1. Executive Summary ................................................................................................. 3
CHAPTER 1 ............................................................................................................... 5
INDUSTRY AND COMPANY OVERVIEW................................................................. 5
Chapter 1................................................................................................................... 6
The Industry and Company Overview .................................................................... 6
Industry Overview: ................................................................................................ 6
Global Scenario..................................................................................................... 7
Indian Scenario ..................................................................................................... 9
Company Overview ............................................................................................. 11
Main manufacturing facilities............................................................................. 14
Products: ............................................................................................................. 14
SWOT Analysis ................................................................................................... 18
Key Players in the Market................................................................................... 20
Chapter 2................................................................................................................. 21
INTRODUCTION TO THE PROJECT ...................................................................... 21
INTRODUCTION TO THE PROJECT ...................................................................... 22
Statement of Problem ......................................................................................... 22
Background of the research topic: .................................................................... 22
Review of literature in the Area of Study .......................................................... 23
Working Capital Financing at BHEL-EDN: ........................................................ 24
Working Capital Management Practices: .......................................................... 28
CHAPTER-3 ............................................................................................................. 31
DESIGN OF THE STUDY ........................................................................................ 31
Objectives of the study ...................................................................................... 32
OPERATIONAL DEFINITIONS OF THE CONCEPTS IN THE AREA OF STUDY:
.............................................................................................................................. 32
RESEARCH METHODOLOGY ............................................................................ 42
Scope of the study: ............................................................................................. 42
Research Design ................................................................................................. 42
Plan of Analysis .................................................................................................. 43
Limitation of the Study ....................................................................................... 44
Chapter 4................................................................................................................. 45

2. Analysis and Interpretation ................................................................................... 45
Analysis and Interpretation ................................................................................... 46
WORKING CAPITAL MANAGEMENT ................................................................. 47
Trend Analysis .................................................................................................... 64
CHAPTER 5 ............................................................................................................. 66
FINDINGS AND SUGGESTIONS ............................................................................ 66
FINDINGS:............................................................................................................ 67
Suggestions ........................................................................................................ 68
Conclusion: ......................................................................................................... 69
Annexure................................................................................................................. 70

3. Executive Summary
In a perfect world, there would be no necessity for current assets and
liabilities because there would be no uncertainty, no transaction costs, information
search costs, scheduling costs, or production and technology constraints. The unit
cost of production would not vary with the quantity produced. Borrowing and lending
rates shall be same. Capital, labour and product market shall be perfectly
competitive and would reflect all available information, thus in such an environment,
there would be no advantage for investing in short term assets.
However the world we live is not perfect. It is characterized by considerable
amount of uncertainty regarding the demand, market price, quality and availability of
own products and those of suppliers. There are transaction costs for purchasing or
selling goods or securities. Information is costly to obtain and is not equally
distributed, there are spreads between the borrowings and lending rates for
investments and financing of equal risks. Similarly each organization is faced with its
own limits on the production capacity and technologies it can employ. There are
fixed as well as variable costs associated with production of goods. In other words,
the markets in which real firm operated are not perfectly competitive.
These real world circumstances introduce problem’s which require the
necessity of maintaining working capital. For example, an organization may be faced
with an uncertainty regarding availability of sufficient quantity of crucial input in future
at reasonable price. This may necessitate the holding of inventory. Similarly an
organization may be faced with an uncertainty regarding the level of its future cash
flows and insufficient amount of cash may incur substantial costs. This may
necessitate the holding of reserve of short term marketable securities, again a short
term capital asset. In the management of working capital the time factor is not a
crucial decision if the size of such assets is large, the liquidity position would
improve, but profitability would be adversely affected because of idle funds.
Conversely, if the holdings of such assets are relatively small, the overall profitability
will increase, but it adversely affected on the liquidity position and makes the firm
more risky. So the working capital management should aim at striking a balance
such that there is an optimum amount of short term assets.
The project explains in detail the concepts of working capital management which
serves as a platform for the study conducted. Various ratios have been taken out on

4. the basis of the data so as to find out the trends of components of working capital at
BHEL EDN. This analysis studies the different techniques used by BHEL to manage
THEIR Working Capital and the effectiveness of these.
A company like BHEL is expected to have a good management of its Working
Capital. Working Capital of a company is the difference between its current assets
and the current liabilities. It includes the company’s debtors, bank/cash, creditors,
inventory, outstanding and other miscellaneous expenses. Each of these needs to
be managed separately so as to have a control over the liquidity of business.
Management of Working Capital includes various sub-components at the operational
level of the company which directly affect the level of Working Capital. These include
study of Letter of Credit, Bill Discounting, Factoring through Receivable Purchases,
Channel Financing, and Overdraft management. Proper Working Capital
Management depends on how well these sub-components are handled. The
company needs to overcome the shortcomings in this respect.

5. CHAPTER 1
INDUSTRY AND COMPANY OVERVIEW

6. Chapter 1
The Industry and Company Overview
Industry Overview:
The Electrical Equipment Industry consists of companies that make a range
of products for a diverse customer base. This sector is fragmented, but there are a
few members that lay claim to a sizable portion of sales. Products include electrical
motors, commercial and industrial lighting fixtures, heating, ventilation and air
conditioning systems and components, and, among others, electrical power
equipment, Operating structures involve high fixed costs. Too, copper, aluminium
and steel are essential raw materials used in the manufacture of products. The
industry spans all corners of the world, and it is subject to the influence of the
macroeconomic cycle.
Equipment companies primarily serve the mature markets of North America and
Europe, but they have found growth venues in the emerging world. Expansive global
coverage helps to smooth the effects of the broader business cycle. Capable
management is required to oversee long distribution networks and far flung
operations. In recent years, companies have established more overseas brick-andmortar facilities, which have allowed them to better serve local markets economically
and limit the negative impact of foreign currency exchange. Emerging nations have
provided an impetus for growth and low-cost labour, production and land. The
electrical equipment manufacturing companies manufacture the range of products
required, that is mostly used in almost 90 % of world’s power and energy sector.
The products range from circuits to control equipments to power generating volts and
other small and medium components, which are directly used in nuclear power
plants as well as electrical appliances.

7. Global Scenario
The global competition in this sector is very tough and India is currently a
marginal player in the global context. India’s exports do not even constitute 1% of
global exports of electrical equipment. Most Indian manufacturers have not focussed
on developing a long term strategy for exporting their products. The domestic
industry has doubled, or even tripled in some cases, its capacities over last 7-8 years
in anticipation of the huge demand arising out of government’s plan for adding
substantial capacities in electricity generation, transmission and distribution sectors.
The industry now has a diversified, mature and strong manufacturing base, with
robust supply chain, fully equipped to meet domestic demand / capacity addition; but
in absence of the anticipated demand the industry is suffering from over capacity
leading to cut-throat competition in domestic market. Therefore, exports should be
looked at seriously by Indian companies as a significant opportunity for growth.
Indian products have a rugged performance design to meet the nation’s tough
network demand. Technology wise also, Indian products can compete globally. But,
where we lose out in the global market broadly is on the price front, especially vis-àvis China. Chinese products in many segments of this sector enjoy significant price
advantage because of the export subsidies extended by their government to their
manufacturers. Additionally, the Chinese Government also provides very soft long
term loans and aid to many countries to buy Chinese products. Also, China has
entered into several free trade agreements with different countries across the globe
on account of which Chinese products enjoy duty free or preferential access in these
countries. But, the Indian electrical equipment industry is also witnessing an
emerging global reputation for sourcing of base products and components and is
slowly but surely establishing a global footprint by building Brand India. The global
electrical equipment market includes the global electrical components and
equipment market, and the global heavy electrical equipment market. The global
electrical components and equipment market is deemed to be the revenues accruing
to companies from the sale of electric power cables and wires and electrical
switchgear. The market does not include electronic components or equipment
classified in the heavy electrical equipment sub-industry. The global heavy electrical
equipment market is deemed to be the revenues accrued by manufacturers from the
production of power-generating equipment and other heavy electrical equipment,

8. including power turbines, heavy electrical machinery intended for fixed-use and large
electrical systems. Any currency conversions used in this report are at constant 2011
annual average exchange rate.
The global electrical equipment market grew by 4.4% in 2011 to reach a value of
$202.0 billion, representing a compound annual growth rate of 1.1% for the period
spanning 2007-2011.Power Cables sales proved the most lucrative for the global
electrical equipment market in 2011, with total revenues of $62.6 billion, equivalent
to 31% of the market's overall value. The performance of the market is forecast to
accelerate, with an anticipated CAGR of 4.7% for the five-year period 2011 - 2016,
which is expected to drive the market to a value of $254.7 billion by the end of 2016

9. Indian Scenario
Indian Electrical Equipment Manufacturing industry has been growing over the years.
India was ranked among top 10 manufacturing industry by US. The Indian market
this year has experienced a fall of 11 % revenue this is due to the Mirroring problems
in the power sector. The industry saw a 10.5% fall during the quarter ending
December 2012 compared to the corresponding period of FY12.
Though almost all sub-sectors decelerated during the third quarter, only transformers
and capacitors were able to arrest their declining trend to some extent. Power cable
and energy meter sectors were hit the most during Q3 FY13. The situation of the
T&D sector is turning extremely grim and the Government needs to tackle the
situation on a war-footing, failing which it will become difficult for many players to
survive in the business.
The industry is reeling under the twin onslaught of the slowdown in the country’s
power sector, which has depressed domestic demand, and the rapidly escalating
imports of electrical equipment. Both of which have resulted in gross under-utilisation
of the manufacturing capacity for electrical equipment in the country.
The delays in project and order finalisation due to precarious financial health of state
distribution utilities, coupled with uncertainty and credit crunch and high borrowing
costs for private sector buyers, has led to this grim situation. The cash flow position
of equipment manufacturers is under tremendous pressure as it is facing
underutilization of capacities.
Indian electrical equipment manufacturing industry is facing a huge threat
from the new entrants in the market. These competitors are basically emerged in
Middle East and had occupied all over Asia and global markets. These competitors
are giving the cut throat competition to the Indian manufacturers. They are
technologically advanced and are successful in grabbing the orders from different
countries. Indian government itself is one among such customers to the Competitors.
The Government of India usually gives orders to Indian PSU’s for equipments used
in Defence, Shipping, Nuclear power plants and other core sector of the country i.e.
transmission and renewable energy . Nowadays Government is ignoring the Indian
Electrical Equipment Manufacturers, the main reason could be the lack of funds and

10. the new entrants can manufacture the same equipments for much cheaper costs in
less time. The country may face a huge set back because of one such mistake by
the Government. Due to the Sluggish demand and higher imports it has resulted in
the electrical equipment industry registering a negative growth of 8 per cent in FY13
The negative growth of this magnitude has been witnessed for the first time in the
last 10 years.
In FY12, the industry registered a growth of 6.6 per cent and was facing massive
project execution delays, mostly by the state-run transmission and distribution
companies and an unprecedented credit squeeze due to economic slowdown.
The electrical equipment manufacturing industry requires the focused attention of the
government to protect our interests by providing us a level playing field that would
equip the industry to fight imports.
Slackening demand in the power sector, continuous rise in imports of electrical
equipment, especially in China and South Korea and an absence of a level playing
field is threatening the existence of the Indian players.

11. Company Overview
Bharat Heavy Electricals Limited (BHEL) is an Indian state-owned
integrated power plant equipment manufacturer and operates as engineering and
manufacturing company based in New Delhi, India. BHEL was established in 1964,
ushering in the indigenous Heavy Electrical Equipment industry in India. The
company has been earning profits continuously since 1971-72 and paying dividends
since 1976-77.It is one of the only 7 mega Public Sector Undertakings (PSUs) of
India clubbed under the esteemed 'Maharatna' status. On 1 February 2013,
the Government of India granted Maharatna status to Bharat Heavy Electricals
Limited.
It is engaged in the design, engineering, manufacture, construction, testing,
commissioning and servicing of a wide range of products and services for the core
sectors of the economy, viz. Power, Transmission, Industry, Transportation,
Renewable Energy, Oil & Gas and Defence. It has 15 manufacturing divisions, two
repair units, four regional offices, eight service centres, eight overseas offices and 15
regional centres and currently operates at more than 150 project sites across India
and abroad. Most of its manufacturing units and other entities have been accredited
to Quality Management Systems (ISO 9001:2008), Environmental Management
Systems (ISO 14001:2004) and Occupational Health & Safety Management Systems
(OHSAS 18001:2007).
It is the 7th largest power equipment manufacturer in the world. In the year 2011, it
was ranked ninth most innovative company in the world by US business magazine
Forbes. BHEL is the only Indian Engineering company on the list, which contains
online retail firm Amazon at the second position with Apple and Google at fifth and
seventh positions, respectively. It is also placed at 4th place in Forbes Asia's
Fabulous 50 List of 2010.
BHEL has a share of 59% in India’s total installed generating capacity contributing
69% (approx.) to the total power generated from utility sets (excluding nonconventional capacity) as of March 31, 2012. The company has been exporting its
power and industry segment products and services for over 40 years. BHEL’s global
references are spread across 75 countries. The cumulative overseas installed
capacity of BHEL manufactured power plants exceeds 9,000 MW across 21

12. countries including Malaysia, Oman, Iraq, the UAE, Bhutan, Egypt and New Zealand.
Its physical exports range from turnkey projects to after sales services.
The company's Corporate R&D division at Hyderabad leads BHEL's research efforts
in a number of areas of importance to its product range. Research and Product
Development (RPD) centres at all its manufacturing divisions play a complementary
role. BHEL has introduced, in the recent past, several state of the art products.
Commercialisation of products and systems developed by way of in-house Research
and Development contributed Rs.95, 120 Million corresponding to around 19.3% of
the company's total turnover in 2011-12. In 2011-12, BHEL filed 351 patents and
copyrights, enhancing the company's intellectual capital to 1,786 patents and
copyrights filed, which are in productive use in the company's business. The
company established four new Centres of Excellence, taking the total tally to 13.
Significantly, BHEL is one of the only four Indian companies and the only Indian
Public Sector Enterprise figuring in 'The Global Innovation 1000' of Booz & Co., a list
of 1,000 publicly traded companies which are the biggest spenders on R&D in the
world.
The company boasts of a dedicated team of highly skilled and committed workforce
of 49,390 employees.
BHEL works along a pre-determined CSR Scheme and its Mission Statement on
CSR is "Be a Committed Corporate Citizen, alive towards its Corporate Social
Responsibility". BHEL's contributions towards Corporate Social Responsibility till
date include adoption of villages, free medical camps/charitable dispensaries,
schools for the underprivileged and handicapped children, ban on child labour,
disaster/natural calamity aid, employment for the differently able, widow
resettlement, employment for ex-serviceman, irrigation using treated sewage,
pollution checking camps, plantation of millions of trees, energy saving and
conservation of natural resources through environmental management. As part of
social commitment, BHEL provides financial assistance to various
NGOs/Trusts/Social Welfare Societies that are engaged in social welfare activities
throughout the country. 56 villages having nearly 80,000 inhabitants have been
adopted. In June 2012, BHEL commissioned 250 MW power generating unit at
Harduaganj in Uttar Pradesh. This would add six million units of electricity on a daily
basis.

13. Vision:
A World-class engineering enterprise committed to enhancing stakeholder value.
Mission:
To be an multinational Engineering Enterprise providing Total business solutions
through quality products, systems and services in the fields of Energy,
Transportation, Industry, infrastructure and other potential areas.
Values:

Meeting communications made to external and internal customers.

Faster learning, creativity and speed of response.

Respect for dignity and potential of individuals.

Loyalty and pride in the company.

Zeal to Excel.

Integrity and fairness in all matters.
Major Achievements of BHEL
Acquired certifications for Quality Management Systems (ISO 9001),
Environmental Management Systems (ISO 14001) and Occupational Health &
Safety Management Systems (OHSAS 18001).
BHEL becomes the first PSU to win the CII-Exim Business Excellence Prize.
Installed equipment for over 90,000 MW of power generation.
Supplied over 2,25,000 MVA transformer capacity and other equipment
operating in Transmission & Distribution network up to 400 kV (AC & DC).
Supplied over 25,000 Motors with Drive Control System to Power projects,
Petrochemicals, Refineries, Steel, Aluminium, Fertilizer, Cement plants, etc.
Supplied Traction electrics and AC/DC locos to power over 12,000 km
Railway network. Supplied over one million Valves to Power Plants and other
Industries.
Space panels supplied for ISRO.
Supply of defence products.

14. Main manufacturing facilities
Bhopal (Madhya Pradesh)
Ranipur, Haridwar (Uttarakhand)
Hyderabad (Andhra Pradesh)
Jhansi (Uttar Pradesh)
Tiruchirapalli(Tamil Nadu)
Ranipet (Tamil Nadu)
Bangalore (Karnataka)
Jagdishpur (Uttar Pradesh)
Goindwal (Punjab)
Bharat Heavy Plates and Vessels Limited (Vizag)
ASSCP Gurgaon.
Besides these manufacturing units there are four power sectors which undertake
EPC contract from various customers. The Research and Development arm of BHEL
is situated in Hyderabad and two repair shops are at HERP (Heavy Equipment
Repair Plant), Varanasi and EMRP (Electric machines repair plant) Mumbai.
Products:
Steam turbine
Gas turbine
Steam Generators
HRSG- Heat recovery steam generator
Locomotives
Circuit Breakers
Pumps
Motors
Generators
ESP - Electrostatic precipitator
Pulverisers
Oil field equipments
Valves
Boiler drum

15. Headers
Economizer
Water wall panel
Super heater
Re-heaters
Heat exchangers
Pressure vessels
Armed recovery vehicle
Wind mill
Fan (mechanical)
Super rapid gun mount
Non-conventional energy – Solar
Hydro Turbine
Besides manufacturing these products, BHEL also takes up the onsite erection,
commissioning and testing of these equipments.
BHEL EDN (Bangalore)
BHEL Electronics Division (EDN) along with Electronic Systems Division situated
in Bangalore is a leading supplier of new Generation Power Plant Automation and
Control Systems. The Electronics Division has also emerged as a leading player in
the field of power transmission and distribution, industry, transportation and nonconventional energy sources. The state of the art equipment and systems
manufactured, meet the demanding requirements of both the national and
International markets in terms of technical specification and quality.
The Division has established references both in India and overseas by successful
installation of Power Plant Automation and Photovoltaic systems. Besides providing
unified solutions for various control system applications, the Division proudly holds
the largest market share for Power Plant Automation systems in India.

16. Their Presence
Power Plant and Industries: Advanced control & automation equipment and
systems for power plants & process industries.
Transmission and Distribution: Providing solutions for improving the
efficiency, quality of power and system stability.
Transportation: IGBT based Traction Drive Systems for Locomotives.
Defence: Simulation systems and Controls for Naval Ships
Non-Conventional Energy: Photovoltaic Cells, Modules, MW size Power
Plants, Space Grade Solar Panels, Space Batteries and provide system level
solutions.
Product excellence, commitment to Quality, relentless efforts and unwavering
commitment to in-house solutions, along with Technical collaborations with
international leaders, strategic investment in new ultra modern facilities and capacity
expansion, have been the main factors for the rapid growth of the Division.
Certifications
ISO 9001: Quality systems and procedures
ISO 14001: Environment Management System Certification
OHSAS 18001: Occupational Health and Safety Assessment Series.
ISO 27001: Information Security Management System( ISMS) Standard.
BHEL EDN has the technical expertise to meet the stringent requirement of overseas
market and has successfully installed equipment meeting international standards, in
more than 40 countries across the globe.

17. THE Products manufactured at BHEL EDN includes
1. Automation and Control Systems
Steam Generator
Steam Turbine Controls
Boiler Feed Pump Drive Turbine Control
Station Control and Instrumentation / DCS
Offsite/ off base Controls/ Balance of plant Controls
Hydro Power Plant Control System.
Gas Turbine Control System
Nuclear Power Plant Turbine & Secondary Cycle Control System.
2. Power Electronics Systems
Excitation System
AC Drive System
Static Starters
Induction Heating Equipment
3. Transmission System Controls
4. Traction Drive Systems
5. Power Semiconductor Devices
6. Solar Photovoltaic
7. Defence Electronics.
8. Software System Solutions.

18. SWOT Analysis
STRENGTHS:
PSU, Brand name and well known for its Quality.
Well established units and skilled labour force.
Its innovation and integrity.
International certifications
The only company recognized in international market, with Apple and Google.
It is well known for its Quality and assurance
High operational efficiency.
All the units are controlled by the Head Office
A 0 debt company.
WEAKNESSES:
It is well known for its quality because of which the cost involved in manufacturing
goods are high, resulting in high pricing of goods.
As it is ISO certified organization, it has to strictly adhere to the rules and
regulation laid by the parliament
PSU, President is Supreme, his actions are final.

19. OPPORTUNITIES:
Global demand is high, its overseas operations has given more opportunities
to make their mark.
Exposure to new technology gives an opportunity for every individual to learn
something new.
Innovation is the key for success, the filing of new patents every year makes
them unique and explore further.
THREATS:
New competitors have entered the market.
The goods offered by them are much cheaper and they carry most advanced
technology
Increase is imports of goods by the Government.

20. Key Players in the Market
Larsen & Toubro Limited
L&T is an Indian multinational conglomerate with business interests in technology,
engineering, construction and manufacturing. It is one of the largest and most
respected companies in India's private sector with a turnover of US$ 13.5 billion in
2012. It has a dominant presence in India's infrastructure, power, hydrocarbon,
machinery, shipbuilding and railway sectors. In addition to this, L&T continues to
grow its global footprint, with offices and manufacturing facilities in multiple countries.
Its customers include global majors in over 30 countries.
Chart showing the Sales, Market capitalization and Net Profit of Key Players in
Electrical Equipment Manufacturing Industry.
100000
90000
80000
70000
60000
Sales
50000
Market capital
40000
Net Profit
30000
20000
10000
0
Larsen
BHEL
ADANI PORTS
SIEMENS
From the above chart we can conclude that Bhel stands second in the Market in
terms of sales, Net Profit and Market Capitalization.

21. Chapter 2
INTRODUCTION TO THE PROJECT

22. INTRODUCTION TO THE PROJECT
Statement of Problem
An Analysis of working capital management is undertaken to understand the
policy and practices used in managing short term requirements at BHEL EDN.
Because for a manufacturing Industry ,it is very important to manage their Working
Capital because, too much or too less Working Capital affects the company
drastically, as one process results in another, it is a cycle where if one component is
affected it results in changes in another components of working capital.
Work In
Progress
Finished
goods
Raw
Materials
Trade
debtors
Sundry
Creditors
Cash
Background of the research topic:
Working capital management is the process of planning and controlling the
level and mix of current assets of the firm as well as financing these assets. Thus
this involves managing the relationship between a firm's short-term assets and its
short-term liabilities. 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 dynamic business environment demands a framework for an efficient
working capital management system in order to be more competitive.

23. Every business concern aims at having adequate or optimal amount of working
capital to run its business operations. Both excess as well as shortage of working
capital situations are bad for any business. Too much of working capital means that
large sum of money is tied up in accounts receivable and inventory and inadequate
working capital can adversely affect the production and business operation, which is
more dangerous.
Review of literature in the Area of Study
Mehmet Sen EDA ORUC 2005 19: In the study “Relationship between the efficiency
of working capital management and company size”, As it is known one of the
reasons which causes change in working capital from one period to another is the
change in management efficiency will affect the change in working capital in increase
or decrease from one period to another. In this study the effect of change in
management efficiency in working capital management in to the change in working
capital is compared by company size and the sector.
Dubey 2008: Working capital in a firm generally arises out of four basic factors
like sales volume, technological changes, seasonal, cyclical changes and policies of
the firm. The strength of the firm is dependent on the working capital but the in fact
the working capital itself is dependent on the level of sales volume of the firm. The
firm requires current assets to support and maintain operational and functional
operations.
Thachapilly 2009: “Working capital management manages flow of funds” 2009,
describes that Working capital is the cash needed to carry on operations during the
cash conversion cycle, i.e. the days from paying for raw materials to collecting cash
from customers. Raw materials and operating supplies must be bought and stored to
uninterrupted production. Wages, salaries, utility charges and incidentals must be
paid for converting the materials into finished goods. Customers should be allowed a
credit period that is standard in the business. Only at the end of the cycle does cash
flow in again.

24. Working Capital Financing at BHEL-EDN:
BHEL-EDN uses external sources for financing its working capital.
External sources:
a) Trade credit: The major external source of working capital financing at BHELEDN is trade credit. Approximate 30% of the financing is done using trade
credit. This always has been a popular source because the company has
always proved it creditworthiness.
b) Advances: generally 10% of the order value is taken as advance from the
customer which work as good pool of financing working capital. It is used to
purchase raw materials and also utilized for other operating expenses.
It is to be noted BHEL being a very cash rich company it is not dependent on any
kind of bank financing or government assistance for financing of its working capital.
The working capital requirement is financed by the corporate office.
Analysis of the current policies related to management of individual
component of working capital
Handling Receivables:
Handling receivables can result in a better cash position and liquidity for the firm and
is truer in case of big organizations like one under study i.e. BHEL electronics
division, who can least afford a slow payment from the debtors, which may have a
crippling effect on the business.
This has been rightly said that if you don't manage debtors, they will begin to
manage your business as the company will gradually lose control due to reduced
cash flow and, of course, could experience an increased incidence of bad debt.
An analysis of the existing policy of BHEL-EDN related to receivables management
reveals some important points that need to be considered for effective management
of receivables; these are
a) Credit policy:- BHEL- EDN has a liberal credit policy which tend to push
turnover and attract more customers. But this is accompanied by higher
incidence of bad debt, very large investment in accounts receivable.

25. b) Credit period: The credit period is 6 months or more. In case of Govt. SEbS and
NTPC the credit period has even been years where due to liquidity crunch of this
companies it was not possible to recover the amount. Being a PSU BHEL
continues to work with these companies even if it has lead a lot current asset to
be blocked in Accounts Receivable.
c) Cash discount: As the collection is centralized cash discount is also provided by
the corporate office to motivate debtors to make prompt payment. But no cash
discount is provided by BHEL-EDN since turnkey contracts form major portion of
the turnover.
d) Collection: BHEL works on the basis of turnkey contracts, so as all units fulfill
the required job, no recovery is debt possible, so most of the time BHEL-EDN
has to wait a longer period of time to recover the debt.
Managing Payables:
Creditors are a vital part of effective cash management and should be managed
carefully to enhance the cash position. Management of creditors and suppliers is just
as important as the management of debtors as it has been pointed out that if you
can buy well then you can sell well, but BHEL does not produce standardized
products and the vendors are also customer approved.
Some of the important points related to creditor’s management are as follows:
Purchase of raw material is done using e-tendering and reverse auction basis.
The purchasing function is handled separately for the separate plants and
divisions of the company.
For some of the major items of raw material, company is dependent on a few
numbers of the suppliers because of the non availability of the local suppliers of
the material.
Sometimes purchases happen in anticipation of the demand or order and due to
some or the other reasons if the order gets delayed or cancelled, it results in carrying
of excess inventory, costing opportunity and carrying cost for the company apart
from material purchase cost.

26. Inventory Management:
Managing inventory is a juggling act. On the one hand excessive stocks can place a
heavy burden on the cash resources of a business while on the other hand the
insufficient stocks can result in lost sales, delays for customers etc. thus the basic
challenge is to determine the optimum stock level.
Estimation: The requirement of raw material is estimated on the basis of each
order, so the estimation is more order specific than time specific. Estimation is also
done for any anticipated order and inventory is acquired if there is a chance of hike
in the material price.
Acquisition: Inventory is acquired using e-tendering or reverse acquisition method
to get the best available price. In several occasion the price is fixed with the supplier
but the order is received on a later date which helps to reduce the carrying cost.
Inventory management technique: The inventory management technique used
here is FSND where the stocks are segregated on the basis of their movement
speed.
Inventory Valuation: The valuation of inventory holds a very important part of
inventory management.
Inventory is valued at actual/estimated cost or net realizable value whichever
is lower
Finished goods in Plant and WIP involving hydro and thermal sets including
gas based power plants, boilers; boiler auxiliaries, compressor and industrial
turbo set are valued at actual/estimated factory cost or 97.5% of the realizable
value, whichever is lower.
The raw materials, components, loose tools, stores and spares are issued at
weighted average cost.
The components and other materials purchased/ manufactured against
production orders but declared surplus are charged off to revenue residual
value based on technical assessment.

27. Levels of inventory – Minimum, maximum, re-ordering level-MOQ levels of
suppliers force hoarding of inventory.-customer approved vendors.
Bunching of requirements for raw material amongst bhel units- non
customized orders.
Sourcing from sister units helps in better utilization, better costs, and better
delivery.
Development of ancillaries
In – house development and commercialization
Cash Management:
Cash the most liquid asset, is of vital importance to the daily operation of business
operations Even though the proportion of cash help in BHEL-EDN is
approximately.005%, its efficient management is crucial
Budgeting: There are two types of budgeting or forecasting is done, both short term
and long term forecasting. The long term forecasting is done for period ranging from
1 to 3 years but short term forecasting is done on monthly, weekly and daily basis.
The daily forecasting is sent to the corporate office and the corporate office finances
the requirement on daily basis. So every day the work starts with a zero balance in
hand. The daily forecasting deals with day to day operational requirement but
requirement for any capital expenditure has to be sanctioned by the corporate office.

28. Method of forecasting: The daily expenditures are taken into consideration for cash
forecasting. As for examples:
Particulars
Period
1. Materials
--------
2. Payment of accounts payable(if any)
---------
3. Miscellaneous cash purchase
---------
4. Employee remuneration
----------
5.Manufacturing Expenses
----------
6.General, Administrative and selling
---------
expenses
7.Tax
---------
Total
---------
Cash collection: Cash collection from debtors is done mostly at the head office and it
is allocated, but in several occasion the amount is also collected at BHEL-EDN.
Working Capital Management Practices:
Debtors:
The main business is in power sector. Orders are obtained by the Head quarters
and distributed to the units. Units manufacture and supplies to the customer. Billing
is done by the units/head quarters based on the agreement between the customer
and unit like advances, payable on dispatches, payable against material receipt at
site, against commissioning etc. Normally advances, and commissioning are done by
the head quarters for the project as a whole and for the others it is the units
responsibility to bill and collect the same.

29. Cash management:
The cash is maintained centrally. All the deposits are accumulated and transferred to
the Corporate Office and the end of the day. Hence there is no opening or closing of
Balance in the units. In the same was funds are allocated to the units based on
requirements and only memorandum accounts are maintained. The Cheques issued
are debited to the Corp Bank at the end of the day. By this the cash operations are
fully controlled by the corporate office and outflow is controlled by allocation to the
needs. All the payments except very few are through NEFT/RTGS only.
Inventory management:
The unit is in ERP (SAP) system. Production orders are floated for manufacturing.
This in turn triggers the MRP and the requirements are consolidated and indents are
generated taking into account the stock, POs placed etc. The Purchase orders are
placed with staggered delivery so that the inventory is kept the minimum. All the
purchased are backed by orders and as per the internal system, no procurement can
be made without the customer order. Non-moving and slow moving stocks are
analyzed and action has been taken to liquidate them.
Inventory can be classified as
Raw Materials : Raw materials are procured by the Materials Management
Department , basically, the MM dept has been classified into two groups
Indigenous and imports, Indigenous group is engaged in procurement of raw
materials through local suppliers and import group buys raw materials from
international suppliers. BHEL’S imports 45% raw materials and 55 % are from
local suppliers.
Work- in- progress: WIP is a long cycle activity were in the goods are held,
the Company’s projects are for long term and so does the goods held in WIP .
Finished Goods: Finished goods are delivered to the customer on time,
incase if they complete the project before the time, it will be stored in the
warehouse and shown as sales in the balance sheet.

30. Sundry Creditors:
Once the goods are accepted by the stores after Quality inspection, sundry creditors
are generated and they are linked with the vendor invoices and queues for payment.
Payments are made as per the due date and as per the queue except for MSME
vendors.

31. CHAPTER-3
DESIGN OF THE STUDY

32. Objectives of the study
The study is conducted with reference to BHEL [EDN]. The main objective of the
study is to have an idea of the practical application of the working capital
management whose theoretical aspect is known.
 To determine the managerial aspects of working capital in BHEL-EDN.
 To understand how efficiently the working capital is being managed in BHELEDN.
 To understand the short-term solvency as well as the effectiveness of working
capital in the operation of business.
 To study the policies and the procedures adopted by BHEL-EDN for
managing the various components of working capital.
 To comprehensively evaluate the inventory, receivables, creditors and cash
Management performances.
 To undertake a study of the various sources of working capital financing,
employed by BHEL-EDN.
 To suggest on the basis of findings, improvements in the management of
working capital, at BHEL-EDN.
OPERATIONAL DEFINITIONS OF THE CONCEPTS IN THE AREA OF
STUDY:
Definitions:
According to Western and Brigham, “Working capital refers to a firm’s investment in
short term assets- cash, short term securities, accounts receivables and inventories”.
According to Hoagland, “working capital is descriptive of that capital which is not
fixed. But the more common use of the working capital is to consider it as the
difference between the book value of the current assets and the current liability.

33. Types of Working capital
TYPES OF
WORKING
CAPITAL
ON THE
BASIS OF
CONCEPT
GROSS
WORKING
CAPITAL
NET
WORKING
CAPITAL
ON THE
BASIS OF TIME
PERMANENT
WORKING
CAPITAL
TEMPORARY
WORKING
CAPITAL
REGULAR
WORKING
CAPITAL
SEASONAL
WORKING
CAPITAL
RESERVE
WORKING
CAPITAL
SPECIFIC
WORKING
CAPITAL
There are two concepts that are currently accepted about working capital. They are
a) Gross working capital concept=Total of current assets
b) Net working capital concept=Excess of current assets over current liabilities
Gross working capital concept:
This thought says that total investment in current assets is the working capital
of the company. This concept does not consider current liabilities at all.
Reasons given for the concept is
1) When we consider fixed capital as the amount invested in fixed assets. Then
the amount invested in current assets should be considered as working
capital.

34. 2) Current asset whatever may be the sources of acquisition, are used in
activities related to day to day operations and their forms keep on changing.
Therefore they should be considered as working capital.
Net working capital
It is narrow concept of working capital and according to this, the excess of
current assets over current liabilities is called as working capital. This concept lays
emphasis on qualitative aspect, which indicates the liquidity position of the
concern/enterprise.
The reasons for the net working capital method are:
1) THE material thing in the long fun is the surplus of current assets over current
liability
2) Financial health can easily be judged by with this concept particularly from the
view point of creditors and investors.
3) Excess of current assets over current liabilities represents’ the amount which
is not liable to be returned and which can be relied upon to meet any
contingency.
4) Intercompany comparison of financial position may be correctly done
particularly when both the companies have the same amount of current
assets.
Components of Working Capital:
Current Assets
Current Liabilities
Cash in hand/bank
Bank overdraft
Bills receivable
Bills Payable
Sundry Debtors
Sundry Creditors
Prepaid expenses
Outstanding Expenses
Short term investment
Advance Taken
Inventory
Accrued Income

35. 2. On the basis of Time:
On the basis of Time the working capital may be divided in to
A) Permanent or Fixed working capital
B) Variable or Temporary working capital
(A) Permanent or Fixed Working Capital:
It represents that part of capital which is permanently locked up in the current
assets and carrying out business smoothly. It is permanent in nature and will
increase as the size of business expands. In other words current assets required on
a continuing basis over the entire year are permanent working capital.
Permanent working capital can be further divided into:
a) Regular Working Capital
b) Reserve Working Capital
a)Regular Working Capital:
It is the minimum amount of liquid capital needed to keep up the circulation of
the capital form cash to inventories to receivables and again to cash. This would
include sufficient minimum bank balance to discount all bills, maintain adequate
supply of raw materials etc...
b) Reserve Working Capital:
It is the excess over the needs or regular working capital that should be kept
in reserve for contingencies that may arise at any time these contingencies include
rising prices business depression strikes special operations such as experiments
with new products.

36. (B)Variable or Temporary Working Capital:
Variable Working Capital changes with the increase or decrease in the
volume of business.
It may be sub-divided into.
1. Seasonal Working Capital
2. Special Working Capital
The working capital required to meet the seasonal needs of the industry is known as
seasonal working capital.
Special working capital is that part of the variable working capital with is
required to finance the special operations such as extensive marketing campaigns
experiments with the products or methods of production carry of special job etc.
Determinants of working capital:
1. Nature and Size of Business
11. Cash requirements
2. Manufacturing cycle
12. Time
3. Business fluctuation
13. Volume of sales
4. Production policy
14. Terms of purchases and sales
5. Firm’s credit policy
15. Inventory turnover
6. Availability credit
16. Inflation
7. Growth of expansion
17. Seasonal fluctuations
8. Profit margin and profit
18. Re payment ability
appropriation
9. Price level Changes
10. Operating of efficiency
19. Actives of firm
20. Demand of creditors

37. Advantage of adequate working capital:
SOLVENCY
OF
BUSINESS
HIGH
MORALE
GOODWILL
REGULAR
RETURN
ON
INVESTMENT
ADVANTAGE
OF
ADEQUATE
WORKING
CAPITAL
EASY LOANS
ABILITY
TO FACE
CRISIS
CASH
DISCOUNTS
REGULAR
PAYMENT
OF
EXPENSES
CONSTANT
SUPPLY
OF
RAW
MATERIAS
Disadvantage of inadequate or Excess working capital
DISADVANTAGES
EXCESS WORKING CAPITAL
LOW RATE OF
RETURN
LOSS OF
GOODWILL
DECLINE IN
EFFICIENCY
POOR TURNOVER
RATIO
EVIL OF
OVERCAPITALISATIO
N
INADEQUATE WORKING CAPITAL
LOSS OF
CREDITWORTINE
SS
UNABLE TO USE
OPPORTUNITIES
ADVERSE EFFECT ON
CREDIT
OPPORTUNITIES
OPERATIONAL
EFFICIENCY
EFFECT ON FINANCIAL
CAPACITY
NON
ACHIEVEMEN
T
OF PROFIT
TARGET

38. Working Capital Management:Working capital management is the process of planning and controlling the level and
mix of current assets of the firm as well as financing these assets. Thus this involves
managing the relationship between a firm's short-term assets and its short-term
liabilities. 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.
Why Working Capital Management?
The dynamic business environment demands a framework for an efficient working
capital management system in order to be more competitive.
Every business concern aims at having adequate or optimal amount of working
capital to run its business operations. Both excess as well as shortage of working
capital situations are bad for any business. Too much of working capital means that
large sum of money is tied up in accounts receivable and inventory and inadequate
working capital can adversely affect the production and business operation, which is
more dangerous.
Thus the working capital management is required to maintain an optimal working
capital with a proper risk and return trade off.
This principle is based on the following assumptions: 1. There is direct relationship between risk and profitability -- Higher is the risk,
higher is the profitability, while lower is the risk, lower is the profitability.
2. Current assets are less profitable than fixed assets.
3. Short-term funds are less expensive than long-term funds.
Working capital meets the short term financial requirement of a business enterprise
and ensures flow of fund in the business which is very necessary to maintain
business same as the circulation of blood in human body. Poor financial planning or
working capital management on the part of any company can lead to the business
failure. An active working capital management is an extremely effective way to
increase enterprise value by continuously improving cash flow, reducing inventory &
resulting capital costs, without sacrificing the business of the company.

39. Now need is for an integrated roadmap to better working capital management- one
that shortens the cash conversion cycle and minimizes capital lockup, which can
help the organization to face any favourable and unfavourable economic situation.
A successful business functions like an olive tree. Olive trees are remarkable for
their survival skills. Deeply rooted in Greek history, their branches crowned the
heads of the first Olympic champions. Their longevity is a case study in adaptabilitythey require little water and easily uprooted and replanted. Like the olive tree, a
business must weather the elements of any economic climate. Companies must
adjust to macro business factors- economic activity, interest rates, stock market
valuations, and regulatory changes- over which they have little control. Working
capital performance is fundamental to a company’s ability to adapt in a
challenging economy, because it is both independent of macroeconomic factors
and firmly within an organization’s control. Reducing working capital fuels success by
enhancing economic value added, regardless of environmental changes. Thus
working capital optimization is a vital component of corporate strategy.
Active working capital management is an extremely effective way to increase
enterprise value. Optimizing working capital results in a rapid release of liquid
resources and contributes to an improvement in free cash flow and to a
permanent reduction in inventory and capital costs. In an average company,
decreasing working capital by 30% leads to approx. 16% increase in after-tax
returns on invested capital.
A reduction of time span during which capital is tied up releases liquidity, has a direct
impact on the company’s financial position. However return on capital will also
increase, balance sheet structures will get optimized and company financial
will get improved
Dimensions of Working Capital Management-:
1. Estimating Investment in Working Capital
2. Financing of Working Capital
3. Managing Profitability, Risk & Liquidity

40. Techniques used to forecast the working capital requirement:
There are basically 3 approaches used to forecast the working capital requirement.
1. Estimation of components of working capital method.
This method is based on the basic definition of working capital, excess of current
assets over the current liabilities. In other worked the amount of different constituent
of the working capital such as debtors, cash inventories, creditors etc are estimated
separately and the total amount of working capital requirement is worked out
accordingly.
2. Percent sales method
This is the most simple and widely used method in combination with other scientific
methods. According to this method a ratio is determined for estimating the future
working capital requirement. This is generally based on the past experience of
management as the ratio varies from industry to industry. For example if the past
experience shows that the amount of working capital has been 20% of sales and
projected amount of sales for the next year is Rs. 10 lakhs, the required amount of
working capital shall be Rs. 2 lakhs.
As seen from above the above method is merely an estimation based on past
experience. Their fore a lot depends on the efficiency of decision maker, which may
not be correct in all circumstances. This method assumes a linear relationship of
working capital and sales, however the relationship can also be curvilinear.
3. Operating cycle approach
The need of working capital arises mainly because of them gap between the
production of goods and their actual realization after sales. This gap is technically
referred as the “operating cycle” or the “cash cycle” of the business. If it were
possible to complete the entire job instantaneously, there would be no need for
current asset (working capital). Since it is not possible, every business organization
is forced to have current asset and hence operating cycle.

41. Operating cycle and cash cycle are two important components of working capital
management. Together they determine the efficiency of a firm regarding working
capital management.
Operating cycle:
Operating cycle refers to the delay between the buying of raw materials and the
receipt of cash from sales proceeds. In other words, operating cycle refers to the
number of days taken for the conversion of cash to inventory through the conversion
of accounts receivable to cash. It indicates towards the time period for which cash is
engaged in inventory and accounts receivable. If an operating cycle is long, then
there is lower accessibility to cash for satisfying liabilities for the short term.
Operating cycle takes into consideration the following elements:
Accounts Payable, Cash, Accounts Receivables, and Inventory Replacement.
The following formula is used for calculating operating cycle
Operating cycle = age of inventory + collection period
Cash cycle:
It is also termed as net operating cycle, asset conversion cycle, working capital cycle
or cash conversion cycle.
Cash cycle is implemented in the financial assessment of a commercial enterprise.
The more the figure is increased, the higher is the period for which the cash of a
commercial entity is engaged in commercial activities and is inaccessible for other
functions, for instance investments. The cash cycle is interpreted as the number of
days between the payment for inputs and getting cash by sales of commodities
manufactured from that input.
The fundamental formula that is applied for the calculation of cash conversion cycle
is as follows:
Cash cycle = (Average Stockholding Period) + (Average Receivables Period) –

42. (Average Payables Period) or Operating cycle – Average Payable Period
Here
Average Receivables Period (in days) = Accounts Receivable/Average Daily
Average Stockholding Period (in days) = Closing Stock/Average Daily
Average Payable Period (in days) = Accounts Payable/Average Daily Credit
Purchases
A short cash cycle reflects sound management of working capital. On the other
hand, a long cash cycle denotes that capital is occupied when the commercial entity
is expecting its clients to make payments.
There is always a probability that a commercial enterprise can face negative cash
conversion cycle, in which case they are getting payments from the clients before
any payment is made to the suppliers. Instances of such business entities are
commonly those companies, which apply JIT or Just in Time techniques, for example
Dell, as well as commercial enterprises, which purchase on terms and conditions of
longer duration credits and perform sales against cash, for instance Tesco.
The more the manufacturing procedure is extended, the higher the amount of cash
should be kept engaged in inventories by the company. Likewise, the more time is
taken for the clients for the purpose of bill payment, the more is the accounts
receivable amount. From another viewpoint, if a company is able to detain the
payment for its internal inputs, it can decrease the amount of money required. Put
differently, the net working capital is diminished by accounts payable.
RESEARCH METHODOLOGY
Scope of the study:
The scope of this project work is confined to the Working Capital
Management Practices at BHEL- EDN Division, the study has been taken to learn in
detail the policies and strategies used in maintaining working capital at BHEL EDN,
Bangalore.
Research Design
In view of the objective of the study listed above, a descriptive research
design has been adopted. The Data is collected by using 2 sources.

43. Sources of Data:
There are two sources of collecting data (of both financial and non-financial
in nature).
1) Primary Data
2) Secondary Data
Primary Data:
The primary data was collected by visiting the Organization and by holding
informal discussions with various department heads. Information pertaining to
receivables, cash, inventory and creditors as collected from the respective
departments in the unit. The following departments provided the details.
Finance Department
Materials Management Department
Public Relations.
Secondary Data:
Secondary Data was collected from the following sources
Annual report
Journals and books
Research articles
Websites
Public relations Department
Plan of Analysis
The data is collected and analyzed and interpreted with the help of ratios
related to working capital. Tables and graphs are prepared to compare the performance
of the company from one year to another.
Ratio Analysis- Focuses on working capital policy, working capital structure and other
relevant information.

44. Limitation of the Study
1. Time restriction was only two months of project work in the organization.
2. The finding and suggestion cannot be generalized.
3. The study covered a wide concept hence wide collection and coverage of
information was not easily possible.
4. The companies which are taken for the purpose of comparison may or
may not follow the same accounting policies, which BHEL follows; BHEL
itself changes its Auditors once in every 4 years.
5. The study is just for 4 years.
6. Working Capital Management analysis are not the only measures in order
to analyze the performance of the company.

45. Chapter 4
Analysis and Interpretation

46. Analysis and Interpretation
The analysis for the Working Capital Management of the BHEL-EDN is done by
using the following methods.
Ratio analysis is a powerful tool available to analyze the present efficiency of
working capital.
Ratio analysis involves calculation and interpretation of ratios, which is the
relationship between two variables and these variables need to have a logical
relationship to each other.
There are two approaches used to analyze the ratiosTime series and/or cross sectional approach Time series analysis is concerned
with the behaviour of a given ratio over time. This is also called intrafirm or trend
analysis. This approach is adopted to find out systematic pattern in the historic
behaviour of series that can be used for prediction purposes. This approach is of
immense use in evaluating past performance.
Cross sectional analysis is concerned with comparing the investigated ratios with
certain norms as in a representative firm or an industry average.
Ratio analysis can be used by management as a tool to verify the level and
composition of working capital held by management in the business as against its
operations, the extent of liquidity present in its asset structure as well as financial
structure and the efficiency with which working capital is being used in the business.
In other words, management can employ ratios to analyze three facts of working
capital management, namely, efficiency, liquidity and its structural health.

47. WORKING CAPITAL MANAGEMENT
(Amount in lakh Rs)
PARTICULARS
2008-09
2009-10
2010-11
2011-12
Inventories
25254.77
26352.16
26620.90
37893.73
Sundry Debtors
70663.70
84873.88
85470.85
111551.58
Cash and Bank
12.02
20.36
269.87
373.33
3939.97
6299.35
4989.72
4383.82
99870.46
117545.75
117351.34
154202.46
Current Liabilities
79897.17
96299.68
91280.98
95044.32
Provisions
21567.20
14888.70
Total Current Liabilities
101464.37
111188.38
91280.98
95044.32
Net Current Assets (working
(1593.91)
6357.37
26070.36
59158.14
CURRENT ASSETS,LOANS
AND ADVANCES
Other Current Assets
Loans and Advances
Total Current Assets
CURRENT LIABILITIES AND
PROVISIONS
capital)

48. (1) Gross Working Capital: - it refers to the firm’s investment in current assets.
(Amount in lakh Rs)
Particulars
2008-09
2009-10
2010-11
2011-12
Gross Working Capital
99870.46
117545.75
117351.34
154202.46
Gross Working Capital
180000
160000
140000
120000
100000
80000
Gross Working Capital
60000
40000
20000
0
2008-09
2009-10
2010-11
2011-12
The GROSS WORKING CAPITAL determines the firm’s investment in current
assets, here in the graph, we can see that, there is an increasing trend in GWC, this
is due to huge investments in inventory, as they got huge orders till the year
2011-12, Debtors also form a major reason for investment in Current assets, the
major customers to BHEL are government entity, so slow in payments results in
more investments in Gross Working Capital.

49. (2) Net Working Capital: It refers to the excess of current assets over current assets
over current liabilities.
Net working capital= Current Assets- Current Liabilities
Particulars
2008-09
2009-10
2010-11
2011-12
Net working capital
(1593.91)
6357.37
26070.36
59158.14
Net working capital
70000
60000
50000
40000
30000
Net working capital
20000
10000
0
-10000
2008-09
2009-10
2010-11
2011-12
The Net Working Capital Determines the Firm’s ability to pay off its current
obligations, the year 2008-09 the company had negative WC, and after that
there is an increasing trend in the NWC, in the year 2011-12 the Firm has
highest NWC, this is because the company had high profits and there liquidity
position was high.
(3) Inventory Turnover Ratio: This ratio establishes the relationship between the cost
of goods sold during a given period and the average stock holding during that
period. It indicates the operational and marketing efficiency. It helps in evaluating
inventory policy to avoid overstocking.
Inventory Turnover Ratio =
Sales
Average inventory

50. Particulars
2008-09
2009-10
2010-11
2011-12
Sales
126267.8
145607.14
198388.5
226787.22
Average Inventory
20528.34
25803.47
26486.53
26486.53
Inventory turnover ratio
6.1
5.6
7.4
8.5
Inventory turnover ratio
9
8
7
6
5
Inventory turnover ratio
4
3
2
1
0
2008-09
2009-10
2010-11
2011-12
Inventory Turnover Ratio measures company's efficiency in turning its inventory into
sales. Its purpose is to measure the liquidity of the inventory. From the graph we can
see that the inventory turnover ratio is high in 2008-09 but in the year 2009-10 its
comedown, the reason could be, less orders which impacts in less inventory, from
2010-11 to 2011-12, there is an increase which determines the firm has got more
orders. Bhel policy is that, they start procuring inventory only once they get orders
and only then they stock raw materials, the raw materials in store is only 20% and
rest will be procured once they get orders. So the high inventory turnover determines
the operating efficiency of the company.

51. (4) Working Capital Turnover Ratio: indicates the velocity of the utilization of
net working capital.
This ratio represents the number of times the working capital is turned over in the
course of year and is calculated as follows
Working Capital Turnover Ratio=
Sales
Net working capital
Particulars
Sales
2008-09
126267.8
Net Working Capital (1593.91)
WC turnover Ratio
-79.21
2009-10
2010-11
145607.14
6357.37
198388.5
26070.36
22.90
2011-12
226787.22
59158.14
7.6
3.8
WC turnover Ratio
40
20
0
-20
2008-09
2009-10
2010-11
2011-12
WC turnover Ratio
-40
-60
-80
-100
The working capital turnover ratio is negative in the year 2008-09 this is due
to negative net working capital. It indicates that the firm had insufficient
working capital. On the other hand the ratio increased to positive in the next
year due to positive working capital. It indicates that there is efficient utilization
of working capital. There by in the following years, it has seen the decreasing
amount of working capital turnover every year, it shows that the sales has
increased thereby, increase in net working capital.

52. (5) Current Assets Turnover Ratio: This ratio indicates the efficiency with which
current assets turns into sales.
Current assets turnover ratio=
Sales
Current assets
Particulars
2008-09
2009-10
2010-11
2011-12
Sales
126267.8
145607.14
198388.5
226787.22
Current Assets
99870.46
117545.75
117351.3
154202.46
Current asset
1.26
1.23
1.69
1.47
turnover ratio
Current asset turnover ratio
1.8
1.6
1.4
1.2
1
0.8
Current asset turnover ratio
0.6
0.4
0.2
0
2008-09
2009-10
2010-11
2011-12
This ratio indicates, the extent to which current assets are utilized in
generating revenue to the company, from the graph we can see that there
was moderate ratio in the year 2008-2010 but there has been an increase in
the year 2011-12, this is due to high sales and so does the ratio went up, and
in the year 2011-12 the current assets has come down, resulting in less
current asset turnover ratio.

53. (6) Current Ratio: It gives the relationship between current assets and current
liabilities and indicates the extent to which short-term creditors are safe in terms
of liquidity of the current assets.
Higher the value of current ratio, more liquid the firm is and more ability it has
to pay its bills but a very high ratio also indicates slackness of management
practices and excessive holding of current assets.
Particulars
2008-09
2009-10
2010-11
2011-12
Total Current Assets
99870.46
117545.75
117351.3
154202.46
101464.4
111188.38
91280.98
95044.32
0.98
1.05
1.28
1.62
Total Current Liabilities
Current Ratio
Current Ratio
1.8
1.6
1.4
1.2
1
0.8
Current Ratio
0.6
0.4
0.2
0
2008-09
2009-10
2010-11
2011-12
The ideal current ratio is considered to be 2:1.From the above table it is observed
that the ratios from 2008 to 2012 are .98, 1.05, 1.28 and 1.62 which signifies that the
company maintains a proper level of current assets as compared to the current
liabilities. This indicates that the firm is liquid and has the ability to pay its current
obligations in time as and when they are come due. Again the amount of current
asset is such efficiently maintained so that not huge amount of investment is blocked
in Current Asset, but there is a requirement to increase the current asset or decrease
the liability to maintain the current ratio at a satisfactory level. Moreover, the

54. organization itself is so well managed; it knows the future outlook to invest in current
assets.
(7) Quick Ratio: It expresses the relationship between quick assets and current
liabilities. It is more refined rule to measure the liquidity in an organization. It
represents the ability of the company to pay its debts without relying on the sale
of its inventories.
Quick ratio=
Quick Assets
Current Liabilities
Particulars
2008-09
2009-10
2010-11
2011-12
Quick Assets
74615.69
91193.59
90730.44
116308.73
111188.38
91280.98
95044.32
0.82
0.99
1.22
Total Current Liabilities
Quick Ratio
0.73
Quick Ratio
1.4
1.2
1
0.8
0.6
Quick Ratio
0.4
0.2
0
2008-09
2009-10
2010-11
2011-12
The ideal ratio of quick assets is 1:1. But the firm’s Quick ratio is ranging from .73 to
1.22 i.e., from the year 2008-2012. The firm does not pay off the debts based on the
sales, because all the projects undertaken are long term and its conversion period
ranges to 3-4 years, so it is difficult to rely on sales. So they mostly depend on
corporate head office to finance from the advances taken from the customers.

55. (8) Cash Ratio/Super Quick Ratio: Since Cash is the most liquid asset a financial
analyst may examine cash ratio and its equivalent to current liabilities. Trade
investors or marketable securities are equivalent of cash; therefore they may be
included in the computation of cash ratio.
Particulars
2008-09
2009-10
2010-11
2011-12
Cash
12.02
20.36
269.87
373.33
Total Current
101464.4 111188.38 91280.98 95044.32
Liabilities
Lack of immediate cash may not matter because it can stretch its payments or
borrow money at short notice. If there is immediate requirement of cash, it has to be
brought to the notice of Head office and in turn they sanction the cash amount.
Since BHEL has centralized cash management system, this ratio for a single division
(BHEL-EDN) may not be of much relevance.
(9) Break up of Individual current Asset as a % of Total current assets
Particulars
2008-09
2009-10
2010-11
2011-12
Inventories
25.28%
22.42%
22.68%
24.57%
Sundry Debtors
70.75%
72.2%
72.83%
72.34%
Cash & Bank
0.012%
0.017%
0.23%
0.24
3.95%
5.36%
4.25%
2.84%
balance
Loans &
Advances
From the above table we can see that the high percentage of current assets in
occupied by Debtors, and second highest is by Inventories, as the company is PSU’s
the customers are mostly Government entity and they are very slow and lazy in
clearing the bills. The major customers are NTPC, Indian Defence, etc. inventories
carry a normal % its increase and decrease depends on the number of orders you
get.

56. (10)
Debtors Turnover Ratio: this ratio shows the relationship between credit sales
and average debtors of a firm. It indicates the speed with which debtors are being
collected. The higher the turnover ratio, shorter the average collection period and
the better is the trade credit management and the liquidity of the debtors and vice
versa.
Debtors turnover ratio = Credit Sales
Average Debtors
Particulars
2008-09
Credit Sales
2009-10
2010-11
2011-12
126267.8
145607.14
198388.5
226787.22
Average Debtors
61490.9
77768.79
85172.37
98511.22
Debtors turnover Ratio
2.05
1.87
2.33
2.3
Debtors turnover Ratio
2.5
2
1.5
Debtors turnover Ratio
1
0.5
0
2008-09
2009-10
2010-11
2011-12
The above graph shows Debtor Turnover Ratio, this indicates that there is
less DTR; this determines that the firm is inefficient in collecting bills. This is
due to maintain the customers and provide more credit in terms of days.
Because customers are mostly Government, State utility undertaking, who
mostly delay their payments. This is also a measure to attract and keep
customers loyalty.

57. (11)
Creditors Turnover Ratio: this ratio establishes the relationship between credit
purchases and the average amount of creditors outstanding during the year. A
low turnover ratio reflects liberal credit terms given by the suppliers, while high
ratio shows the accounts are to be settled rapidly. This ratio is very important tool
for analysis as a firm can reduce its requirement of current assets by relying on
supplier’s credit.
.
Creditors Turnover Ratio =
Purchases
Average Creditors
Particulars
2008-09
2009-10
2010-11
2011-12
Purchases
56400.29
57239.83
50075.85 92934,69
Average Creditors
19815.98
20919.66
27153.55
2.74
1.84
Creditors
2.85
37073.28
2.51
Turnover Ratio
Creditors Turnover Ratio
3
2.5
2
1.5
Creditors Turnover Ratio
1
0.5
0
2008-09 2009-10 2010-11 2011-12
The creditor’s turnover ratio is the highest in the year 2008-09 due to increase in
purchases. It signifies the credit worthiness of the company. The creditors are being
paid promptly. Whereas it is the lowest in the year 2010-11, which is caused by the
less credit purchase it signifies that the company is not taking full advantage of the
credit facilities provided by the creditors. Also the average creditors are decreased in

58. the year 2011-12, this is because the company has purchased more amount of raw
materials due to increase in orders inflow.
(12)
Current Assets to Total Assets Ratio: this ratio helps in determining the
investment policy adopted by the company. If the level of current assets
increases in proportion to the total assets of the firm, the management is said to
be more conservative in managing the current assets of the firm. On the other
hand lower ratio indicates highly aggressive policy this ratio helps in determining
the investment policy adopted by the company. If the level of current assets
increases in proportion to the total assets of the firm, the management is said to
be more conservative in managing the current assets of the firm. On the other
hand lower ratio indicates highly aggressive policy.
Particulars
2008-09
Current Assets
2009-10
2010-11
2011-12
99870.46
Current Assets to
117351.3
154202.46
146083.8
Total Assets
117545.75
174024.02
347150
409299.99
0.68
0.67
0.34
0.38
Total Assets
Current Assets to Total Assets
0.7
0.6
0.5
0.4
Current Assets to Total
Assets
0.3
0.2
0.1
0
2008-09
2009-10
2010-11
2011-12
The ratio has been decreased from 0.68 in 2008-09 to 0.38 in 2011-12. It shows that
the company does not hold current assets to meet the immediate demand. This is
true because as per the company, the orders are long term and there is sufficient
time to make preparations to meet the demand.

59. (13)
Raw Material holding period: This ratio states that how much time (in terms of
days) raw materials have to spent in stores before sending to the production
department for work-in-progress.
Raw material holding period= Average stock of raw materials*365
Raw materials consumed
Particulars
2008-09
Raw material
2009-10
2010-11
2011-12
46947.42
56142.44
65083.68
91803.02
20528.34
25803.47
26486.53
32257.32
consumed
Average stock
of raw materials
Raw material
160
168
148
128
holding period
Raw material holding period
180
160
140
120
100
Raw material holding
period
80
60
40
20
0
2008-09
2009-10
2010-11
2011-12
Raw materials form a life blood of any manufacturing industry, so the higher the raw
material holding period, indicates greater ability of company to recover cost incurred
in production. Less raw material holding period means increasing warehousing cost
and thus less profit. So from the above graph we can see that there is decrease in
RMHP in the year 2011-12, this due to the increase in inventory and it also reveals
that the company is unable to recover the cost incurred in production.

60. (14)
WIP Conversion Period: This indicates the speed with which the company is
converting its work in progress into finished goods. If the work in progress
conversion period increase it means the company is taking more time to convert
it into finished goods i.e., production is delayed. Lesser the work in progress
holding period lesser the blockage of company’s fund in the production process.
WIP conversion period=
Average stock of work in progress*365
Cost of production
Particulars
2008-09
Cost of production
Average stock of
2009-10
2010-11
2011-12
61072
71436
75683
117481
20528.34
25872
18566
11879
WIP
WIP Conversion
123
132
89
37
period
WIP Conversion Period
140
120
100
80
60
WIP turnover period
40
20
0
2008-09
2009-10
2010-11
2011-12
Work in progress is showing an increasing trend from 2008-09 to 2009-10. It
shows that the company is taking much time to convert the raw materials into
finished goods, when there are fewer orders the company WIP goes slowly.
On the other hand the work in progress period is lowest in the year 2011-12,
which shows that there is increase in orders. Huge amount of raw materials
are processed into the finished goods to meet the requirements of the
customer.

61. (15) Finished goods holding period: this ratio indicates the number of days a firm takes to
convert the finished goods inventory into sales.
Finished goods holding period= Average stock of finished goods*365
Cost of goods sold
Particulars
2008-09
2009-10
2010-11
2011-12
cost of goods sold
72406
84463
105131
139292
average stock of FG
864.97
376.93
1275.76
2700.73
FG Conversion
4
2
4
7
period
FG Conversion period
8
7
6
5
4
FG Conversion period
3
2
1
0
2008-09
2009-10
2010-11
2011-12
As we can see that, the graph shows that finished goods conversion period is
very less, ie a span of 4 to 7 days, which shows the finished goods are
immediately converted to sales. And the firm is efficient in doing so,Because
the goods are produced on the basis of orders and well documented
agreement.

62. (16)
Debtors Collection Period: this ratio measures how long it takes to collect
amounts from debtors. The ratio represents the average number of days, for
which a firm has to wait before the receivables are converted into cash. It
represents the quality of debtors. The shorter average collection period
represents high quality and vice versa.
Debtors collection period =
365
Debtors Turnover Ratio
Particulars
Credit Sales
2008-09
2009-10
2010-11
2011-12
126267.8
145607.14
198388.5
226787.22
Average Debtors
61490.9
77768.79
85172.37
98511.22
Debt collection
178
195
156
158
period
Debt collection period
250
200
150
Debt collection period
100
50
0
2008-09
2009-10
2010-11
2011-12
Same as Debtor turnover ratio, the Debt collection period shows the time taken by the
company to realize the debt, so from the graph we can see that, in the year 2009-10
was pretty high and the customers took lot of time to settle the payment. But moving to
later years it has been consistent to 150 days to 160 days. But industry standard of
DCP is 90 days, here we can see, BHEL has doubled the DCP compared to Industry.

63. (17)
Creditors Payment Period: this ratio shows the average time taken by the firm
to pay for goods and services purchased. The longer the credit period achieved,
the better, because delay in payment means that the operations of the company
are being financed interest free by suppliers funds. But, there will be a point
beyond which, if they are operating in sellers market, may harm the company due
to effect on the credit worthiness of the company.
Creditors turnover period=
Average Creditors*365
Purchases
Particulars
2008-09
2009-10
2010-11
2011-12
56400.29
57239.83
50075.85 92934,69
Average Creditors
19815.98
20919.66
27153.55
Creditors payment
128
Purchases
133
198
37073.28
145
period
Creditors payment period
250
200
150
Creditors payment period
100
50
0
2008-09
2009-10
2010-11
2011-12
The creditors are the people from whom the company bought raw materials and
other goods. The average payment period ratio represents the number of days by
the firm to pay its creditors. A high creditor’s turnover ratio or a lower credit period
ratio signifies that the creditors are being paid promptly. This situation enhances the
credit worthiness of the company. Here Bhel pays off their creditors in a period
ranging from 120-150 days, but in the year 2010-11 there was a tremendous

64. increase in the CPP. But after that year, they are paying their creditors before due
date. However a very favourable ratio to this effect also shows that the business is
not taking the full advantage of credit facilities allowed by the creditors. The industry
standard average payment is 60 days but BHEL has double the industry average
payment period.
Trend Analysis: Trend Analysis is a statistical tool to estimate the Sales for
the next year.
Year
Sales
2008-09
126267.8
2009-10
145607.14
2010-11
198388.5
2011-12
226787.22
250000
200000
150000
100000
Sales
50000
0
2008-09
2009-10
2010-11
2011-12
From the above graph we can see that, there is consistent increase in sales
volume, which determines the efficiency of BHEL, the way they produce quality

65. goods well known in the minds of the customers. BHEL’S integrity and innovation
has led its customers to repeatedly give orders to BHEL. This may not be the same
in future, as we are in the current year 2013-14, the financial position of 2012-13 has
not been out. But as per the press release I can analyse and say that, BHEL this
year has a decline in its profits, there might be many reasons, but the highlighted
reason could be the decline in sales, i.e. not getting orders from the Government.
The new entrants in the market, i.e. Chinese and Japanese technology have been
making its mark in the market to an huge extent. The technology brought in by them
are unique and cost involved is much less, when compared o BHEL. So, to conclude
Bhel is very well known in Indian as well as Global markets for its Quality and
Innovation. But the same goods which Bhel produces to cost of 300 crores, the
competitors/ new entrants are providing it for 150 crores. This can be the huge threat
to the Indian Power Sector.

66. CHAPTER 5
FINDINGS AND SUGGESTIONS

67. FINDINGS:
The Gross Working Capital is increasing every year, this shows that the firms
investments in current assets are high.
The high amount of Net Working Capital shows, an increase in Sales, there
by more profits into the firm.
The company’s current ratio and quick ratio shows an increasing trend, which
tells us that the company is more efficient in handing the short term
requirements.
To guard against foreign escalation, it resorts to hedging, it is almost a zero
debt company.
Study of inventories shows that an increase in inventory turnover ratio which
determines the operating efficiency of the company.
As company is the manufacture of heavy electrical goods and its major
customers are state electricity board telecommunication departments
etc…there exists laxness in the collection of debtors. And the company is not
so much bothered in collecting from these customers, because of huge orders
and customer loyalty.
The breakup of individual current asset as a % of total current asset reveals
that major chunk of current asset is occupied by Debtors i.e. almost 70%.
The company has now been effective in synchronizing of debtor’s turnover
ratio with creditor’s turnover ratio. It shows the company is taking full
advantage of credit facilities.
The enterprise has applied almost all management concepts in achieving it
vision. In this direction, it is concentrating on productivity programs and has
also identified areas where it has to concentrate.
The company’s inventory procurement team is highly efficient, the inventory
procurement process is appreciable.
Material management department and Finance Department go hand in hand
in managing the Working Capital requirement.
Raw material ordering process, the delegation of authority starts from the
Executive Engineer who has right to order up to 10 lakhs and there wise it
goes on until top management, where President is Supreme.

68. Suggestions:
The unit can outsource some of its non-core activities to specialize outside
agencies. Such as Customer relation and services.
The unit should develop alternate source of supply of materials, wherever
permitted, which will in turn, reduce the cost of inventory. The sourcing of
material should be at competitive rates and not L1 rates.
The unit has better inventory control by focusing on slow and non-moving
items. Less control should be on slow moving items and least control on fast
moving items.
The unit should tie up with financial institutions, for providing the suitable
financial package to its customers for non core products.
The unit must follow a rigorous system of credit evaluation and set credit
standards for its customers as is already done for private players.
The unit can obtain contingent commitment from the buyers as part of sales
term.
Effective follow-up by commercial departments should be made to accelerate
the collection process.
The unit must move forward to show their competitive advantage, as more
and more competitors are entering the market.
The company as a whole should address the President, for not the repeated
orders for the Government. Being the Government of India. They are
themselves ignoring the domestic companies.
The companies should implement an aggressive strategy to take up
international projects and prove there competitiveness in International market.

69. Conclusion:
It can be concluded that the overall financial performance of the company is
reasonably satisfactory. In certain areas the company has to focus more.
BHEL-EDN should try to overcome hurdles, especially in the areas of debtors
and inventory management.
After completing this study, I felt that, in today’s world it is very hard to survive
without being able to delight/ satisfy the customers. With the entry of MNCs
like ABB, Siemens etc... There is a need for BHEL-EDN to perform better and
prove its competitiveness.
As BHEL-EDN has stepped into a liberalized marker driven environment there
is an urgent need for its managers to function like business, rather than
government officials. This is not only needs an attitudinal change on the part
of higher officials but also requires whole hearted efforts of all employees.
Though company has implemented several management techniques like total
quality management, Six-sigma etc... There is a need for sustained and
synchronous efforts to achieve such objectives and realize future growth.
It appears that BHEL is in a strong position to achieve the vision envisaged by
the nation in light of the recent development of JVs in potential areas of
development entered into by BHEL.

70. Annexure

71. Balance Sheet of BHEL EDN