RESEARCH REPORT ON Working Capital Management for Bharti Teletech Ltd.

SUMITT ! IN "#$TI#L %UL%ILLM NT O% T& $'UI$ M NT O% T& ! ($ O% M#ST $ O% BUSIN SS #!MINIST$#TION

MAHAMAYA TECHNICAL UNIVERSITY, NOIDA

SUBMITT ! B)*
Jitendra kumar M.B.A. 4th Sem. Roll No.- !!"4#!!$$ *uide +uneet Salu,a

SUBMITT ! TO*
Mr. Nitin Shrivastav H.O.D of Management De%artment& B'(. Mu)affernagar

A-.NO/01D*1M1N(

Indebted to many people who helped throughout the project work and in the preparation of this report. First of all I would like to offer my sincere gratitude to Mr. Sanjeev Sehgal, project director and Deputy finance manager of giving me the opportunity to undertake this project. I would also wish to special thank my project guide Mr. Sandeep (ain, project guide in !"#$I $%&%$%'! &$D for his valuable guidance during the course of the project. I owe special debt to Fellow professionals at !"#$I $%&%$%'! &$D, Mr. "poorv )umar, Mr. "marender (ena and Mr. #ajeev *uha for having shared the knowledge for providing me the constant support and valuable suggestions through the project. My thanks are also to Dr. +radeep Suri who has helped in organi,ing this project. I am also thankful to all my friends for providing me the much needed the moral support during the course of this project. !"#$I $%&%$%'! &$D and IMS for

I$. Mu,affernager

(itendra )umar -M ".I/ Sem0

+R12A-1

$he present study was undertaken as a part of the organi,ational training -10 'omponent of the M " course of masters in business studies in financial management. $he object of this training was to develop information search skills into students. $his enables them to gather information on a given subject in a systematic and consciously planned manner. $he study was done as the project for handsets in India. $he study was carried out during the months of 2ov..Dec.11 It3s objective was to study the concept of 4orking 'apital Management in detail in the study. %%$%& and make suggestions about %%$%& &td, 2ew Delhi. %%$%& is engaged in

production of range of basic and cordless phones and is also 2ational distributor of Motorola

-ON(1N(S
-ertifi3ate A3kno4ledgement +refa3e 1. %5ecutive summary 6. Introduction 7. 'ompany +rofile . . . . . . !"#$I %%$%& 'omponents of 4orking 'apital 4orking 'apital 'ycle Financing 4orking 'apital Financial #atios

8. #eview of &iterature

9. :bjective of the study ;. #esearch Methodology <. Findings = "nalysis in !"#$I $%&%$%'! &$D. . . . . . . . %valuation of various components of 4orking 'apital 4orking 'apital #atios $urnover #atios 4orking 'apital and 'apital %mployed +rofit "fter Sales as a > to sales /arious 'ycles = their differences 4orking 'apital #e?uired at %%$%&

@. Suggestions and #ecommendations A. 'onclusion 1B. ibliography

151-6('71 S6MMAR8

151-6('71 S6MMAR8
India in a large and growing economy with rapidly e5panding financial service sector. Managing working capital is a matter of balance. " company must have sufficient cash on hand to meet its immediate needs while ensuring that idle cash is invested to the organi,ation3s best possible advantage. $o avoid tipping the scale, it is necessary to have clear and accurate reports on each of the components of working capital and awareness of the potential impact of outside influences. /OR.'N* -A+'(A0 9 -6RR1N( ASS1(S : -6RR1N( 0'AB'0'('1S

In the analysis for

harti $eletech &imited, a

harti *roup 'ompany it was found that the

working capital has increased which could be mainly due to increased sales. $he *ross :perating 'ycle declined significantly but the reduction was nullified due to the reduction in inventory conversion period. $his is why we see that 2et operating 'ycle for last two years is almost identical. $he main areas of emphasis were work in progress conversion period and creditors conversion period. Debtors conversion period reduced but work in progress and creditors conversion period increased. Few suggestions that are recommended for better management of working capital are reducing inter.corporate deposits and loans, reducing finished goods inventory, increment in creditors payment period etc. $he company uses :perating 'ycle Method to calculate its 4orking 'apital method. $hus, good management of working capital is part of good financial management. %ffective use of working capital will contribute to the operational efficiency of a company, optimum use will help to generate ma5imum returns.

'N(ROD6-('ON

/OR.'N* -A+(A0 MANA*1M1N(

%very business needs investment to procure fi5ed assets, which remain in use for a long period. Money invested in these assets is called C&ong term Funds3 or CFi5ed 'apital3. usiness also needs funds for short.term purposes to finance current operations. Investment in short term assets like cash, inventories, debtors etc., is called CShort.term Funds3 or C4orking 'apital3. $he ;/orking -a%ital< can be categori,ed, as funds needed for carrying out day.to.day operations of the business smoothly. $he management of the working capital is e?ually important as the management of long.term financial investment. $he goal of 4orking 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 e5penses.

%very running business needs working capital. %ven a business which is fully e?uipped with all types of fi5ed assets re?uired, is bound to collapse without -i0 ade?uate supply of raw materials for processingD -ii0cash to pay for wages, power and other costsD -iii0creating a stock of finished goods to feed the market demand regularlyD and, -iv0the ability to grant credit to its customers. "ll these re?uire working capital. 4orking capital is thus like the lifeblood of a business. $he business will not be able to carry on day.to.day activities without the availability of ade?uate working capital.

-om%an= +rofile BHAR('

BHAR(' 1N(1R+R'S1

Bharti 1nter%rises has successfully focused its strategy on telecom while straddling diverse fields of business. From the creation of E"irtelE, one of IndiaEs finest brands, to becoming the largest manufacturer and e5porter of world class telecom terminals under its E eetelE brand, harti has created a significant position for itself in the global telecommunications sector. harti "irtel &imited is today acknowledged as one of IndiaEs finest companies, and its flagship brand E"irtelE, has over 8B million customers across the length and breadth of India.

4hile a joint venture with $ele$ech Inc., FS" marked 'ustomer Management Services business,

harti3s successful foray into the harti

harti %nterprises3 dynamic diversification has

continued with the company venturing into telecom software development. #ecently,

has successfully launched an international venture with %& #othschild *roup owned %&#: !oldings India &td., to e5port fresh "gri products e5clusively to markets in %urope and FS". harti also has a joint venture . C harti "G" &ife Insurance 'ompany &td.3 . with "G", world leader in financial protection and wealth management. harti has recently forayed into retail business under a company called Mart for the cash = carry business. harti #etail +vt. &td. It also has a MoF with 4al.

*rou% Stru3ture

Highlights
harti %nterprises announced new "pe5 level Strategic :rgani,ation Structure. harti "nnounced Strategic #oadmap for its #etail /enture harti *roup made an arrangement to buy 9.;> direct interest of /odafone in harti "irtel &imited for FSH1.; billion Sunil . Mittal has been chosen for this year3s +adma hushan "wards harti "irtel received &etter of :ffer to provide 6* and 7* mobile services in Sri &anka

BHARTI TELETECH

-om%an= %rofile B11(10

BHAR(' (101(1-H

+RO2'01
In 1A@9, collaboration harti $eletech entered into a technical with Siemens "*, the *erman

technological giant and set up a plant in &udhiana to manufacture telephones. 'ome 6BBA and eetel has journeyed across twenty years of creating history. In 1AA1,

eetel manufactured phones for ESprintE, the "merican telecom mammoth. Shortly after, in 1AA7.A8, came IS: ABB1.6BBB accreditations for the manufacturing units . by this time two in numbers, at *urgaon and &udhiana. "nd in a short span of time, already the market leader. 'ornering half of the Indian market, Favorite +honeE. $oday harti $eletech has two IS: ABBB certified plants with an annual capacity of 9 eetel was eetel became EIndiaEs

million units p.a. harti became the first company toI > Manufacture cordless telephone and telephone answering machines in India. $> It is also the first to launch SMS phones on fi5ed line in the country thereby heralding a revolution in fi5ed line SMS telephony. ?> In line with customer needs, *SM Interference free phones. harti was also the first to launch backlit &%D and

+,

%%$%&3s products range includes the like Modems, routers and set top bo5es. 8

"SI' +hones, '"&&%# ID +hones, ':#D&%SS

+hones, 1.@ *!, D%'$, 6.8 *!, phones, /:I+ +hones, broadband -"DS&0 e?uipments

$$& is the first Indian company to manufacture 6B million phones. $oday, one out of every eetel. 4ith rapid growth over the years, harti $eletech today is the

three phones in India is a

largest manufacturer of phones in the *lobe outside 'hina. Bharti (elete3h 3ommands a lion@s share of over A!B, in the e5tremely competitive S2&J M$2& segment. 9 harti became the first company to e5port phones to Sprint Inc. FS" . recognition of our world class ?uality. $oday, $$& is present in 7B countries across 9 continents %5ports are a huge thrust area for harti. In 1AA1, harti became the first company to e5port

phones to Sprint Inc. FS" K recognition of our world class ?uality. $he e5port operations have been highly successful over the years. In 6BB7.B8, e5ports crossed the half million mark . a ?uantum jump since we started. $oday, we are present in 7B countries across 9 continents despite intense competition from the strongest brands in the world. taken fruit in the global arena. $he rand building initiatives have also eetel brand is present in /ietnam, Iran, 'hile, :man,

angladesh, Mauritius and Sri &anka. $his list continues to grow with each passing month and it is a matter of time before eetel becomes a truly global brand.
Bharti Teletech Team i- .p/eat to create &i-tor0 /0 cro--ing a Sale- T.rno1er /e0ond 2333 core- in %) 23+34++ again-t the la-t 0ear5- 678 crore-.

A-H'171M1N(S
$rend has won *O0D1N +1A-O-. A/ARD as the only phone with S'M card reader. $he model Millennium 'lip Ma5 -" high end 'aller ID and $wo way speaker phone0 recently launched in the market /ON a *O0D1N +1A-O-. A/ARD for 'NNO7A('71 D1S'*N . eetel has a range of over 79 models across basic, feature and cordless segments and continues to add a new model every month. 4ith a current market share of over 8B>, +9

eetel is the first choice of the Indian consumer. In the growing private service provider segment, competitive harti $eletech commands a lion3s share of over AB>. In the e5tremely S2&J M$2& segment, we have crossed a market share of 9B>. $$& has

successfully met the challenge of providing ?uality products at competitive prices. Following are the new products recently introduced in the open marketI.

DB A$!! . 'aller Id with Speaker

-B C!!!! .6.8 *!, 'ordless +hones

-B C !!! .6.8 *!, 'ordless +hones with base dialing

-B DA!!! .6.8 *!, 'ordless +hones with color Screen

+:

-B 4A!!! . &ow +riced 6.8 *!, 'ordless +hones

D2 ""!! .'aller Id +hone with large Screen Display

Following are the new products recently introduced for the D:$ market as per new $%' specifications -*$%&.B6JB80D all these models are *SM interference free.

I#IS 6)7 *"#2%$ +%#ID:$ -" '&I +!:2%0

eside this company has maintained its leadership in all chosen markets like +S+, D:$, :+%2 M"#)%$ = %G+:#$ -e5porting to 7B countries across five continents world wide.

DOM1S('"fter years of careful and focused brand.building, markets. eetel was the first Indian brand to launch caller ID phones in India and the first to bring down the price of cordless phones to an affordable range at below #s. 6BBB. eetel is recogni,ed as a trusted brand

in India and is poised to take on global players in the most competitive international

+;

eetel has also pioneered SMS phones, the first in India. 4ith this landmark development, India now has the pride of joining the select set of countries that offer SMS on and from fi5ed.line telephony service platform worldwide. For the consumer in India, eetel is truly ringing in the future. Indian +$$ has accepted heartedly and the brand has a ;B> share in this market. $he private service providers have shown great faith in over A9> of this market. eetel has remained the 2o. 1 brand in the Indian retail market, with a market share of over9B>. $he companyEs marketing network encompasses over 9@B distributors and over 7B,BBB dealers, taking eetel phones to every corner of one of the biggest markets in the world. eetelEs products and appreciate eetel has garnered eetel instruments whole

the companyEs ability to customi,e the phones to their specifications.

'N(1RNA('ONA0 "fter years of careful and focused brand.building, markets. :verseas, the company has a richly diversified customer base in over 7B countries across five continents. $he markets include the FS", South "merica, %astern %urope, the Middle %ast, South %ast "sia and "frica. $elephone instruments are supplied to Siemens, "kai, 'onnair and the Sprint *roup in the FS" among many others. $he %lectronics and 'omputer !ardware %5port +romotion 'ouncil conferred upon harti $eletech, the award for the $op $elephone Instrument %5porter. $he company e5emplifies a marketing success story that writes new chapters of achievement with each passing year. eetel is recogni,ed as a trusted brand

in India and is poised to take on global players in the most competitive international

23

-OM+AN8<S 7'S'ON<S AND 7A061S

7'S'ON

$o be a leader in $elecom and allied products in chosen global market.

7A061S
-ustomer

4e will be responsive to the needs of our customer

+eo%le

4e will trust and respect our employees

0earning

4e will continuously improve our products and services. innovatively and e5peditiously
2+

-ommunit= E +artners

We <ill /e tran-parent and -en-iti1e in o.r dealing <ith all -takeholder-

F6A0'(8 +O0'-8
At Bharti (elete3h Gualit= has al4a=s Heen among the to% %riorit= .

22

F6A0'(8 OBJ1-('71S

$o meet customersE re?uirements in terms of functionality, safety, aesthetics, life e5pectancy and taking effective actions on their feedbackEs. $o ensure planned results and continual improvements in all operations -processes and products0. $o increase productivity by reducing rejections = non.value adding activities, and bringing automation. $o effect continuous improvements in 'ustomer Satisfaction Inde5. $o ensure training of employees as per defined targets studying needs and re?uirements. $o ensure that all statuary and regulatory re?uirements are complied with.

F6A0'(8 -60(6R1

+roviding training on Luality education system right across the entire organi,ation to carry out continuous Improvement activity in collaborative way.

28

Deployment of Luality policy = Luality :bjectives through out the :rgani,ation in a structured way = is headed by '%: as 'hairman of Luality Improvement $eam.

'ross.functional Improvement teams to promote Synergy through sharing. "ll the employees always carry out an Improvement project, which leads to improvement in their individual efficiency. #ewardingJ recogni,ing the good performers -individual as well as teams0 in monthly J ?uarterly and yearly functions. %ncouraging innovation by way of giving token reward for each suggestion and running trophy to department giving ma5imum suggestion per person per month. %ncouraging people to work as a team in Small *roup "ctivities -$'"s0 and Luality Improvement +rojects -LI+s0

F6A0'(8 A-H'171M1N(S

harti $eletech &imited is a Luality 'onscious organi,ation = continuously Strives for Luality Improvement through +rocess Management. Some of the achievements which have come out of companyEs unstinted faith in investing for ?uality are I

27

A4ards

*olden +eacock Innovative +roductJServices "ward in the $elecommunication Sector for the year 6BB6, the *olden +eacock For Innovative Management for the year in 6BB9. 6BB8 and Most Innovative +roduct

#ecipient of the %S' "ward for %5cellence in %5ports in $elecommunication %?uipment in 6BB1.B6 and 6BB6.B7. 4inner of the /oice = Data "ward for M$op $elephone ManufacturerM in 6BB6.B7 and 6BB7.B8. 4on the 'onsumer 4orld "ward for 6BB8. "warded the M$op Fi5ed &ine +hones 'ompany.6BB;M by /oice and Data

B11(10<S *RO/(H
eetel has established itself as a leader in MModemsM. eetel has also entered the MSet (o% BoIM market and is on foray in this segment. harti $eletech has joined hands with world leaders in their categories for manufacturing and Distribution of their products through its 'hannel. In addition to being manufactures and Distributors of M*% +honesM in India and select S""#' countries, today $$& are 2ational Distributors for. MMotorolaJ *SM moHile Handsets and A33essories J+ol=3omJ Audio and 7ideo -onferen3ing S=stems JMi3rosoft 5 BoIJ gaming devi3es .

26

R171'/ O2 0'(R1(6R1

2,

A%%roa3hes to /orking 3a%ital Management

4orking capital management takes place on two levelsI #atio analysis can be used to monitor overall trends in working capital and to identify areas re?uiring closer management. $he individual components of working capital can be effectively managed by using various techni?ues and strategies. 4hen considering these techni?ues and strategies, companies need to recogni,e that each department has a uni?ue mi5 of working capital components. $he emphasis that needs to be placed on each component varies according to the companies. For e5ample, some companies have significant inventory levelsD others have little if any inventory. Furthermore, working capital management is not an end in itself. It is an integral part of the company3s overall management. $he needs of efficient working capital management must be considered in relation to other aspects of the company3s financial and non.financial performance. -OM+ON1N(S $he term working capital refers to the amount of capital which is readily available to an organi,ation. $hat is, working capital is the difference between resources in cash or readily convertible into cash -'urrent "ssets0 and organi,ational commitments for which cash will soon be re?uired -'urrent &iabilities0. 'urrent "ssets are resources which are in cash or will soon be converted into cash in Mthe ordinary course of businessM. 'urrent &iabilities are commitments which will soon re?uire cash settlement in Mthe ordinary course of businessM.

29

/OR.'N* -A+'(A0 9 -6RR1N( ASS1(S - -6RR1N( 0'AB'0'('1S In a departmentEs Statement of Financial +osition, these components of working capital are reported under the following headingsI -urrent Assets

&i?uid "ssets -cash and bank deposits0 Inventory Debtors and #eceivables -urrent 0iaHilities

ank :verdraft 'reditors and +ayables :ther Short $erm &iabilities

-om%onent of /orking -a%ital i. Stock of raw material

Basis of 7aluation +urchase cost of raw Materials

ii.

Stock of work in process

"t cost or market value, whichever is lower

iii. iv.

Stock of finished goods Debtors

'ost of production 'ost value of sales or sales

v.

'ash

4orking e5penses

2:

/orking -a%ital -=3le

4orking capital cycle involves conversions and rotation of various constituentsJcomponents of the working capital. Initially Ccash3 is converted into raw materials. 'ash flows in a cycle into, around and out of a business. It is the businessEs life blood and every managerEs primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesnEt generate surpluses, the business will eventually run out of cash and e5pire. $he faster a business e5pands the more cash it will need for working capital and investment. $he cheapest and best sources of cash e5ist as working capital right within business. *ood management of working capital will generate cash will help improve profits and reduce risks. $he cost of providing credit to customers and holding stocks can represent a substantial proportion of a firmEs total profits. $he usage of fi5ed assets result in value additions, the raw materials get converted into work in process and then into finished goods. 4hen sold on credit, the finished goods assume the form of debtors who give the business cash on due date. $hus Ccash3 assumes its original form again at the end of one such working capital cycle but in the course it passes through various other forms of current assets too. $his is how various components of current assets keep on changing their forms due to value addition. "s a result, they rotate and business operations continue. $hus, the working capital cycle involves rotation of various constituents of the working capital. 4hile managing the working capital, two characteristics of current assets should be kept in mind vi,. -i0 -ii0 short life span, and Swift transformation into other form of current asset.

%ach constituent of current asset has comparatively very short life span. Investment remains in a particular form of current asset for a short period. $he life span of current assets depends upon the time re?uired in the activities of procurementD production, sales and collection and degree of synchroni,ation among them. " very short life span of current assets results into swift 2;

transformation into other form of current assets for a running business. $hese characteristics have certain implicationsI i Decision regarding management of the working capital has to be taken fre?uently and on a repeat basis. ii. $he various components of the working capital are closely related and mismanagement of any one component adversely affects the other components too. iii. $he difference between the present value and the book value of profit is not significant.

If money moves faster around the cycle -e.g. collect monies due from debtors more ?uickly0 or the amount of money tied up is reduced -e.g. reduce inventory levels relative to sales0, the business will generate more cash or it will need to borrow less money to fund working capital. "s a conse?uence, the cost of bank interest can be reduced or additional free money will be available to support additional sales growth or investment. Similarly, if improved terms with suppliers are negotiated e.g. longer credit or an increased credit limit, then free finance to help fund future sales can be effectively created. 83

$husN If you .......

Then ......
Oou release cash from the cycle

'ollect receivables -debtors0 faster

'ollect receivables -debtors0 slower Oour receivables soak up cash

*et better credit -in terms of duration or amount0 from suppliers Oou increase your cash resources

Shift inventory -stocks0 faster Oou free up cash Move inventory -stocks0 slower Oou consume more cash

8+

MANA*1M1N( O2 -OM+ON1N(S O2 /OR.'N* -A+'(A0

'nventor= Management
Inventory includes all types of stocks. For effective working capital management, inventory needs to be managed effectively. $he level of inventory should be such that the total cost of ordering and holding inventory is the least. Simultaneously, stock out costs should be minimi,ed. the inventory cost is reduced and its management becomes efficient. "verage stock.holding periods will be influenced by the nature of the business. For e5ample, a fresh vegetable shop might turn over its entire stock every few days while a motor factor would be much slower as it may carry a wide range of rarely.used spare parts in case somebody needs them. many large manufacturers operate on a just-in-time -(I$0 basis whereby all the components to be assembled on a particular today, arrive at the factory early that morning, no earlier . no later. $his helps to minimi,e manufacturing costs as (I$ stocks take up little space, minimi,e stock.holding and virtually eliminate the risks of obsolete or damaged stock. for as it embraces all the principles of prudent stock management. Factors to be considered when determining optimum stock levels includeI

usiness,

therefore, should fi5 the minimum safety stock level, re.order level and ordering ?uantity so that

ecause (I$ manufacturers hold

stock for a very short time, they are able to conserve substantial cash. (I$ is a good model to strive

4hat are the projected sales of each productP !ow widely available are raw materials, components etc.P !ow long does it take for delivery by suppliersP 'an you remove slow movers from your product range without compromising best sellersP

82

DeHtors Management
$he objective of any management policy pertaining to debtors would be to ensure that the benefits arising due to the debtors are more than the cost incurred for debtors and the gap between benefits and cost increases profits. "n effective control of receivables helps a great deal in property managing it. %ach business should, therefore, try to find out average credit e5tended to its client using the below given formula

-reditors Management
'reditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. +urchasing initiates cash outflows and an over.,ealous purchasing function can create li?uidity problems. $hus, the following factors should be consideredI i. ii. iii. $he purchasing authority in the company and whether it is tightly managed or spread among a number of people. $he purchase ?uantities should be geared to demand forecasts. :rder ?uantities should be used that take into account stock.holding and purchasing costs. iv. $he cost of carrying stock should be known. 88

v. Dependency on a single supplier should be avoided and facilities like best discounts, credit terms etc. should be used from alternative suppliers. vi. Suppliers3 returns policy should be considered.

-ash Management
'ash is the most li?uid current asset. It is of vital importance to the daily operations of business. 4hile the proportion of assets held in the form of cash is very small, its efficient management is crucial to the solvency of the business. $herefore, planning cash and controlling its use are very important tasks. 'ash budgeting is a useful device for this purpose.

2'NAN-'A0 RA('O ANA08S'S

'ntrodu3tion
Financial ratio analysis calculates and compares various ratios of amounts and balances taken from the financial statements. $he main purposes of working capital ratio analysis areI

to indicate working capital management performanceD and $o assist in identifying areas re?uiring closer management. $hree key points need to be taken into account when analy,ing financial ratiosI

$he results are based on highly summari,ed information. 'onse?uently, situations which re?uire control might not be apparent, or situations which do not warrant significant effort might be unnecessarily highlightedD

Different departments face very different situations. 'omparisons between them, or with global MidealM ratio values, can be misleadingD #atio analysis is somewhat one.sidedD favorable results mean little, whereas unfavorable results are usually significant. 87

!owever, financial ratio analysis is valuable because it raises ?uestions and indicates directions for more detailed investigation.

/orking -a%ital Ratio

-urrent Ratio
-urrent Assets divided by -urrent 0iaHilities $he working capital ratio -or current ratio0 attempts to measure the level of li?uidity, that is, the level of safety provided by the e5cess of current assets over current liabilities.

Fui3k Ratio
0iGuid Assets divided by -urrent 0iaHilities $his is another measure of li?uidity. It looks at the number of days that li?uid assets -for e5ample, inventory0 could service daily operating e5penses -including salaries0.

Sto3k (urnover Ratio

-ost of Sales divided by Average Sto3k 0evel $his ratio applies only to finished goods. It indicates the speed with which inventory is sold.or, to look at it from the other angle, how long inventory items remain on the shelves. It can be used for the inventory balance as a whole, for classes of inventory, or for individual inventory items.

86

DeHtor (urnover Ratio

$here is a close relationship between debtors and credit sales to third parties -that is, sales other than to the 'rown0. If sales increase, debtors will increase, and conversely, if sales decrease debtors will decrease. -redit Sales %er +eriod 5 Da=s %er %eriod Average DeHtors $he debtor ratio does not solve the collection problem, but it acts as an indicator that an adverse trend is developing. #emedial action can then be instigated.

-reditor (urnover Ratio

It e5presses the relationship between credit purchases and the liability to creditors. It can be stated as the number of days that credit purchases are carried on the books. -redit +ur3hases %er +eriod 5 Da=s %er %eriod Average -reditors

(husK Se. No.

Stock $urnover "verage Stock Q R 5 days -in days0 7;9J 'ost of *oods Sold :n average, the value of the entire stock is turned every 5 days. $here may be a need to break this down into product groups for effective stock management. -i0 :bsolete stock, slow moving lines will e5tend overall stock turnover days. 8, Faster production, fewer product lines, just

Ratio

2ormulae

Result

'nter%retation

in time ordering will reduce average days.

It takes on an average of 5 days to -ii0 #eceivables #atio -in days0 Debtors Q 7;9J Sales R 5 days collect the due amount of money. If the official credit terms are 89 day and it takes ;9 days... then Cwhy3 should be found outP :ne or more large or slow debts can drag out the average days. %ffective debtor management will minimi,e the days.

:n average, the suppliers are paid -iii0 every 5 days. If better negotiations are done regarding the credit terms this will +ayables #atio -in days0 'reditors Q 7;9J 'ost of Sales -or +urchases0 R 5 days increase. If paid earlier to the supplier, say, to get a discount this will decline. If there is a deferment in payment to the suppliers -without agreement0 this will also increase . but the reputation, the ?uality of service and any fle5ibility provided by the suppliers may suffer. 'urrent #atio $otal "ssetsJ $otal 'urrent 'urrent "ssets are those assets that can readily be turn into cash or can be 89 &iabilities 'urrent R 5 times

done so within 16 months in the course of business. 'urrent &iabilities are those amounts -iv0 which are due to pay within the coming 16 months. For e5ample, 1.9 times means that one should be able to lay hisJher hands on H1.9B for every H1.BB one owe. &ess than 1 time e.g. B.<9 means that one could have li?uidity problems and be under pressure to generate sufficient cash to meet oncoming demands.

8:

OBJ1-('71S O2 (H1 S(6D8

8;

73

OBJ1-('71S O2 (H1 S(6D8

$he objective of working capital management is to maintain the optimum balance of each of the working capital components. $his includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible, thereby ma5imi,ing the interest earned. !owever, such cash may more appropriately be invested in other assets or in reducing other liabilities. My objectives of analy,ing working capital management in %%$%& are as followsI

$o study the method which %%$%& is using to ascertain its working capital re?uirement. $o learn about the sources from which capital re?uirements. $o study where the procured funds have been used by %%$%&. $o study whether the company is running effectively with as little money tied up in current accounts as possible. $o analy,e whether the method being used for ascertainment of working capital re?uirement is efficient or not. $o have an appreciation of the financial environment within which business operates. %%$%& is procuring funds to fulfill its working

7+

R1S1AR-H M1(H1DO0O*8

72

M1(HODO0O*8
$he study is based on personal decision, interview schedules, documentary observationD the data has been collected from the e5ecutives of the organi,ation and through the published sources.

R1S1AR-H
$he research work is restricted only to the %%$%& DIS$#I F$I:2 SOS$%M. $he study is

based on the outcomes of personal interviews and documentary observation. ut the e5treme care has been taken to involve the constructive suggestion from the e5ecutives. $he success of research basically depends upon the method, which is adopted to solve the research problem i.e. a0 $o collect desired information and data in a systematic manner. b0 "ppropriate selection of method is necessary. $he first = foremost step in any research procedure isI.

S(1+ L +roHlem 2ormulation

It is a very important step which has to be understood properly and clearly on which the study is based because it tells the scope of the study and it should not go beyond it nor should e5ecute some irrelevant aspect. In this case the study is based on how re?uirements. %%$%& manages its 4orking capital

S(1+ $L OH,e3tives of the Stud=

"fter the problem formulation the objectives should be clear through which specific type of information can be collected. $he objective of this is to study about the management of 4orking 'apital for day to day business transactions.

78

S(1+?L Determine sour3e data

$he third step includes the collection of data, which is from the source i.e. primary secondary data. "fter the collection of data, it should be organi,ed and analy,ed to check whether the objectives are fulfilled or not. "fter analy,ing the data investigation of research had worked out with the help of following stepsI #esearch design $ools = techni?ues

R1S1AR-H D1S'*NL
" research is an arrangement of conditions for the collection = analysis of data in a manner that aims the research purpose and achievements of goal with economy in procedure depending on research problem. $he study of 4orking 'apital is generally based on documentary evidences.

(OO0S AND (1-HN'F61SL

In order to conduct the study the following methods were adopted.

. +ersonal Dis3ussionL $here is certain information related to the subject which is

known to employees of the office so through connecting with the employees and e5ecutives the information is gathered. &ike, about the company profile, its inception, growth etc.

$. Dire3t +ersonal 'ntervie4sL $he investigator personally approaches the concerned

people and asks them to furnish information, which is of material input for the en?uiry. $herefore these ideas, suggestions views are collected on the topic through interview.

?. Do3umentar= oHservationL $he investigator consults the secondary sources like

journals, annual reports, maga,ines, books, unpublished material from library, internet and the area office.

77

-O001-('ON O2 DA(A
+rimar= dataL are those that are collected for the first time by the investigator and the primary
data used ad collected for this study areI. Direct +ersonal Interview with my project guide at %%$%& Indirect :ral Investigation auditors and other concerned employees at %%$%& Information through e.mail about the components of operating cycle from the manufacturing units in &udiyana and *oa. %%$%&

Se3ondar= dataL are not collected but obtained from the published and unpublished sources
and the secondary data collected for this study areI. +ublished data about journals and books. Fnpublished data through scholars, libraries, area office in %%$%&. 'ompany information from their %%$%&3S official website. %%$%&, through newspapers, maga,ines, research institutes,

76

2'ND'N*S E ANA08S'S

7,

ASS6M+('ONS "ll calculations have been done taking 7;9 days in a year. "ll sales are credit sales. "ll purchases are credit purchases. For all the years, opening = closing figures have been taken to calculate average debtors, ? stMar3h&$!!A ? stMar3h& $! ! ? stMar3h&$!

creditors, etc. +arti3ulars

-6RR1N( ASS1(S& 0OANS E AD7AN-1S Inventories Sundry Debtors 'ash = ank alances :ther 'urrent "ssets &oans = "dvances (otal -urrent Assets 0ess -6RR1N( 0'AB'0'('1S E +RO7'S'ONS &iabilities +rovisions (otal -urrent 0iaHilities /orking -a%ital

6,8A,696 6,7;,;9< <<,B;A 11,8;1 7,<7,761 A,8<,<;B

18,9A,9BB 8,A;,9;B 7,@A,17B <,@6B 8,11,@BB 6<,;8,@1B

91,8@,;9B 16,6B,89B 9,B<,7@B 6,@7B 9,<;,8<B <8,99,<@B

1,99,B7@ 1<,@88 1,<6,@@6 <,<8,@<@

18,8B,67B <9,1<B 19,19,8BB 16,8A,81B

9;,8B,<6B 1,;8,86B 9@,B9,18B 1;,9B,;8B

4ages and salaries are paid at a lag of 1month. -#s CBBB0

79

Evaluation of various components of Working Capital

Major components of 4orking capital as > of 'apital %mployed are as followsI Inventories Debtors 'ash = ank &oans = "dvances (otal -urrent Assets &iabilities +rovisions (otal -urrent 0iaHilities . . . . . . 61<.;<> 91.;B> 61.89> 68.7;> ? D.$!B 67@.8<> ;.A9> $4D.4$B

Working Capital Ratios

-urrent Ratio $he 'urrent #atio is decreasing over the period i.e for 6BBA it was 9.8@I1, it went down to 1.@6I1 in 6B1B and has now come down to 1.6@I1 in 6B11 which is very close to the ideal ratio of 1.77I1. $his indicates that there is a perfect balance between current assets = current liabilities that the company owns. (he ma,or reasons for im%rovement in 3urrent ratio areL -i0 $he total > of debtors in the 'urrent assets of 6B11 has decreased to 1;.7<> from 1<.A;> in 6BBA. -ii0 Moreover, the percentage of money blocked in cash = bank balance has got reduced from 18.B<> in 6B1B to ;.@B> in 6B11. -iii0 $he liabilities in 6B11 have increased as compared to liabilities in 6B1B = 6BBA. $his means that the company is now trading at creditors worth.

7:

"#!$%&' C (%) * R )%#+

, 6 7 8 2 + 3 233; Ye !
0.86 0.39 4.04 1.82 1.28 5.48

C.rrent $atio '.ick $atio

23+3

23++

Fui3k Ratio $he ?uick ratio showed a drastic improvement in 6B1B as compared to 6BBA, but it went below the ideal ?uick ratio of 1I1 and in 6B11 it went further down to B.7AI1. (he ma,or reasons for 3hanges in Fui3k ratio areL -i0 $he company is blocking huge amount of money in maintaining their inventories i.e ;A> of their total investment in current assets. -ii0 +rovisions have decreased from 8.A> in 6B1B to 6.@> in 6B11.

7;

Sto3k (urnover Ratio

S)#,$ T-!&#.e! R )%#

+3 ; : 9.14 6.8/

T%0e+

9 , 6 7 8 2 + 3 233: 233; 23+3 4.85

23++

23+2

Ye !

Stock $urnover #atio had changed drastically from A.18 times in 6BBA to 8.@9 times in 6B1B, but still it was way below the ideal of ; to < times, which it achieved in 6B11 by coming at ;.@< times. (he ma,or reason for im%rovement in Sto3k (urnover Ratio is that the sales have increased because of the trading business as the company has entered in the fields of M:$:#:&", G :G, *%, &"') %##O.

63

DeHtors (urnover Ratio

De1)#!+ T-!&#.e! R )%#

83 28.34 26

T%0e+

23 +6 13.82 +3 6 3 233: 11.15

233;

23+3

23++

23+2

Ye !

$he Debtors $urnover #atio has increased drastically from 17.@6 times in 6B1B to 6@.78 times in 6B11. (he ma,or reason for 3hange in DeHtors (urnover Ratio is that the company has entered into the trading business of M:$:#:&" products and accessories. "s the company is purchasing the products from the M:$:#:&" company in cash and distributing the same, with the help of their $D3s, by providing a credit of 7B days. 6+

-reditors (urnover Ratio

C!e2%)#!+ T-!&#.e! R )%#

+2 11.4 +3

T%0e+

: , 7 2 3 233: 233; 23+3 6.83

/.59

23++

23+2

Ye !

$he creditors $urnover #atio has decreased drastically from 11.8 times in 6BBA to ;.@7 times in 6B1B. $his shows that the company has been paying off its debts earlier than before. $he ratio has increased to <.9A times in 6B11. (he ma,or reason for 3hange in -reditors (urnover Ratio is that the M:$:#:&" company is not providing any kind o credit to %%$%& for distributing the M:$:#:&" handsets.

62

/orking -a%ital as a B of -a%ital 1m%lo=ed

"#!$%&' C (%) * + 3 #4 C (%) * E0(*#5e2

92.33=

+er3ent

93.33= ,:.33= ,,.33= ,7.33= ,2.33= ,3.33= 6:.33= 233: 58.963 233; 23+3 63.983

69./83

23++

23+2

8ear
4orking 'apital as a > of 'apital %mployed has increased from 9@.A;> in 6BBA to ;7.A@> in 6B1B. It further increased to ;A.<@> in 6B11. %ven if we compare the figure of working capital in these years then it is observed that working capital has increased from #s. <, <8,@<@ in 6BBA to #s. 16, 8A,81B in 6B1B to #s. 1;, 9B,;8B in 6B11. $hus this increase of 76.11> in working capital of 6B11 had effect on the overall profitability of the company.

68

+rofit After Sales as a B to Sales

+A( as a B to Sales
:.33= 9.33= 6.893 6.423 ,.33= 6.33= 7.33= 8.33= 2.33= +.33= 3.33= 233: 233; 23+3 1.193 23++ 23+2

+er3ent

8ear
+rofit "fter $a5 as a > to sales increased from ;.86> in 6BBA to ;.@A> in 6B1B. ut it showed a drastic fall in 6B11 and came down to 1.1A>. (he ma,or reason for 3hange in +A( as B of sales is that the sales of basic and cordless sets, manufactured by %%$%& has not increased but the balance sheet of the company shows an increment of A;.89> on e5penditure over raw materials.

67

BHAR(' (101(1-H 0'M'(1D BA0AN-1 SH11( AS A( ? S( MAR-H $!

+AR('-60ARS SO6R-1S O2 26NDS SHAR1HO0D1RS@ 26ND Share 'apital #eserve = Surplus 0OAN 26NDS Secured &oan Fnsecured &oan Deferred $a5 &iability (O(A0 NN A++0'-A('ON O2 26NDS 2'51D ASS1(S *ross lock &ess I DepreciationJ"mortisation 2et lock 'apital 4ork in +rocess 'N71S(M1N(S D121RR1D (A5 ASS1(S -6RR1N( ASS1(S& 0OANS E AD7AN-1S Inventories Sundry Debtors 'ash = ank alances :ther 'urrent "ssets &oans = "dvances # 9,18@,;98,7BA 1,66B,88<,7AB 9B<,7@7,B8A 6,@7B,9;8 9<;,8;9,177 #&4DD&#"!&44D C S3hdule As at ? .!?.$! MRs.>

9B,<BB,B<B 1,<8;,667,6@6

&#AC&A$?&?D$

? 4

9;B,BAA,166 @,79B,8@;

DC"&44A&C!" $&?CD&?#$&AC!

D 917,8B;,688 671,ABB,898 $" &D!D&#A! 4!&DA &! C $4D&$$ &$A! 4C&A$4& "$

66

0ess -6RR1N( 0'AB'0'('1S E +RO7'S'ONS &iabilities +rovisions N1( -6RR1N( ASS1(S M'S-100AN1O6S 15+1ND'(6R1

" 9,;8B,<6<,99< 1;8,8B@,A78 D&"!D& ?C&4A &CD!&C4?&AD4 A 4"C&#$A

(O(A0 NN S'*N'2'-AN( A--O6N('N* +O0'-'1S NO(1S (O A--O6N(S C #

$&?CD&?#$&AC! !

BHAR(' (101(1-H 0'M'(1D +RO2'( E 0OSS A--O6N( 2OR (H1 81AR 1ND1D ? S( MAR-H $!
+AR('-60ARS 'N-OM1 *ross Sales &ess I%5cise Duty 2et Sales :ther Income S3hdule As at ? .!?.$! MRs.> 68,9<6,7@A,@1B 67@,87@,169 $4&???&AD &C"D 1;;,<7@,;AA $4&D!!&CA!&?"4

15+1ND'(6R1 'ost of Materials Manufacturing %5penses +ersonnel,"dministration = Selling %5penses +RO2'( B12OR1 2'NAN-'A0 15+S& D1+R1-'A('ON E AMOR('SA('ON Financial %5penses +RO2'( B12OR1 D1+R1-'A('ON E AMOR('SA('ON &ess I DepreciationJ"mortisation +RO2'( B12OR1 15(RA ORD'NAR8 '(1MS

$ ?

66,<1A,B;A,;@A 78,;B1,<61 1,1@A,@AA,@A8 $?&A4?&D# &?!4 DD#& A&!#A ;@,76;,@1< 4""&#A$&$C$ 7@,@A<,<A9 44A&"A4&4C#

6,

"dd J -&ess0 I%5tra.:rdinary = +rior +eriod "djustments +RO2'( B12OR1 (A5A('ON 4ealth $a5 +aid +rovision for 'n3ome (aIL -#efer note no 6B of Schedule 1<0 .'urrent $a5 . Deferred $a5 . Fringe enefit $a5 +RO2'( A2(1R (A5 Surplus as per last alance Sheet +RO2'( A7A'0AB01 2OR A++RO+R'A('ON A++RO+R'A('ONS +roposed Dividend +rovision for Dividend $a5 Dividend $a5 for %arlier Oears $ransfer to *eneral #eserve +rofit 'arried Forward

81,1A6,18@ 4A &!"C&C D A6,<BB

687,9@1,B@A -96,@@B,;6B0 @,;8<,688

1AA,78<,<17 $A &C4C&$!$ @68,168,9BB & & D&##!&#!$

D&##!&#!$ . . . . 1,119,<<B,<B6 & D&##!&#!$

1ARN'N* +1R SHAR1 MBAS'- E D'06(1D>

D#.D$

Signifi3ant A33ounting +oli3ies Notes to A33ounts

C #

BHAR(' (101(1-H 0'M'(1D S-H1D601S (O A--O6N(S

+AR('-60ARS S3hdule As at ? .!?.$! MRs.>

SHAR1 -A+'(A0 Authorised 99,BB,BBB %?uity Shares -+revious Oear 99,BB,BBB0 of #s. 1B each

DD&!!!&!!!

69

'ssued SuHs3riHed and +aid u% 9B,<B,BB< -+revious Oear 9B,<B,BB<0 %?uity Shares of #s.1BJ. each S -:f the above %?uity Shares I i0 9,B<B,BBB shares are alloted as Efully paid up pursuant to scheme of arrangement without payment being received in cash0 ii0 7;1996A Shares are held by !olding 'ompany . harti %nterprises -!oldings0 +rivate &imited T R1S1R71S AND S6R+06S -A+'(A0 R1S1R71 "s per last alance Sheet SHAR1 +R1M'6M A--O6N( "s per last alance Sheet *1N1RA0 R1S1R71 "s per last alance Sheet "ddI $ransferred from +rofit = &oss "ccount Sur%lus in +rofit E 0oss A33ount A<,A<1,@9A . & $

D!&#!!&!#!

?$& A &D!!

4!!&$"A&$$

A#&A# &"DA D&##!&#!$

&#4C&$$?&$"$ S1-6R1D 0OANS 2rom Banks O 'ash 'redit = Foreign 'urrency 4orking 'apital &oan ? DC!&!AA& $$

6NS1-6R1D 0OANS Short (erm 0oans and Advan3es From !olding 'ompany Interest accured and due thereon

#&$D!&!!! & !!&4"C "&?D!&4"C

2ootnoteL O Secured against the hypothecation of Stocks = ookdebts of the company and First charge on
the all the Fi5ed "ssets of the company e5cept &and and uilding at *urgaon = the related fi5ed assets.

6:

BHAR(' (101(1-H 0'M'(1D S-H1D601S (O A--O6N(S

+AR('-60ARS 'N71S(M1N(S A( -OS( 0ON* (1RM 'N71S(M1N(S 'n Shares of 3om%anies M2ull= +aid 6%> (RAD1 6NF6O(1D Ma> 'n SuHsidar= -om%anies 8BB,BBB %?uity Shares -+revious Oear 8BB,BBB %?uity Shares0 of *oa $elecommunication = Systems &imited of #s. 1BJ.each fully paid up H> 'n Other -om%an= 2il %?uity Shares -+revious Oear 1;,96@,8B8 %?uity Shares0 of $eletech Services -India0 &imited of #s. 1BJ. each -6RR1N( 'N71S(M1N(S MRefer Note No. # of S3hedule C ENote No. ! of S3hedule #> O(H1R (HAN (RAD1 'n Mutual 2unds M6nGuoted> 'n 1Guit= Shares of -om%anies MFuoted> S3hdule C As at ? .!?.$! MRs.>

66,@6B,;A7

. $$&"$!&CA?

A9,8<B,9@B 16;,A7B,B1<

$$$&4!!&DA#

$4D&$$ &$A! Aggregated value of Guoted investment Aggregated value of unGuoted investment Market 7alue of Fuoted 'nvestments 16;,A7B,B1< 11@,6A1,6<7 18<,61B,9A8

BHAR(' (101(1-H 0'M'(1D S-H1D601 (O A--O6N(S

+AR('-60ARS -6RR1N( ASS1(S&0OANS AND AD7AN-1S S3hdule # As at ? .!?.$! MRs.>

6;

'N71N(OR'1S -"s $aken,/alued = 'ertified by the Management0 #aw Material Finished *oods 4ork.in. +rogress Stores and Spare +arts -#aw Material amounting to #s.61,7A@ thousand -+O #s. A,6<1 thousand0, Finished *oods amounting to #s.1,7<B,86B thousand -+O #s. 16;,1B; thousand0 = Stores = Spare parts amounting to #s. 2il -+O #s 16@ thousand 0 were in transit at year end.0 S6NDR8 D1B(ORS DeHts outstanding for a %eriod eI3eeding SiI Months L 'onsidered *ood 'onsidered Doubtful 7,69@,A9B 69,;1B,@71 6@,@;A,<@1 ,;1B,@71 7,69@,A9B :thers Debts I 'onsidered *ood 'onsidered Doubtful 1,61<,1@@,88 B 16,;@8,@9@ 1,66A,@<7,6A @ 16,;@8,@9@ &$$!&44#&?A! ;7,B76,@BB 9,B9;,7@<,69 9 17,@8B,919 19,7A7,<7A D& 4"&CD4&?!A

&ess I +rovision for Doubtful Debts

&ess I +rovision for Doubtful Debts -ASH E BAN. BA0AN-1S 'ash in !and 'he?ues = Drafts in !and Balan3e 4ith S3heduled BanksL In 'urrent "ccount In Deposit "ccount

1,1A<,A1< 77,B98,A9<

8<6,;BA,1<9 79B,BBB

,3

In Margin "ccount -Fnder &ien0 Saving "ccount with +ost :ffice -Fnder &ien0 O(H1R -6RR1N( ASS1(S %5port Incentive = Interest #eceivableI 'onsidered *ood 'onsidered Doubtful 6,@7B,9;8 7,687,66B ;,B<7,<@8 &ess +rovision For Doubtful %5port Incentives 0OANS AND AD7AN-1S -Fnsecured 'onsidered good unless otherwise stated0 Advan3es Re3overaHle in 3ash or kind or for value to He re3eivedL 'onsidered *ood 'onsidered Doubtful <7,99;,<;6 8,@;9,97B <@,866,6A6 &ess +rovision For Doubtful "dvances Se3urit= De%ositsL 'onsidered *ood 'onsidered Doubtful 1B,@89,9AA 1@B,BBB 11,B69,9AA &ess +rovision For Doubtful Deposits "dvance $a5 -2et0 &oans and Inter 'orporate Deposits alance with 'ustom = %5cise "uthorities Due from Subsidiary 'ompany 1@B,BBB 8,@;9,97B 7,687,66B 1<1,BBB

. D!#&?"?&!4A

$&"?!&DC4

#?&DDC&#C$

1B,@89,9AA

. 6;@,;6;,;69 A,6B7,1@< 618,676,A;B D#C&4CD& ?? 2ootnoteL Q 2et of +rovision for $a5ation #s. 2il thousand -+revious Oear #s.66<,AB6 thousand0

,+

BHAR(' (101(1-H 0'M'(1D S-H1D601 (O A--O6N(S

+AR('-60ARS S3hdule As at ? .!?.$! MRs.>

-6RR1N( 0'AB'0'('1S E +RO7'S'ONS -6RR1N( 0'AB'0'('1S $rade = :ther 'reditors U "dvance from 'ustomers Security Deposit Due to !olding 'ompany 'nvestor 1du3ation E +rote3tion 2und L -2ot due as at the year end0 . Fnclaimed Dividend Due to Directors Interest "ccured but not due U Includes #s. <7B1 thousand -+revious Oear 8,<7B0 due to SSI 'reditors. +RO7'S'ONS +roposed Dividend Dividend $a5 #etirement enefits 4arranty Sales $a5J%5cise JService $a5 Sales Incentive :thers +rovision for Income $a5Q Q 2et of "dvance $a5 #s. 7@@,B@8 thousand -+revious Oear ended #s 2il0

" 9,91<,B@<,A66 ;1,877,97@ 9@,A1B,987 6@7,1<B

681,A1B 1,;;9,A@< 1,1B8,8@<

D&C4!&#$#&DD#

. . 68,8<<,6;; 71,B1@,6B8 67,881,96< 8,;19,;@B 8;,89<,87< 78,7A@,@6B

C4&4!"&A?4

,2

M'S-100AN1O6S 15+1ND'(6R1 -$o the e5tent 2ot written off or adjusted0 7oluntar= Se%eration S3heme :pening alance &ess I 'harged during the year H> O(H1R 'N-OM1 Interest -*ross0 -$a5 deducted at source #s. <,AA8 thousand -+revious Oear ;,6A7 thousand0 +rofit on Sale of 'nvestmentsL :ther than $rade . 'urrent Investments Miscellaneous Income -$a5 deducted at source #s. <7 thousand -+revious Oear 67@ thousand0 %5change #ate Difference Dividend #eceived -*ross0 -'urrent Investment . :ther than $rade0 &iabilitiesJ+rovisions 4ritten ack #ent #eceived -$a5 deducted at source #s. @,;;; thousand -+revious Oear 9,7B@ thousand00

7,19A,@9@ 6,;<7,16A ! 79,;<6,;<1

4"C&#$A

8;,@;1,<;8 67,169,689

8,@<8,B8B ;,<A@,A1B 1B,<@A,97B 7@,;1;,98B CC&#?"&CAA

+AR('-60ARS

S3hdule

As at ? .!?.$! MRs.>

-OS( O2 MA(1R'A0S Ra4 Material -onsumed :pening Stock "dd. +urchases &ess 'losing Stock

88,;@<,A@@ 1,66@,;A9,@96 1,6<7,7@7,@8B ;7,B76,@BB

&$ !&?D &!4!

(rading +urchase of $rading *oods

$D& #!&?A?&$"!

,8

De3reasePM'n3rease> in /ork-in-%rogress and 2inished goods O%ening Sto3k 4ork.in.+rogress Finished *oods

16,161,@8@ 1,7A8,79B,;76 &4!C&4#$&4"!

0ess -losing Sto3k 4ork.in.+rogress Finished *oods %5cise Duty on account of IncreaseJ-Decrease0 in Stock of Finished *oods -ost of Materials

17,@8B,919 9,B9;,7@<,699 9,B<B,66<,<<B 6,B@B,;9A

M?&CC?&#DD&$A!>

$$&# A&!CA&C"A

BHAR(' (101(1-H 0'M'(1D S-H1D601 (O A--O6N(S

+AR('-60ARS S3hdule $ 17,9A<,B8A 9,8;@,1<1 798,69B 698,;;7 16,BAB,AA; 6,@7;,9A6 ? As at ? .!?.$! MRs.>

Manufa3turing 1I%enses +ower = Fuel 'onsumption of Stores and Spares %lectric #epairs $esting Fees (ob 'harges +aid Machinery #epair +ersonnel& Administration E Selling 1I%enses +ersonnel 1I%enses Salaries, 4ages = onus

?4&C! &#$

689,61B,B6@

,7

'ontribution to +rovident = :ther Funds 4orkman = Staff 4elfare %5penses #ecruitment %5penses Administration 1I%enses #ent #ates = $a5es Insurance 'harges $ravelling = 'onveyance +ostage,$elephone = $ele5 Re%air E Maintenan3eL a0 uilding b0 :thers "mountJDebtors 4ritten :ff Miscellaneous %5penses "uditors #emuneration &oss on Sale of Fi5ed "ssets U &oss on SaleJ#edemption of Investments -'urrent. other than $rade0 Diminution in /alue of Investment -'urrent. :ther than $rade0 +rovision for :bsolete Stock %lectricity = 4ater 'harges oard Meeting Fees = %5penses
+rovision for Doubtful Debts, "dvances = 'laims UU

66,BB6,96A A,@@6,<A6 16,;67,<;;

$"A&# A&

16,18A,6@7 18,1B;,;BA 7B,11@,6@1 ;9,A<9,;@6 1A,717,9@9 1,@B6,;;8 1<,<BA,6;< 7B,19A,AB1 7A,71A,A1< 7,171,869 1,6<1,@6@ @,98A,;87 @,;;A,A8A . 8,18A,;B1 7B;,<B6 <6,A7;,<8B 6,7B<,6<< .

#esearch = Development %5change #ate Fluctuations Selling 1I%enses Freight = 'artage "dvertisement = +ublicity usiness +romotion #ebate = Discount 'ommission Service 'harges ' = F 4arranty 'ost Spares 'onsumed

?? &A#"&?D4

118,A@A,7A9 61B,B68,978 6<,<6B,9B@ 16B,;;B,BB8 9,8;1,@;; 16,@A<,691 89,6;<,688 71,1@1,;67

DC"&$!$&4$4 & "A&"AA&"A4

&essI Share of 'entrailsed %5penses to Subsidiary 'ompany

,6

&essI Share of 'entrailsed %5penses to "ssociate 'ompanies

. . & "A&"AA&"A4

2ootnoteL U 2et of +rofit on Sale of Fi5ed "ssets #s. 76A thousand -previous year 1<6 thousand0.
UU 2et of +rovision of Doubtful Debts = "dvances 4ritten thousand -previous year #s. 1,;67 thousand0. ack amounting to #s. 76<

BHAR(' (101(1-H 0'M'(1D S-H1D601 (O A--O6N(S

+AR('-60ARS S3hdule 4 1,9;6,B9B 86,968,B@1 As at ? .!?.$! MRs.>

2'NAN-'A0 15+1NS1S 'nterest L . :n Fi5ed &oan . :thers :ther Finance 'harges

88,B@;,171 68,68B,;@; C"&?$C&" #

15(RA-ORD'NAR8 AND +R'OR +1R'OD ADJ6S(M1N(S a> 1Itra Ordinar= 'temsL 'n3omePM1I%enditure> /oluantary Separation Scheme +rovision for Sales $a5 &iability +rofit on Sale of &ong $erm $rade Investment H> +rior +eriod Ad,ustments MNet> 'n3omePM1I%enditure> +rior +eriod 1I%enses ank 'harges &oss on Sale of Fi5ed "ssets #ates = $a5es "dvertisement = +ublicity :ther Finance 'harges 'ontribution to +rovident = :ther Funds

M$&C#?& $A> 4?&"!!&$C?

-9A,9;60 -9,;8A0 . . . .

,,

+ostage, $elephone = $ele5 Freight = 'artage Salaries , 4ages = onus Miscellaneous %5penses $ravelling = 'onveyance (otal +rior +eriod 1I%enses +rior +eriod 'n3ome Min3luding Reversal of 1I%enses> +rofit on Sale of Fi5ed "ssets #ent #eceived Sales #ates = $a5es #ecruitment %5penses DepreciationJ"mortisation Miscellaneous %5penses (otal +rior +eriod 'n3ome +rior +eriod Ad,ustments MNet> 1Itra Ordinar= E +rior +eriod Ad,ustments

. . . -61,<@10 . M"C&AA$>

6B,A76 . . . . 171,B<8 . D$&!!C CD&! 4 4 & A$& 4"

M1(HOD 6S1D 'N B11(10 2OR /OR.'N* -A+'(A0 R1F6'R1M1N( 7arious -=3les and their Differen3e in B11(10

+arti3ulars /orking -a%ital MRs ;!!!> Ra4 Material -onversion +eriod /ork-in- +rogress -onversion +eriod 2inished *oods -onversion +eriod ,9

$!!A #&#4&"#" . D da=s $.A4 da=s ?#.#4 da=s DC.CC da=s

$! ! $&4A&4 ! ?D da=s # da=s $C.$# da=s $C.4 da=s

$! C&D!&C4! 4! da=s ! da=s # da=s $."# da=s

DeHtors -onversion +eriod *ross O%erating Da=s -reditors -onversion +eriod Net O%erating Da=s No. of O%erating -=3les in a 8ear. AC.4 da=s 4C. # da=s D!.$? da=s #.$C "$.C# da=s 4D."4 da=s ?#. ? da=s A."? #A."# da=s 4D da=s ?4."# da=s !.4#

O(e! )%&' C5,*e+

+33 ;3 :3 93 R 6 M )e!% * C#&.e!+%#& Pe!%#2 "#!$7%&7 P!#'!e++ C#&.e!+%#& Pe!%#2 8%&%+9e2 :##2+ C#&.e!+%#& Pe!%#2 De1)#!+ C#&.e!+%#& Pe!%#2 :!#++ O(e! )%&' C5,*e C!e2%)#!+ C#&.e!+%#& Pe!%#2 Ne) O(e! )%&' C5,*e C +9 C#&.e!+%#& C5,*e

D 5+

,3 63 73 83 23 +3 3 233; 23+3 23++

Ye !
Ra4 Material -onversion +eriodL Increased from 11.19 days in 6BBA to 69 days in 6B1B and then it further increased to 8B days in 6B11, which is not a good sign. " constant increment will lead to higher working capital re?uirement.

,:

/ork in +rogress -onversion +eriodL Increased from 6.A8 days in 6BBA to 9 days in 6B1B and again further increased 1B days in 6B11, which is again not a good sign. $his means that the goods are not worked upon efficiently and there is increment in the time taken to process goods. 2inished *oods -onversion +eriodL $his has decreased from 7<.<8 days in 6B1B to 6;.6< days in 6B1B and further decreased to 1< days in 6B11, which is a very good indicator. $hus, we see that the negative effects due to high raw material conversion period and high work in progress conversion period are almost wiped off. DeHtors -onversion +eriodL Decreased from 9;.;< days in 6BBA to 6;.8B days in 6B1B and 16.@< days in 6B11, which means that the company is collecting its debt more efficiently. " lower debtor conversion period together with increased sales is a good sign for the company. *ross O%erating -=3leL Decreased from A;.8B days in 6BBA to @6.;< days in 6B1B and <A.@< days in 6B11, which is mainly due to the reduction in debtor conversion period. " reduction in gross operating cycle means reduced need of funds for day to day working. ut the company should look for the improvement in inventory conversion period. -reditor -onversion +eriodL Decreased from 8;.1< days in 6BBA to 89.98 days in 6B1B and 89 days in 6B11, which means that the company is paying off its creditors earlier then before. $he company needs to delay payment to its creditors without loosing its reputation i.e. availing more credit from its creditors to finance its working capital needs. Net O%erating 3=3leL Decreased from 9B.67 days in 6BBA to 7<.17 days in 6B1B and 78.@< days in 6B11, indicating that the company3s re?uirement has decreased with comparison to previous year.

,;

/orking -a%ital ReGuired in B11(10

/orking -a%ital ReGuired 9 (otal 1I%enses in a 8ear .

No. of O%erating 3=3les in a =ear

/orking -a%ital ReGuired in B11(10 9

$?&A4?&D# &?!4

9 Rs $&$"C&"#4&!D!

!.4#

/orking 3a%ital 3urrentl= 1m%lo=ed in B11(10 9 Rs &CD!&C4!&!!! -"s per broader approach i.e 'urrent assets K 'urrent liabilities0 (he is a huge dis3re%an3= Het4een the a3tual 4orking 3a%ital and the reGuired 4orking -a%ital i.e of #s ;7;,678,B9B. $his is because they are using factoring services from F$I bank and these 2a3toring servi3es are off Halan3e sheet finan3ing s3heme so whichever method they would apply, it will not depict the correct picture of working capital re?uirement because the factoring services are accounted on mark. to. market basis. Moreover, %%$%& is not using separate books of accounts for their trading business of M:$:#:&" handsets and accessories so its accounts does not give the correct amount of debtors and outside liabilities.

93

S6**1S('ONS E R1-OMM1NDA('ONS

9+

Re3ommendations
$he management of the working capital is e?ually important as the management of long.term financial investment. $he goal of 4orking 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 e5penses. $he various possible steps that %%$%& may take to improve its working capital management are as followsI

"vailing more credit from its suppliers. +rompt collection from its debtors. Moving towards ,ero working capital. Improvement in Inventory 'onversion +eriod, mainly reduction in 4ork in +rogress. #eduction in loans and inter.corporate deposits and utili,ing the money to pay off debts and loans taken by the company. *iven the working loan of #s. 9;,@8,9B,BBB and interest thereon is #s. 8,8B,@B,BBB in 6B11 which is almost <.<9>. So, the company might consider some other sources of cheaper loans. $he company can maintain separate books of accounts for their manufacturing and trading businesses for more clarity and transparency in operations.

4orking capital management is an important yardstick to measure a company operational and financial efficiency. $his aspect must form part of the company3s strategic and operational thinking. %fforts should constantly be made to improve the working capital position. $his will yield greater efficiencies and improve customer satisfaction. 92

-ON-06S'ON

98

-on3lusion
In the analysis for harti $eletech &imited, a harti *roup 'ompany it was found that the working capital has increased which could be mainly due to increased sales. $he *ross :perating 'ycle declined significantly but the reduction was nullified due to the reduction in inventory conversion period. $his is why we see that 2et operating 'ycle for last two years is almost identical. $he main areas of emphasis were work in progress conversion period and creditors conversion period. Debtors conversion period reduced but work in progress and creditors conversion period increased. Moreover, the interest and concentration of %%$%& has entirely shifted towards M:$:#:&" trading business, which is not giving that much amount of returns that they were previously getting from their basic and cordless manufactured phones, as their previous achievements clearly shows that in the growing private service provider segment, harti $eletech commands a lion3s share of over AB>. Few suggestions that are recommended for better management of working capital are reducing inter.corporate deposits and loans, reducing finished goods inventory, increment in creditors payment period etc. $hus, *ood management of working capital is part of good financial management. %ffective use of working capital will contribute to the operational efficiency of a company, optimum use will help to generate ma5imum returns.

97

B'B0'O*RA+H8

96

BiHliogra%h=
I.M. +andey, Financial Management, @th %dition www.bharti.teletech.com www.treasury.govt.n,JpublicsectorJworkingcapitalJfurther.asp www.planware.orgJworkingcapital.htm www.wikipedia.org

9,