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Working Capital Management at BDL
- 1. Working Capital Management SrikanthMurarishetty PGDM-IB 1404041 Underguidance of: Smt. J. Kiranmai (Prof & Co-ordinator (PGDM-BIF)
- 2. Introduction: Working Capital is a financial metric which represents operating liquidity available to a business. Every business needs funds for two purposes – for its establishment and to carry out its day - to - day operations. Long-term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land and buildings, furniture etc. Investments in these assets represent that part of working capital, which is blocked on permanent or fixed basis. Funds are also needed for short-term purposes for the purchase of raw materials, payment of wages and other day – to – day expenses etc. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.
- 3. Concepts of working capital: There are two concepts in working capital. they are: Gross working capital Net working capital Negative networking capital, Positive net working capital.
- 4. Factors determining working capital: Nature of business Size of business Production policy and length Working capital cycle Rate of stock turnover Credit policy Price level changes
- 5. Advantages of adequate working capital: Solvency of the business Goodwill Easy loans Cash discounts Regular supply of raw materials Regular payment of salaries, wages and day to day commitments Exploitation of favorable market conditions Ability to face crisis Quick and regular rate on returns
- 6. Disadvantages of inadequate working capital: Need of raw materials, components and spares To pay wages and salaries To incur day to day expenses and overload cost such as office expenses To meet selling cost as packing, advertising, etc. To provide credit facilities to the customers To maintain the inventory of raw materials, work-in-progress, stores & spares and finished stock.
- 7. The need for working capital to run the day – to – day business activities cannot be over emphasized we will hardly find any business firm which does not require any amount of working capital. Indeed firm differs in their requirements of working capital. A firm required to invest in current assets for a smooth, uninterrupted production and sale. How much a firm will invest in current assets depends invest in current assets depends on its “Operating cycle”. Need for study:
- 8. Objectives: To study changes in working capital To suggest better ways to improve management of working capital To evaluate liquidity position of the firm To analyze various factors influencing liquidity position of the firm To observe the impact of working capital management on the overall functioning of the firm. To maximize utilization of existing production capacities. Meet production commitments and maximize customer satisfaction To maximize shareholder wealth To ensure a sustainable growth of BDL.
- 9. Methodology: In preparing of this project the information collected from the following sources Primary data - has been collected from the personal interaction with the Finance manager i.e., Venkataramana sir and other staff members. Secondary data - major source of data of this project was collected through annual reports, balance sheets, profit and loss accounts of 5 years from 2011- 2015 & and some information collected from internet and text sources.
- 10. Company profile: Bharat Dynamics Limited (BDL), A Government of India Enterprise under the administrative control of the Ministry of Defence (MoD), was established in the year 1970 to be a manufacturing base for guided weapon systems. It’s coming into being reflects the visionary wisdom of the Nation to achieve self-reliance in the technological domain. Nurtured by a pool of talented engineers drawn from DRDO and aerospace industries, BDL began its journey by producing the 1st Generation Anti Tank Guided Missile. This product was a culmination of a License Agreement the Government of India entered into with Aerospatiale, French Republic. BDL has three manufacturing units, located at Kanchanbagh, Hyderabad, T.S., Bhanur, Medak district, T.S. and Visakhapatnam, A.P. Two New Units are planned at Ibrahimpatnam, Ranga Reddy district, T.S. and Amravathi, Maharashtra.
- 11. Missile produced by BDL: MILAN 2T KONKUR INVAR AKASH TORPEDO PRUTHVI NAG TRISHUL
- 12. Vision and Mission: VISION: To be a world-class enterprise producing international standard quality products for the Defence industry. MISSION: To establish itself as a leading manufacturer in the aerospace & underwater weapons industry and emerge as a world class sophisticated, State-of-the-art, global enterprise, providing solutions to the security system needs of the country.
- 13. Various divisions in finance at BDL: Cash section Payroll section Bills payable section Costing sections Books section Finance section Audit section
- 14. Net Working capital 0 20000 40000 60000 80000 100000 120000 140000 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 amount
- 16. Suggestions As the inventory is high the steps to be taken to identify the non-moving items in the inventory & action to be taken for disposing the same. As the company is having high level of cash & bank balances the company may concentrate on better utilization of cash & bank balances than keeping them in banks. As the company is almost maintaining 250days of sales as inventory, the company should look at the various means for reducing the inventory levels. Presently 30% - 40% of net working capital is financed through sundry creditors, the company may focus on increasing the sundry creditors to at least 50% of its purchases, and by this we can reduce the net working capital. The company is limiting itself to one-year term deposits with banks, this conservative policy restricting the company to less than normal growth despite having huge cash balance & high liquidity levels. The company is spending about 6crores every year on power; the company may effectively utilize its cash balances by partly diverting it to power generation.
- 17. Conclusion The following are the conclusions drawn from Bharat Dynamics Limited: Every year the inventory is going on increasing. The company is maintaining very high levels of inventory. We can conclude basing on the net working capital that the firm is highly liquid i.e., the liquidity of the company is very high. The sundry debtors is both increasing & decreasing in the past 6 years due to change in customer mix. At first, the company is selling its final product to Indian-Army, Navy, & Air force. The company is having a high level of cash & bank balance in the form of short-term deposits in scheduled banks. The company is almost maintaining 250 days of sales as inventory. By sundry creditors we can conclude that only 30%-40% of net working capital is financed through sundry creditors.