Working Capital Management Insights for Bharti Teletech

SUMMER TRAINING PROJECT
REPORT

ON

“Working Capital Management for
Bharti Teletech Ltd.”

SUMITTED IN PARTIAL FULFILLMENT OF THE
RQUIREMENT OF THE DEGREE OF MASTER
OF BUSINESS ADMINISTRATION

UTTARAKHAND TECHNICAL
UNIVERSITY, DEHRADUN

SUBMITTED BY: SUBMITTED TO:

im
D EH RA D U N
s

CERTIFICATE

I 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 my
supervision.

I certify that this is her original effort. It has not been copied from any other source. This
project 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 the
award of degree to the student.

ACKNOWLEDGEMENT

Indebted to many people who helped throughout the project work and in the preparation of
this report. First of all I would like to offer my sincere gratitude to ………………., project
director and Deputy finance manager of BHARTI TELETECH LTD and IMS for giving me
the opportunity to undertake this project.

I would also wish to special thank my project guide ……………………, project guide in
BHARTI 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 constant
support 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 support
during the course of this project.

PREFACE

The present study was undertaken as a part of the organizational training (1) Component of
the MBA course of masters in business studies in financial management.

The object of this training was to develop information search skills into students. This enables
them to gather information on a given subject in a systematic and consciously planned
manner.

The study was done as the project for BEETEL Ltd, New Delhi. BEETEL is engaged in
production of range of basic and cordless phones and is also National distributor of Motorola
handsets in India.

The study was carried out during the months of June-July’07. It’s objective was to study the
concept of Working Capital Management in detail in BEETEL and make suggestions about
the study.

CONTENTS

Certificate
Acknowledgement
Preface

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

EXECUTIVE SUMMARY

India 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 on
hand to meet its immediate needs while ensuring that idle cash is invested to the
organization’s best possible advantage. To avoid tipping the scale, it is necessary to have clear
and accurate reports on each of the components of working capital and awareness of the
potential impact of outside influences.

WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES

In the analysis for Bharti Teletech Limited, a Bharti Group Company it was found that the
working capital has increased which could be mainly due to increased sales. The Gross
Operating Cycle declined significantly but the reduction was nullified due to the reduction in
inventory conversion period. This is why we see that Net operating Cycle for last two years is
almost identical. The main areas of emphasis were work in progress conversion period and
creditors conversion period. Debtors conversion period reduced but work in progress and
creditors conversion period increased. Few suggestions that are recommended for better
management of working capital are reducing inter-corporate deposits and loans, reducing
finished 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. Effective
use of working capital will contribute to the operational efficiency of a company, optimum
use will help to generate maximum returns.

WORKING CAPTAL MANAGEMENT

Every business needs investment to procure fixed assets, which remain in use for a long
period. 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 in
short term assets like cash, inventories, debtors etc., is called ‘Short-term Funds’ or ‘Working
Capital’.

The ‘Working Capital’ can be categorized, as funds needed for carrying out day-to-day
operations of the business smoothly.

The 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 the firm is
able to continue its operations and that it has sufficient cash flow to satisfy both maturing
short-term debt and upcoming operational expenses.

Every running business needs working capital. Even a business which is fully equipped with
all 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. The
business will not be able to carry on day-to-day activities without the availability of adequate
working capital.

Company Profile
-
BHARTI

BHARTI ENTERPRISE

Bharti Enterprises has successfully focused its strategy on telecom while straddling diverse
fields of business. From the creation of 'Airtel', one of India's finest brands, to becoming the
largest manufacturer and exporter of world class telecom terminals under its 'Beetel' brand,
Bharti has created a significant position for itself in the global telecommunications
sector. Bharti Airtel Limited is today acknowledged as one of India's finest companies, and its
flagship 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 the
Customer Management Services business, Bharti Enterprises’ dynamic diversification has
continued with the company venturing into telecom software development. Recently, Bharti
has successfully launched an international venture with EL Rothschild Group owned ELRO
Holdings 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 into
retail business under a company called Bharti Retail Pvt. Ltd. It also has a MoU with Wal-
Mart for the cash & carry business.

Group Structure

Highlights

 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

BHARTI TELETECH

Company profile
-
BEETEL

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 time
two in numbers, at Gurgaon and Ludhiana. And in a short span of time, Beetel was
already the market leader. Cornering half of the Indian market, Beetel became 'India's
Favorite Phone'.

Today Bharti Teletech has two ISO 9000 certified plants with an annual capacity of 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.
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 of every
three phones in India is a Beetel. With rapid growth over the years, Bharti Teletech today is the
largest manufacturer of phones in the Globe outside China. Bharti Teletech commands a lion's
share 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 world
class quality. Today, BTTL is present in 30 countries across 5 continents

Exports are a huge thrust area for Bharti. In 1991, Bharti became the first company to export
phones to Sprint Inc. USA – recognition of our world class quality. The export operations have
been highly successful over the years. In 2003-04, exports crossed the half million mark - a
quantum jump since we started. Today, we are present in 30 countries across 5 continents despite
intense competition from the strongest brands in the world. Brand building initiatives have also
taken 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 is
a 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 FY
2006-07 against the last year's 543 crores.

ACHIEVEMENTS

Trend 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 for
INNOVATIVE DESIGN.

Beetel has a range of over 35 models across basic, feature and cordless segments and
continues 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 provider
segment, Bharti Teletech commands a lion’s share of over 90%. In the extremely
competitive BSNL/ MTNL segment, we have crossed a market share of 50%. BTTL has
successfully 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

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 Display

Following are the new products recently introduced for the DOT market as per new TEC
specifications (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, OPEN
MARKET & EXPORT (exporting to 30 countries across five continents world wide.

DOMESTIC

After years of careful and focused brand-building, Beetel is recognized as a trusted brand
in India and is poised to take on global players in the most competitive international
markets.

Beetel was the first Indian brand to launch caller ID phones in India and the first to bring
down the price of cordless phones to an affordable range at below Rs. 2000.

Beetel has also pioneered SMS phones, the first in India. With this landmark
development, India now has the pride of joining the select set of countries that offer SMS
on 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 whole
heartedly and the brand has a 60% share in this market.

The private service providers have shown great faith in Beetel's products and appreciate
the company's 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 market share of
over 50 %.

The company's marketing network encompasses over 580 distributors and over 30,000
dealers, taking Beetel phones to every corner of one of the biggest markets in the world.

INTERNATIONAL

After years of careful and focused brand-building, Beetel is recognized as a trusted brand
in India and is poised to take on global players in the most competitive international
markets.

Overseas, the company has a richly diversified customer base in over 30 countries across
five continents. The markets include the USA, South America, Eastern Europe, the

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 upon
Bharti Teletech, the award for the Top Telephone Instrument Exporter.

The company exemplifies a marketing success story that writes new chapters of
achievement with each passing year.

COMPANY’S VISION’S AND VALUES

VISION

To be a leader in Telecom and allied products in
chosen global market.

VALUES
Customer

We will be responsive to the needs of our customer

People

We will trust and respect our employees

Learning

We will continuously improve our products and services-
innovatively and expeditiously

Community & Partners

We will be transparent and sensitive in our
dealing with all stakeholders

QUALITY POLICY

At Bharti Teletech quality has always been among the top priority .

QUALITY OBJECTIVES

• To meet customers' requirements in terms of functionality, safety, aesthetics, life
expectancy and taking effective actions on their feedback's.
• 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.
• 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 company's 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

BEETEL’S GROWTH

Beetel 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 and
Distribution of their products through its Channel.

In addition to being manufactures and Distributors of "GE Phones" in India and select SAARC
countries, today BTTL are National Distributors for-

"Motorola" GSM mobile Handsets and Accessories

"Polycom" Audio and Video Conferencing Systems

"Microsoft X Box" gaming devices .

Approaches to Working capital Management
Working 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.

COMPONENTS
The term working capital refers to the amount of capital which is readily available to an
organization. That is, working capital is the difference between resources in cash or readily
convertible into cash (Current Assets) and organizational commitments for which 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 department's 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

Working Capital Cycle

Working capital cycle involves conversions and rotation of various constituents/components of the
working capital. Initially ‘cash’ is converted into raw materials.

Cash flows in a cycle into, around and out of a business. It is the business's life blood and every
manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a
business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't
generate 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. The
cheapest and best sources of cash exist as working capital right within business. Good management
of working capital will generate cash will help improve profits and reduce risks. The cost of
providing credit to customers and holding stocks can represent a substantial proportion of a firm's
total profits.

The usage of fixed assets result in value additions, the raw materials get converted into work in
process and then into finished goods. When sold on credit, the finished goods assume the form of
debtors who give the business cash on due date. Thus ‘cash’ assumes its original form again at the
end of one such working capital cycle but in the course it passes through various other forms of
current assets too. This is how various components of current assets keep on changing their forms
due to value addition. As a result, they rotate and business operations continue. Thus, the working
capital cycle involves rotation of various constituents of the working capital. While managing the
working 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 a
particular form of current asset for a short period. The life span of current assets depends upon the
time required in the activities of procurement; production, sales and collection and degree of

synchronization among them. A very short life span of current assets results into swift
transformation into other form of current assets for a running 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 and mismanagement 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.

If money moves faster around the cycle (e.g. collect monies due from debtors more quickly) or the
amount of money tied up is reduced (e.g. reduce inventory levels relative to sales), the business
will generate more cash or it will need to borrow less money to fund working capital. As a

consequence, the cost of bank interest can be reduced or additional 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 an increased credit limit, then free finance to help fund future sales
can 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 cash

MANAGEMENT OF COMPONENTS OF WORKING
CAPITAL

Inventory Management
Inventory includes all types of stocks. For effective working capital management, inventory needs
to be managed effectively. The level of inventory should be such that the total cost of ordering and
holding 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 that
the inventory cost is reduced and its management becomes efficient.
Average stock-holding periods will be influenced by the nature of the business. For example, a
fresh vegetable shop might turn over its entire stock every few days while a motor factor would be
much slower as it may carry a wide range of 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 be
assembled on a particular today, arrive at the factory early that morning, no earlier - no later. This
helps to minimize manufacturing costs as JIT stocks take up little space, minimize stock-holding
and virtually eliminate the risks of obsolete or damaged stock. Because JIT manufacturers hold
stock for a very short time, they are able to conserve substantial cash. JIT is a good model to strive
for as it embraces all the principles of prudent stock management.
Factors to be considered when determining optimum stock levels include:

• 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 Management

The objective of any management policy pertaining to debtors would be to ensure that the benefits
arising due to the debtors are more than the cost incurred for debtors and the gap between benefits
and cost increases profits. An effective control of receivables helps a great deal in property

managing it. Each business should, therefore, try to find out average credit extended to its client
using the below given formula

Creditors Management

Creditors are a vital part of effective cash management and should be managed carefully to
enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing
function 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.

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.

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

This ratio applies only to finished goods. It indicates the speed with which inventory is sold-or, to
look at it from the other angle, how long inventory items remain on the shelves. It can be used for
the inventory balance as a whole, for classes of inventory, or for individual inventory items.

Debtor Turnover Ratio

There is a close relationship between debtors and credit sales to third parties (that is, sales other
than to the Crown). If sales increase, debtors will increase, and conversely, if sales decrease
debtors will decrease.

Credit Sales per Period X Days per period
Average Debtors

The debtor ratio does not solve the collection problem, but it acts as an indicator that an adverse
trend is developing. Remedial action can then be instigated.

Creditor Turnover Ratio

It expresses the relationship between credit purchases and the liability to creditors. It can be stated
as the number of days that credit purchases are carried on the books.

Credit Purchases per Period X Days per period
Average Creditors

Thus…
Se. Ratio Formulae Result Interpretation
No.

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

(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

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.

OBJECTIVES OF THE STUDY

The objective of working capital management is to maintain the optimum balance of each of the
working capital components. This includes making sure that funds are held as cash in bank
deposits 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 other
liabilities. 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.

METHODOLOGY

The study is based on personal decision, interview schedules, documentary observation; the data
has been collected from the executives of the organization and through the published sources.

RESEARCH

The research work is restricted only to the BEETEL DISTRIBUTION SYSTEM. The study is
based on the outcomes of personal interviews and documentary observation. But the extreme care
has been taken to involve the constructive suggestion from the executives. The success of research
basically 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 Formulation

It is a very important step which has to be understood properly and clearly on which the study is
based because it tells the scope of the study and it should not go beyond it nor should execute some
irrelevant aspect. In this case the study is based on how BEETEL manages its Working capital
requirements.

STEP 2: Objectives of the Study

After the problem formulation the objectives should be clear through which specific type of
information can be collected. The objective of this is to study about the management of Working
Capital for day to day business transactions.

STEP3: Determine source data

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 objectives
are fulfilled or not.

After analyzing the data investigation of research had worked out with the help of following steps:

• Research design
• Tools & techniques

RESEARCH DESIGN:

A research is an arrangement of conditions for the collection & analysis of data in a manner that
aims the research purpose and achievements of goal with economy in procedure depending on
research problem. 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

Primary data: are those that are collected for the first time by the investigator and the primary
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 unpublished sources
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.

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,2007
CURRENT ASSETS, LOANS &
ADVANCES
Inventories 2,49,252 14,59,500 51,48,650
Sundry Debtors 2,36,657 4,96,560 12,20,450
Cash & Bank Balances 77,069 3,89,130 5,07,380
Other Current Assets 11,461 7,820 2,830
Loans & Advances 3,73,321 4,11,800 5,76,470
Total Current Assets 9,47,760 27,64,810 74,55,780

Less CURRENT LIABILITIES &
PROVISIONS
Liabilities 1,55,038 14,40,230 56,40,720
Provisions 17,844 75,170 1,64,420
Total Current Liabilities 1,72,882 15,15,400 58,05,140
Working Capital 7,74,878 12,49,410 16,50,640

(Rs ‘000)

Evaluation of various components of Working Capital
Major 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 Ratios

Current Ratio

The Current Ratio is decreasing over the period i.e for 2005 it was 5.48:1, it went down to 1.82:1
in 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 the
company 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.

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
Year

Quick Ratio

The quick ratio showed a drastic improvement in 2006 as compared to 2005, but it went below the
ideal quick ratio of 1:1 and in 2007 it went further down to 0.39:1. The major reasons 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.



10
9 9.14
8
7 6.87
6
Times

5
4 4.85
3
2
1
0
2004 2005 2006 2007 2008
Year

Stock Turnover Ratio had changed drastically from 9.14 times in 2005 to 4.85 times in 2006, but
still 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 increased
because of the trading business as the company has entered in the fields of MOTOROLA, XBOX,
GE, BLACKBERRY.

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

Year

The Debtors Turnover Ratio has increased drastically from 13.82 times in 2006 to 28.34 times in
2007.
The major reason for change in Debtors Turnover Ratio is that the company has entered into
the trading business of MOTOROLA products and accessories. As the company is purchasing the
products from the MOTOROLA company in cash and distributing the same, with the help of their
TD’s, by providing a credit of 30 days.

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

Year

The creditors Turnover Ratio has decreased drastically from 11.4 times in 2005 to 6.83 times in
2006. This shows that the company has been paying off its debts earlier than before. The ratio has
increased to 7.59 times in 2007.
The major reason for change in Creditors Turnover Ratio is that the MOTOROLA company is
not providing any kind o credit to BEETEL for distributing the MOTOROLA handsets.

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

Year
Working Capital as a % of Capital Employed has increased from 58.96% in 2005 to 63.98% in
2006. It further increased to 69.78% in 2007. Even if we compare the figure of working capital in
these 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 of
2007 had effect on the overall profitability of the company.

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
Year

Profit After Tax as a % to sales increased from 6.42% in 2005 to 6.89% in 2006. But it showed 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 and cordless sets,
manufactured by BEETEL has not increased but the balance sheet of the company shows an
increment of 96.45% on expenditure over raw materials.

BHARTI TELETECH LIMITED
BALANCE SHEET AS AT 31ST MARCH 2007

PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
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 1,650,643,954

MISCELLANEOUS EXPENDITURE 9 486,729

TOTAL >> 2,365,372,960

SIGNIFICANT ACCOUNTING POLICIES 16 0
NOTES TO ACCOUNTS 17

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2007

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

Financial Expenses 14 68,326,817
PROFIT BEFORE DEPRECIATION &
AMORTISATION 488,792,262
Less : Depreciation/Amortisation 38,897,795

PROFIT BEFORE EXTRA ORDINARY ITEMS 449,894,467
Add / (Less) :Extra-Ordinary & Prior Period
Adjustments 15 41,192,148

PROFIT BEFORE TAXATION 491,086,615
Wealth Tax Paid 92,700
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 17

SCHEDULES TO ACCOUNTS

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 of
Rs.10/-each
{ (Of the above Equity Shares :
i) 5,070,000 shares are alloted as 'fully paid up
pursuant to scheme
of arrangement without payment being received in
cash)
ii) 3615529 Shares are held by Holding Company -
Bharti Enterprises
(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 8,350,486

Footnote: # Secured against the hypothecation of Stocks & Bookdebts of the company and First
charge on the all the Fixed Assets of the company except Land and Building at Gurgaon & the
related fixed assets.

SCHEDULES TO ACCOUNTS

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 Equity
Shares) of Goa
Telecommunication & Systems Limited of Rs. 10/-each 22,820,69
fully paid 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 147,210,594

SCHEDULE TO ACCOUNTS
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.
9,271 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.)

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
1,229,873,29
8
12,684,85
Less : Provision for Doubtful Debts 8 1,220,447,390

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
Considered Doubtful 3,243,22

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 be
received:
73,556,76
Considered Good 2
4,865,53
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
11,025,59
9
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
576,465,133
Footnote: * Net of Provision for Taxation Rs. Nil thousand (Previous Year Rs.227,902 thousand)


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 46,457,437
Provision for Income Tax* 34,398,820 164,408,934
* Net of Advance Tax Rs. 388,084 thousand (Previous
Year ended 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
Year 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 Year
238 thousand)
Exchange Rate Difference 4,874,040
Dividend Received (Gross) (Current Investment - Other
than Trade) 6,798,910
Liabilities/Provisions Written Back 10,789,530
Rent Received 38,616,540
(Tax deducted at source Rs. 8,666 thousand (Previous
Year 5,308 thousand)) 166,738,699

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 1,210,351,040

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 22,719,069,689

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 Expenses

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-
other than Trade) 8,549,643
Diminution in Value of Investment (Current- Other
than Trade) 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 31,181,623 568,202,424

1,189,899,894
Less: Share of Centrailsed Expenses to Subsidiary
Company -
Less: Share of Centrailsed Expenses to Associate
Companies -
-

1,189,899,894
Footnote: # 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).


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)
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 20,932
Rent Received -
Sales -
Rates & Taxes -
Recruitment Expenses -
Depreciation/Amortisation 131,074
Miscellaneous Expenses -

Total Prior Period Income 152,006
Prior Period Adjustments (Net) 65,014

Extra Ordinary & Prior Period Adjustments 41,192,148

METHOD USED IN BEETEL FOR WORKING CAPITAL
REQUIREMENT

Various Cycles and their Difference in BEETEL

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

Debtors Conversion Period 56.66 days 26.4 days 12.87 days

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 10.47

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
Year

Raw Material Conversion Period: Increased from 11.15 days in 2005 to 25 days in 2006 and
then it further increased to 40 days in 2007, which is not a good sign. A constant increment will
lead to higher working capital requirement.

Work in Progress Conversion Period: Increased from 2.94 days in 2005 to 5 days in 2006 and
again further increased 10 days in 2007, which is again not a good sign. This means that the goods
are 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 in
2006 and further decreased to 17 days in 2007, which is a very good indicator. Thus, we see that

the negative effects due to high raw material conversion period and high work in progress
conversion period are almost wiped off.

Debtors Conversion Period: Decreased from 56.67 days in 2005 to 26.40 days in 2006 and 12.87
days in 2007, which means that the company is collecting its debt more efficiently. A lower debtor
conversion 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 days
in 2007, which is mainly due to the reduction in debtor conversion period. A reduction in gross
operating cycle means reduced need of funds for day to day working. But the company should look
for 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, which means that the company is paying off its creditors earlier then before. The
company needs to delay payment to its creditors without loosing its reputation i.e. availing more
credit 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 in
2007, indicating that the company’s requirement has decreased with comparison to previous year.

Working Capital Required in BEETEL

Working Capital Required = Total Expenses in a Year .
No. of Operating cycles in a year

Working Capital 23,943,571,304 = Rs 2,286,874,050
Required in BEETEL = 10.47

Working capital currently
Employed 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 working
Capital i.e of Rs 636,234,050. This is because they are using factoring services from UTI bank
and these Factoring services are off balance sheet financing scheme so whichever method they
would apply, it will not depict the correct picture of working capital requirement because the
factoring services are accounted on mark- to- market basis. Moreover, BEETEL is not using
separate books of accounts for their trading business of MOTOROLA handsets and accessories so
its accounts does not give the correct amount of debtors and outside liabilities.

SUGGESTIONS

&
RECOMMENDATIONS

Recommendations

The 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 the firm is able to
continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt
and upcoming operational expenses.

The various possible steps that BEETEL may take to improve its working capital management are
as follows:

• 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 operational and
financial efficiency. This aspect must form part of the company’s strategic and operational
thinking. Efforts should constantly be made to improve the working capital position. This will
yield greater efficiencies and improve customer satisfaction.

CONCLUSION

Conclusion

In the analysis for Bharti Teletech Limited, a Bharti Group Company it was found that the working
capital has increased which could be mainly due to increased sales. The Gross Operating Cycle
declined significantly but the reduction was nullified due to the reduction in inventory conversion
period. This is why we see that Net operating Cycle for last two years is almost identical. The main
areas of emphasis were work in progress conversion period and creditors conversion period.
Debtors conversion period reduced but work in progress and creditors conversion period increased.

Moreover, the interest and concentration of BEETEL has entirely shifted towards MOTOROLA
trading business, which is not giving that much amount of returns that they were previously getting
from their basic and cordless manufactured phones, as their previous achievements clearly shows
that in the growing private service provider segment, Bharti Teletech commands a lion’s share of
over 90%.

Few suggestions that are recommended for better management of working capital are reducing
inter-corporate deposits and loans, reducing finished goods inventory, increment in creditors
payment period etc.

Thus, Good management of working capital is part of good financial management. Effective use of
working capital will contribute to the operational efficiency of a company, optimum use will help
to generate maximum returns.

BIBLIOGRAPHY

Bibliography

 I.M. Pandey, Financial Management, 8th Edition

 www.bharti-teletech.com

 www.treasury.govt.nz/publicsector/workingcapital/further.asp

 www.planware.org/workingcapital.htm

 www.wikipedia.org

Working Capital Management Insights for Bharti Teletech

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