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Analysis on working capital management for bharti teletech ltd.

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Analysis on working capital management for bharti teletech ltd.

Analysis on working capital management for bharti teletech ltd.

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  • 1. SUMMER TRAINING PROJECT REPORT ON “Working Capital Management for Bharti Teletech Ltd.”SUMITTED IN PARTIAL FULFILLMENT OF THERQUIREMENT OF THE DEGREE OF MASTEROF BUSINESS ADMINISTRATION UTTARAKHAND TECHNICAL UNIVERSITY, DEHRADUNSUBMITTED BY: SUBMITTED TO: im D EH RA D U N s
  • 2. CERTIFICATEI have the pleasure in certifying that Ms………………….. is a bonafide student of ………..Semester 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.
  • 3. 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.
  • 4. 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 June-July’07. It’s objective was to study theconcept of Working Capital Management in detail in BEETEL and make suggestions aboutthe study.
  • 5. CONTENTSCertificateAcknowledgementPreface 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 - Various Cycles & their differences - Working Capital Required at BEETEL 8. Suggestions and Recommendations 9. Conclusion 10. Bibliography
  • 6. EXECUTIVESUMMARY
  • 7. EXECUTIVE 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.
  • 8. INTRODUCTION
  • 9. WORKING CAPTAL MANAGEMENTEvery 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.
  • 10. Company Profile - BHARTI
  • 11. BHARTI ENTERPRISEBharti 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.
  • 12. 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 Lanka
  • 13. BHARTI TELETECHCompany profile - BEETEL
  • 14. BHARTI 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 across twenty years of creating history. In 1991,Beetel manufactured phones for Sprint, the American telecom mammoth. Shortly after,in 1993-94, came ISO 9001-2000 accreditations for the manufacturing units - by this timetwo in numbers, at Gurgaon and Ludhiana. And in a short span of time, Beetel wasalready the market leader. Cornering half of the Indian market, Beetel became IndiasFavorite Phone.Today Bharti Teletech has two ISO 9000 certified plants with an annual capacity of 5million 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. 3) In line with customer needs, Bharti was also the first to launch backlit LED and GSM Interference free phones.
  • 15. BEETEL’s products range includes the BASIC Phones, CALLER ID Phones, CORDLESSPhones, 1.8 GHz DECT, 2.4 GHz phones, VOIP Phones, broadband (ADSL) equipmentslike Modems, routers and set top boxes.4 BTTL is the first Indian company to manufacture 20 million phones. Today, one out of everythree phones in India is a Beetel. With rapid growth over the years, Bharti Teletech today is thelargest manufacturer of phones in the Globe outside China. Bharti Teletech commands a lionsshare of over 90%, in the extremely competitive BSNL/ MTNL segment.5 Bharti became the first company to export phones to Sprint Inc. USA - recognition of our worldclass 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 to exportphones to Sprint Inc. USA – recognition of our world class quality. The export operations havebeen highly successful over the years. In 2003-04, exports crossed the half million mark - aquantum jump since we started. Today, we are present in 30 countries across 5 continents despiteintense competition from the strongest brands in the world. Brand building initiatives have alsotaken fruit in the global arena. The Beetel brand is present in Vietnam, Iran, Chile, Oman,Bangladesh, Mauritius and Sri Lanka. This list continues to grow with each passing month and it isa matter of time before Beetel 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.ACHIEVEMENTSTrend has won GOLDEN PEACOCK AWARD as the only phone with SIM card reader.The model Millennium Clip Max (A high end Caller ID and Two way speaker phone)recently launched in the market WON a GOLDEN PEACOCK AWARD forINNOVATIVE DESIGN.
  • 16. Beetel has a range of over 35 models across basic, feature and cordless segments andcontinues to add a new model every month. With a current market share of over 40%,Beetel is the first choice of the Indian consumer. In the growing private service providersegment, Bharti Teletech commands a lion’s share of over 90%. In the extremelycompetitive BSNL/ MTNL segment, we have crossed a market share of 50%. BTTL hassuccessfully met the challenge of providing quality 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 Phones CB 61000 -2.4 GHz Cordless Phones with base dialing
  • 17. 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 per new TECspecifications (GTEL-02/04); all these models are GSM interference free. • IRIS 2K3 • GARNET • PERIDOT (A CLI PHONE)Beside this company has maintained its leadership in all chosen markets like PSP, DOT, OPENMARKET & EXPORT (exporting to 30 countries across five continents world wide.DOMESTIC
  • 18. After years of careful and focused brand-building, Beetel is recognized as a trusted brandin India and is poised to take on global players in the most competitive internationalmarkets.Beetel was the first Indian brand to launch caller ID phones in India and the first to bringdown 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 that offer SMSon and from fixed-line telephony service platform worldwide. For the consumer in India,Beetel is truly ringing in the future. Indian PTT has accepted Beetel instruments wholeheartedly and the brand has a 60% share in this market.The private service providers have shown great faith in Beetels products and appreciatethe companys ability to customize the phones to their specifications. Beetel has garneredover 95% of this market.Beetel has remained the No. 1 brand in the Indian retail market, with a market share ofover 50 %.The companys marketing network encompasses over 580 distributors and over 30,000dealers, taking Beetel phones to every corner of one of the biggest markets in the world.INTERNATIONALAfter years of careful and focused brand-building, Beetel is recognized as a trusted brandin India and is poised to take on global players in the most competitive internationalmarkets.Overseas, the company has a richly diversified customer base in over 30 countries acrossfive continents. The markets include the USA, South America, Eastern Europe, the
  • 19. Middle East, South East Asia and Africa. Telephone instruments are supplied to Siemens,Akai, Connair and the Sprint Group in the USA among many others.The Electronics and Computer Hardware Export Promotion Council conferred uponBharti 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 VALUESVISION To be a leader in Telecom and allied products inchosen global market.VALUESCustomer We will be responsive to the needs of our customerPeople
  • 20. We will trust and respect our employeesLearning We will continuously improve our products and services-innovatively and expeditiouslyCommunity & Partners We will be transparent and sensitive in ourdealing with all stakeholdersQUALITY POLICY At Bharti Teletech quality has always been among the top priority .
  • 21. QUALITY OBJECTIVES • 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.
  • 22. • 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.• 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)
  • 23. 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 :Awards • 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 Data
  • 24. BEETEL’S GROWTHBeetel has established itself as a leader in "Modems". Beetel has also entered the "Set Top Box"market and is on foray in this segment.Bharti Teletech has joined hands with world leaders in their categories for manufacturing andDistribution of their products through its Channel.In addition to being manufactures and Distributors of "GE Phones" in India and select SAARCcountries, today BTTL are National Distributors for-"Motorola" GSM mobile Handsets and Accessories"Polycom" Audio and Video Conferencing Systems"Microsoft X Box" gaming devices .
  • 25. REVEIW OFLITRETURE
  • 26. Approaches 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 or readilyconvertible into cash (Current Assets) and organizational commitments for which cash will soonbe required (Current Liabilities).Current Assets are resources which are in cash or will soon be converted into cash in "the ordinarycourse of business".Current Liabilities are commitments which will soon require cash settlement in "the ordinarycourse of business".WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES
  • 27. 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 iv. Debtors Cost of sales or sales value v. Cash Working expenses
  • 28. Working Capital CycleWorking capital cycle involves conversions and rotation of various constituents/components of theworking capital. Initially ‘cash’ is converted into raw materials.Cash flows in a cycle into, around and out of a business. It is the businesss life blood and everymanagers primary task is to help keep it flowing and to use the cash flow to generate profits. If abusiness is operating profitably, then it should, in theory, generate cash surpluses. If it doesntgenerate surpluses, the business will eventually run out of cash and expire.The faster a business expands the more cash it will need for working capital and investment. Thecheapest and best sources of cash exist as working capital right within business. Good managementof working capital will generate cash will help improve profits and reduce risks. The cost ofproviding credit to customers and holding stocks can represent a substantial proportion of a firmstotal profits.The usage of fixed assets result in value additions, the raw materials get converted into work inprocess and then into finished goods. When sold on credit, the finished goods assume the form ofdebtors who give the business cash on due date. Thus ‘cash’ assumes its original form again at theend of one such working capital cycle but in the course it passes through various other forms ofcurrent assets too. This is how various components of current assets keep on changing their formsdue to value addition. As a result, they rotate and business operations continue. Thus, the workingcapital cycle involves rotation of various constituents of the working capital. While managing theworking capital, two characteristics 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. Investment remains in aparticular form of current asset for a short period. The life span of current assets depends upon thetime required in the activities of procurement; production, sales and collection and degree of
  • 29. synchronization among them. A very short life span of current assets results into swifttransformation into other form of current assets for a running business. These characteristics havecertain 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 and mismanagement ofany one component adversely affects the other components too. iii. The difference between the present value and the book value of profit is not significant.If money moves faster around the cycle (e.g. collect monies due from debtors more quickly) or theamount of money tied up is reduced (e.g. reduce inventory levels relative to sales), the businesswill generate more cash or it will need to borrow less money to fund working capital. As a
  • 30. consequence, the cost of bank interest can be reduced or additional free money will be available tosupport additional sales growth or investment. Similarly, if improved terms with suppliers arenegotiated e.g. longer credit or an increased credit limit, then free finance to help fund future salescan be effectively created.Thus…. If you ....... Then ...... • Collect receivables (debtors) faster You release cash from the cycle • Collect receivables (debtors) slower Your receivables soak up cash • Get better credit (in terms of duration or amount) You increase your cash from suppliers resources • Shift inventory (stocks) faster You free up cash • Move inventory (stocks) slower You consume more cashMANAGEMENT OF COMPONENTS OF WORKINGCAPITAL
  • 31. Inventory ManagementInventory includes all types of stocks. For effective working capital management, inventory needsto be managed effectively. The level of inventory should be such that the total cost of ordering andholding inventory is the least. Simultaneously, stock out costs should be minimized. Business,therefore, should fix the minimum safety stock level, re-order level and ordering quantity so thatthe inventory cost is reduced and its management becomes efficient.Average stock-holding periods will be influenced by the nature of the business. For example, afresh vegetable shop might turn over its entire stock every few days while a motor factor would bemuch slower as it may carry a wide range of rarely-used spare parts in case somebody needs them.many large manufacturers operate on a just-in-time (JIT) basis whereby all the components to beassembled on a particular today, arrive at the factory early that morning, no earlier - no later. Thishelps to minimize manufacturing costs as JIT stocks take up little space, minimize stock-holdingand virtually eliminate the risks of obsolete or damaged stock. Because JIT manufacturers holdstock for a very short time, they are able to conserve substantial cash. JIT is a good model to strivefor as it embraces all the principles 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 the benefitsarising due to the debtors are more than the cost incurred for debtors and the gap between benefitsand cost increases profits. An effective control of receivables helps a great deal in property
  • 32. managing it. Each business should, therefore, try to find out average credit extended to its clientusing the below given formulaCreditors ManagementCreditors are a vital part of effective cash management and should be managed carefully toenhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasingfunction can create liquidity problems.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.
  • 33. 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. 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.
  • 34. However, financial ratio analysis is valuable because it raises questions and indicates directions formore detailed investigation.Working Capital RatioCurrent RatioCurrent Assets divided by Current LiabilitiesThe working capital ratio (or current ratio) attempts to measure the level of liquidity, that is, thelevel of safety provided by the excess of current assets over current liabilities.Quick RatioLiquid Assets divided by Current LiabilitiesThis 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 RatioCost of Sales divided by Average Stock LevelThis ratio applies only to finished goods. It indicates the speed with which inventory is sold-or, tolook at it from the other angle, how long inventory items remain on the shelves. It can be used forthe inventory balance as a whole, for classes of inventory, or for individual inventory items.
  • 35. Debtor Turnover RatioThere is a close relationship between debtors and credit sales to third parties (that is, sales otherthan to the Crown). If sales increase, debtors will increase, and conversely, if sales decreasedebtors 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 an adversetrend is developing. Remedial action can then be instigated.Creditor Turnover RatioIt expresses the relationship between credit purchases and the liability to creditors. It can be statedas 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 entire Stock Turnover 365/ stock is turned every x days. There = x days (in days) Cost of Goods may be a need to break this down into Sold product groups for effective stock management. Obsolete stock, slow moving lines
  • 36. (i) 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 terms are 45 day Receivables Debtors * 365/ = x days and it takes 65 days... then ‘why’ Ratio Sales should be found out? (ii) (in days) 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 negotiations are(iii) done regarding the credit terms this Creditors * 365/ will increase. Payables Ratio = x days Cost of Sales (or If paid earlier to the supplier, say, to (in days) Purchases) get a discount this will decline. If there is a deferment in payment to the suppliers (without agreement) this will also increase - but the reputation, the quality of service and any
  • 37. 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. Total Current Current Liabilities are those amounts Assets/ which are due to pay within the Current Ratio = x times Total Current coming 12 months. For(iv) Liabilities example, 1.5 times means 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.
  • 38. OBJECTIVES OFTHE STUDY
  • 39. OBJECTIVES OF THE STUDYThe objective of working capital management is to maintain the optimum balance of each of theworking capital components. This includes making sure that funds are held as cash in bankdeposits for as long as and in the largest amounts possible, thereby maximizing the interest earned.However, such cash may more appropriately be invested in other assets or in reducing otherliabilities. My objectives of analyzing working capital management in BEETEL are as follows:  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.
  • 40. RESEARCHMETHEDOLOGY
  • 41. METHODOLOGYThe study is based on personal decision, interview schedules, documentary observation; the datahas been collected from the executives of the organization and through the published sources.RESEARCHThe research work is restricted only to the BEETEL DISTRIBUTION SYSTEM. The study isbased on the outcomes of personal interviews and documentary observation. But the extreme carehas been taken to involve the constructive suggestion from the executives. The success of researchbasically depends upon the method, which is adopted to 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 the study isbased because it tells the scope of the study and it should not go beyond it nor should execute someirrelevant aspect. In this case the study is based on how BEETEL manages its Working capitalrequirements.STEP 2: Objectives of the StudyAfter the problem formulation the objectives should be clear through which specific type ofinformation can be collected. The objective of this is to study about the management of WorkingCapital for day to day business transactions.STEP3: Determine source data
  • 42. The third step includes the collection of data, which is from the source i.e. primary secondary data.After the collection of data, it should be organized and analyzed to check whether the objectivesare fulfilled or not.After analyzing the data investigation of research had worked out with the help of following steps: • Research design • Tools & techniquesRESEARCH DESIGN:A research is an arrangement of conditions for the collection & analysis of data in a manner thataims the research purpose and achievements of goal with economy in procedure depending onresearch problem. The study of Working Capital is generally based 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 DATA
  • 43. Primary data: are those that are collected for the first time by the investigator and the primarydata 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 unpublished sourcesand 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.
  • 44. FINDINGS &ANALYSIS
  • 45. ASSUMPTIONS • 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.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 (Rs ‘000)
  • 46. Evaluation of various components of Working CapitalMajor components of Working capital as % of Capital Employed are as follows:  Inventories - 217.67%  Debtors - 51.60%  Cash & Bank - 21.45%  Loans & Advances - 24.36%  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 down to 1.82:1in 2006 and has now come down to 1.28:1 in 2007 which is very close to the ideal ratio of 1.33:1.This indicates that there is a perfect balance between current assets & current liabilities that thecompany owns. The major reasons for improvement in current 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.
  • 47. 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 went below theideal quick ratio of 1:1 and in 2007 it went further down to 0.39:1. The major reasons forchanges 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.
  • 48. Stock Turnover Ratio 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 in 2006, butstill it was way below the ideal of 6 to 7 times, which it achieved in 2007 by coming at 6.87 times.The major reason for improvement in Stock Turnover Ratio is that the sales have increasedbecause of the trading business as the company has entered in the fields of MOTOROLA, XBOX,GE, BLACKBERRY.
  • 49. Debtors Turnover Ratio 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 28.34 times in2007.The major reason for change in Debtors Turnover Ratio is that the company has entered intothe trading business of MOTOROLA products and accessories. As the company is purchasing theproducts from the MOTOROLA company in cash and distributing the same, with the help of theirTD’s, by providing a credit of 30 days.
  • 50. Creditors Turnover Ratio 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 6.83 times in2006. This shows that the company has been paying off its debts earlier than before. The ratio hasincreased to 7.59 times in 2007.The major reason for change in Creditors Turnover Ratio is that the MOTOROLA company isnot providing any kind o credit to BEETEL for distributing the MOTOROLA handsets.
  • 51. Working Capital as a % of Capital Employed 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 to 63.98% in2006. It further increased to 69.78% in 2007. Even if we compare the figure of working capital inthese years then it is observed that working capital has increased from Rs. 7, 74,878 in 2005 to Rs.12, 49,410 in 2006 to Rs. 16, 50,640 in 2007. Thus this increase of 32.11% in working capital of2007 had effect on the overall profitability of the company.
  • 52. Profit After Sales as a % to Sales 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 it showed adrastic 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 and cordless sets,manufactured by BEETEL has not increased but the balance sheet of the company shows anincrement of 96.45% on expenditure over raw materials.
  • 53. BHARTI TELETECH LIMITED BALANCE SHEET AS AT 31ST MARCH 2007PARTICULARS Sch- As at dule 31.03.2007 (Rs.)SOURCES OF FUNDSSHAREHOLDERS FUNDShare Capital 1 50,700,070Reserve & Surplus 2 1,746,223,282 1,796,923,352LOAN FUNDSSecured Loan 3 560,099,122Unsecured Loan 4 8,350,486 568,449,608Deferred Tax Liability -TOTAL >> 2,365,372,960APPLICATION OF FUNDSFIXED ASSETS 5Gross Block 513,406,244Less : Depreciation/Amortisation 231,900,454Net Block 281,505,790Capital Work in Process 140,591,016INVESTMENTS 6 245,221,290DEFERRED TAX ASSETS 46,924,182CURRENT ASSETS, LOANS & ADVANCES 7Inventories 5,148,654,309Sundry Debtors 1,220,447,390Cash & Bank Balances 507,383,049Other Current Assets 2,830,564Loans & Advances 576,465,133
  • 54. 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 1,650,643,954 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 dul e 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 23,943,571,304 PROFIT BEFORE FINANCIAL EXPS, DEPRECIATION & AMORTISATION 557,119,079
  • 55. Financial 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 41,192,148PROFIT BEFORE TAXATION 491,086,615Wealth Tax Paid 92,700Provision for Income Tax: (Refer note no 20 of Schedule 17) -Current Tax 243,581,089- Deferred Tax (52,880,620)- Fringe Benefit Tax 8,647,244 199,347,713PROFIT AFTER TAX 291,646,202Surplus as per last Balance Sheet 824,124,500PROFIT AVAILABLE FOR APPROPRIATION 1,115,770,702APPROPRIATIONS 1,115,770,702Proposed Dividend -Provision for Dividend Tax -Dividend Tax for Earlier Years -Transfer to General Reserve -Profit Carried Forward 1,115,770,702 1,115,770,702EARNING PER SHARE (BASIC & DILUTED) 57.52Significant Accounting Policies 16Notes to Accounts 17
  • 56. BHARTI TELETECH LIMITEDSCHEDULES TO ACCOUNTSPARTICULARS Sch- As at dul e 31.03.2007 (Rs.) SHARE CAPITAL 1 Authorised 55,00,000 Equity Shares (Previous Year 55,00,000) of Rs.10 each 55,000,000 Issued Subscribed and Paid up 50,70,007 (Previous Year 50,70,007) Equity Shares ofRs.10/-each { (Of the above Equity Shares : i) 5,070,000 shares are alloted as fully paid uppursuant to scheme of arrangement without payment being received incash) ii) 3615529 Shares are held by Holding Company -Bharti Enterprises (Holdings) Private Limited } 50,700,070RESERVES AND SURPLUS 2CAPITAL RESERVEAs per last Balance Sheet 132,191,500SHARE PREMIUM ACCOUNTAs per last Balance Sheet 400,289,221GENERAL RESERVE 97,971,85As per last Balance Sheet 9Add: Transferred from Profit & Loss Account - 97,971,859Surplus in Profit & Loss Account 1,115,770,702
  • 57. 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 8,350,486Footnote: # 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 ACCOUNTSPARTICULARS Sch- As at dul e 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 EquityShares) of Goa Telecommunication & Systems Limited of Rs. 10/-each 22,820,69fully paid up 3b) In Other CompanyNil Equity Shares (Previous Year 16,528,404 Equity Shares)of Teletech
  • 58. Services (India) Limited of Rs. 10/- each - 22,820,693CURRENT INVESTMENTS(Refer Note No. 7 of Schedule 16 &Note No. 10 ofSchedule 17) OTHER THAN TRADEIn Mutual Funds (Unquoted) 95,470,580 In Equity Shares of Companies (Quoted) 126,930,017 222,400,597 245,221,29 0Aggregated value of quoted investment 126,930,017Aggregated value of unquoted investment 118,291,273Market Value of Quoted Investments 147,210,594BHARTI TELETECH LIMITEDSCHEDULE TO ACCOUNTSPARTICULARS Sch- As at dule 31.03.2007 (Rs.)CURRENT ASSETS,LOANS AND ADVANCES 7INVENTORIES (As Taken,Valued & Certified by the Management) 63,032,80Raw Material 0 5,056,387,25Finished Goods 5 13,840,51Work-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.9,271 thousand), Finished Goods amounting to Rs.1,370,420 thousand (PY Rs.126,106 thousand) & Stores & Spare parts amounting to Rs. Nil (PY Rs 128 thousand )were in transit at year end.)
  • 59. SUNDRY DEBTORSDebts outstanding for a period exceeding Six Months : 3,258,95Considered Good 0 25,610,83Considered Doubtful 1 28,869,78 1Less : Provision for Doubtful Debts ,610,831 3,258,95 0Others Debts : 1,217,188,44Considered Good 0 12,684,85Considered Doubtful 8 1,229,873,29 8 12,684,85Less : Provision for Doubtful Debts 8 1,220,447,390CASH & BANK BALANCES 1,197,91Cash in Hand 7 33,054,95Cheques & Drafts in Hand 7Balance with Scheduled Banks: 472,609,17In Current Account 5 350,00In Deposit Account 0In Margin Account (Under Lien) - 171,00Saving Account with Post Office (Under Lien) 0 507,383,049OTHER CURRENT ASSETSExport Incentive & Interest Receivable: 2,830,56Considered Good 4Considered Doubtful 3,243,22
  • 60. 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 9 180,00Less 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.227,902 thousand)BHARTI TELETECH LIMITED
  • 61. SCHEDULE TO ACCOUNTSPARTICULARS Sch- As at dule 31.03.2007 (Rs.)CURRENT LIABILITIES & PROVISIONSCURRENT LIABILITIES 8Trade & Other Creditors # 5,517,087,922Advance from Customers 61,433,538Security Deposit 58,910,543Due 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) dueto SSI Creditors.PROVISIONSProposed Dividend -Dividend Tax -Retirement Benefits 24,477,266Warranty 31,018,204Sales Tax/Excise /Service Tax 23,441,527Sales Incentive 4,615,680Others 46,457,437Provision for Income Tax* 34,398,820 164,408,934* Net of Advance Tax Rs. 388,084 thousand (PreviousYear ended Rs Nil)MISCELLANEOUS EXPENDITURE 9(To the extent Not written off or adjusted)Voluntary Seperation SchemeOpening Balance 3,159,858Less : Charged during the year 2,673,129 486,729
  • 62. b) OTHER INCOME 10Interest (Gross) 35,672,671(Tax deducted at source Rs. 7,994 thousand (PreviousYear 6,293 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 Year238 thousand) Exchange Rate Difference 4,874,040 Dividend Received (Gross) (Current Investment - Otherthan Trade) 6,798,910 Liabilities/Provisions Written Back 10,789,530 Rent Received 38,616,540 (Tax deducted at source Rs. 8,666 thousand (PreviousYear 5,308 thousand)) 166,738,699PARTICULARS Sch- As at dule 31.03.2007 (Rs.)COST OF MATERIALS 11Raw Material ConsumedOpening Stock 44,687,988Add. Purchases 1,228,695,852 1,273,383,840Less Closing Stock 63,032,800 1,210,351,040TradingPurchase of Trading Goods 25,170,393,280Decrease/(Increase) in Work-in-progressand Finished goods
  • 63. Opening StockWork-in-Progress 12,121,848Finished Goods 1,394,350,632 1,406,472,480Less Closing StockWork-in-Progress 13,840,515Finished Goods 5,056,387,255 5,070,227,770 (3,663,755,290)Excise Duty on account of Increase/(Decrease) inStockof Finished Goods 2,080,659Cost of Materials 22,719,069,689BHARTI TELETECH LIMITEDSCHEDULE TO ACCOUNTSPARTICULARS Sch- As at dule 31.03.2007 (Rs.)Manufacturing Expenses 12Power & Fuel 13,597,049Consumption of Stores and Spares 5,468,171Electric Repairs 354,250Testing Fees 254,663Job Charges Paid 12,090,996Machinery Repair 2,836,592 34,601,721Personnel, Administration & Selling Expenses 13Personnel Expenses
  • 64. Salaries, Wages & Bonus 245,210,028Contribution to Provident & Other Funds 22,002,529Workman & Staff Welfare Expenses 9,882,792Recruitment Expenses 12,623,766 289,719,115Administration ExpensesRent 12,149,283Rates & Taxes 14,106,609Insurance Charges 30,118,281Travelling & Conveyance 65,975,682Postage,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-other than Trade) 8,549,643 Diminution in Value of Investment (Current- Otherthan Trade) 8,669,949 Provision for Obsolete Stock - Electricity & Water Charges 4,149,601 Board Meeting Fees & Expenses 306,702Provision for Doubtful Debts, Advances & Claims ## 72,936,740Research & Development 2,307,277Exchange Rate Fluctuations - 331,978,354Selling ExpensesFreight & Cartage 114,989,395Advertisement & Publicity 210,024,534Business Promotion 27,720,508Rebate & Discount 120,660,004Commission 5,461,866Service Charges C & F 12,897,251Warranty Cost 45,267,244
  • 65. Spares Consumed 31,181,623 568,202,424 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 172 thousand). ## 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
  • 66. 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 43,800,263b) Prior Period Adjustments (Net) Income/(Expenditure)Prior Period ExpensesBank Charges (59,562)Loss 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) 65,014Extra Ordinary & Prior Period Adjustments 41,192,148
  • 67. METHOD USED IN BEETEL FOR WORKING CAPITAL REQUIREMENTVarious Cycles and their Difference in BEETELParticulars 2005 2006 2007Working Capital (Rs ‘000) 7,74,878 12,49,410 16,50,640Raw Material Conversion Period 11.15 days 35 days 40 daysWork-in- Progress Conversion Period 2.94 days 7 days 10 daysFinished Goods Conversion Period 37.74 days 26.27 days 17 daysDebtors Conversion Period 56.66 days 26.4 days 12.87 daysGross Operating Days 96.4 days 82.67 days 79.87 daysCreditors Conversion Period 46.17 days 45.84 days 45 daysNet Operating Days 50.23 days 37.13 days 34.87 daysNo. of Operating Cycles in a Year. 7.26 9.83 10.47
  • 68. Operating Cycles 100 Raw Material Conversion 90 Period Work-in- Progress 80 Conversion Period Finished Goods 70 Conversion Period 60 Debtors Conversion Period Days 50 Gross Operating Cycle 40 Creditors Conversion Period 30 Net Operating Cycle 20 Cash Conversion Cycle 10 0 2005 2006 2007 YearRaw Material Conversion Period: Increased from 11.15 days in 2005 to 25 days in 2006 andthen it further increased to 40 days in 2007, which is not a good sign. A constant increment willlead to higher working capital requirement.Work in Progress Conversion Period: Increased from 2.94 days in 2005 to 5 days in 2006 andagain further increased 10 days in 2007, which is again not a good sign. This means that the goodsare not worked upon efficiently and there is increment in the time taken to process goods.Finished Goods Conversion Period: This has decreased from 37.74 days in 2006 to 26.27 days in2006 and further decreased to 17 days in 2007, which is a very good indicator. Thus, we see that
  • 69. the negative effects due to high raw material conversion period and high work in progressconversion period are almost wiped off.Debtors Conversion Period: Decreased from 56.67 days in 2005 to 26.40 days in 2006 and 12.87days in 2007, which means that the company is collecting its debt more efficiently. A lower debtorconversion period together with increased sales is a good sign for the company.Gross Operating Cycle: Decreased from 96.40 days in 2005 to 82.67 days in 2006 and 79.87 daysin 2007, which is mainly due to the reduction in debtor conversion period. A reduction in grossoperating cycle 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 45days in 2007, which means that the company is paying off its creditors earlier then before. Thecompany needs to delay payment to its creditors without loosing its reputation i.e. availing morecredit from its creditors to finance its working capital needs.Net Operating cycle: Decreased from 50.23 days in 2005 to 37.13 days in 2006 and 34.87 days in2007, indicating that the company’s requirement has decreased with comparison to previous year.Working Capital Required in BEETELWorking Capital Required = Total Expenses in a Year . No. of Operating cycles in a year Working Capital 23,943,571,304 = Rs 2,286,874,050Required in BEETEL = 10.47
  • 70. Working capital currentlyEmployed in BEETEL = Rs 1,650,640,000(As per broader approach i.e Current assets – Current liabilities)The is a huge discrepancy between the actual working capital and the required workingCapital i.e of Rs 636,234,050. This is because they are using factoring services from UTI bankand these Factoring services are off balance sheet financing scheme so whichever method theywould apply, it will not depict the correct picture of working capital requirement because thefactoring services are accounted on mark- to- market basis. Moreover, BEETEL is not usingseparate books of accounts for their trading business of MOTOROLA handsets and accessories soits accounts does not give the correct amount of debtors and outside liabilities. SUGGESTIONS
  • 71. & RECOMMENDATIONSRecommendationsThe 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 is able tocontinue its operations and that it has sufficient cash flow to satisfy both maturing short-term debtand upcoming operational expenses.The various possible steps that BEETEL may take to improve its working capital management areas follows: • Availing more credit from its suppliers. • Prompt collection from its debtors.
  • 72. • 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 operational andfinancial efficiency. This aspect must form part of the company’s strategic and operationalthinking. Efforts should constantly be made to improve the working capital position. This willyield greater efficiencies and improve customer satisfaction.
  • 73. CONCLUSIONConclusionIn the analysis for Bharti Teletech Limited, a Bharti Group Company it was found that the workingcapital has increased which could be mainly due to increased sales. The Gross Operating Cycledeclined significantly but the reduction was nullified due to the reduction in inventory conversionperiod. This is why we see that Net operating Cycle for last two years is almost identical. The mainareas of emphasis were work in progress conversion period and creditors conversion period.Debtors conversion period reduced but work in progress and creditors conversion period increased.
  • 74. Moreover, the interest and concentration of BEETEL has entirely shifted towards MOTOROLAtrading business, which is not giving that much amount of returns that they were previously gettingfrom their basic and cordless manufactured phones, as their previous achievements clearly showsthat in the growing private service provider segment, Bharti Teletech commands a lion’s share ofover 90%.Few suggestions that are recommended for better management of working capital are reducinginter-corporate deposits and loans, reducing finished goods inventory, increment in creditorspayment period etc.Thus, Good management of working capital is part of good financial management. Effective use ofworking capital will contribute to the operational efficiency of a company, optimum use will helpto generate maximum returns.
  • 75. BIBLIOGRAPHYBibliography I.M. Pandey, Financial Management, 8th Edition www.bharti-teletech.com www.treasury.govt.nz/publicsector/workingcapital/further.asp
  • 76.  www.planware.org/workingcapital.htm www.wikipedia.org