HAL finance Summer Training Report

A Study of Financial Performance through Working Capital
Management at Foundry & Forge Division, Hindustan Aeronautics
Limited, Bangalore
Summer Training Report
Submitted
In partial fulfillment of the requirement for the award of the degree of
Master of Business Administration
Submitted by
Name- Ankan Das
Reg. No- 16MB000082
Under the guidance of
Nilesh Kr. Thakur
Chartered Accountant
Hindustan Aeronautics Limited, Bangalore Complex
DEPARTMENT OF MANAGEMENT STUDIES
INDIAN INSTITUTE OF TECHNOLOGY (INDIAN SCHOOL OF MINES),
Dhanbad - 826004

ii
DECLARATION
I Ankan Das bearing Reg. No. 16MB000082, hereby declare that the Internship report entitled
as “A Study on Financial Performance through Ration Analysis at Foundry & Forge
Division of HAL, Bangalore” had been undertaken by me under the guidance of Mr. Nilesh
Kumar, Chartered Accountant, Foundry & Forge Division, Hindustan Aeronautics
Limited, Bangalore.
I also declare that the Internship work is towards the partial fulfillment of the university
regulation for the award of Degree of Master of Business Administration by Indian Institute of
Technology (Indian School of Mines), Dhanbad.
I have undergone through the project for a period of 8 weeks to declare that project is
based on the original study undertaken by me and has not been submitted for the award of any
degree from any other University.
Place: Bangalore Signature of the Student
Date: 21/08/2017 (ANKAN DAS)
Reg. No.- 16MB000082

iii
ACKNOWLEDGEMENT
A project work is the process of experiencing a long way in helping up a person in his respective
profession and a group of kind hearts is behind its success. So we have taken this golden
opportunity to acknowledge those who molded up this study.
Initially I express my valuable and deep sense of gratitude and thankfulness goes to my college
IIT (ISM) DHANBAD for giving this valuable opportunity.
I express my valuable and deep sense of gratitude and thankfulness towards Chief Manager
(Finance) P. Rajendran & Nilesh Kr. Thakur (CA), Hindustan Aeronautics Limited
Foundry & Forge Division, for their support.
I am extremely grateful to all the Faculty Members of Dept. Management Studies, IIT (ISM)
DHANBAD for arranging this internship and for their extended support whenever required.
Last but not the least I take this opportunity to thank the almighty, my parents and friends for
their encouragement and cooperation.
ANKAN DAS

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CONTENTS
CHAPTER NO. PARTICULARS PAGE NO.
I
1. Introduction 1
1.1 Introduction to study 2-3
II
2. About the Organisation 4
2.1 About the Organisation 5-6
2.2 Organisation structure, Functioning &
Process 7-12
2.3 Business Environment 13-17
III
3. Background of the Project 18
3.1 Review of Literature 19-20
3.2 Objective of the study 21
3.3 Need of the study 21
3.4 Research methodology & Data Source 22
IV
4. Data Analysis 23
4.1 Tools & Techniques 24-25
4.2 Analysis of Data 26-47
V
5. Findings, Suggestion & Conclusion 48
5.1 Findings of the study 49
5.2 Suggestions of the Study 50
5.3 Limitations of the Study 51
5.4 Conclusion 52
VI 6. Bibliography 53-55
ANNEXURE 56-65

INDIAN INSTITUTE OF TECHNOLOGY (ISM), DHANBAD 1 | P a g e
CHAPTER I

INTRODUCTION
1.1 INTRODUCTION
This study titled "A study on working capital management with reference to Hindustan
Aeronautics Limited" is done as a part of my MBA curriculum.
It describe about how the company manages its working capital and the various steps that are
required in the management of working capital.it is the lifeline deteriorates, so does the
company's ability to fund operations, reinvest and meet capital requirements and payments.
Understanding a company's cash flow health is essential to making investment decisions. A good
way to judge a company's cash flow prospects is to look at its working capital.
Working capital refer to the pan 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, work in
progress, stocks of finished goods account receivable and cash and bank balance constitutes the
working capital.
Working capital management is a significant part of business decision and is of major concern to
the finance manager in as much accomplishment value maximization goal depends essentially on
prudent working capital decision.
A firm is required to carry adequate amount of working capital so as to carry on the production
and distribution work smoothly. The amount of the working capital shall be maintained at such
level, which is adequate for it to run its business operations, neither excessive nor inadequate.
This level of working capital is called as the “Optimum Working Capital”.
There are two concept of working capital - Gross concept and Net concept. Net working capital
is calculated as current assets minus current liabilities. It is a derivation of working capital that is
commonly used in valuation techniques such as DCFs (Discounted cash flows).
If current assets are less than current liabilities, an entity has a working capital deficiency, also
called as working capital.

1.1.1 THEORETICAL FRAME WORK OF WORKING CAPITAL
MANAGEMENT
Working capital management is the key area of financial management and plays an important
role in any industry. Every business whether big, medium or small, needs finance to cony on its
operations and to achieve its target. In fact, finance is so indispensable today it’s rightly said to
be the lifeblood of an enterprise. Without adequate finance, no enterprise can possibly
accomplish its objectives. So this chapter deals with studying various aspects of working capital
management that is necessary to carry out the day-today operations.
The term working capital refers to that part of firm's capital which is required for financing short
term or current assets such as cash, marketable securities, debtors and inventories funds invested
in current assets keep revolving fast and are being constantly converted in to cash and this cash
flows out again in exchange for other current assets. Hence it is known as revolving or
circulating capital.
On the whole, Working Capital Management performs a key function and is of top priority for
every finance manager. All managers must, however, keep in mind that their pursuit to liquidity,
they should not lose sight of their basic goal of profitability. They should be able to attain
judicious mix of liquidity and profitability while managing their working capital.
In our present day economy, finance is defined as the provision of money at time when it is
required. Every business whether big, medium or small, needs finance to carry on its operations
and to achieve its target. In fact, finance is so indispensable today that its rightly said to be the
lifeblood fan enterprise. Without adequate finance, no enterprise can possibly accomplish its
objectives.
A firm is required to maintain a balance between liquidity and profitability while conducting its
day to day operations. Liquidity is a precondition to ensure that the firm are able to meet its short
term obligations and its continued flow can be guaranteed from a profitable venture The
importance of cash as an indicator of continuing financial health should not be surprising in view
of its crucial role within the business. This requires that business must be run both efficiently and
profitably. In the process, an asset-liability mismatch may occur which may increase firm's
profitability in the short run but at a risk of its insolvency. On the other hand, too much focus on
liquidity will be at the expense of profitability. Thus, the manager of a business entity is in a
dilemma of achieving desired tradeoff between liquidity and profitability in order to maximize
the value of a firm.
Working capital management deals with the most dynamic fields in finance, which needs
constant interaction between finance and other functional managers.

CHAPTER II

ABOUT THE ORGANISATION
2.1 ABOUT HINDUSTAN AERONAUTICS LIMITED
2.1.1 VISION
"To become a significant global player in the aerospace industry”
2.1.2 MISSION
“To achieve self-reliance in design, development, manufacture, upgrade and maintenance of
aerospace equipment, diversifying into related areas and managing the business in a climate of
growing professional competence to achieve world-class performance standards for global
competitiveness and growth in exports.”
2.1.3 Hindustan Aeronautics Limited (HAL)
HAL, a Defense PSU, is a major player in the global aviation arena. It has built up
comprehensive skills in design, manufacture and overhaul of fighters, trainers, helicopters
transport aircraft, engines, avionics and system equipment. Its product track record consists of 12
types of aircraft from in-house R&D and 14 types by license production inclusive of 8 types of
aero engines and over 1000 items of aircraft system equipment (avionics mechanical, electrical).
HAL has produced over 3550 aircraft, 3650 aero-engines and overhauled around 8750 aircraft &
28400 engines besides manufacture/overhaul of related accessories and avionics The Company
has the requisite core competence base with a demonstrated potential to become a global player.
HAL has 19 production divisions for manufacture and overhaul of aircraft, helicopters engine
and accessories. It has also 9 R&D Centers to give a thrust to research & development.
HAL's major supplies/services are to Indian Air Force, Indian Navy, Indian Army, Coast Guard
and Border Security Force. Transport aircraft and Helicopters have been supplied to Airlines as
well as State Governments. The Company has also achieved a foothold in export in more than 20
countries, having demonstrated its quality and price competitiveness. HAL is a major partner for

the Space Vehicle programmer of the Indian Space Research Organisation. It has also diversified
into the fields of Industrial & Marine Gas Turbine business and real-time software business.
HAL is now ranked 34th in the list of world's top 100 defense companies. HAL continues its
growth with a sales turnover of 2.1 Billion US Dollars during the financial year 2007-08. It has
doubled its turnover in 3 years. It has declared profit before tax of 538 Million US Dollars. The
company has made supplies to almost all the major aerospace companies in the World like
Airbus, Boeing, III, IRKUT, Honeywell and Ruag etc. All the production Divisions of HAL have
ISO 9001-2000 accreditation and 16 divisions have ISO-14001-2004 Environment Management
System (EMS) certification. Six divisions have also implemented the aerospace sector quality
management system requirements stated in as 9100 standard and obtained certification. Four of
these divisions have also obtained NADCAP certification (National Aerospace Defense
Contractors Accreditation programme USA) for special processes such as NDT, heat treatment,
welding etc.
In order to meet with the challenges in the 21st Century, the Company has redefined its mission
as follows: "To become a globally competitive aerospace industry while working as an
instrument for achieving self-reliance in design, manufacture and maintenance of aerospace
equipment, Civil Transport Aircraft, helicopter & missiles and diversifying to related areas,
managing the business on commercial lines in a climate of growing professional competence."
HAL has successfully designed & developed the Advanced Light Helicopter, which is currently
being operated by the Defense Services of India and private Companies. The Advanced Light
Helicopter also has great export potential. Apart from license production of front line fighters
like Su-30 MKI, HAL is also developing the following products through design and
development:
--Intermediate Jet Trainer (IT)
--Light combat helicopter (LCH)
--Weaponization of Advanced Light Helicopter (ALH)
--Tejas-Light Combat Aircraft

2.2 ORGANISATION STRUCTURE, FUNCTIONING AND
PROCESS
2.2.1 Organisational Structure
Mr M. S. Venkatesh,
GM (F&F division)
Mr D.S. Srinath,
DGM (Quality
control)
Mr I. Mohanlal,
DGM (HR)
Mr V.N. Anil
Kumar, DGM
(Marketing)
Mrs M.S.
Rajalakshmi,
DGM (Finance)
Mr G.Madhusudan,
DGM
(Manufacturing)
Mr Sanjay Patra,
DGM (Foundry)
Mr Murari
AGARWAL, DGM (
Engineering Services)
Dr R.R. Bhatt,
DGM (CMPL
lab)
Mr A.Roy Chowdhury,
DGM (FP, MS & IT)
Mr S.P. Ravindranathan,
DGM (TRG)
Mr. Nilesh Kumar
Thakur, Chartered
Accountant
Mr. P. Rajendran, Chief
Manager (Finance)

2.2.2 Organisation growth of the company
The Company's steady organizational growth over the years with consolidation and enlargement
of its operational base by creating sophisticated facilities for manufacture of aircraft helicopters
Aero-engines, accessories and avionics is illustrated below.

2.2.3 Organisational Functional Areas
Finance is the lifeblood of every organisation. Finance is the basic foundation of all kinds of
economic activity. Therefore, efficient management of every organisation is closely linked with
efficient management of finance. It expresses the strength and weakness shows through financial
performance of every business organisation. But in HAL government in favor of nation welfare
takes everything which related to finance decision. The decision like capita budget, dividend
decision, working capital management, and investment to fixed assets and other financial
decision which corporate office has established under preview of government and also aims to
meet the requirement with its product, supplying mainly to the defense organisation of our
nation.
HAL is running as a cash rich government sector undertaking. Government itself holding the
entire HAL share capital and major financial activities are organised by its corporate office and
also controlling all division of HAL.
The turnover of the company during the fiscal year 2015-16 was Rs 16,524 crores out of which
Rs 510 crore was declared as dividend. Besides, the company's exports stood at Rs 401 crore for
the year.
The Finance department of the HAL is divided into different sections namely :-
 Material Accounting Section
 Bookkeeping Section
 Cash Section
 Bills Payable Section
 Bills Receivable Section
 Costing Section
 MATERIAL ACCOUNTING SECTION:-
The main function of this section includes
• Maintenance of material ledger for all material held in the stores.
• Reconciliation of the balances with general ledger.
• Quality reconciliation of the bin-card balances material ledger balances.
• Maintenance of loan register for material issued as loan and follow up for return.
• Scrutiny of slow, non-moving and redundant inventories.
• This section reviews various documents and sends the same to computer/data
processing section for processing and obtaining necessary accounting output
statements.

 BOOK KEEPING SECTION:-
The functions of book keeping section are as follows:
 Maintenance of journal and general ledger.
 Preparation of trial balance. P/L accounts, balance sheet.
 Maintenance of capital assets ledger and allocation register.
 Preparation of fixed assets and depreciation schedules.
 Furnishing data for determination of income tax liability.
 Disposal of surplus/condemned plant and machine and other assets.
 Reconciliation of control accounts of the divisions/corporate office.
 Liaison with audit authorities.
 CASH SECTION:-
This section is responsible for all payments of Cash/Cheques and accounting of its books.
The main functions of this section are:-
 Receipts of cash, postal orders, cheques, bank-drafts etc. and issue of official
receipts of the same.
 Banking of all receipts.
 Drawing of cash from bank to carter for daily needs.
 Payments of vouchers by cash/cheques.
 Writing of cash./bank books.
 Preparation of bank reconciliation statement.
 Safe custody of cash, cheques books, bank guarantee, fixed deposit receipts and
other investments etc.
 BILLS PAYABLE SECTION:-
Bills payable (Inland)
This section deals with the aspects of supplies and services rendered by inland vendors
and contractors to the company:-
Inland vendors:-
 Payments and accounting of advances to other vendors.
 Payments and accounting of final bills.
 Bank dealings with relation to suppliers.
 Adjustment/recovery of advances.
 Accounting/adjustment of earnest money and security deposit from supplier.
 Accounting and pricing of receipts vouchers.

Bills Payable(Foreign)
This section deals with the aspects of supplies and services rendered by foreign vendors
and contractors to the company.
Foreign vendors-
 Payments and accounting of customer duty, freight bills, agency commission bills
etc.
 Payments and accounting of advances to suppliers and services obtained from
collaboration and others.
 Adjustments/recovery of advances.
 Accounting and pricing of receipt vouchers
 Opening of LC and dealing with banks for obtaining foreign exchange release and
payment thereof.
 Maintenance of deferred liabilities and commitment register for budgetary
purpose.
 BILLS RECEIVABLE SECTION:-
This section is responsible for preparing and submission of invoices to customers for
supplies made and services rendered and follow up of recovery of amount and its
accounting. The functions of this section are:-
 Scrutiny of sales orders including expert sales.
 Preparation of invoice for work done/to be done and services rendered.
 Review of closed work-orders for which invoice are to be prepared.
 Recording of invoice rendered.
 Accounting for sales equipment and services rendered.
 COSTING SECTION:-
The system of cost accounting followed in HAL is batch costing. It is designed for the
purpose of carrying work in HAL. The others are types of costing are.
Batch costing:- In this system all the components minor assembly, sub assemblies etc.
require for batch of aircraft/engine/equipment are manufactured on batch orders. Though
job costs/job tickets are issued for manufacture of individual components cost is recorded
separately and labour and material costs are booked on work orders. In this system the

cost relation to all components in a completed batch determined by dividing total cost
recorded on the batch work order by the number of units produced in the batch.
Job costing:- This system is followed in the case of repair/overhaul of aircrafts,
equipment etc., and for manufacture of spares of HAL/IAF stores, RMS orders and
miscellaneous jobs. In this system individual work order is issued for overhaul of each
project and for manufacture of each item of spares.
Standard costing:- It is a technique for control of cost, it should be extended to
manufacturing project, including fabrication of detailed components, sub-assemblies,
major assemblies and final assemblies. It can be extended for periodical overhaul of
major products like air frames, engines avionics, wheel assemblies and high value
notables where work schedules are available. Standards for labour and material should be
fixed for the purpose of deriving variances under each category for control.

2.3 BUSINESS ENVIRONMENT
Business environment is something which affects the whole process of any organization.
Business organization is further divided into the following categories:
In HAL, both the environment is present. The employees, suppliers, marketing intermediaries,
customer, management, demand and supply comes under internal environment and when we talk
about external environment it has social, cultural and technological factors which can affect the
processing of its business.
HAL faces a competition from other global players. Therefore to stand apart from the crowd
HAL provides cost efficient technology and better service compared to their competitors.
HAL always makes every effort to stay in touch with the market whether it is technologically or
socially. Hence, we can easily say that HAL has maintained a perfect command over its Internal
as well as External environment very beautifully.

2.3.1 Products of HAL
Fighter Aircraft Satellite Launch Vehicles
 Sukhoi-30 MKI
 MIG Series
 Tejas
 Jaguar
 MIRAGE-2000
 PSLV
 GSLV
 IRS
 INSAT
Passenger Aircraft Helicopters
 Dornier
 Indian Regional Jet
 Dhruv
 Chetak
 Cheetah
 Advance Light Combat
Helicopters
Light Trainer Aircraft Unmanned Aerial Vehicles
 Kiran
 Basant
 Sitara
 Engines
 Lakshya PTA
Transport Aircraft Glider
 Saras  HAL G-1
 Ardhra

2.3.2 HAL Foundry & Forge Division Services
Facilities –
 Product Engineering
 Non-Destructive Technology
 Tooling
 Heat Treatment
 Surface Treatment
2.3.3 Competitors of Foundry & Forge Division
 Frith Raxan
 Alcoa Group
 PCC Group
 ANDA Forgings
 FRISA, Mexico

2.3.4 Customers of HAL
International Customers Domestic Customers
 Airbus Industries, France
 APPH Bolton, UK
 BAE Systems, UK
 Chelton, UK
 Coast Guard, Mauritius
 Corporate Air, Philippines
 Cosmic Air, Nepal
 Dassault Aviation, France
 Dowty Aerospace Hydraulics, UK
 EADS, France
 ELTA, Israel
 Hampton, UK
 Honeywell International, USA
 Island Aviation Services, Maldives
 Israel Aircraft Industries, Israel
 Messier Dowry Ltd., UK
 Mistubishi Heavy Industries, Japan
 Namibian Air Force, Namibia
 Rolls Royce Plc, UK
 Royal Air Force, Oman
 Royal Malaysian Air Force,
Malaysia
 Royal Nepal Army, Nepal
 Royal Thai Air Force, Thailand
 Smiths Industries, UK
 Snecma, France
 Strongfield Technologies, UK
 The Boeing Aircraft Company,
USA
 Air India
 Air Sahara
 Airports Authority of India
 Bharat Electronics
 Border Security Force
 Coal India Ltd
 Defense Research & Development
Organisation
 Govt. of Andhra Pradesh
 Govt. of Jammu & Kashmir
 Govt. of Karnataka
 Govt. of Maharashtra
 Govt. of Rajasthan
 Govt. of Uttar Pradesh
 Govt. of West Bengal
 Indian Airforce
 Indian Airlines
 Indian Army
 Indian Coast Guard
 Indian Navy
 Indian Space Research Organisation
 Jet Airways
 Kudremukh Iron ore Company ltd
 Oil & Natural Gas Corporation Ltd
 Reliance Industries

2.3.5 CERTIFICATIONS & APPROVALS OF HAL
 CEMILAC – Centre for Military Airworthiness & Certification
 DGAQA – Director General of Aeronautical Quality Assurance
 DGCA – Director General of Civil Aviation
 DSIR – Department of Scientific & Industrial Research, New Delhi
 NABL – National Accreditation Board for Testing & Calibration
 NADCAP – National Aerospace & Defense Contractors Accreditation Program
Rolls-Royce, UK
 EDDS- Engineering & Design Data Source, Honeywell Aerospace, Phoenix USA
 Hamilton & Sundstrand, USA
 Turbomeca & SNECMA (SAFRAN), France

CHAPTER III

BACKGROUND OF THE PROJECT
3.1 REVIEW OF LITERATURE
Mohammad Neab and Noriza BMS (2010), worked on crating the relationship between
Working Capital Management (WCM) and performance of firms. For their analysis they choose
the Malaysian listed companies. They administered the perspective of market valuation and
profitability. They used total of 172 listed companies from the databases of Bloomberg. They
randomly selected five year data (2003-2007). This research likewise the researches quoted
before studied the impact of the dimensions of working capital component i.e. C.C.C., current
ratio (C.R.), current asset to total asset ratio (C.A.T.A.R), current liabilities to total asset ratio
(C.L.T.A.R.), and debt to asset ratio (D.T.A.R.) in effect to the firm's performance whereby
firm's value dimension was taken as Tobin Q (T.Q.) and profitability i.e. return on asset (R.O.A.)
and return on invested capital (R.O.I.C). They applied two different techniques for analyzing the
data that are multiple regression and correlations. They found that there is a negative relationship
between working capital variables and the firm's performance.
Mathuva (2009) studied the impact of working capital management on the performance. He
took almost 30 listed firms as a sample and all these companies were listed in Nairobi stock
exchange and the data was taken from 1993 to 2008. There were certain findings of his research
by analyzing the fixed effects regression models. Firstly, there is a negative relationship between
the time when the cash is collected from the customers and the firm’s productivity. This depicts,
firms that are more profitable enjoys less time period for the collection of cash from the
customers as compare to ones which are less profitable. Secondly there is a positive relationship
between the inventories when they were brought in and the period to which they are sold and the
firm's profitability. The interpretation comes out as that the firms or the organizations which take
more time to keep the inventories it reduces the costs of the disruption in the process of
production and usually the business losses as there is the insufficiency in the goods. This
situation decreases the operating cost of the firm. The third assumption of the research was the
association between the average payment period and profitability and found out to be positive
(p<0.01). The more the time taken to disburse the creditors, the profitability will increase.
Hossain, Seed Zabid (1999), throws light on the various aspects of working capital position He
has evaluated working capital and its components through the use of ratio analysis. For each
aspect of analysis certain ratios are computed and then results are compared with the standard
ratio or industry average.

Singaravel, P. (1999), focuses on the interdependency among working capital. Liquidity and
profitability, of which sufficiency of liquidity comes in the first preference followed by
sufficiency of working capital and profitability. The article is an in-depth analysis of liquidity
and its interrelationship with working capital and profitability. As the working capital liquidity
and profitability are in triangular position, none is dispensable at the satisfaction of the other.
Excess of stock-in-trade over bank over-draft and excess of liquid assets over current liabilities
other than bank over-draft generate working capital for the business. Alternatively, working
capital requirements are made for long-term funds which affect the profitability.
Jain, P. K. and Surendra S.Y. (2007), study the different facets of working capital
management. The issues addressed include relationship between CAs and CLs, the financing of
working capital, and ways of dealing with excess or shortage of working capital. The study is
based on an analysis of a thirteen year period data from 1991 to 2003 covering 137 public sector
enterprises, In a nutshell, it is reasonable to contend that the sample PSEs (Public Sector
Enterprises) are faced with long duration of net working capital cycle (time necessary to
complete the following three events:
 Conversion of cash into inventory
 Conversion of inventory into debtors
 Conversion of debtors into cash (less credit available from creditors) necessitating
substantial working capital to be carried by them, eventually affecting their profitability
in adverse manner.

3.2 OBJECTIVE OF THE STUDY
 To study how HAL finances working capital requirements of the firms.
 Interpreting, analyzing based on the various ratios, the liquidity position of HAL.
 To serve as an instrument of the national policy to achieve self-reliance in design,
development and production of aircraft and aeronautical equipment to meet country's
changing and growing needs with special emphasis on military requirements.
 To conduct its business economically and efficiently so that it can contribute its due
share to the national effort for achieving reliant and self-generating economy.
 To show and highlight the strength weakness regarding various aspects of its liquidity
and working capital management.
3.3 SCOPE OF THE STUDY
 This study is done on the topic 'A study on working capital management of Hindustan
Aeronautics Limited' '. The study only covers on the effectiveness of working capital
management and only based on the secondary data.
 Studies of the working capital management in HAL Ltd benefits the organization to
know about the reasons for increase or decrease the working capital.
 The study helps the organization to get more suggestions from the students' side

3.4 RESEARCH METHODOLOGY & DATA SOURCE
3.4.1 Research Design
A research design is a map developed to guide the research. It is a part of the planning stage of
research, a blue print for the collection, measurement and analysis of data. A good research
design serves three important functions, firstly, it gives a blueprint for research, and secondly, it
limits the boundaries of research activity and makes systematic investigation possible. Thirdly, it
enables a researcher to anticipate potential problems that he may encounter the future.
A practical research design comprises of following phases:
 The statistical design which concerns with the question of how many items are to be
observed and how the information and data gathered are to be analyzed.
 The operational design which deals with the techniques by which the procedures
specified in the sampling, statistical and observational designs, can be carried out.
Research design has some important features. It is a plan that specifies the sources and types of
information relevant to the research problem. It is a strategy specifying which approach will be
used for gathering and analyzing the data. It also includes the time and cost budgets since most
studies are done under these two constraints. This study has its research design as follows:
3.4.2 DATA COLLECTION
The relevant data in the subject under study has been collected from the following sources.
 SECONDARY DATA:-
The secondary data are those, which are already gathered, have been collected originally
for some other purpose. The investigator collected data from the company files and
various records. The investigations made use of number of books and papers on
organizational culture. The data should also be collected from internet by the investigator.
In this project, the secondary data sources are Company manuals, company website,
company annual reports, text books etc.

CHAPTER IV

DATA ANALYSIS
4.1 Tools & Techniques
The analysis of working capital can be conducted through a number of methods, but I had done
the analysis through:
 Ratio analysis.
4.1.1 RATIO ANALYSIS
A ratio is a simple arithmetical expression one number to another. The technique of ratio analysis
can be employed for measuring short-term liquidity or working capital position of a firm. The
following ratios can be calculated for these purposes:
l. Current ratio.
2. Quick ratio
3. Debtors turnover ratio.
4. Average debt collection period.
5. Inventory to Current Asset ratio
6. Inventory Turnover Ratio.
7. Inventory Conversion Period.
8. Creditors Turnover Ratio.
9. Working Capital Turnover Ratio.
10. Net Profit Ratio
4.1.2 NET WORKING CAPITAL
Working capital refers to that part of the firm's capital which is required for financing shortterm
or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested

in current assets keep revolving fast and are being constantly converted in to cash and this cash
flow out again in exchange for other current assets. Hence, it is also known as revolving or
circulating capital or short term capital.
4.1.3 LIQUIDITY RATIOS
The firm's ability to pay short-term debt and expenses (aka current liabilities) within the one year
operating cycle is its liquidity. Balance Sheet asset accounts are listed in order of liquidity. The
first category of current assets addresses items that can be converted into cash within the normal
one-year operating cycle. Total assets are funded through liabilities or stockholders' equity.
Current liabilities, which must be paid within one year, are paid out of current assets.
4.1.4 LIMITATIONS OF RATIO ANALYSIS
The following are the limitations of ratio analysis:
1. It is always a challenging job to find an adequate standard. The conclusions drawn
from the ratios can be no better than the standards against which they are compared.
2. When the two companies are of substantially different size, age and diversified
products,, comparison between them will be more difficult.
3. A change in price level can seriously affect the validity of comparisons of ratios
computed for different time periods and particularly in case of ratios whose numerator
and denominator are expressed in different kinds of rupees.
4. Comparisons are also made difficult due to differences of the terms like gross profit
operating profit, net profit etc.
5. If companies resort to 'window dressing', outsiders cannot look into the facts and affect
the validity of comparison.
6. Financial statements are based upon part performance and part events which can only
be guides to the extent they can reasonably be considered as dues to the future.
7. Ratios do not provide a definite answer to financial problems. There is always the
question of judgment as to what significance should be given to the figures. Thus, one
must rely upon one's own good sense in selecting and evaluating the ratios.

4.2 ANALYSIS OF DATA
4.2.1 CURRENT RATIO
Current ratio is the most common ratio for measuring liquidity. It represents the ratio of current
asset to current liabilities. It also called working capital ratio. It is calculated by dividing current
asset by current liabilities.
Current assets
Current Ratio = -----------------
Current liability
Current asset are those amount which can be realized with in the period of one year. E.g.: cash in
hand, cash at bank, sundry debtors, and short term investment.
Current liabilities are those amount which are payable with in a period of one year. E.g.:
outstanding expense, bank OD, and bill payable. The normal current ratio is considered as 2:1.
Table No- 4.1- Current Ratio
Year Current Asset Current Liability Current Ratio
2012 16524.39 3575.31 4.62
2013 19986.16 5823.01 3.43
2014 19874.83 5913.84 3.36
2015 22063.42 3215.08 6.86
2016 24490.69 3648.51 6.71

INTERPRETATION
From the above A research design is a map developed to guide the research. It is a part of the
planning stage of research, a blue print for the collection, measurement and analysis of data. A
good research design serves three important functions, firstly, it gives a blueprint for research,
and secondly, it limits the boundaries of research activity and makes systematic investigation
possible. Thirdly, it enables a researcher to anticipate potential problems that he may encounter
the future.
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016
Current Ratio
Current Ratio

4.2.2 QUICK RATIO OR LIQUID RATIO
This ratio is sometime known as "Acid Test Ratio" or "Liquidity Ratio". It is the relationship
between quick assets to current liabilities. It is determined by dividing "quick asset" by current
liabilities.
Quick or Liquid Assets
Quick Ratio = ------------------------------
Current Liabilities.
The term quick asset refers to current asset which can be converted into cash immediately. It
comprises all current assets except stock and prepaid expense. Quick liabilities comprise current
liabilities excluding bank OD. The normal for such ratio is 1:1.
Table No- 4.2 – Quick Ratio
Year Liquid Asset Current Liability Liquid Ratio
2012 5779.11 3575.32 1.61
2013 7695.15 5823.01 1.32
2014 6965.29 5913.84 1.17
2015 8588.28 3215.08 2.67
2016 9455.90 3648.51 2.59

INTERPRETATION
From the above chart of liquid ratio, it is clear that The quick ratio of the firm represents that the
firms liquidity position is good. As a rule of thumb or as a convention quick ratio 1:1 is
considered satisfactory. Even though the ratio shows an increasing trend, Quick ratio exceeding l
shows that company has the capability to pay of its current liability.
0
0.5
1
1.5
2
2.5
3
2012 2013 2014 2015 2016
Quick Ratio
Quick Ratio

4.2.3 DEBTORS TURNOVER RATIO
The purpose of this ratio is to discuss the credit collection power and policy of the firm. For this
ratio a relationship is established between accounts receivables and net credit sales of the period.
45 to 65 days may be considered as normal ratio. The turnover ratio is calculated as follows.
Net Annual Credit Sales
Debtors turnover ratio = -----------------------------------------
Average Account Receivable.
The term accounts receivables includes trade debtors and bills receivables. The ratio indicates the
efficiency with collection of book debts. The higher ratio, the better it is since it would indicate
the debts are being collected properly.
Table 4.4- Debtors Turnover Ratio
Year Net sales debtors Debtors turnover ratio
2012 19036.32 4749.57 4.01
2013 21647.75 7140.67 3.03
2014 20917.89 6410.81 3.26
2015 20197.20 7015.33 2.87
2016 22704.72 8121.23 2.79

INTERPRETATION
From the above chart of debtor turnover ratio, it is clear that Debtors velocity indicates the
number of times the debtors are timed over during a year. The high debtors turnover ratio
indicates that the company's collection of accounts receivable is efficient. Here it shows a
decreasing tread which means the company has poor collecting processes and has a high amount
of cash receivables for collection from various debtors.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2012 2013 2014 2015 2016
Debtors Turnover Ratio
Debtors Turnover Ratio

4.2.4 AVERAGE DEBT COLLECTION PERIOD
The collection of period ratio is calculated as under,
Days in a year
Average debit Collection period (in day) = ------------------------------
Debtors turnover ratio
Table 4.5- Average Debt Collection Period
Year Days in a Year Debtor Turnover
Ratio
Average Debt
Collection Period
2012 365 4.01 91
2013 365 3.03 120.4
2014 365 3.26 111.6
2015 365 2.87 127.1
2016 365 2.79 130.8

INTERPRETATION
From the above chart of average debt collection period, it is clear that The average debt
collection period of the company for the all years tends to increase which is not From the above
good for the company because the shorter the average collection period the better is the quality
of debtors as a short collection period implies quick payment by debtors. It measures the quality
of debtors.
0
20
40
60
80
100
120
140
2012 2013 2014 2015 2016
Avg Debt Collection Period
Avg Debt Collection Period

4.2.5 INVENTORY TO CURRENT ASSET RATIO
Inventory
Inventory to Current Asset Ratio=--------------------
Current Assets
Table 4.6- Inventory to Current Asset Ratio
Year Inventory Current Assets Inventory to Current
Asset Ratio
2012 10745.28 16524.39 0.65
2013 12291.01 19986.16 0.61
2014 12909.54 19874.83 0.64
2015 13475.14 22063.42 0.61
2016 15034.79 24490.69 0.61

INTERPRETATION
From the above table and bar chart of inventory to current asset ratio, it is clear that The
inventory to current assets ratio showed increasing trend in first year.. Then it started to decrease.
It is not good for the company.
0.59
0.6
0.61
0.62
0.63
0.64
0.65
0.66
2012 2013 2014 2015 2016
Inventory to Current Asset ratio
Inventory to Current Asset ratio

4.2.6 INVENTORY TURNOVER RATIO
This ratio indicates whether investment in inventory is efficiently used or not. It, therefore,
explains whether investment in inventories is within proper limits or not. It is also measures the
effectiveness of the firm's sales efforts.
Cost of goods sold
Inventory Tum Over Ratio= ----------------------------
Inventory
Table No- 4.7 Inventory Turnover Ratio
Years Net Sales Inventory Inventory Turnover
Ratio
2012 19036.32 10745.28 1.77
2013 21647.75 12291.01 1.76
2014 20917.20 12909.54 1.62
2015 20917.20 13475.14 1.49
2016 22704.72 15034.79 1.51

INTERPRETATION
There are no rules of thumb or standard inventory turnover ratio for interpreting the inventory
turnover ratio. The norms may be different for different firms depending on the nature of
industry and business conditions. But here the inventory turnover ratio of the firm shows a
decreasing trend. Higher ratio indicates efficient management of inventories and lower ratio
indicate the poor inventory management.
1.35
1.4
1.45
1.5
1.55
1.6
1.65
1.7
1.75
1.8
2012 2013 2014 2015 2016
Inventory Turnover ratio
Inventory Turnover ratio

4.2.7 INVENTORY CONVERSION PERIOD
Days in a Year
Inventory Conversion Period= ---------------------------------
Inventory Turnover Period
Table No- 4.8 Inventory Conversion Period
Year Days in a Year Inventory Turnover
Ratio
Inventory
Conversion Period
2012 365 1.77 206.20
2013 365 1.76 207.38
2014 365 1.62 225.38
2015 365 1.49 244.90
2016 365 1.51 241.72

INTERPRETATION
From the above chart of inventory conversion period, it is clear that The inventory conversion
period of the firm in the years were high which implies less turnover of inventory, will lead to
delay in conversion of inventory into cash.
180
190
200
210
220
230
240
250
2012 2013 2014 2015 2016
Inventory Conversion Period
Inventory Conversion Period

4.2.8 CREDITORS TURNOVER RATIO
Creditor turnover ratios indicate the number of times the account payable rotate in a year. It
signifies the credit period enjoyed by the firm in paying creditors. Accounts payable include
trade creditors and bill payable. The ratio shows the relationship between net credit purchase for
the whole year and account payable. 60 to 90 days may be considered as the normal ratio.
Net Annual Credit purchase
Creditors Turnover Ratio= ---------------------------------------
Average Account Payable
Table No 4.9- Creditors Turnover Ratio
Year Net Credit purchase
(in Lakhs)
Average Accounts
Payable
Creditors Turnover
Ratio
2012 7170.11 2436.57 2.94
2013 9004.03 2248.41 4.00
2014 9004.03 2248.41 4.00
2015 7289.50 1055.90 6.80
2016 9213.25 1571.16 5.86

INTERPRETATION
From the above chart of creditors turnover ratio, it is clear that the creditors turnover ratio
indicates the velocity with which the creditors are turned over in relation to purchase. HAL's
creditors turnover ratio shows an increasing trend all over the last 5 years. In the year 2015
shows the highest creditors turnover. Increase in the ratio good for the company.
0
1
2
3
4
5
6
7
8
2012 2013 2014 2015 2016
Creditors turnover Ratio
Creditors turnover Ratio

4.2.9 WORKING CAPITAL TURNOVER RATIO
Net Sales
Working Capital Turnover Ratio= -------------------------------
Net Working Capital
Table No 4.10- Working Capital Turnover Ratio
Year Net Sales Net Working Capital Working Capital
Turnover Ratio
2012 19036.32 12949.08 1.47
2013 21647.75 14163.15 1.52
2014 20917.89 13960.99 1.49
2015 20917.20 18848.34 1.07
2016 22704.72 20845.18 1.08

INTERPRETATION
From the above chart of working capital turnover ratio, it shows the measures on how well a
company is utilizing its working capital for supporting given level of sales. Here working capital
shows a decreasing trend. High turnover shows that management is being very efficient in using
a company's short-term assets and liabilities. A low ratio shows the company is investing too
many accounts receivables and inventory assets for supporting sales. This may lead to an
exercise amount of bad debts and obsolete inventory.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2012 2013 2014 2015 2016
Working Capital Turnover Ratio
Working Capital Turnover Ratio

4.2.10 NET PROFIT RATIO
It shows the overall profit of the company, which is calculated after tax amount.
Net Profit After Tax
Net Profit Ratio= ------------------------------
Net Sales
Table No 4.11- Net Profit Ratio
Year Net Profit After Tax Net Sales Net Profit Ratio
2012 3539.18 19036.32 18.59%
2013 4150.30 21647.75 19.71%
2014 4070.52 20917.89 19.45%
2015 2624.32 20197.20 12.99%
2016 1039.39 22704.72 4.57%

INTERPRETATION
The net profit ratio indicates the firms capacity to face adverse economic conditions such as
price competition, low demand, etc. higher the ratio better is the profitability and vice versa. The
firms net profit ratio is high in 2012, 2013, 2014 years and it is decreasing in 2015.2016 which
indicating that the profitability position of the company is not good.
0
5
10
15
20
25
2012 2013 2014 2015 2016
Net Profit Ratio
Net Profit Ratio

4.2.11 NET WORING CAPITAL
Cash and short term assets expected to be converted to cash within a year less short term
liability. Business use net working capital to measure cash flows and the ability to service debt.
A positive net working capital indicates that the firm has money in order to maintain or expand
its operations. Net working capital tends not to add much to the business assets, but helps keep it
running on a day-to-day basis.
Current Asset 2012 2013 2014 2015 2016
Inventories 10745.28 12291.01 12909.54 13475.14 15034.79
Trade Receivables 4749.57 7140.67 6410.81 7015.33 8121.23
Cash & Cash
Equipment
2.06 1.02 1.02 0.98 0.82
Short term Loans &
Advances
164.70 177.30 177.30 319.79 1080.59
Other Current Assets 862.69 376.16 376.16 1252.18 243.26
Total (A) 16524.39 19986.16 19874.83 22063.42 24490.69
Current Liabilities
Short term Borrowing 11.94 136.90
Trade Payables 2436.57 2248.41 2248.41 1055.90 1571.16
Others current
liabilities
978.77 3147.37 3375.10 1483.63 1172.57
Short Term Provisions 148.03 290.33 290.33 675 904.78
Total (B) 3575.31 5823.01 5913.84 3215.08 3648.51
Net Working Capital
(A-B)
12949.08 14163.15 13960.99 18848.34 20845.18

INTERPRETATION
From the above chart of net working capital, it shows the use of measure the short term liquidity
of the company and can be used to obtain a general impression of the ability of company
management to utilize assets in efficient manner. If the figures negative, then company may not
have sufficient funds available to pay for ltd current liabilities. Here the figures shows a positive
trend shows funds are available to pay for current liabilities as they come for payment.
chart of current ratio, it is clear that a relatively high current ratio is an indication that the firm is
liquid and has the ability to pay its current obligation in time as and when become due. But it
doesn't necessarily indicate always that the company is in a state of financial well-being,
depending on how the company's asset are allocated, a high current ratio may suggest that the
company is not using its current assets efficiently, or not managing its working capital well.
0
5000
10000
15000
20000
25000
2012 2013 2014 2015 2016
Net Working Capital
Net Working Capital

CHAPTER V

FINDINGS, SUGGESTIONS & CONCLUSION
5.1 FINDINGS
On the basis of the analysis of the financial data of five years 2012 to 2016 Of Hindustan
Aeronautics Limited, the following findings are made:
 Net Working Capital has shown an increasing trend except a marginal decrease in 2014.
 The current ratio has increased which shows that the company is capable of paying its
obligations as it has larger portion of asset value relative to liabilities value.
 Inventory turnover ratio has decreased over time which shows the company is having
weak sales therefore showing excess inventory.
 Debtors’ turnover ratio is decreasing which shows the company have poor collecting
process.
 Creditors’ turnover ratio decreases in 2016; which shows the company is taking longer
time to pay-off its suppliers.

5.2 SUGGESTIONS
On the basis of the findings mentioned before, the following suggestions are made for
improving the working capital management of the company.
 The inventory should be used up properly to increase its turnover ratio.
 The payment duration towards creditors should not be delayed.
 The time provided for collection period is more than required.
 The net profit should be increased through efficient use of assets.

5.3 LIMITATIONS OF THE STUDY
 Time constraints:
Time was a bit short and hence was not able to make the study in depth. Still all
efforts to the best possible extent have been made to collect the data.
 Data collection constraints:
Since data collected used is secondary in nature, this poses the constraints on the
validity and reliability of the data.
 Secrecy of internal data:
Today, companies are very sensitive regarding their internal data and this proved a
hindrance to the study.
 Period of analysis:
Sample size for 5 years has taken for the study, which was sufficient for the study, but
a bigger sample will be more effective.

5.4 CONCLUSION
In this study an attempt has been made to analyze the working capital position of the company.
The study shows that the overall performance of the company is not satisfactory. Though the
company is profit making organization, its profit is not up to the mark with respect to the assets
employed in the organization. It can be seen clearly that the organization faces a lot of
unavoidable expenses such as salary to the employees, employees being large in number than
what is actually required.
The analysis and interpretation of various data relating to working capital management helped to
reach into a conclusion that the efficiency of the working capital is not sufficient since the
working capital shows a negative balance. But this cannot be blamed as this is government run
organization and the major portion of current liability is the loan taken from the government. It
also reveals that the company is not having a satisfactory liquidity and 9 profitability position.
The overall success of any company depends upon the working capital position. So it should
handle properly because it shows the efficiency and financial strength of the company. Therefore
the company should adhere to strict measures in every sphere of its activities to bring the
company back to sufficient working capital position and improve its financial performance for
better prospects in the coming days.

CHAPTER VI

BIBLIOGRAPHY
Reference Books –
 Narayanswamy, R. (2003). Financial Accounting; Analyzing Financial
Statements: Statement of Profit & Loss & Balance Sheet.(Page- 477-517)
 Pandey, I. M. (2005). Financial Management; Financial Statement Analysis.
(Page 581-617).
 Prasanna, Chandra (2011). Financial Management Financial Statements, Taxes
& Cash Flow Pattern Chapter 3 Page 41, Debt Analysis and Management Chapter
23, Pg-561.
Reports –
 (2016) Consolidated Balance Sheet as of 31st
March, 2016. Page- 184
 (2016) Consolidated Statement of Profit & Loss Statement for the period ended
31st
March, 2016. Page-185
Journals –
 Mohammad Neab and Noriza BMS. (2010), “Working Capital Management: The
Effect of Market Valuation and Profitability in Malaysia”, International Journal of
Business and Management, Vol. 5, No. 11, Page 140-147.
Mathuva D.M. (2009), “The Influence of Working Capital Management Components on
Corporate Profitability: A Survey on Kenyan Listed Firms”, Research Journal of
Business Management, www.docsdrive.com/pdfs/academicjournals/rjbm/0000 /15988-
15988.pdf
 Hossain, Seed Zabid (1999), Impact of Working Capital Management on Firms’
Performance: Evidence from Non-Financial Institutions of KSE-30 index.
interdisciplinary journal of contemporary research in business vol 3 no.5

Singaravel, P. (1999), Toward a Theory of Working Capital Management . The Journal
of Finance, Volume 10, Number 2, pp. 121-129.
 Jain, P. K. and Surendra S.Y. (2007), Some Empirical Bases of Financial ratio
Analyses . The Accounting Review, Volume 40, Number 3, pp. 558-568
Electronic Versions–
 (2016) HAL Annual Report for the fiscal year 2015-16. Retrieved from
http://www.hal-india.com/Financial%20Highlights/M__22
 Our History. Retrieved from
http://www.hal-india.com/Our%20History/M__111
 PTI. (2016, April 05). HAL turnover hits all time high at Rs 16,524 crore in
FY16. Retrieved from http://economictimes.indiatimes.com/news/defence/hal-
turnover-hits-all-time-high-at-rs-16524-crore-in-fy16/articleshow/51697043.cms
 Our Bureau (2005, April 05). Outsourching will be key to HAL growth strategy.
Retrieved from http://www.business-standard.com/article/companies/outsourcing-
will-be-key-to-hal-growth-strategy-105080501059_1.html
 Our Mission & Brief History. Retrieved from http://www.hal-
india.com/Foundry%20%20Forge%20Division%20Bangalore/M__98
 FE Bureau (2006, April 06) HAL turnover up to 55.8% to Rs 16524 crore in
FY16. Retrieved from http://www.financialexpress.com/industry/hal-turnover-up-
5-8-to-rs-16524-crore-in-fy16/233040/
 Wikipedia (2017, May). Hindustan Aeronautics Limited. Retrieved from
https://en.wikipedia.org/wiki/Hindustan_Aeronautics_Limited
 HAL Annual Report 2014-15. Retrieved from http://hal-
india.com/Common/Uploads/Finance/HAL%20Annual%20Report%202014-
15_English.pdf
 IANS (2017, April 1st
) Hindustan Aeronautics Limited sales grew 4% in fiscal
2016-17. Retrieved from http://www.financialexpress.com/industry/hindustan-
aeronautics-ltd-sales-grew-4-in-fiscal-2016-17/610987/

ANNEXURE
Balance Sheet as on 31st
March, 2012

Statement of Profit & Loss for the period ended 31st
March, 2012

March, 2013

March, 2014

March, 2015

March, 2015
17572.88
2624.32
2624.32

March, 2016

Statement of Profit & Loss for the year ended 31st
March, 2016

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