1 Less : Provision for Doubtful Debts ,610,831 3,258,95 0 Others Debts : 1,217,188,44 Considered Good 0 12,684,85 Considered Doubtful 8 1,229,873,29 8 12,684,85 Less : Provision for Doubtful Debts 8 1,220,447,390Projectsformba.blogspot.com
  • Projectsformba.blogspot.com CASH & BANK BALANCES 1,197,91 Cash in Hand 7 33,054,95 Cheques & Drafts in Hand 7 Balance with Scheduled Banks: 472,609,17 In Current Account 5 350,00 In Deposit Account 0 In Margin Account (Under Lien) - 171,00 Saving Account with Post Office (Under Lien) 0 507,383,049 OTHER CURRENT ASSETS Export Incentive & Interest Receivable: 2,830,56 Considered Good 4 3,243,22 Considered Doubtful 0 6,073,78 4 3,243,22 Less Provision For Doubtful Export Incentives 0 2,830,564 LOANS AND ADVANCES (Unsecured Considered good unless otherwise stated) Advances Recoverable in cash or kind or for value to bereceived: 73,556,76 Considered Good 2 4,865,53 Considered Doubtful 0 78,422,29 2 4,865,53 73,556,76 Less Provision For Doubtful Advances 0 2 Security Deposits: 10,845,59 Considered Good 9 180,00 Considered Doubtful 0 11,025,59 9Projectsformba.blogspot.com
  • Projectsformba.blogspot.com 180,00 Less Provision For Doubtful Deposits 0 10,845,599 Advance Tax (Net) - Loans and Inter Corporate Deposits 268,626,625 Balance with Custom & Excise Authorities 9,203,187 Due from Subsidiary Company 214,232,960 576,465,133Footnote: * Net of Provision for Taxation Rs. Nil thousand (Previous Year Rs.227,902thousand)BHARTI TELETECH LIMITEDSCHEDULE TO ACCOUNTS PARTICULARS Sch- As at dule 31.03.2007 (Rs.) CURRENT LIABILITIES & PROVISIONS CURRENT LIABILITIES 8 Trade & Other Creditors # 5,517,087,922 Advance from Customers 61,433,538 Security Deposit 58,910,543 Due to Holding Company 283,170 Investor Education & Protection Fund : (Not due as at the year end) - Unclaimed Dividend 241,910 Due to Directors 1,665,987 Interest Accured but not due 1,104,487 5,640,727,557 # Includes Rs. 7301 thousand (Previous Year 4,730) due to SSI Creditors. PROVISIONS Proposed Dividend - Dividend Tax - Retirement Benefits 24,477,266 Warranty 31,018,204 Sales Tax/Excise /Service Tax 23,441,527 Sales Incentive 4,615,680 Others 46,457,437Projectsformba.blogspot.com
  • Projectsformba.blogspot.com Provision for Income Tax* 34,398,820 164,408,934 * Net of Advance Tax Rs. 388,084 thousand (Previous Yearended Rs Nil) MISCELLANEOUS EXPENDITURE 9 (To the extent Not written off or adjusted) Voluntary Seperation Scheme Opening Balance 3,159,858 Less : Charged during the year 2,673,129 486,729 b) OTHER INCOME 10 Interest (Gross) 35,672,671 (Tax deducted at source Rs. 7,994 thousand (Previous Year6,293 thousand) Profit on Sale of Investments: Other than Trade - Current Investments 46,861,764 Miscellaneous Income 23,125,245 (Tax deducted at source Rs. 73 thousand (Previous Year 238thousand) Exchange Rate Difference 4,874,040 Dividend Received (Gross) (Current Investment - Other thanTrade) 6,798,910 Liabilities/Provisions Written Back 10,789,530 Rent Received 38,616,540 (Tax deducted at source Rs. 8,666 thousand (Previous Year5,308 thousand)) 166,738,699PARTICULARS Sch- As at dule 31.03.2007 (Rs.) COST OF MATERIALS 11 Raw Material Consumed Opening Stock 44,687,988 Add. Purchases 1,228,695,852 1,273,383,840 Less Closing Stock 63,032,800 1,210,351,040Projectsformba.blogspot.com
  • Projectsformba.blogspot.com Trading Purchase of Trading Goods 25,170,393,280 Decrease/(Increase) in Work-in-progress and Finished goods Opening Stock Work-in-Progress 12,121,848 Finished Goods 1,394,350,632 1,406,472,480 Less Closing Stock Work-in-Progress 13,840,515 Finished Goods 5,056,387,255 5,070,227,770 (3,663,755,290) Excise Duty on account of Increase/(Decrease) in Stock of Finished Goods 2,080,659 Cost of Materials 22,719,069,689BHARTI TELETECH LIMITEDSCHEDULE TO ACCOUNTSPARTICULARS Sch- As at dule 31.03.2007 (Rs.) Manufacturing Expenses 12 Power & Fuel 13,597,049 Consumption of Stores and Spares 5,468,171 Electric Repairs 354,250 Testing Fees 254,663 Job Charges Paid 12,090,996 Machinery Repair 2,836,592 34,601,721 Personnel, Administration & Selling Expenses 13 Personnel ExpensesProjectsformba.blogspot.com
  • Projectsformba.blogspot.com Salaries, Wages & Bonus 245,210,028 Contribution to Provident & Other Funds 22,002,529 Workman & Staff Welfare Expenses 9,882,792 Recruitment Expenses 12,623,766 289,719,115 Administration Expenses Rent 12,149,283 Rates & Taxes 14,106,609 Insurance Charges 30,118,281 Travelling & Conveyance 65,975,682 Postage,Telephone & Telex 19,313,585 Repair & Maintenance: a) Building 1,802,664 b) Others 17,709,267 Amount/Debtors Written Off 30,159,901 Miscellaneous Expenses 39,319,917 Auditors Remuneration 3,131,425 Loss on Sale of Fixed Assets # 1,271,828 Loss on Sale/Redemption of Investments (Current- otherthan Trade) 8,549,643 Diminution in Value of Investment (Current- Other thanTrade) 8,669,949 Provision for Obsolete Stock - Electricity & Water Charges 4,149,601 Board Meeting Fees & Expenses 306,702 Provision for Doubtful Debts, Advances & Claims ## 72,936,740 Research & Development 2,307,277 Exchange Rate Fluctuations - 331,978,354 Selling Expenses Freight & Cartage 114,989,395 Advertisement & Publicity 210,024,534 Business Promotion 27,720,508 Rebate & Discount 120,660,004 Commission 5,461,866 Service Charges C & F 12,897,251 Warranty Cost 45,267,244 Spares Consumed 31,181,623 568,202,424Projectsformba.blogspot.com
  • Projectsformba.blogspot.com 1,189,899,894 Less: Share of Centrailsed Expenses to Subsidiary Company - Less: Share of Centrailsed Expenses to Associate Companies - - 1,189,899,894Footnote: # Net of Profit on Sale of Fixed Assets Rs. 329 thousand (previous year 172thousand). ## Net of Provision of Doubtful Debts & Advances Written Back amounting to Rs. 327 thousand (previous year Rs. 1,623 thousand).BHARTI TELETECH LIMITEDSCHEDULE TO ACCOUNTS PARTICULARS Sch- As at dule 31.03.2007 (Rs.) FINANCIAL EXPENSES 14 Interest : - On Fixed Loan 1,562,050 - Others 42,524,081 44,086,131 Other Finance Charges 24,240,686 68,326,817 EXTRA-ORDINARY AND PRIOR PERIOD 15 ADJUSTMENTS a) Extra Ordinary Items: Income/(Expenditure) Voluantary Separation Scheme (2,673,129) Provision for Sales Tax Liability - Profit on Sale of Long Term Trade Investment 43,800,263 b) Prior Period Adjustments (Net) Income/(Expenditure) Prior Period Expenses Bank Charges (59,562)Projectsformba.blogspot.com
  • Projectsformba.blogspot.comLoss on Sale of Fixed Assets (5,649)Rates & Taxes -Advertisement & Publicity -Other Finance Charges -Contribution to Provident & Other Funds -Postage, Telephone & Telex -Freight & Cartage -Salaries , Wages & Bonus -Miscellaneous Expenses (21,781)Travelling & Conveyance -Total Prior Period Expenses (86,992)Prior Period Income (including Reversal of Expenses)Profit on Sale of Fixed Assets 20,932Rent Received -Sales -Rates & Taxes -Recruitment Expenses -Depreciation/Amortisation 131,074Miscellaneous Expenses -Total Prior Period Income 152,006Prior Period Adjustments (Net) 65,014 Extra Ordinary & Prior Period Adjustments 41,192,148Projectsformba.blogspot.com
  • Projectsformba.blogspot.com CASE STUDYOperating Cycles in BEETEL over the last 3 years Particulars 2005 2006 2007 Working Capital (Rs ‘000) 7,74,878 12,49,410 16,50,640 Raw Material Conversion Period 11.15 days 35 days 40 days Work-in- Progress Conversion Period 2.94 days 7 days 10 days Finished Goods Conversion Period 37.74 days 26.27 days 17 days 56.66 days 26.4 days 12.87 daysProjectsformba.blogspot.com
  • Projectsformba.blogspot.com Debtors Conversion Period Gross Operating Days 96.4 days 82.67 days 79.87 days Creditors Conversion Period 46.17 days 45.84 days 45 days Net Operating Days 50.23 days 37.13 days 34.87 days No. of Operating Cycles in a Year. 7.26 9.83 10.47Projectsformba.blogspot.com
  • Projectsformba.blogspot.com Operating Cycles 100 Raw Material Conversion 90 Period Work-in- Progress 80 Conversion Period Finished Goods 70 Conversion Period 60 Debtors Conversion Period Gross Operating CycleDays 50 40 Creditors Conversion Period 30 Net Operating Cycle 20 Cash Conversion Cycle 10 0 2005 2006 2007 YearAdditional information is as follows:Projectsformba.blogspot.com
  • Projectsformba.blogspot.comSe Particulars 2004-05 2005-06 2006-07No.1. Lead time taken by the suppliers for 5 days 11 days 13 days actual delivery2. Minimum stock level held in stores 1,86,000 2,60,000 2,76,500 units units units3. Quantity of material purchased in a single 2,96,500 2,90,000 2,89,500 order units units units4. Time spent on each process and sub 22 minutes 18 minutes 21 minutes process /process /process /process5. Delivery time of the finished product to 2.5 days 2 days 1 days the actual buyer of the product6. Credit period allowed to customers 8 days 9 days 10 days7. Time taken by BEETEL for depositing the 0, max 1,1,1 0, max 1,1,1 0, max 1,1,1 cheques received from debtors in the bank8. Credit period allowed by the suppliers for 19 days 16 days 14 days the material purchased9. Cash and trade discounts given to the customers and received by the customersdepends upon the amount of the customers.10. The company has adopted decentralization method for receiving cheques fromits debtors.11. The company shifted from assembly line to manufacturing some components inthe year 2005-2006 due to which the number of processes increased from 3 to 8.Analysis of the above situation and the reasons for thesameProjectsformba.blogspot.com
  • Projectsformba.blogspot.comRaw Material Conversion Period:Increased from 11.15 days in 2005 to 25 days in 2006 and then it further increased to 40days in 2007, which is not a good sign. A constant increment will lead to higher workingcapital requirement.Reasons for the increase in the raw material conversion period are: 1) Lead Time: )i It has increased because BEETEL has stared procuring a major part of its raw material from international (25%) suppliers, earlier the company was procuring from domestic (75%) suppliers. )ii Moreover, for its spare parts and components also the company has shifted from domestic (16%) suppliers to international (84%) suppliers. 2) Minimum Stock Level: )i As the company is buying its raw material from foreign suppliers so it has to maintain higher level of minimum stock as compared to previous years. )ii The company increased its installed capacity from 20,00,000 units in 2004-2005 to 40,00,00 units in 2005-06 with a corresponding increase in its production from 3,92,678 units to 32,20,612 units. )iii The installed capacity was again increased to 45,00,000 units in 2006-07 with a corresponding increase in production to 37,59835 units. 3) Quantity of Material purchased in a single order: i) This is because the company is now buying from international buyers and and is maintaining a higher level of lead time so it is ordering less in each order.Work in Progress Conversion Period:Projectsformba.blogspot.com
  • Projectsformba.blogspot.comIncreased from 2.94 days in 2005 to 5 days in 2006 and again further increased 10 days in2007, which is again not a good sign. This means that the goods are not worked uponefficiently and there is increment in the time taken to process goods.Reasons for the increase in the Work in Progress Conversion Period are: 1) Time Spent on each Process: i) Till 2004-05 the company had 3 processes in all and was into assembling. After the year 2004-05, the company entered into backward integration and stared manufacturing its products with 8 processes, which includes: Processes Process 1: Manufacturing Outer Plastic Body Process 2: Manufacturing Handset Microphone & Button Speaker installing Process 3: Manufacturing of Hook Switch------To check if the handset is picker or not. Process 4: Manufacturing Rubber/Plastic Keypad--------For Dialing Process 5: Manufacturing LCD screen-------If the phone has facilities like Caller ID or name-number storage. Process 6: Manufacturing Internal 4.3 ohm speaker for ring tone generation Process 7: Manufacturing Reed Switch for Tone-Pulse selection Process 8: Manufacturing Electronic Circuit Integration on PCB-----with following components: Sub Processes under process 8: i) Opto-Coupler-----To check if the phone if off Hook ii) 8086 Based 4 IC’s iii) A number of Resistors and Capacitors iv) LED(s) for Ring and dial v) Telephone Jack Interface vi) Copper Plated keypad interface vii) EEPROM for data storage viii)DTMF encoder and decoder(decoder only if Caller Id present) ii) The company has installed better technology for manufacturing.Finished Goods Conversion Period:This has decreased from 37.74 days in 2006 to 26.27 days in 2006 and further decreasedto 17 days in 2007, which is a very good indicator. Thus, we see that the negative effectsProjectsformba.blogspot.com
  • Projectsformba.blogspot.comdue to high raw material conversion period and high work in progress conversion periodare almost wiped off.Reasons for the decrease in the Finished Goods Conversion Period are:1) Better advertisements2) Better transportation facilities, reducing the time in delivery of goods from the manufacturing unit to the buyers.Debtors Conversion Period:Decreased from 56.67 days in 2005 to 26.40 days in 2006 and 12.87 days in 2007, whichmeans that the company is collecting its debt more efficiently. A lower debtor conversionperiod together with increased sales is a good sign for the company.Reasons for the decrease in the Debtors conversion period Conversion Period are:1) Credit Period allowed to customers: i) The company shifted from centralization to decentralization method for collection of payments from its debtors and on the other hand to benefit its customers the company increased its credit collection period and hence the steps positively affected the debtors collection period.Gross Operating Cycle:Decreased from 96.40 days in 2005 to 82.67 days in 2006 and 79.87 days in 2007, whichis mainly due to the reduction in debtor conversion period. A reduction in gross operatingcycle means reduced need of funds for day to day working. But the company should lookfor the improvement in inventory conversion period.Creditor Conversion Period:Decreased from 46.17 days in 2005 to 45.54 days in 2006 and 45 days in 2007, whichmeans that the company is paying off its creditors earlier then before. The companyProjectsformba.blogspot.com
  • Projectsformba.blogspot.comneeds to delay payment to its creditors without loosing its reputation i.e. availing morecredit from its creditors to finance its working capital needs.Reasons for the decrease in the Creditors conversion period Conversion Period are:1) Credit Period allowed by the suppliers: i) The company is building up its goodwill and paying back its debts on time. ii) As the major suppliers of the company are international suppliers, hence the company faced a credit policy change from their side. iii) Due to 8 times increase in production capacity, the company is procuring more quantity of raw material and hence on an average the credit time allowed by its suppliers is being reduced , so the company has to pay back early.Net Operating cycle:Decreased from 50.23 days in 2005 to 37.13 days in 2006 and 34.87 days in 2007,indicating that the company’s requirement has decreased with comparison to previousyear. The reasons for the same have been discussed above.Projectsformba.blogspot.com
  • Projectsformba.blogspot.com SUGGESTIONS & RECOMMENDATIONSRecommendationsThe management of the working capital is equally important as the management of long-term financial investment. The goal of Working capital management is to ensure that thefirm is able to continue its operations and that it has sufficient cash flow to satisfy bothmaturing short-term debt and upcoming operational expenses.Projectsformba.blogspot.com
  • Projectsformba.blogspot.comThe various possible steps that BEETEL may take to improve its working capitalmanagement are as follows: • The company should look indigenous suppliers for its raw material and spare parts requirements and reduce its lead time. • The company is increasing its installed capacity and its production too each year but the increase in production is not in proportion to installed capacity. Thus, the two must be matched. • Availing more credit from its suppliers. • Prompt collection from its debtors. • Moving towards zero working capital. • Improvement in Inventory Conversion Period, mainly reduction in Work in Progress. • Reduction in loans and inter-corporate deposits and utilizing the money to pay off debts and loans taken by the company. • Given the working loan of Rs. 56,84,50,000 and interest thereon is Rs. 4,40,80,000 in 2007 which is almost 7.75%. So, the company might consider some other sources of cheaper loans. • The company can maintain separate books of accounts for their manufacturing and trading businesses for more clarity and transparency in operations.Working capital management is an important yardstick to measure a company operationaland financial efficiency. This aspect must form part of the company’s strategic andoperational thinking. Efforts should constantly be made to improve the working capitalposition. This will yield greater efficiencies and improve customer satisfaction.Projectsformba.blogspot.com
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  • Projectsformba.blogspot.com BIBLIOGRAPHYBibliography I.M. Pandey, Financial Management, 8th Edition www.bharti-teletech.comProjectsformba.blogspot.com
  • Projectsformba.blogspot.com www.treasury.govt.nz/publicsector/workingcapital/further.asp www.planware.org/workingcapital.htm www.wikipedia.orgProjectsformba.blogspot.com