This document provides an introduction and overview of finance and working capital management. It defines finance as the lifeblood of economic activity and discusses the importance of an efficient financial system. It then defines working capital as the capital used for day-to-day business operations, including current assets like inventory, receivables, and cash. The document outlines the objectives of working capital management as maintaining an optimal level of working capital that is neither excessive nor inadequate. It also discusses the different types of working capital and provides an overview of a company's working capital cycle.

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INTRODUCTION
INTRODUCTION ON FINANCE
Finance is one of the major elements that activate the overall growth of the economy. Finance is the
life blood of economic activity. A well - knit financial system directly contributes to the growth of
the economy. An efficient financial system calls for the efficient performance of institution, financial
instruments and financial markets.
Finance which acts as the lifeblood in the modern business types is one of the most important
consideration for an entrepreneur-company. While Implementing, expanding, diversifying,
modernizing or rehabilitating any project the meaning of finance is better understood. In this section
we have covered finance related information and the process of managing the same.
Finance is a science of managing money and other assets. It is the process of channelization of funds
in the form of invested capital, credits, or loans to those economic agents who are in need of funds
for productive investments or otherwise. E.g. On one hand, the consumers, business firms, and
governments need funds for making their expenditures, pay their debts, or complete other
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2. transactions. On the other hand, savers accumulate funds in the form of savings deposits, pensions,
insurance claims, and savings or loan shares, etc which becomes a source of investment funds. Here,
finance comes to the fore by channeling these savings into proper channels of investment,
In general, finance is that business activity which is concerned with acquisition and Conservation of
capital funds in meeting financial needs and over all objectives of a business entrepreneur.
Finance is the common denominator for a vast range of corporate, projects and the major part of any
corporate plan must be expressed in financial terms”.
The main reasons a business needs finance are to:
• Start a business
• Finance expansions to production capacity
• To develop and market new products
• To enter new markets
• Take-over or acquisition
• Moving to new premises
• To pay for the day to day running of business
MEANING OF WORKING CAPITAL
Working capital refers to the management of current assets.
Working capital refers to that part of total capital which is used for carrying out the routine or
regular business operation. In other words, it is the amount of funds used for financing the day-to
day operation. In short, it is the capital with which the business is worked over.
Thus, the capital invested and locked up in various current assets, such as stocks of raw material,
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3. work in progress, stocks of finished goods account receivable and cash and bank balances constitutes
the working capital.
Working capital may be regarded as life blood of a business. Its effective provision can do much to
ensure the success of a business while its in provision can do much to ensure the success of a
business while its in efficient management can lead not only to loss of profits but also to the ultimate
downfall of what otherwise might be considered as a promising concerns.
> According to shoo-in, “Working Capital is the amount of funds necessary to cover the cost of
operating the enterprise”. Working Capital is also known as Revolving or Circulating Capital.
> According to Genesterberg, “Circulating Capital means current assets of a company that are
changed in the ordinary cause of business from one to another form. Example: From cash to
inventory, inventories to bills receivable and bills receivable to cash.
Concept of working capital
There are five concepts of working capital:-
• Gross Working Capital
• Net Working Capital
• Negative working capital
• Permanent working capital
• Variable working capital
On the basis of the components or items comprised in working capital, working capital can be
classified into the following types:
Gross Working capital: Simply called as working capital, refers to the firms investment in
current assets. Current assets which can be converted in to cash with in the accounting year (or
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4. operating cycle) and includes cash, short term securities, debtors, Bills receivable and stock
(inventory) .
Net Working Capital: Refers to the difference between current assets and current liabilities.
Current liabilities are those claims of outsiders, which are expected to mature for payment with in a
year and include creditors, Bills payable and outsider’s expenses.
Negative working capital or working capital deficit: means the excess of current
liabilities over the current assets. It accurse when the current liabilities exceed the current assets
Permanent working capital or fixed working capital: refer to the minimum amount of
investment in current assets required throughout the year for carrying out the business. In other
words, it is the amount of working capital which remains in the business permanently in one form or
other.
Variable working capital or fluctuating working capital: refer to the amount of
working capital which goes on fluctuating or changing from time to time with the change in the
volume of business activities.
Ratios:
The term ratio simply means one number expressed in terms of another. It describes in mathematical
terms the quantitative relationship that exists between two numbers.
NEED FOR WORKING CAPITAL
Every business undertaking requires funds for two purposes, investments in fixed assets &
investment in current assets.
Funds required for investing in inventory, debtors & other current assets keep changing in shape &
volume. Company has some cash in the beginning; this cash may be the source of raw material,
keeping the labor cost & other overheads. These three combined would generate work in progress,
which will be converted into finished goods on the completion of the production process into debtors
& when the debtor pay, the firm may generate cash. Working capital is needed for sustaining (i.e.,
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5. maintaining) the sales activities. If adequate working capital is not maintain for this period ,the firm
will not be able to sustain or maintain the sales , since it may not be in a position to purchase raw
material and pay wages and other expenses ands produce the goods required for the sales.
NATURE OF WORKING CAPITAL
In ordinary parlance, Working Capital is taken to be the fund available for meeting day-to-day
requirements of enterprises. It cannot be denied that a part of the fixed or permanent capital is
invested in assets, which are kept in the business or for a long period for the purpose of earning
profit. These are usually known as fixed assets viz. Land & buildings, plant & machinery, furniture
& fitting & intangibles like goodwill, patents, trademarks & long-term investment.
Another part of permanent capital left in the business for supporting the day-to-day normal operation
is known as the “Working Capital”. This Working Capital generates the important element of cost
viz. Material, wages & expenses. These cost usually lead to production & sales in case of
manufacturing concerns & sales alone in others. These costs occur gradually in a flow & do not
come into being abruptly at a given moment.
Hence the initial investment of cash as working capital for this specific purpose has to be continued
until the sales revenue commences flowing in substantially & in a regular way. From this stage the
business is found to acquire a momentum of its own. The flow of revenue is expected to continue to
replace the cost lost in its day-to-day out flow for the generation of the revenue mentioned above.
SOURCE OF WORKING CAPITAL
The financial manager is always interested in obtaining the working capital at the right time, at a
reasonable cost and at the best possible favorable terms. A part of the working capital investment are
permanent investments is fixed assets. The following is snapshot of various source of working
capital.
Sources of working capital divided into two
• Long –term
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6. • Short –term
Sources of long term working capital
• Issue of shares
• Floating of debentures
• Ploughing back of profit
• Loans
• Public deposit
Sources of short-term working capital
Internal sources
• Depreciation
• Taxation
• Accured expenses
External sources
• Trade credit
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7. • Credit papers
• Bank credit
• Customer’s credit
• Govt. Assistances
• Loans from director
• Security of employees
WORKING CAPITAL CYCLE:-
The working capital of a concern goes on changing in shape and volume. For Instance, a concern
may have some cash in the beginning. The cash may be used by the concern for the purpose of
purchase of raw material, payment of wages and other expenses’. These elements of cost or items of
expenses, raw material , wages and overheads , will result in work- in-progress during the process of
manufacture. On the in compilation of the production process, the work- in –progress becomes
finished goods
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8. Meaning
The length of time involved in this cycle of conversion of cash into raw material, raw material into
work-in progress, work-in-progress into finished goods, finished goods into debtors and debtors into
cash again is called the operating cycle or working capital cycle of the firm, in other words, it is
period between the date raw material are purchased and the date the sale proceeds of finished goods
are realized by concern.
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9. INTER-DEPENDENCE AMOUNG COMPONENTS OF WORKING CAPITAL
OPERATING CYCLE:
A company starting with cash purchase raw materials, components etc., on a cash or credit basis.
These materials will be converted into finished goods after undergoing various stages of work-in-
process. For this purpose the company has to make payments towards wages, salaries and
manufacturing costs. Payments to suppliers have to be made on purchases in the case of cash
purchases and on the expiry of the credit purchases. Further, the company has to meet other
operating costs such as selling and distribution costs, general administration costs and non-operating
costs described as financial costs (interest on borrowed capital). In case the company sells its
finished goods on cash basis, it will pass through one more stage, viz, accounts receivable and gets
back cash along with profit on expiry of credit period. Once again the cash will be used for the
purchase of materials and / or payments to suppliers and the whole cycle is termed as working
capital or operating cycle repeats itself. This process indicates the dependents of each stage or
components of working capital on its previous stage or component.
WORKING CAPITAL MANAGEMENT
Introduction
Working capital management is one of the most important aspects of financial management. It forms
a major function of the finance manager.
Meaning:
Working capital management means management or administrating of all aspect of working capital,
i.e., currents assets and currents liabilities.
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10. In other words of Smith, “working capital management is concerned with the problems that arise in
attempting to manage the current assets, the current liabilities and the inter-relationship that exists
between them”.
BASIC OBJECTIVE OF WORKING CAPITAL MANAGEMENT:
The basic objective of working capital management is to manage the firm’s working capital (i.e.,
currents assets and currents liabilities) in such a way that a satisfactory level of working capital (i.e.,
neither excessive nor inadequate working capital) is maintained. This is necessary because, if the
working capital is excessive or large, the liquidity position of the firm would, no doubt, improve, but
its profitability would be adversely affected, as funds would remain idle. Conversely, if the working
capital is too small, the, profitability of the firm may improve, but the liquidity position of the firm
would be adversely affected.
Advantages of working capital:
• It helps the business concern in maintaining the goodwill.
• It can arrange loans from banks and others on easy and favorable terms.
• It enables a concern to face business crisis in emergencies such as depression.
• It creates an environment of security, confidence, and over all efficiency in a business.
• It helps in maintaining solvency of the business.
Disadvantages of working capital:
• Rate of return on investments also fall with the shortage of working capital.
• Excess working capital may result into over all inefficiency in organization.
• Excess working capital means idle funds which earn no profits.
• Inadequate working capital can not pay its short term liabilities in time.
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11. OBJECTIVES OF THE STUDY
• To identify the financial strengths & weakness of the company.
• Through the net profit ratio & other profitability ratio, understand the profitability of the
company.
• Evaluating company s performance relating to financial statement analysis.
• To know the liquidity position of the company with the help of current ratio.
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12. • To find out the utility of financial ratio in credit analysis & determining the financial capacity
of the firm.
• Analysis and evaluate working capital management.
• To study the importance of working capital for a concern.
• To suggest measure to increase the efficiency of working capital management of BHEL
Delhi.
• To maintain the adequate working capital every time.
SCOPE OF THE STUDY
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13. The main scope of the study is evaluated, analyze and understand the current asset of management
and to know the influence of components of working capital in the year 2011-12 and 2012-2013.
The study is based on secondary data collected from the Reports and account BHEL Delhi as
published; therefore the quality of the study depends purely upon the accuracy, reliability and quality
of the secondary data source.
The study is based on only one company. Therefore, the accuracy of results is purely based on the
data of sample unit. If one takes sample units of say ten the results may go slightly differently.
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14. IMPORTANCE OF THE STUDY
Working capital management involves the relationship between a firm's short-term assets and its
short-term liabilities. The goal of working capital management is to ensure that a firm is able to
continue its operations and that it has sufficient ability to satisfy both maturing short-term
debt and upcoming operational expenses. The management of working capital involves
managing inventories, accounts receivable and payable, and cash.
Working capital constitutes part of the Crown's investment in a department. Associated with this is
an opportunity cost to the Crown. (Money invested in one area may "cost" opportunities for
investment in other areas.) If a department is operating with more working capital than is necessary,
this over-investment represents an unnecessary cost to the Crown.
From a department's point of view, excess working capital means operating inefficiencies. In
addition, unnecessary working capital increases the amount of the capital charge which departments
are required
There are many aspects of working capital management which make it an important function
of the financial manager
1. TIME: working capital management requires much of the financial manager’s time.
2. INVESTMENT: working capital represents a large portion of the total investments in assets.
3. CRITICALITY: working capital management has great significance for all firms but it is
very critical for small firms.
4. GROWTH: the need for working capital is directly related to the firm’s growth.
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15. COMPANY PROFILE
BHARAT HEAVY ELECTRICAL LIMITED-
BHEL is India's largest engineering company and one of its kinds in this part of the hemisphere. It
manufactures a wide range of state of the art power generation equipment and systems besides
equipment for industry, transmission, defence, telecommunication and oil business. The first plant
of BHEL was set up in Bhopal in 1956, which signaled the dawn of the heavy electrical industry in
India. In the early 60's three more major plants were set up in Hardwar, Hyderabad and
Tiruchirapalli. The company now has 14 manufacturing divisions, 10 services centers and power
sectors regional centers besides project sites spread all over India and also abroad to provide prompt
and effective service to customers.
BHEL's business broadly covers conversions, transmission, utilizations and conservation of energy
in core sectors of economy that fulfill vital infrastructure needs of the country. Its product have
established an enviable reputation of high quality and reliability, which is largely due to emphasizes
placed all along on contemporary some of the best technologies of the world from the leading
companies in U.S.A., EUROPE, and JAPAN together with technologies from its own R&D centers
technologies B.H.E.L. has consistently upgraded its design and manufacturing facilities to
international standards by acquiring and assimilating.
HISTORICAL PROFILE:-
The construction of heavy electrical equipment Plant commenced in Oct.1963after indo-soviet
technical co-operation agreement in Sept.1959 The first product to roll out from the plant was an
electric motor in January 1967.This was followed by first 100 MW Steam Turbine in Dec.1969and
first 100MW Turbo Generator in August 1971.
The plant’s “break even” was achieved in March 1974.BHEL went in for technical collaboration
with M/s Siemens, Germany to undertake design and manufacture to large size thermal sets upto a
unit rating of 1000 MW in the year 1976.First 200 MWTG set was commissioned at Obra in 1977.
The continum of technological advancement subsequently saw the commissioning of 500 MW TG
Set in 1984 .The technical cooperation of Gas Turbine manufacture was also signed with M/s
Siemens Germany. First 150 MW ISO rating gas Turbine was exported to Germany in
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16. Feb”1995”.Our 250 MW thermal set up at Dahanu Plant of BSES made a history by continuous
operation for over 150 days and notching up a record plant load factor greater than 100%.
B.H.E.L A CORPORATE GIANT
Established in the late 50's BHARAT HEAVY ELECTRICALS LIMITED (BHEL) is a name
which is recognized across the industrial world. It is one of the largest engineering and
manufacturing enterprises in INDIA and is one of the leading international companies in the power
field. BHEL offers a wide spectrum of products and services for core sectors like power
transmission, industrial transportation, oil and gas, telecommunication etc. Besides supply of non-
conventional energy systems. It has also embarked into other areas including defence and civil
aviation. A dynamic 63000 strong team embodies the BHEL philosophy excellence through
continuous striving for state of the art technology. With corporate headquarters in NEW DELHI,
fourteen manufacturing units, a wide spread regional services network and projects sites all over
India and even abroad, BHEL is India's industrial ambassador to the world with export presence in
more than 50 countries.
BHEL's range of services extent from project feasibility studies to after sales services, successfully
meeting diverse needs through turnkey capability.
BHEL has had a consistent track record of growth, performance and profitability. The World Bank
in its report on the Indian Public Sectors, has described BHEL as “one of the most efficient
enterprises in the industrial sector, at par with international standards of efficiency". BHEL has
acquired ISO 9000 certificate for most of its operations and has taken up Total Quality Management
(TQM).
All the major units/divisions of BHEL have been upgraded to the latest ISO-9001: 2000 version
quality standard certification for quality management. All the major units/divisions of BHEL have
been awarded ISO-14001 certification for environmental management systems and OHSAS-18001
certification for occupational health and safety management systems.
BHEL occupies an all-important niche as evident by its ranking by CII amongst top eight PSUs
based on financial performance. Recently in survey conducted by business India, BHEL has been
rated as seventh Best Employer in India.
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17. VISION, MISSION AND VALUES
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18. MAJOR MILE STONES
1975 Job Redesign concept launched for FIRST time in India.
1978 well documented Suggestion Scheme launched.
1982 Launched Productivity Movement & Quality Circle. Concept
1993 Accreditation of ISO 9001 quality System.
1995 Adopted EFQM model of TQM for achieving Business Excellence.
1997 BHEL one of the 9 PSE’s declared “Navratna” by Govt. of India.
1997 National Productivity Award for HEEP by the President of India.
1998 Certificate of Merit by National Productivity Council for
Outstanding performance for 2nd
consecutive year.
1998 Accreditation of U stamp.
1999 Accreditation of R Stamp from National Board of Boiler and Pressure Vessel Inspector, USA.
1999 AD-Merkblatt HPO Recertification by RWTUV for Gas Turbine Combustion Chambers
1999 INSAAN Award for Excellence in Suggestion for 9th
consecutive year
1999 Launching of 5s concept
1999 PCRI recognized as Environmental Lab by Haryana State Board for Prevention and Control of
Pollution
1999 Accreditation of ISO 14001-Enviornment management system
2000 CII Site Visit for CII-EXIM Business Excellence Award-2000
2001 Top Management TQM Workshop at Rishikesh and HRDC
2001 INSAAN Award for excellence in Suggestion for 11th
consecutive year
2001 Launching of QTM & RCA at HEEP Hardwar by CMD
2002 Launching of delivery Index, Turnover Index and Manufacturing Index
2002 Accreditation of ISO 9000-2k
2002 JBE Workshop of Apex TQM Group at Tehri to evolve Business policy and CSF
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19. TOTAL QUALITY FOCUS:
To face the increased competition from MNCs (due to liberalization policy of Government) in early
90’s and to enter European market we moved towards ISO 9000 Certification.Concept of Business
Excellence through EFQM Model was launched in entire BHEL on pilot scale in Oct.”1995” In 1997
HEEP launched TQM in the entire Plant and since then Self-Assessment is done every year in
September.Based on feedback Report of Assessment, critical success factors are identified.and TQ
action plans are drawn. The philosophy of ISO 9001, TQM and ISO 14001 has been integrated BHEL
Hardwar for ultimately achieving “BUSINESS EXCELLENCE”. HEEP Hardwar plant is accredited for
ISO 9001 and ISO 14001 and is now on March towards TQM.5-S was launched in March 1999 in a big
way and now it has become a way of life in the organisation. In 2000 HEEP applied for CII-EXIM
Business excellence award and site visit was conducted Bu CII team in Seot.”2000.Cii feedback has
gone a log way in carrying out further improvement plans and giving a structured thrust to TQM
movement.
In July 2001, Unit’s TQ Council reviewed the TQ Action Plans 2001-02 for its effectiveness and
impact on accelerating the pace of improvement and consequent TQ Score. Executive Director laid the
challenge of achieving the TQ score of 650.With an objective to bring awareness about he CII-EXIM
Business Excellence Model amongst the Sr. Executives, the first ‘Top Management TQM Workshop’s
held at Rishikesh during oct.2001Executive Director who is TQ Assessor also, himself steered the
Workshop with assistance from some experienced TQ Assessor of HEEP.It followed by second Top
Management TQM Workshop steered again by Ed was held at HRDC on Oct’29,2001.Subsequantly
the third Top Management TQM Workshop was held in Nov’2001,where-in Sr. Counselor, CII
deliberate the detail on Best practices of TATA STEEL-the winner of ‘CII-EXIM Business Excellence
Award 2000’.Simultaneously ,TQ Assessors training program for the select group of young
managers(to be developed as Think Tanks)was organized in Nov’2001.To give further boost Apex
Group was formed. Apex Group developed “Roadmap to Business Excellence” based on Criteria
Linkage of CII-EXIM Business Model and the initiatives taken at Hardwar was drawn by the group and
it was widely circulated amongst the employees through special issue of Hardwar Current in April
2002.It followed by JBE workshop of Apex TQM Group held at Tehri on June 30 and July 1,02 where-
in following business policy and critical factors was evolved.
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20. BHEL has acquired certifications to Quality Management System ( ISO 9001 ), Environmental
Management System ( ISO 14001 ) and Occupational Health & SAFETY management System
(OHSAS 18001 ) and is also well on its journey towards Total Quality Management.
⇒ BHEL has
• Installed equipment for over 90,000 MW of power generation – for Utilities , Captive and
Industrial users.
• Supplied over 225000 MV. A transformer capacity and other equipment operating in
Transmission & Distribution network up to 400 Kv (AC&DC).
• Supplied over 25000 Motors with Drive Control System to Power projects, Petrochemicals,
Refineries, Steel, Aluminum, Fertilizer, Cement plants, etc.
• Supplied Traction electrics and AC/DC locos to power over 12000 kms Railway network.
• Supplied over one million Valves to Power Plant and other Industries.
BHEL’s operations are organized around three business sectors, namely Power, Industry – including
Transmission, Transportation, Telecommunication & Renewable Energy and Overseas Business.
This enables BHEL to have a strong customer orientation, to be sensitive to his needs and respond
quickly to the changes in the market.
PRODUCT RANGE:
This list is intended as a general guide and does not represent all of BHEL’s product and systems.
⇒THERMAL POWER PLANTS
• Steam turbines and generators of up to 500 MW capacity for utility and combined – cycle
applications; up to 1000 MW unit size.
• Steam turbines for CPP application; capability to manufacture condensing, extraction, back
pressure, injection or any combination of these types.
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21. ⇒ GAS BASED POWER PLANT
• Gas turbine of up to 255MW (ISO) rating.
• Gas turbine based co-generation and combined – cycle systems for industry and utility
applications.
⇒ HYDRO POWER PLANTS
• Custom-built conventional hydro turbines of Kaplan, Francis and Pelton types with matching
generators, pump turbines with matching motor-generators.
• Mini/micro hydro sets.
• Spherical, butterfly and rotary valves and auxiliaries for hydro station.
⇒ DG POWER PLANTS
• USD, LDO, FO, LSUS. natural – gas/biogas based diesel power plants, unit rating up to
20MW and voltage up to 11Kv, for emergency, peaking as well as base load operations on
turnkey basis.
⇒ INDUSTRIAL SETS
• Industrial turbo – sets of rating from 1.5 to 120MW.
• Gas turbines land matching generators ranging from 3 to 255MW (ISO) rating.
• Industrial stream turbines and gas turbines for drive applications.
⇒ BOILERS
• Combination of these fuels: capability to manufacture boilers with super critical parameters
up to 1000 MW unit size.
• Steam generators for industrial applications, ranging from 40 to 450 t/hour capacity using
coal, natural gas, industrial gases, biomass, lignite, oil, biogases or a combination of these
fuels.
• Pulverized fuel fired boilers.
• Stoker boilers.
• Atmospheric fluidized bed combustion boilers.
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22. • Circulating fluidized bed combustion boilers.
• Waste heat recovery boilers.
• Chemical recovery boilers for paper industry, ranging from capacity of 100 to 1000 t/day of
dry solids.
• Pressure vessels.
⇒ BOILER AUXILIARIES
• Fan
• Air-Pre-heater
• Gravimetric Feeders
• Pulverizes
• Pulse Jet and Reverse Air Type Fabric Filters ( Bag Filters )
• Electrostatic Precipitators
• Mechanical Separators
• Soot Blowers
• Valves
⇒ HEAT EXCHANGERS AND PRESSURE VESSELS
• Air – cooled heat exchangers.
• Surface condensers.
• Reactors, drums.
⇒ PUMPS
• Pumps for various applications to suit utilities up to a capacity of 660MW.
• Boiler feed pumps (motor or steam turbine driven).
• Boiler feed booster pumps.
• Emergency oil pumps.
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23. • Lubricating oil pumps.
⇒POWER STATION CONTROL EQUIPMENT
• Microprocessor-based distributed digital control systems.
• Data acquisition systems.
• Man-machine interface.
⇒SWITCHGEARS
• SF6 circuit breakers (132 Kv –400 Kv).
• Vacum circuit breakers (3.3 Kv – 33k Kv).
⇒BUS DUCTS
• Bus – ducts with associated equipment to suit generator power output of utilities of up to 500 MW
capacities.
⇒TRANSFORMERS
• Special transformers: earthing; furnace; rectifier; electrostatic precipitator; freight loco and
ACEMU and traction transformers.
⇒INSULATORS
• High- tension ceramic insulator
⇒CAPACITORS
• Coupling/CVT capacitors for voltages up to 400 Kv.
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24. • Low Tension Thyristor Switched Capacitors (LTTSC) for dynamic power factor correction.
⇒ENERGY METERS
• Single phase, Poly Phase and Special – purpose electro – mechanical and electrical meters.
BUSINESS POLICY
“In-line with Company’s Vision, Mission and values, we dedicate ourselves to sustained growth
with increasing positive Economic Value Addition and Customer focussed business leadership in the
Power and Industry Sector.
CRITICAL SUCCESS FACTORS:
• Increase Orders of Spares/Services to 230 Cr.
• Decrease Capital employed by Rs. 120 Cr.
• Saving in Material Cost by 16 Cr. i.e. 5%- Rs. 4 Cr.
• Decrease in indirect material +miscellaneous expenses by 5%- Rs. 4 Cr.
• Effective implementation of QTM/RCA/CTQ
• Strengthening Internal customer concept
• Development of an Incentive Scheme
• Reward Scheme including EXCEL Awards
• Effective implementation of PMS
• Effective Contract Management
• Technology Upgradation
‘Excellence triangle’ for each Critical Success Factor is now being drawn comprising improvement
projects. These projects will be centrally registered under On-line Central Registration system to be
24

25. developed for it. While CSF Champion will take the total stock of position in the improvement projects
undertaken in his respective CSF, progress of individual projects will be reviewed by Area TQ Council
(ATQC) and Functional TQ Council (FTQC).
One of the major strengths of HEEP Hardwar is its free, open and consistent work culture for making
continuous improvement evident from the participation of employees in Suggestions and Quality
Circles. To recognize their efforts various productivity drives and competition are organized throughout
the year and Executive director awards the winners in the special Award Distribution Functions.
National Award for Excellence in Suggestion Scheme for 11th
consecutive year by INSSAN, National
Award for excellence in Energy Conservation as an “Energy Efficient unit” by CII, CMD’s Rolling
Trophy for 3rd
consecutive year, ‘Well known Forge Shop “ by Central Boiler Board etc. are some Vir
Award 2001” and 12 employees honored with “Vishwakarma Rashtriya Puraskar”during 2001-02.
The journey to excellence is unending .It is a continuous search with commitment and belongings. Sky
indeed is not the limit for perfection. The transition has strongly experienced a silent internalization
with a blend of commitment of the existing human resource for creating benchmarks for excellence.
The emergence of role models and clear-cut driving force at the top provide an anvil to unleash the
potential, which remain unexplored in search of “Attitude to perform”. The surge has started and is
being communicated down the. BHEL today through TQM is on March towards excellence.
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26. LITERATURE REVIEW
Miss. Mohanapriya, M.B.A, in her research on “Working capital management of Tanjore co-
operative milk supply society Ltd.” Which is the partial fulfillment of the requirements for the
award of her degree submitted to Bharathidasan University, in the year November – 2012. Outlined
the following objectives and findings.
Her Objectives were:
 Know the project of Co-operative milk supply society.
 Analysis the short term liquidity position of the study unit during the period 2010-2011 to
2011-2012.
 Analysis and evaluate working capital management.
Her Findings were:
 The size of current assets has increased during the study period.
 During the study period the working capital turnover ratio were 210.51;
 194.60; 45.44 and 11.86 times respectively the higher ratios in the 2 year 2010-2011 and
2011-2012 indicates sufficient amount of working capital and effective utilizations of
working capital.
 The cash turnover ratio is to be increasing times.
Miss. Abiramisundhari, in her research on “Working capital management of TSRM Limited
Trichy”. Which is the partial fulfillment of the requirements for the award of her M.Com degree
submitted to Bharathidasan University, in the year November – 2012. Outlined the following
objectives and findings.
Her Objectives were:
 To study the importance of W/c management for a concern.
 To assess the proportion of the components of W/c of TSRM Ltd, Trichy.
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27.  To suggest measures to increases the efficiency of W/c management of TSRM Ltd,
Trichy.
Her Findings were:
 The company has been taken for sufficient care for the maintenance of adequate
accounting period.
 The proportion of net W/c to total assets showed on increasing trend through out the
five years.
 The overall performance of receivables management showed a satisfactory position
throughout the past 5 years.
Mr. Kamaraj, M, Phil, in his research on “Working capital management of Dalmia Cement
Limited Trichy”. Which is the partial fulfillment of the requirements for the award of her degree
submitted to Bharathidasan University, in the year November – 2012. Outlined the following
objectives and findings.
His Objectives were:
 To know the Financial Performance of Dalmia Cement.
 To examine the practice follow into Management of cash.
 To know the techniques of Inventory Management in D.C.B.C.
His Findings were:
 Raw Material Consumption over the study period in terms of quantity and value has showed
an incise trend.
 Operating ratio is considered to be yardstick of operating efficiently of the concern.
 The concern has show dormant and fast moving inventories during the 5 years a study period.
 Performance of the co should be judged on the basis of return on equity capital. It is
satisfactory positive
27

28. Mr. Kushagra Dabur, in his research on “Working capital management of Kotak Mahindra Life
Insurance Company”. Which is the partial fulfillment of the requirements for the award of her
degree submitted to Amity University, Uttar Pradesh, in the year February – 2012. Outlined the
following objectives and findings:
His Objectives were: s
 To meet the cash disbursement needs (payment schedule);
 To minimize funds committed to cash balances.
 The present study is limited to one Co., i.e. Kotak Mahindra Life Insurance, and covers a
period from 2011 and 2012 due to limitation of time and accessibility to data base.
The authenticity of the suggestions and recommendations depend upon the rationality of the
data provided to me.
His Findings were:
 The relative growth rate of short term trade credit and value industrial production.
 The relative growth rates of short term trade credit & inventories with industry & trade.
 The diversion of short-term credit for fixed asset acquisition & for lower and Investments.
 The incidence or multiple financing,
 The elongation of credit period.
28

29. RESEARCH METHOLOGY
General Methodology
The study was carried on an explorative basis using accounting and financial data.
The procedures followed in this study consist of following steps:
1) The research includes figurative and diagrammatic interpretation for the ease of comparison.
2) Understanding of aluminium industry in global and domestic scenario.
3) Determining the demand and supply in near future to understand the future prospect of the
industry.
4) Analysis of Government Policy toward aluminium industry.
5) Evaluating BHEL, HARIDWAR’S position in aluminium industry.
Research Methodology
• Research methodology that is used here was purely exploratory because we know it is used
when one is seeking insight in to the general nature of the problem possible decision
alternatives and relevant variables that need to be considered.
• This resistance also help full / use full for establishing priorities among research questions
and for learning about practical problems of carrying out the research.
29

30. ANALYSIS 0F DATA COLLECTED (PRESENTATION AND
INTERPRETATION)
Data source
Data collection was through literature survey and expert opinion. Literature survey includes the
collection of data from various sources like bank agreement and statement, handbooks as well as
study material.
A part of data` s was collected from primary data and other was collected from the secondary data.
Primary sources
Information gathered by interview and discussions with the head and employees of various
departments and my project guide.
Secondary sources
• Company annual report.
• Published information on finance.
• Internal circulation booklets.
• Company Websites
DATA ANALYSIS AND INTERPRETATION
30

31. Ratio Analysis is a powerful tool o financial analysis. Alexander Hall first presented it in 1991 in
Federal Reserve Bulletin. Ratio Analysis is a process of comparison of one figure against other,
which makes a ratio and the appraisal of the ratios of the ratios to make proper analysis about the
strengths and weakness of the firm’s operations. The term ratio refers to the numerical or
quantitative relationship between two accounting figures. Ratio analysis of financial statements
stands for the process of determining and presenting the relationship of items and group of items in
the statements.
Ratio analysis can be used both in trend analysis and static analysis. A creditor would like to know
the ability of the company, to meet its current obligation and therefore would think of current and
liquidity ratio and trend of receivable.
Major tool of financial are thus ratio analysis and Funds Flow analysis. Financial analysis is the
process of identifying the financial strength and weakness of the firm by properly establishing
relationship between the items of the balance sheet and the profit account
The financial analyst may use ratio in two ways. First he may compare a present ratio with the ratio
of the past few years and project ratio of the next year or so. This will indicate the trend in relation
that particular financial aspect of the enterprise. Another method of using ratios for financial analysis
is to compare a financial ratio for the company with for industry as a whole, or for other, the firm’s
ability to meet its current obligation. It measures the firm’s liquidity. The greater the ratio, the
greater the firms liquidity and vice-versa.
A ratio can be defined as a numerical relationship between two numbers expressed in terms of (a)
proportion (b) rate (c) percentage. It is also define as a financial tool to determine an interpret
numerical relationship based on financial statement yardstick that provides a measure of relationship
between two variable or figures.
Meaning and Importance:
Ratio analysis is concerned to be one of the important financial tools for appraisal of financial
condition, efficiency and profitability of business. Here ratio analysis id useful from following
objects.
31

32. 1. Short term and long term planning
2. Measurement and evaluation of financial performance
3. Stud of financial trends
4. Decision making for investment and operations
5. Diagnosis of financial ills
6. Providing valuable insight into firms financial position or picture
ADVANTAGES & DISADVANTAGES OF RATIO ANALYSIS:
Advantages:
The following are the main advantages derived of ratio analysis, which are obtained from the
financial statement via Profit & Loss Account and Balance Sheet.
a) The analysis helps to grasp the relationship between various items in the financial statements.
b) They are useful in pointing out the trends in important items and thus help the management to
forecast
c) With the help of ratios, inter firm comparison made to evolve future market strategies.
d) Out of ratio analysis standard ratios are computed and comparison of actual with standards reveals
the variances. This helps the management to take corrective action.
e) The communication of that has happened between two accounting the dates are revealed effective
Action.
f) Simple assessments of liquidity, solvency profitability efficiency of the firm are indicted by ratio
analysis. Ratios meet comparisons much more valid.
32

33. Disadvantages:
Ratio analysis is to calculate and easy to understand and such statistical calculation stimulation
thinking and develop understanding. But there are certain drawbacks and dangers they are.
i) There is a trendy to use to ratio analysis profusely.
ii) Accumulation of mass data obscured rather than clarifies relationship.
iii) Wrong relationship and calculation can lead to wrong conclusion.
1. In case of inter firm comparison no two firm are similar in size, age and product unit.(for
example) one firm may purchase the asset at lower price with a higher return and another firm
witch purchase the asset at asset at higher price will have a lower return)
2. Both the inter period and inter firm comparison are affected by price level changes. A change in
price level can affect the validity of ratios calculated for different time period.
3. Unless varies terms like group profit, operating profit, net profit, current asset, current liability
etc., are properly define, comparison between two variables become meaningless.
4. Ratios are simple to understand and easy to calculate. The analyst should not take decision
should not take decision on a single ratio. He has to take several ratios into consideration.
STANDARDS OF COMPARISION:
1. Ratios calculated from the past financial statements of the same firm.
2. Ratio developed using the projected or performs financial statement of the same firm
3. Ratios of some selected firm especially the most progressive and successful, at the same point of
time.
4. Ratios of the industry to which the firm belongs.
IMPORTANCE OF RATIO ANALYSIS
33

34. In the preceding discussion in the form, we have illustrated the compulsion and implication of
important ratios that can be calculated from the Balance Sheet and Profit & Loss account of a firm.
As a tool of financial management, they are of crucial significance. The importance of ratio analysis
lies in the fact and enables the drawing of inferences regarding the performance of a firm. Ration
analysis is a relevant in assessing the performance of a firm in respect of the following aspect.
CAUTION IN USING RATIOS:
1. It is difficult to decide on the proper bases of comparison.
2. The comparison rendered difficult because of difference in situation of two companies or of one-
company for different years.
3. The price level change makes the interpretation of ratios invalid
4. The difference in the definition of items in the balance sheet and Profit & Loss statement make the
interpretation of ratios difficult.
5. The ratios calculated at a point of time are less informative and defective as they suffer from sort
term changes.
6. The ratios are generally calculated from the past financial statement and thus are no indicators of
future.
CURRENT RATIO: The relationship of current assets to current liabilities is known as current
ratio. It is also known as banker’s ratio or working capital ratio.
1. CURRENT RATIO
It is relationship between firm’s current assets and current liability.
34

35. Current assets
Current ratio = _______________________________
Current liability
TABLE – 1
STATEMENT SHOWING CURRENT RATIO
Rs in lakhs
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
The current ratio is a test of the short term solvency of the business enterprise since this ratio
assumes current assets could be converted into cash to meet current liabilities.
It is often accepted that current assets should be 2times the current liabilities.
Current ratio during the year 2008-2009 was 1.58 and it’s come down in 1.46 at 2009-2010 and its
again decreased 2010-2011 and 2011-2012 and it’s slightly increased in 1.32 at 2012-2013. The
standard norm for this ratio is 2:1 required.
BHEL should maintain sufficient amount of current assets in order to maintain the standard form of
current ratio.
35
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
CURRENT
ASSETS
1633078 2106400 2770400 3690107 4293481
CURRENT
LIABILITIES
1032002 1442000 2002230 2833290 3244172
CURRENT
RATIO
1.58 1.46 1.38 1.30 1.32

36. CHART – 1
CURRENT RATIO
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2008-
2009
2009-
2010
2010-
2011
201-
2012
2012-
2013
YEARS
PERCENTAGE
current ratio
36

37. QUICK RATIO: It establishes the relationship of a company’s current assets that can be quickly
converted into cash and its current liabilities.
1. QUICK RATIO
It is relationship between liquid assets and current liabilities.
Liquid assets
Quick ratio = _________________________
Liquid Liabilities
TABLE –2
STATEMENT SHOWING QUICK RATIO
Rs in lakhs
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
37
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
LIQUID
ASSETS
1258640 1684600 2216978 2906405 3369935
LIQUID
LIABILITIES
1032002 1442000 2002230 2833290 3244172
LIQUID RATIO 1.22 1.17 1.10 1.03 1.04

38. It is in fact the measure of the “Instant” debt paying ability of the business enterprise.
The quick ratio in the year 2008-2009 was 1.22 and its decreased 0.04% at 2009and 2010 (1.17) and
in 2010-11 get decreased 0.06% (1.10) and 2011-12 get decreased 0.063% (1.03) and its get increase
in slightly on2012-13 at 0.001%(1.04). The standard norm for this ratio is 1:1, means for every 1
rupee of current liability, company must have 1 rupee of quick assets.
CHART –2
LIQUID RATIO
38

39. CASH MANAGEMENT
Introduction:
Cash management is one of the key areas of working capital management. Cash is the liquid current
asset. The main duty of the finance manager is to provide adequate cash to all segments of the
organization. The important reason for maintaining cash balances is the transaction motive. A firm
enters into variety of transactions to accomplish its objectives which have to be paid for in the form
of cash.
Meaning of cash:
The term “cash” with reference to cash management used in two senses. In a narrower sense it
includes coins, currency notes, cheques, bank drafts held by a firm. n a broader sense it also includes
“near-cash assets” such as marketable securities and time deposits with banks.
Objectives of cash management:
There are two basic objectives of cash management. They are-
 To meet the cash disbursement needs as per the payment schedule.
 To minimize the amount locked up as cash balances.
39

40. Basic problems in Cash Management:
Cash management involves the following four basic problems.
 Controlling level of cash
 Controlling inflows of cash
 Controlling outflows of cash and
 Optimum investment of surplus cash.
 Determining safety level for cash:
The finance manager has to take into account the minimum cash balance that the firm must keep to
avoid risk or cost of running out of funds. Such minimum level may be termed as “safety level of
cash”. The finance manager determines the safety level of cash separately both for normal periods
and peak periods. Under both cases he decides about two basic factors. They are-
Desired days of cash:
It means the number of days for which cash balance should be sufficient to cover payments.
Average daily cash flows:
This means average amount of disbursements which will have to be made daily.
Criteria for investment of surplus cash:
In most of the companies there are usually no formal written instructions for investing the surplus
cash. It is left to the discretion and judgment of the finance manager. While exercising such
judgment, he usually takes into consideration the following factors-
Security:
This can be ensured by investing money in securities whose price remains more or less
40

41. Stable.
Liquidity:
This can be ensured by investing money in short term securities including short term fixed
Deposits with banks.
Yield:
Most corporate managers give less emphasis to yield as compared to security and liquidity of
Investment. So they prefer short term government securities for investing surplus cash.
Maturity:
It will be advisable to select securities according to their maturities so the finance manager can
maximize the yield as well as maintain the liquidity of investments.
Cash Management in BHEL:
The cash management is carried out in seaways by CTM (Corporate Treasury Management). CTM is
a commonly followed procedure in most of the companies.
Now we see the cash ratio / quick ratio in bhel
1. CASH RATIO
It is relationship between cash and current liabilities.
Cash
Cash ratio = _______________________
Current liabilities
41

42. STATEMENT SHOWING CASH RATIO
TABLE – 3
Rs in lakhs
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
CASH 413398 580900 838600 1031467 979008
CURRENT
LIABILITIES
1032002 1442000 2002230 2833290 3244172
CASH RATIO 0.40 0.40 0.42 0.36 0.30
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
The Cash ratio of BHEL in the 2008-2009 was fluctuation in 2012-13 it was 0.30 times and in
2008-2009 it was 0.40 times and 2010-11 it was reduced to 0.42.
The standard norms of absolute quick ratio are 0.5:1. From the above table the firms not maintain the
sufficient level of quick assets because of the day-to-day expenses .It is fluctuating between the
standard norms for this ratio is 1:2 means for every 2 rupees of current Liabilities, Company must
have 1 rupee of cash and bank balance and marketable securities.
42

43. CHART-3
CASH RATIO
43

44. RECEIVABLES MANAGEMENT
Introduction:
Receivables constitute a significant portion of the total assets of the business. When a firm
seller goods or services on credit, the payments are postponed to future dates and receivables are
created. If they sell for cash no receivables created.
Meaning:
Receivable are asset accounts representing amounts owed to the firm as a result of sale of goods or
services in the ordinary course of business.
Purpose of receivables:
Accounts receivables are created because of credit sales. The purpose of receivables is directly
connected with the objectives of making credit sales. The objectives of credit sales are as follows-
• Achieving growth in sales.
• Increasing profits.
• Meeting competition.
Factors affecting the size of Receivables:
The main factors that affect the size of the receivables are-
• Level of sales.
• Credit period.
44

45. • Cash discount.
Costs of maintaining receivables:
The costs with respect to maintenance of receivables are as follows-
Capital costs:
This is because there is a time lag between the sale of goods to customers and the payment by them.
The firm has, therefore to arrange for additional funds to meet its obligations.
Administrative costs:
Firm incur this cost for manufacturing accounts receivables in the form of salaries to the staff kept
for maintaining accounting records relating to customers.
Collection costs:
The firm has to incur costs for collecting the payments from its credit customers.
Defaulting costs:
The firm may not able to recover the over dues because of the inability of customers. Such debts
treated as bad debts.
Receivables management:
Receivables are direct result of credit sale. The main objective of receivables management is to
promote sales and profits until that point is reached where the ROI in further funding of receivables
is less than the cost of funds raised to finance that additional credit (i.e.; cost of capital). Increase in
receivables also increases chances of bad debts. Thus, creation of receivables is beneficial as well as
dangerous. Finally management of accounts receivable means as the process of making decisions
relating to investment of funds in this asset which result in maximizing the overall return on the
investment of the firm.
Receivables management and Ratio Analysis:
45

46. Ratio Analysis is one of the important techniques that can be used to check the efficiency with which
receivables management is being managed by a firm. The most important ratios for receivables
management are as follows-
DEBTORS TURNOVER RATIO: -
Debtors constitute an important constituent of current assets and therefore the quality of the debtors
to a great extent determines a firm’s liquidity. It shows how quickly receivables or debtors are
converted into cash. In other words, the DTR is a test of the liquidity of the debtors of a firm. The
liquidity of firm’s receivables can be examined in two ways they are DTR and Average Collection
Period.
It indicates the number time debtors turned over each year. Generally the higher value of debtor’s
turnover shows high efficiency to manage the credit management.
Total sales
Debtors turnover ratio = ______________________________
Debtors
46

47. TABLE –4
STATEMENT SHOWING DEBTORS TURNOVER RATIO
Rs in lakhs
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
Debtors constitute an important constituent of current assets and therefore the quality of the debtors
to a great extent determines a firm’s liquidity. It shows how quickly receivables or debtors are
converted into cash. In other words, the DTR is a test of the liquidity of the debtors of a firm. The
liquidity of firm’s receivables can be examined in two ways they are DTR and Average Collection
Period. .The higher the ratio, the better it is, since it would indicate that debts are being collected
promptly.
In the year 2012-13 the debt is 1.59 comparing to the previous year came downwards.
CHART4
47
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
TOTAL SALES 1337403 1723753 1930464 2621233 3286144
DEBTORS 716806 969582 1197487 1597550 2068875
DEBTOR
TURNOVER
RATIO
1.87 1.78 1.61 1.64 1.59

48. 1.4
1.6
1.8
2
PERCENTAGE
2008-
2009
2009-
2010
2010-
2011
2011-
2012
2012-
2013
DEBTORS
YEARS
DEBT COLLECTION PERIOD
Debtor’s collection period is nothing but the period required to collect the money from the customers
after the credit sales. A speed collection reduces the length of operating cycle and vice versa. The
more quickly the customers pay, the less risk from bad debts, the lower the expenses of collection
and more liquid the nature of of this asset.
It indicates the speed with which debts are collected.
Days/months in a year
Debt collection period = _______________________________
Debtor’s turnover ratio
48

49. TABLE – 5 DEBT COLLECTION PERIODS Rs in lakhs
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
The debt collection period of BHEL in the 2008-2009 was 195 days and in goes to 2012-2013 it was
increased in (0.18%) 230 days. Standard Debt Collection Period of a firm is less than 90 days. But,
above tables consists of increased of DCP in rapidly.
49
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
DAYS 365 365 365 365 365
DEBT
TURNOVER
RATIO
1.87 1.78 1.61 1.64 1.59
DEBT
COLLECTION
PERIOD
195 205 227 223 230

50. 160
180
200
220
240
No. of Days
2008-
2009
2010-
2011
2012-
2013
DTCP
YEARS
DTCP
CREDITORS TURNOVER RATIO
The ratio shows on an average the number of times creditors turned over during the year.
Credit purchase
Creditors turnover ratio = ________________________
Average creditors
50

51. TABLE – 6 CREDITORS TURNOVER RATIO
Rs in lakhs
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
The Creditors turnover ratio of BHEL was fluctuating during the year 2008-2013. It was upward
in (2011-2012) was 3.01 times and it was downward in 2012-13 is 2.73 times. Greater the CTR the
more time firm has to pay to their creditors.
CHART -6
51
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
CREDIT
PURCHASE
709940 1018186 1182087 1762005 2067232
SUPPLIERS /
CREDITORS
280409 353895 442400 585285 757980
CREDITORS
TURNOVER
RATIO
2.53 2.88 2.67 3.01 2.73

52. CASH TO CURRENT ASSETS RATIO
Description: The cash to current assets ratio is useful for determining the proportion of
cash within the current assets category. This is the most conservative way to measure
a company's liquidity because it ignores the liquidation value of accounts receivable
and inventory. It is most useful for determining the ability of a company to pay off
liabilities in the extremely short term.
Formula: Add together cash and short-term marketable securities, and divide by
current assets. Current assets include cash, short-term marketable securities, accounts
receivable, and inventory.
The formula is:=
Cash + short term marketable securities
Current asset
52

53. TABLE –7
CASH TO CURRENT ASSETS RATIO Rs in lakhs
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
The Cash to current assets turnover ratio of BHEL was fluctuating during the year 2008-2013. It was
upward in (2008-2010) was 0.25 times to 0.30 times and it was downward in 2010-13 is 0.23 times.
CHART -7
CASH TO CURRENT ASSETS RATIO
0
0.05
0.1
0.15
0.2
0.25
0.3
PERCENTAGE
2008-
2009
2009-
2010
2010-
2011
2011-
2012
2012-
2013
YEARS
CASH TO CURRENT ASSETS RATIO
C.C.A.R
53
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
CASH 413398 580900 838600 1031467 979008
CURRENT
ASSETS
1633078 2106400 2770400 3690107 4293481
CASH TO
CURRENT
ASSETS RATIO
0.25 0.27 0.30 0.28 0.23

54. CASH TURNOVER RATIO
The cash turnover ratio equals the sales revenue generated during a year divided by the average cash
and cash equivalents during the same year. Cash equivalents are short-term investments, such as
Treasury bills, that can be quickly converted to cash. The average cash and cash equivalents balance
equals the amount at the beginning of the year plus the amount at the end of the year, divided by
two.
Indicates a firm's efficiency in its use of cash for generation of sales revenue. It is the inverse of
cash-to-sales ratio.
Formula:
Sales revenue (at the end of a period) ÷ average cash balance (in the same period).
54

55. TABLE –8 CASH TURNOVER RATIO
Rs in lakhs
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
SALES 1337403 1723753 1930464 2621233 3286144
CASH 413398 580891 838602 1031467 979008
CASH
TURNOVER
RATIO
3.24 2.97 2.31 2.54 3.36
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
The cash turnover ratio in the years 2008-2013 it was on fluctuating ratios, in the year 2012-2013 it
was increased (0.037%) 3.36.
0
0.5
1
1.5
2
2.5
3
3.5
PERCENTAGE
2008-
2009
2009-
29010
2010-
2011
2011-
2012
2012-13
YEARS
CASH TURNOVER RATIO
C.T.R
INVENTORY MANAGEMENT
55

56. Introduction:
Inventories are stock of the product a company is manufacturing for sale and components. That
makeup the products. The various forms in which inventories exist in a manufacturing company are:
Raw-materials, work-in-process, finished goods.
• Raw-Materials: - Are those basic inputs that are converted into finished products through the
manufacturing process. Raw-materials inventories are those units, which have been
purchased and stored for future production.
• Work-In-Process inventories are semi-manufactured products. The represent products that
need more work before they become finished products for sale.
• Finished Goods inventories are those completely manufactured products, which are ready
for sale. Stocks of raw-materials and work-in-process facilitate production which stock of
finished goods is required for smooth marketing operations. These inventories serve as a link
between production and consumption of goods.
• Stores and spares are also maintained by some firms. This includes office and plant cleaning
materials like soaps, brooms, oil, fuel, light, bulbs etc. These materials do not directly enter
in production. But are necessary for production process.
Need to holding inventory
The question of managing inventories arises only when the company holds inventories. Maintaining
inventories involves tying up of the company's funds and incurrence of storage and handling cost. It
is expensive to maintain inventories, why does company hold inventories? There are three general
motives for holding inventories.
1. Transaction Motive: - Emphasizes the need to maintain inventories to facilitate smooth
production and sales operations.
56

57. 2. Precautionary motive: - Necessitates holding of inventories to guard against the risk of
unpredictable changes in demand and supply forces and other factors.
3. Speculative motive: - Influences the decision to increase or reduce inventory levels to
take advantages of price influences.
A company should maintain adequate stock of materials for a continuous supply to the factory for
the uninterrupted production. It is not possible for a company to procure raw materials whenever it is
needed. A time lag exists between demand for materials and its supply. Also there exists uncertainty
in procuring raw materials in time on many occasions. The procurement of materials may be delayed
because of such factors as strike, transport disruption or short supply. Therefore, the firm should
maintain sufficient stock of raw materials at a given time to stream line production.
Objective of Inventory Management
In the context of inventory management the firm is faced with the problem of meeting two
conflicting needs;
• To maintain a large size of inventory for sufficient and smooth production and sales
operations.
• To maintain a minimum investment in inventories to maximize profitability.
Both excessive and inadequate inventories are not desirable. These are two dangerous points within
which the firm should operate. The objective of inventory management should be to determine and
maintain optimum level of inventory investment. The optimum level of inventory will lie between
the two danger points of excessive and inadequate inventories.
The firm should always avoid a situation of over investment or under investment in inventories. The
major dangerous of over investment are,
• Unnecessary tie-up of the firms funds losses of profit
• Excessive carrying cost
57

58. • Risk of quality
The aim of inventory management thus should be to avoid excessive and inadequate levels of
inventories and to maintain sufficient inventory for smooth production and sales operations. Efforts
should be made to place an order at the right time with the right source to acquire the right quantity
at the right price and quality. An effective inventory management should
• Ensure a continuous supply of raw materials to facilitate uninterrupted production.
• Maintain sufficient stock of raw materials in periods of short supply and anticipate
price changes.
• Maintain sufficient finished goods inventory for smooth sales operations and efficient
customer service.
• Minimize the carrying cost and time.
• Control investment in inventories and keep it at an optimum level.
Inventory management techniques:
In managing inventories the firm objective should be in consonance with the shareholders' wealth
maximization principle. To achieve this firm should determine the optimum level of inventory.
Efficiently controlled inventories make the firm flexible. Inefficient inventory control results in
unbalanced inventory and inflexibility-the firm ma sometimes run out of stock and sometimes may
pileup unnecessary stocks. This increases level of investment and makes the firm unprofitable.
To manage inventories efficiency, answers should be sought to the following two questions.
1) How much should be ordered?
58

59. 2) When should it be ordered?
The first question how much to order, relates to the problem of determining economic order quantity
(EOQ), and is answered with an analysis of costs of manufacturing certain level of inventories. The
second question when to order arise because of determining the reorder point.
When the order is placed for raw material certain raw material is in transit, such raw material is
called as raw material in transit.
Example –Raw material on overseas.
The raw material can be transfer from unit to another unit or from one department to another is
called transfer-in –transit. It is nothing but to the transfer of raw material among the inter firm units
of BHEL.
The raw material, which is production process, is called work-in process. The work in process
becomes finished goods inventory. The finished should not be kept for a longer time. They should be
sold off to clear off the entire inventory. However, finished goods inventory is not there for BHEL,
since production is mainly done on customer order and specifications. The raw material is purchased
and the whole process is repeated again which we call it as inventory cycle.
Inventory turnover Ratio:-
Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. It
is calculated by dividing the cost of goods sold by the average inventory. The average inventory is
the average of open and closing balance of inventory.
59

60. INVENTORY TURNOVER RATIO
It indicates the inventories turning into receivables through sales.
Sales
Inventory turnover ratio =__________________________
Inventory
60

61. TABLE9 INVENTORYTURNOVER RATIO
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORT
INTERPRETATION
This ratio indicates the liquidity of the inventory, that is, how quickly, on the average; the inventory
was sold during the year and consequently the significance of the inventory for the debt paying
purposes.
A high stock turnover ratio is generally considered desirable because it is indicative of efficient
performance since an improvement in the ratio shows hat volume of sales has been either maintained
or increased without additional investment in stock.
Inventory turnover of BHEL for 2009-2010 was 4.09. In 2010-2011 the inventory turnover ratio was
high up to 3.37 and it was high in 2012-13 at 3.56.
61
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
SALES 1337403 1723753 1930464 2621233 3286144
INVENTORY 374437 421767 573640 783702 923546
INVENTORYTU
RNOVER RATIO
3.57 4.09 3.37 3.34 3.56

62. CHART –9
INVENTORY TURNOVER RATIO
62

63. INVENTORY HOLDING PERIOD
The formula to calculate days in inventory is the number of days in the period
divided by the inventory turnover ratio. This formula is used to determine how
quickly a company is converting their inventory into sales. A slower turnaround on
sales may be a warning sign that there are problems internally, such as brand image
or the product, or externally, such as an industry downturn or the overall economy.
The numerator of the days in inventory formula is shown at the top of this page as
365 to denote 365 days in a year. However, it is important to match the period in the
numerator with the period for the inventory turnover used. For example, suppose
that a company is calculating the days in inventory held based on a inventory
turnover of 4.32 for one year. This can be divided into 365 days of the year for an
average days in inventory of 84.49. If the same company has an inventory turnover
of 2.31 for 180 days, the average days in inventory would be 77.92.
63

64. TABLE –10
INVENTORY HOLDING PERIOD
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
Inventory holding period of Bhel is varying on every year. In the year of 2008-2009
to 2010-2011 it’s increased in 0.06% (102 to 108) and 2012-13 it’s decreased by
0.047 %.
CHART –9
64
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
DAYS / MONTH
IN YEAR
365 365 365 365 365
INVENTORY
TURNOVER
RATIO
3.57 4.09 3.37 3.34 3.56
INVENTORYH
OLDING
PERIOD
102 89 108 109 103

65. Working Capital Turnover Ratio Formula:
Following formula is used to calculate working capital turnover ratio
Working Capital Turnover Ratio = Cost of Sales / Net Working Capital
The two components of the ratio are cost of sales and the net working capital. If the
information about cost of sales is not available the figure of sales may be taken as
the numerator. Net working capital is found by deduction from the total of the
current assets the total of the current liabilities.
65

66. TABLE-11 WORKING CAPITAL TURNOVER RATIO
Rs in
lakhs
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
SALES 1337403 1723753 1930464 2621233 3286144
NET
WORKING
CAPITAL
601076 664286 788388 856817 1049309
WORKING
CAPITAL
TURNOVER
RATIO
2.23 2.59 2.45 3.06 3.13
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
Working capital turnover ratio for the year 2012-13 was 3.13 times. It is higher
when comparing the past four years. The working capital management has to
improve by more concentration on collection strategies.
CHART-11 WORKING CAPITAL TURNOVER RATIO
0
0.5
1
1.5
2
2.5
3
3.5
PERCENTAGE
2008-
2009
2009-
2010
2010-
2011
2011-
2012
2012-
2013
YEARS
WCTR
66

67. TABLE –12 WORKING CAPITAL FOR TREND ANALYSIS
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
In this current asset is increasing during the period of study. Current liability is also
increased during the period of study. And working capital is also increasing..
CHART – 12
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
4500000
5000000
2008-
2009
2009-
2010
2010-
2011
2011-
2012
2012-
2013
YEARS
VALUES
CA
CL
WC
67
YEAR 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
CURRENT
ASSETS
1633078 2106297 2770472 3690107 4293481
CURRENT
LIABILITIES
1032002 1442011 1982084 2833290 3244172
WORKING
CAPITAL 601076 664286 788388 856817 1049309

68. TABLE –13 ANALYSES OF VARIOUS COMPONENTS IN WORKING
CAPITAL
Rs
in lakhs
CURRENT ASSETS
SOURCE: SECONDARY DATA
INTERPRETATION
In this period 2008-2013 Sundry debtors and other current assets was only
maintained in stable for the period of study. Bhel must be extra care about cash and
bank balance in future. In the period of 2010-2013 inventory ratios are increased.
All about Bhel should be very care and must maintain in adequate current assets in
future.
68
Particulars
2008-2009 2009-2010 2010-2011 2011-2012 2012-
2013
Inventories 22.93
43.90
25.30
0.52
7.35
20.03
46.03
27.58
0.95
5.41
20.71
43.22
30.27
1.52
4.28
21.24
43.29
27.95
0.95
6.57
21.52
48.18
22.80
0.95
6.55
Sundry debtors
C& B balance
Other assets
Loans and advances
Total 100 100 100 100 100

69. CHART – 13
GRAPH 13 .1 INVENTORY
GRAPH 13 .2 SUNDRY DEBTORS
69

70. 40
41
42
43
44
45
46
47
48
49
PERCENTAGE
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
YEARS
70

71. GRAPH 13 .3 OTHER CURRENT ASSETS
0
0.5
1
1.5
2
PERCENTAGE
2008-
2009
2009-
2010
2010-
2011
2011-
2012
2012-
2013
O.C.A
YEARS
GRAPH 13 .4 LOANS AND ADVANCES
71

72. GROSS PROFIT RATIO:
Gross profit margin shows the company can return income at the gross level. This ratio
helps to control inventory usage and production performance and fixing unit price of
goods.
Gross profit ratio =
Gross profit × 100
Net sales
72

73. TABLE – 14 ANALYSIS OF GROSS PROFIT RATIO
Rs in lakhs
Particulars 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Gross Profit /Profit
before tax
256435 373607 443039 484885 659065
Total Sales 1337403 1723753 1930464 2621233 3286144
Gross Profit ratio 0.192 0.217 0.230 0.185 0.201
GRAPH 14 - GROSS PROFIT RATIOS
2008-2009
19%
2009-2010
21%
2010-2011
22%
2011-2012
18%
2012-2013
20%
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
In the analysis of Gross profit ratio Bhel must control production expenses in future.
Comparison of 2010-2011 to 2012-2013 margin profit ratio will goes down in 2 %. Firm
will be control in production cost in next coming years, such as raw material, freight and
transport expenses. Otherwise, Bhel must increase in sales unit price.
NET PROFIT RATIO:
73

74. As every business is to earn profit, this ratio is very important because it measures the
profitability of sales. A business may yield high gross income but low net income
because of increasing operating and non-operating expenses. This situation can easily be
detected by calculating this ratio.
The profits used for this purpose may be profits after/before tax. To obtain this ratio, the
figure of net profits after tax is divided by the figure of net profits after tax is divided by
the figure of sales the ratio is also known as sales margin as we can ascertain with its help
the margin which the sales leave later deducting all the expenses. The unit of expression
is percentage, as is the case with profitability ratios.
Net profit ratio =
Net profit × 100
Net sales
TABLE – 15 ANALYSIS OF NET PROFIT RATIO Rs. In lakhs
74

75. GRAPH 15 NET PROFIT RATIOS
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
YEARS
%
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
In this period of research of study Net profit of the Bhel company goes downwards from
2011-2013 comparing previous year achievements.
Gross Profit to Net Profit Ratio:
75
Particulars 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Net Profit /
Profit after tax
167916 241470 285934 313821 431064
Net Sales 1337403 1723753 1930464 2621233 3286144
Net Profit ratio 0.126 0.140 0.148 0.120 0.131

76. Analysis of ratio’s G.P. to N.P is very important in every firm. It helps to find out the
cost of expense increased in production or administrative level and other hand it helps to
control in overall financial expenses.
The Gross Profit to Net Sales ratio measures how well revenue generated from Net Sales
can cover expenses while gaining a profit
Formula=
Gross profit
Net profit
TABLE – 16 ANALYSIS OF G.P. TO N.P RATIO
Rs in lakhs
76

77. Particulars 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013
Gross Profit 256435 373607 443039 484885 659065
Net Profit 167916 241470 285934 313821 431064
G.P. - N.P. RATIO 1.53 1.55 1.55 1.55 1.53
GRAPH16 G.P. TO N.P. RATIO
SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS
INTERPRETATION
In this period of research of study Gross Profit and Net Profit are equal. Bhel control his
marginal and administrative cost in his control. There is no variation and its goes to
stable.
77

78. TREND ANALYSIS
Particulars 2009 2010 2011 2012 2013
Current Assets :
Inventories / Stock 100 112.64 153.20 209.30 246.65
Debtors
100 135.26 167.06 222.87 288.62
Cash and Bank Balances
100 140.52 202.86 249.51 236.82
Other Current Assets
100 236.33 498.33 414.45 481.48
Loans & Advances
100 95.08 98.87 201.99 234.50
INTERPRETATION
Above Table Inventory and debtors goes to growth level in all the years. Loans and
Advances and Other Current assets show high level of improvement in all the years.
Cash and Bank balances are fluctuating ratio in the year 2011-2013. Current Liabilities
are increasing in all the years and Provisions are fluctuating in the year 2013 compared to
previous years.
78

79. RECOMMENDATION
1. It can be said that overall financial position of the company is normal but it is
required to be improved from the point of view of profitability.
2. Net operating cycle is increasing that means there is a need to make
Improvements in receivables/debtors management.
3. Company should stretch the credit period given by the suppliers.
4. Company should not rely on Long-term debts.
5. Company should try to increase Volume based sales so as to stand in the
competition.
Since the BHEL is a profit making company and the interests of the investors are
also safe so for making more profit and for increasing the net profit as well as gross profit
the organization should curtail its operating, administrative & non productive expense.
Company is having good marketability, profitability and liquidity so the company can
raise its fund. Company should not forget its ‘Quality Policy’ i.e. we at BHEL, should
aim to achieve and sustain excellence in all our activities.
We are committed to total customer satisfaction by providing producers and services
which meet or exceed the customer expectation.
Modernization of the manufacturing facilities, stress on technological innovation and
training of employees at all levels shall be continuous process in BHEL.
LIMITATIONS
• The study does not consider the market fluctuations in all its calculations.
79

80. • Analysis is very much dependent on the companies’ internal bulletin.
CONCLUSIONS
1) Standard current ratio is 2:1 and for industry it is 1.33:1. BHEL ratio satisfactory.
2) Acid test ratio is more than one but it does not mean that Company has excessive
liquidity & firm quick ratio is declining from 2008-2009 to 2012-2013.
3) Debtors of the company were high; they were increasing year by year, so more funds
were blocked in debtors. But now recovery is becoming faster.
4) Debtors turnover ratio is fluctuating from 2008-2009 to 2012-2013, which means
inventory is not utilized in better way so it is not a good sign for the company.
5) Inventory turnover ratio is improving from 2008-2009 to 2012-2013.increase in ratio is
beneficial for the company because as ratio increases the number of days of collection for
debtors decreases.
6) Working capital turnover ratio is continuously increasing that shows increasing needs
of working capital.
7) Production capacity is not utilized to the full extent
The study is basically done to have a deep knowledge about WORKING CAPITAL of
the BHEL industries limited. BHEL, Industries limited is having an appropriate working
capital management of the organizations. NET PROFIT growth rate is 13.10% in 2009-
10, it is showing a nominal increase in net profit as compared to last year. The GROSS
PROFIT of BHEL more or less is maintaining same margin of profit.
80

81. The firm DCP is rising every year which is major concern for firm as larger the DCP
greater the chances of bad debts. DTR is also decreasing in 2005-06 it was 1.87 times
now it has drop down to 1.59times.
Current ratio is also below the standard norm. In the financial year 2008-2009 it was 1.58
now it has decreased up to 1.32.The firm should maintain the adequate level of current
assets in order to discharge its current liabilities.
As far as cash ratio is concerned the firms not maintain the sufficient level of quick assets
because of the day-to-day expenses. It is fluctuating between the standard norms for this
ratio is 1:2 means for every 2 rupees of current Liabilities.
Company must have 1 rupee of cash and bank balance and marketable securities.
81

82. BIBLIOGRAPHY
Reports
• Annual Report (2008-2013)
• Bonus issue bulletin 2008
Websites
• www.bhel.com
• www.wikipedia.com
• www.slideshare.com
• www.managementparadise.com
• www.ijars.in
• http://money.livemint.com
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