SUMMER TRAINING PROJECT REPORT

FINANCIAL ANALYSIS OF
BHARAT HEAVY ELECTRICALS LIMITED

UNDERTAKEN AT
BHARAT HEAVY ELECTRICALS LIMITED
NEW DELHI

Submitted for partial fulfillment of award of

MASTER OF BUSINESS ADMINISTRATION

By:
MOHAMMAD MAJID
MBA-GEN
SECTION-A

JAMIA HAMDARD
Acknowledgement
I would like to express my gratitude to all those who gave
me the opportunity and subsequently guidance to complete
this project. A mission of this magnitude could not have
been be under taken without the guiding light of inspiration,
cooperation, critical supervision, encouragement and above
all the blessings of Almighty ALLAH.
It is with such a multitude of emotions that I shall ever
remember the inspiring encouragement of my supervisor
Dr. RESHMA NASREEN at every step during the period of
the present study.
I am thankful to my institute and the faculty for their
constant support and guidance throughout my project work.
I would very sincerely like to thank my company mentor
Mr. MUKESH KHULLAR, Senior Manager (Finance), who
not only permitted me to carry out the work but also
encouraged me to go ahead with my training by giving me
the opportunity to work in the real practical scenario. I am
bound to thank other staff members for their stimulating
support.
I would like to give my special thanks to my PARENTS ,
their constant support enabled me to complete this project
work
Preface
Finance is the lifeblood of an industry. The subject matter of
Financial Management has been changing at a rapid pace.
About a decade ago, the scope of Financial Management was
circumscribed to the raising of funds, whenever needed &
the financial decision-making & problem solving. The
summer training program is designed to give the future
managers the feel of the corporate happenings and work
culture. These real life situations are entirely different from
the stimulated exercise enacted in an artificial environment
inside the classroom and it is precisely because of this reason
that this summer training has been designed, so that the
manager of tomorrow does not feel ill in the case when the
time comes to shoulder responsibilities. The summer
training is a bridge between the institution and organization
to make us understand how theoretical knowledge will be
applied in the practical field.
It was exactly in this context that I was
privileged enough to join Bharat Heavy Electricals Limited.
In the FINANCE DEPARTMENT as a summer trainee.
Bharat Heavy Electricals Limited (BHEL) was set up in 1959
by the Government of India with the objective of creating
indigenous manufacturing base for power plant equipments.
Today, BHEL is the 12th largest company in the world in
Power Plant Equipments manufacturing and the largest in
India. Bharat Heavy Electricals Limited (BHEL) is known
not only for its professional management, but also for its
enlightened and progressive approach towards employee
welfare and betterment of society. The experience that I have
gathered over the past two months has certainly provided
me with an orientation, which I believe, will help me
shoulder any assignment successfully in future.
Financial Analysis plays a crucial role in
financial economics. It deals with investment decision & it its
usual axiom in finance that the value of an investment is the
present value of future cash flows that the asset is expected
to generate. It also represents the growing edge of the
business giving a proper overview of the organization’s
progress.
 Contents
1. Introduction 7

2. Review of Literature 14

3. Company's capital expenditure analysis 19

4. Account balances for properties, plant and
equipment. 22

5. Company’s capital structure in comparison with its

competitors. 24

6. Beta measure of the company 28

7. WACC of the Company 29

8. Company’s debt-equity ratio in comparison with its

competitors. 31

9. Du Pont analysis for the company 34

10. Comments
Working capital position. 40
Cash position. 42
Short term financing. 46
Credit policy. 48
Inventory management policy. 50
1

BHARAT HEAVY ELECTRICALS

Introduction:

In the post Independence era when India was moving

towards industrialization the major thrust of the govt. was in
the core sector and this sector was given to the public sector.
With this objective, Heavy Electricals (I) Limited was setup
in Bhopal in August, 1956 with a view to reach self
sufficiency in the industrial product and power equipment.
This plant was setup under technical collaboration of M/s
AEI, U.K. Three more plants were subsequently setup at
Trichy, Hyderabad and Haridwar with Soviet and
Czechoslovakian assistance in May 1965, Dec 1965 and Jan
1967 respectively. As there was need for an integrated
approach for the development of power equipment to be
manufactured in India, Heavy Electronics Ltd. Bhopal was
merged into BHEL in 1974. BHEL has now become the
largest Engineering and Manufacturing Company. Its
headquarters is located at Delhi.

BHEL Objectives:

A dynamic is one which keeps its aim high adopts itself

quickly to changing environment. So here we are in BHEL.
The objectives of the company have been redefined in the
corporate plan for the 90’s.

Business Mission:

To maintain leading position as supplier of quality

equipment, systems and services in the field of conversion,
transmission, utilization and conversion of energy for
application in the areas of electric power, transportation, oil
& gas explorations and industries. Utilize company’s
capabilities and resources to extend business into allied
areas and other priority sector of the economy like defense,
communication and electronics.

Growth:

To ensure a steady growth by enhancing the competitive

edge of BHEL in existing business new areas and
international market so as to fulfill national expectation from
BHEL.

Profitability:

To provide a reasonable and adequate return on capital

employed, primarily through improvement in operational,
efficiency, capacity utilization and productivity and generate
adequate internal resources to finance the company’s
growth.
Focus:

To build a high degree of customer confidence by providing

increased value for his money though International
standards of product quality performance and superior
Customer service.

People Orientation:

To enable each employees to achieve his potential, improve

his capabilities perceive his role and responsibilities and
participate and contribute to the growth and success of the
company. To invest in human resources and continuously
and alive to there need.

Technology:

To achieve technological excellence in operation by

development of indigenous technologies and efficient
absorption and adoption of imparted technologies to suit
business and priorities and provide competitive advantage
to the company.

Image:

To fulfill the expectation which stakes holders like

government as owner. Employees, customers and the
country at large have from BHEL.
BUSINESS AREAS
BHEL covers a wide area of business. These areas are
mentioned below.

Power:

Provide a gamut of equipment for Thermal, Hydro and

Nuclear Power Plants. Range includes products and systems
for the power generation, transmission and utilization.

Transmission:

BHEL is manufacturing transmission equipments for all

voltage rating including the 400 KV class transformers
switch gears, control and relay panel, insulators, capacitors
and other substation equipments.

Industry:

Offers a comprehensive range of electrical, electronic and

mechanical equipment for a host of industries fertilizers,
petrochemicals, refineries, paper, sugar, rubber, cement,
coal, steel, aluminum and mining.
Transportation:

BHEL offers a variety of transportation equipment to meet

the growing needs of country. 65% of Indian Railways are
equipped with BHEL manufactured traction equipment.
Underground metro also runs on drives and control
supplied by BHEL.BHEL has taken up the manufacturing of
locomotive to provide a pollution free transportation. BHEL
also offers a battery operated passenger van to Delhi
Government.

Oil and Gas:

Equipment for oil and gas exploration and transportation is

manufactured by BHEL. The range covers super deep drill
rigs with matching draw works and hosting equipment.

Non Conventional:

BHEL is playing a vital role in helping to harness the vest

renewable sources of solar, wind and biogas energy. BHEL
has supplied several water heating system, windmills
generators and photo voltaic system.

Tele Communication:

BHEL has entered the field of telecom with electronics PABX

system based on indigenous technology from C-DOT.
Manufacturing Technologies:

BHEL has 14 manufacturing plants, which are spread

different parts of the country having unique manufacturing
and testing facilities, CNC machines, turbine blade shape
system, system bender, 8000-ton hydraulic press, heavy-
duty lathe mailing machines and many more are available.

ACTIVITY PROFILE OF BHEL

Power Sector Projects:

♦ Thermal sets and auxiliaries.

♦ Steam generators and
♦ Industrial fans.
♦ Electrostatic Precipitators.
♦ Air pre-heaters.
♦ Nuclear power equipment.
♦ Hydro sets and auxiliaries.
♦ Motors
♦ Transformers
♦ Rectifiers
♦ Pumps
♦ Heat exchange
♦ Capacitors
♦ Porcelain/Ceramic insulators
♦ Seamless steel tubes
♦ Castings and forgings
System/Services:

♦ Turnkey power station

♦ Data acquisition system
♦ Power system
♦ HVDC commissioning system
♦ Erection and commissioning system
♦ Modernization and rehabilitation

Transportation Sector :

♦ Diesel electric generators

♦ AC/DC locomotives and loco shunters
♦ Traction system for Railways
♦ Electric trolley buses

Industry Sector :

♦ Boilers
♦ Valves
♦ T G Sets
♦ Power devices
♦ Solar cells
♦ Photo Voltaic cells
♦ Gas turbines
♦ Off rigs
♦ Blow out preventers
♦ Wind mills
♦ Control system for electric devices
2

Review of Literature

Engineering Sector: Market & Opportunities

India's engineering industry is highly competitive with a

number of players in each segment. The engineering sector
has been growing, driven by growth in end user industries
and the new projects being taken up in the power, railways,
infrastructure development, and private sector investments
fields amongst others. The industry attracted FDI inflows of
US$ 1,196.7 million from August 1991-July 2006.
India's exports of engineering goods are valued at US$ 27
billion during 2006-07 which represents a 6 per cent growth
over the exports for 2005-06 (US$ 20 billion). The
engineering sector accounted for 14 per cent of the country's
total exports. It is also noteworthy that 40 per cent of India's
engineering export is from the small and medium
enterprises (SME) sector. According to Engineering Exports
Promotion Council (EEPC), engineering exports could touch
US$ 30 billion by 2008-09. In such a scenario, India, driven
by the engineering sector, will emerge as a key global
manufacturing hub.
Industry demand is driven by investments in core
sectors

The demand from this sector depends largely on GDP

growth, which in turn is a function of expenditure in core
segments like power, railways, and infrastructure
development, private sector investments, and the speed at
which projects are implemented. The power sector is the
largest contributor to the revenues of engineering
companies. Engineering majors like Bharat Heavy Electricals
Limited (BHEL) and ABB Limited derive a significant chunk
of their revenues (69 per cent and 60 per cent, respectively)
through the supply of equipment to the power sector.
Infrastructure is another key area of operation. Larsen &
Toubro Limited, for example, garners around 35 per cent of
its sales from infrastructure activities like engineering,
design and construction of industrial projects, social and
physical projects like housing, hospitals, information
technology (IT) parks, expressways, bridges, ports, and
water/effluent treatment projects.
The industrial segment contributes to around 30 per cent of
the total revenues of the engineering sector. While India’s
engineering industry has capabilities in manufacturing the
range of machinery required by the different user sectors,
the rapid rise in demand has led to a large part of the
machinery requirements being met through imports. This
indicates the size of opportunity for investment in the
engineering and capital goods sector in India. The
engineering industry has attracted FDI inflows of US$
1,196.73 million from August 1991-July 2006.
Indian Engineering goods are gaining acceptance in
overseas markets

India’s exports of engineering goods are valued at US$ 27

billion during 2006-07 which represents a 36 per cent growth
over the exports for 2005-06 US$ 20 billion). The engineering
sector accounted for 14 per cent of the country’s total
exports. It is also noteworthy that 40 per cent of India’s
engineering export is from the small and medium
enterprises (SME) sector. A key driver for increased
engineering exports is the trend towards shifting of global
manufacturing bases to countries like India that offer lower
costs and good engineering talent. This trend is expected to
continue and boost exports of engineering goods from India
over the next 5 years. According to Engineering Exports
Promotion Council (EEPC), engineering exports could touch
US$ 30 billion by 2008-09. In such a scenario, India, driven
by the engineering sector, will emerge as a key global
manufacturing hub.
The nature of Indian engineering exports is also changing
with time. India is fast moving from exporting low value
goods to developing countries to more sophisticated goods
targeted at developed countries. Capital goods account for
27 per cent of total engineering exports. Exports to European
Union countries and North America accounted for 19 per
cent and 17 per cent respectively, of total engineering
exports in 2005-06. Engineering goods worth US$ 3.34 billion
were exported to USA alone in April – Feb 2006-07.
Growing Demand

Capacity creation and transformation in sectors such as

infrastructure, power, mining, oil & gas, refinery, steel,
automotive, consumer durables are driving growth in the
engineering industry. The framework below captures some
of the key factors that are contributing to domestic and
international demand for engineering goods from India.
Restructuring of the state electricity boards in different
states, growth of private sector players and focus on capacity
creation have driven growth in the power sector.

Conclusion

The Engineering sector’s future outlook is promising.

Drivers like power projects, other infrastructure
development activities, industrial growth and favorable
policy regulations will drive growth in manufacturing. The
Indian engineering industry has been witnessing significant
level of capability enhancement over the years. As export
markets open up, this will help India develop a strong
presence in global engineering exports. Power sector
contributes the largest to the engineering companies’
revenues. Major players in this sector like ABB and BHEL
derive 60 per cent and 69 per cent of their revenues from
supplying equipments to the power sector. Going forward,
with the Government clearing the blueprint for adding
100,000 MW in the tenth (2002-07) and eleventh 2007-12)
five-year plans, the potential are high for the engineering
majors. Emerging trends such as outsourcing of engineering
services can provide new opportunities for quantum growth.
Engineering and design services such as new product
designing, product improvement, maintenance and
designing manufacturing systems are increasingly getting
outsourced to countries like India and China. India’s
engineering sector has significant potential for future
growth, in manufacturing as well as services. With
development in associated sectors like automotive, one of
the largest evolving markets for engineering and industrial
goods, and a well developed technical human resources
pool, India is poised to make significant strides in all
segments of engineering.
3

Company’s capital expenditure

analysis.
Rs. In crores
Sr. No. Year Capital Change as
Expenditure compared with
previous year
1 2008-09 700.46 407.64

2 2007-08 292.82 61.39

3 2006-07 231.43 70.51

4 2005-06 160.92 -2.07

5 2004-05 162.99 61.19

Here in this case, the Capital Expenditures is not constant.

Capital expenditure has changes considerably changed. Its
has been maximum for the year 2008-09, while for the year
2005-06 it shows underinvestment. For the year 2008-09 the
capital expenditure is very large owing to the new projects
undertaken by the company.
Data is taken from SCHEDULE 5 :FIXED ASSET

CAPITAL EXPENDITURE

450

400
CHANGE AS COMPARED TO PREVIOUS

350

300

250
YEAR

200 Series1

150

100

50

0
2008-09 2007-08 2006-07 2005-06 2004-05
-50
YEAR
 Particulars Cost As at Additions/ad Deductions/a Cost As at
31.03.2008 justments d justments 31.03.2009
during the during the
Factory/ Office Complex
Freehold land (incl. 4.22 0.15 4.37
Leasehold land 6.15 0.05 6.20
Roads, bridges and culverts 7.05 1.39 0.04 8.40
Buildings 347.67 135.29 2.04 480.92
Leashold buildings 3.04 0.08 3.12
Drainage, 12.48 1.18 0.07 13.59
Railway siding 7.91 0.76 8.67
Locomotives and wagons 16.01 11.44 27.45
Plant & Machinery 2482.55 360.54 8.91 2834.18
Electronic data processing 98.43 22.17 5.26 115.34
Electrical installations 95.19 20.80 0.13 115.86
Construction Equipment 250.36 125.54 0.42 375.48
Vehicles 18.77 0.51 0.73 18.55
Furniture & fixtures 14.63 4.88 0.02 19.49
Office & other equipments 74.00 7.85 1.15 80.70
Fixed assets costing upto 55.95 8.01 0.30 63.66
Capital expenditure 0.44 0.44
Assets Given on Lease 497.15 497.15
EDP Equipment taken on lease 146.16 99.31 27.67 217.80
Office & other equipment taken 1.52 0.38 0.41 1.49
Intangible Assets
Internally developed
Software
Others 2.46 2.52 4.98
Software 68.87 20.68 0.54 89.01
Technical Know-how 22.86 22.86
Others 8.80 8.80
4242.6 823.5 47.69 5018.5
7 3 1
 4

Account balances for properties,

plant and equipment.
Rs. In crores

Sr. No. Year Properties, Change when % change

As at 31st march equipment compared with
& plant machinery previous year
1 2009 1137.39 252.6 22.20

2 2008 884.79 -1.91 -0.21

3 2007 886.70 8.05 0.90

4 2006 878.65 -62.86 -7.15

5 2005 941.51 -54.08 -5.74

6 2004 995.59 -75.42 -7.57

7 2003 1071.01

As we may see, change in properties, equipments and plant

machinery has been the highest for the year 2008-09 which is
22%. While for previous years the company didn’t not focus
on technology up gradation. As we may see that it had
shown negative trend in regard to properties, equipments
and plant and machinery.
The above increase is due to globalization and increasing
competition that company has focused considerably on it.
 CHANGE IN PROPERTY, EQUIPMENT, PLANT AND
MACHINERY

25
22.2
20
PERCENTAGE CHANGE

15

10
Series1
5

0.9
0 -0.21
2008-09 2007-08 2006-07 2005-06 2004-05 2003-04
-5 -5.75
-7.15 -7.57
-10
5

Company’s capital structure in

comparison with its competitors.
The term capital structure refers to the percentage of capital
(money) at work in a business by type. Broadly speaking,
there are two forms of capital: equity capital and debt
capital.
In other words, capital structure refers to the way a
corporation finances its assets through some combination of
equity, debt, or hybrid securities. A firm's capital structure is
then the composition or 'structure' of its liabilities. For
example, a firm that sells $20 billion in equity and $80 billion
in debt is said to be 20% equity-financed and 80% debt
financed. The firm's ratio of debt to total financing, 80% in
this example, is referred to as the firm's leverage. In reality,
capital structure may be highly complex and include tens of
sources.The Modigliani-Miller theorem, proposed by Franco
Modigliani and Merton Miller, forms the basis for modern
thinking on capital structure, though it is generally viewed
as a purely theoretical result since it assumes away many
important factors in the capital structure decision. The
theorem states that, in a perfect market, how a firm is
financed is irrelevant to its value. This result provides the
base with which to examine real world reasons why capital
structure is relevant, that is, a company's value is affected by
the capital structure it employs. These other reasons include
bankruptcy costs, agency costs, taxes, information
 asymmetry, to name some. This analysis can then be
extended to look at whether there is in fact an optimal
capital structure: the one which maximizes the value of the
firm.
For BHEL, currently the debt employed is very less, which
means that the debt is much lower than equity. In other
words the firm prefers equity over debt.
Where as other companies, of the same industry, when
compared with BHEL show a better mix of debt and equity.
Suzlon energy and BGR energy employs a good mix of debt
and equity in the capital structure as compared to BHEL..

BHEL Comparison With its Competitor

Rs in crores

company Total Debt Networth capital structure

debt equity

BHEL 149.37 12,938.81 1.14126 98.85874

Larsen 6,556.03 12,459.69 34.4769 65.5231

Suzlon Energy 7,329.48 6,580.32 52.6929 47.30708

BEML 567.64 1,915.37 22.861 77.13904

BGR Energy 707.8 561.15 55.7784 44.2216

 BHEL Comparison With its Competitors

120

100

80

DEBT EQUITY 60 EQUITY

40 DEBT

20

0
BHEL Larsen Suzlon BEML BGR
Energy Energy

BHEL Comparison With its Competitors

100
90
80
70
60
EQUITY 50
40 Series1
30
20
10
0
BHEL Larsen Suzlon BEML BGR
Energy Energy
 BHEL Comparison With its Competitors

60

50

40

DEBT 30
Series1
20

10

0
BHEL Larsen Suzlon BEML BGR
Energy Energy
6

Beta measure of the company

BETA measure of the company is 0.94

(Source
:http://www.reuters.com/finance/stocks/overview?symbo
l=BHEL.BO)
7

WACC of the Company

The weighted average cost of capital is defined by:

Where,

The following table defines each symbol:

Symbol Meaning Unit

C weighted average cost of capital %
Y required or expected rate of return on equity, or cost %
of equity
B required or expected rate of return on borrowings, %
or cost of debt
tc corporate tax rate %
D total debt and leases (including current portion of rs
long-term debt and rs notes payable)
E total market value of equity and equity equivalents rs
K total capital invested in the going concern rs

Or

WACC = wd (1-T) rd + we re

Where,
wd = debt portion of value of corporation
T = tax rate
rd = cost of debt (rate)
we = equity portion of value of corporation
re = cost of internal equity (rate)

Amount in “%”

Year 2004-05 2005-06 2006-07 2007-08 2008-09

WACC 14.4 11.5 11.6 12.3 13.4

Taken from Economic Value Added (EVA), balance sheet

2008-09

WACC

16
AMOUNT IN PERCENTAGE

14
12
10
8 Series1
6
4
2
0
2004-05 2005-06 2006-07 2007-08 2008-09
 8

Company’s debt-equity ratio in

comparison with its competitors.
Sr. No Year Debt/Equity Ratio % change

1. 2008-09 : 2007-08 0.01 : 0.01 0.0

2. 2007-08 : 2006-07 0.01 : 0.01 0.0

3. 2006-07 : 2005-06 0.01 :0.08 -87.5

4. 2005-06 : 2004-05 0.08 :.09 -14.2

5. 2004-05 :2003-04 0.09 : 0.10 -10.90

Five Year high Value 0.09

Five Year low Value 0.01
is:

DEBT EQUITY % CHANGE

Series1

-20
CHANGE

-40
-60

-80

-100
2009 : 2008 : 2007 : 2006 : 2005 :
Series1 0 0 -87.5 -14.2 -10.9
YEAR
Competitors : DEBT-EQUITY RATIO

Sr. No. Year BHEL LARSEN SUZLON BEML BGR

ENERGY ENERGY
1 2008-09 0.01 0.52 1.1 0.29 1.26
1

Competitors : DEBT-EQUITY RATIO

1.4
1.26
1.2 1.11
1

DEBT EQUITY 0.8

RATIO 0.6 0.52 Series1
0.4 0.29
0.2
0.01
0
ENERGY ENERGY
BHEL LARSEN SUZLON BEML BGR

Debt-Equity Ratio:

Debt equity ratio shows the relationship between long-term

debts and shareholders funds’. It is also known as ‘External-
Internal’ equity ratio.
Debt Equity Ratio = Debt/Equity

Where :

Debt (long term loans) include Debentures, Mortgage Loan,

Bank Loan, Public Deposits, Loan from financial institution
etc.
Equity (Shareholders’ Funds) = Share Capital (Equity +
Preference) + Reserves and Surplus – Fictitious
Assets

Objective and Significance:

This ratio is a measure of owner’s stock in the business.

Proprietors are always keen to have more funds from
borrowings because:
(i) Their stake in the business is reduced and subsequently
their risk too
(ii) Interest on loans or borrowings is a deductible
expenditure while computing taxable profits. Dividend
on shares is not so allowed by Income Tax Authorities.
The normally acceptable debt-equity ratio is 2:1.
9

Du Pont analysis for the company

WHAT IS THE DUPONT MODEL? DESCRIPTION
The Du Pont Model is a technique that can be used to
analyze the profitability of a company using traditional
performance management tools. To enable this, the Du Pont
model integrates elements of the Income Statement with
those of the Balance Sheet.

ORIGIN OF THE DUPONT MODEL. HISTORY

The DuPont model of financial analysis was made by F.

Donaldson Brown , an electrical engineer who joined the
giant chemical company's Treasury department in 1914. A
few years later, DuPont bought 23 percent of the stock of
General Motors Corp. and gave Brown the task of cleaning
up the car maker's tangled finances. This was perhaps the
first large-scale reengineering effort in the USA. Much of the
credit for GM's ascension afterward belongs to the planning
and control systems of Brown, according to Alfred Sloan,
GM's former chairman. Ensuing success launched the
DuPont model towards prominence in all major U.S.
corporations. It remained the dominant form of financial
analysis until the 1970s.

CALCULATION OF DUPONT. FORMULA

Return on Assets = Net Profit Margin x Total Assets

Turnover = Net Operating Profit After Taxes / Sales x
Sales / Average Net Assets
USAGE OF THE DUPONT FRAMEWORK. APPLICATIONS

• The model can be used by the purchasing department or by

the sales department to examine or demonstrate why a given
ROA was earned.
• Compare a firm with its colleagues.
• Analyze changes over time.
• Teach people a basic understanding how they can have an
impact on the company results.
• Show the impact of professionalizing the purchasing
function.

STRENGTHS OF THE DUPONT MODEL. BENEFITS

• Simplicity. A very good tool to teach people a basic

understanding how they can have an impact on results.
• Can be easily linked to compensation schemes.
• Can be used to convince management that certain steps
have to be taken to professionalize the purchasing or sales
function. Sometimes it is better to look into your own
organization first. In stead of looking for company takeovers
in order to compensate lack of profitability by increasing
turnover and trying to achieve synergy.

LIMITATIONS OF THE DUPONT ANALYSIS.

DISADVANTAGES

• Based on accounting numbers, which are basically not

reliable.
• Does not include the Cost of Capital.
• Garbage in, garbage out.
ASSUMPTIONS OF THE DUPONT METHOD.
CONDITIONS

• Accounting numbers are reliable.

RETURN ON INVESTMENT

YEAR 2004-05 2005-06 2006-07 2007-08 2008-09

ROI 0.146 0.086 0.108 0.301 0.321

RETURN ON EQUITY

YEAR 2004-05 2005-06 2006-07 2007-08 2008-09

ROE 0.262 0.353 0.423 0.309 0.291

DUPONT ANALYSIS

0.5

0.4

0.3 Series1
0.2 Series2

0.1

0
2004-05 2005-06 2006-07 2007-08 2008-09
Series1 0.146 0.086 0.108 0.301 0.321
Series2 0.262 0.353 0.423 0.309 0.291
As we can see ROE has fallen for the year 2008-09 as
compared to the previous year. But if we see overall the has
a ROI close to 3 for years mentioned. Company is
consisderably having returns at an average 2.8.

For ROI the company’s return on investments has

substantially increased when compared to the year 2004-05.

RETURN ON INVESTMENT

0.35
0.3

0.25
0.2
Series1
0.15
0.1

0.05
0
2004-05 2005-06 2006-07 2007-08 2008-09
Series1 0.146 0.086 0.108 0.301 0.321
 RETURN ON EQUITY

0.45
0.4
0.35
0.3
0.25
Series1
0.2
0.15
0.1
0.05
0
2004-05 2005-06 2006-07 2007-08 2008-09
Series1 0.262 0.353 0.423 0.309 0.291
10
a) Working Capital Position

Working capital= current assets – current liabilities

BHEL working capital

(in Rs. Crores)

2004-05 2005-06 2006-07 2007-08 2008-09

4897.08 6010.75 6642.87 7883.88 8568.17

What Does Working Capital Mean?

A measure of both a company's efficiency and its short-term
financial health. The working capital ratio is calculated as:

Positive working capital means that the company is able to

pay off its short-term liabilities. Negative working capital
means that a company currently is unable to meet its
shortterm liabilities with its current assets (cash, accounts
receivable and inventory).
As we can see here, the working capital for BHEL is
increasing every year. The financial base is strong. In last
five years, working capital has increased .
The firm can hold good in investing activities, or other
activities of similar nature as the current assets exceeds
current liabilities
 BHEL'S WORKING CAPITAL

10000

8000

6000
WORKING
CAPITAL
4000 Series1

2000

0
2004-05 2005-06 2006-07 2007-08 2008-09
Series1 4897.08 6010.75 6642.87 7883.88 8568.17
b) Cash position

Cash and Bank balances

YEAR 2008-09
Figures in Rs. Crore

FINANCIAL YEAR 2008-09 2007-08

CASH AND BANK 10315 8386

BALANCES

The cash and cash equivalents have increased from Rs. 8386
crore in 2007-08 to Rs. 10315 crore in 2008-09 reflecting the
sound liquidity of the company.
The company has no accumulated losses as at March 31, 2009
and it has not incurred any cash losses in the financial year
ended on that date or in the immediately preceding financial
year.

YEAR 2007-08
Figures in Rs. Crore

FINANCIAL YEAR 2007-08 2006-07

CASH AND BANK 8386 5809

BALANCES

The cash and cash equivalents have increased from Rs. 5809
crore in 2006-07 to Rs. 8386 crore in 2007-08 reflecting the
sound liquidity of the company.
The company has no accumulated losses as at March 31, 2008
and it has not incurred any cash losses in the financial year
ended on that date or in the immediately preceding financial
year.

YEAR 2006-07
Figures in Rs. Crore

FINANCIAL YEAR 2006-07 2005-06

CASH AND BANK 5808.91 4133.97

BALANCES

The cash and cash equivalents have increased from Rs.

4133.97 crore in 2005-06 to Rs.5808.91 crore in 2006-07
reflecting the sound liquidity of the company. The company
has no accumulated losses as at March 31, 2007 and it has not
incurred any cash losses in the financial year ended on that
date or in the immediately preceding financial year.

YEAR 2005-06
Figures in Rs. Crore

FINANCIAL YEAR 2005-06 2004-05

CASH AND BANK 4133.97 3177.9

BALANCES

Cash and bank balances, including short term deposits, at the year-
end stood at Rs. 4134.0 crore as against Rs. 3177.9 crore at the
end of last year.
The company has no accumulated losses as at March 31, 2006
and it has not incurred any cash losses in the financial year
ended on that date or in the immediately preceding financial
year.

YEAR 2004-05
Figures in Rs. Crore

FINANCIAL YEAR 2004-05 2003-04

CASH AND BANK 3177.9 2659.6

BALANCES

Cash and bank balances, including short term deposits, at the year
end stood at Rs. 3177.9 crore as against Rs. 2659.6 crore at the
end of last year.The company has no accumulated losses as at
March 31, 2005 and it has not incurred any cash losses in the
financial year ended on that date or in the immediately
preceding financial year.
YEAR 2008-09 AS AT 31.3.2009 AS AT 31.3.2008
Cash and Bank Balances
Cash & Stamps in hand 0.97 0.95

Cheques, Demand Drafts in hand 386.42 265.94

Remittances in transit 0.02 56.42

Balances with Scheduled Banks

Current Account 1534.08 1172.57

Deposit Account 8364.16 6875.00

Balance with non-scheduled Banks

Current Account
Maximum Balance
(Rs. in crore)
during the year
2008-09 2007-08

- Standard Chartered bank, Libya 0.22 0.09 0.00 0.05

- Bank Muskat, Oman 356.19 125.20 14.91 4.22

- Barclays Bank Ltd, Zambia 0.01 0.01 0.01 0.01

- Bank of commerce, Malaysia 0.31 0.05 0.05 0.31

- CIMB Berhad 0.32 0.02 0.32 0.02

- Indo Jambia Bank, Lusaka 1.18 0.92 0.16 0.79

- Commercial Bank of Ethopia 3.38 3.04 0.05 3.04

- Bank of Bhutan, Bhutan 0.04 0.08 0.01 0.02

- Jamahouria Bank, Libya 4.34 4.75 0.95 3.61

- National Bank of Egypt 0.13 0.43 0.13 0.10

- Standard Chartered bank, Bangladesh 72.69 3.24 1.02 0.32

- Bank of Khartoum, Sudan 15.47 6.33 11.36 2.65

- Standard Chartered bank, Dubai 0.22 - 0.05 0.00

10314.67 8386.02

Other Current Assets

Interest Accrued on Banks Deposits 350.21 421.09

and investments
350.21 421.09

Summary of Current Assets

Inventories 7837.02 5736.40

Sundry Debtors 15975.50 11974.87

Cash & Bank Balances 10314.67 8386.02

Other Current Assets 350.21 421.09

34477.40 26518.38
c) Short term financing

YEAR 2004 05 2005 06 20o6 o7 20o7 o8 2008 09

BHEL 7120.44 8807.74 11732.86 16576.45 23357.32
short term
financing

BHEL'S SHORT TERM FINANCING

25000
RUPEES IN CRORES

20000

15000
Series1
10000

5000

0
2004-05 2005-06 2006-07 2007-08 2008-09

Taken from SCHEDULE 10 : CURRENT LIABILITIES

It includes Sundry Creditors, Accruals, Advances from the

customers, Deposits fromcontractor, other liabilities and
interest accrued but not due.
The short term financing means the financing that you have
got and you will utilize it in next one year. Here the short
term financing, which inclues
 YEAR 2008 09

SCHEDULE 10 : CURRENT LIABILITIES

AS AT 31.03.2009 AS AT 31.03.2008
Acceptances 67.14 59.83
Sundry Creditors
Total outstanding dues of
Micro & Small Enterprises

(incl. interest) 96.50 38.87

Other Sundry Creditors 5756.35 5852.85 4385.13 4424.00
Advances received 16435.42 11394.62
from customers &
others
Deposits from Contractors & 325.68 233.81
others

Unclaimed dividend * 1.31 0.91

Other liabilities 674.44 462.56
Interest accrued but not due 0.48 0.72
23357.32 16576.45
d) Credit policy

Year 2004-05 2005-06 2006-07 2007-08 2008-09

BHEL 1.82 2.02 1.95 1.79 1.9
credit
policy

Debtors’ Turnover Ratio: Debtors turnover ratio indicates

the relation between net credit sales and
average accounts receivables of the year. This ratio is also
known as Debtors’ Velocity.

Debtors Turnover Ratio = Net Credit Sales/Average

Accounts Receivables
Where Average Accounts Receivables = [Opening Debtors
and B/R + Closing Debtors and B/R]/2
Credit Sales = Total Sales – Cash Sales

Objective and Significance: This ratio indicates the

efficiency of the concern to collect the amount due
from debtors. It determines the efficiency with which the
trade debtors are managed. Higher the ratio,
better it is as it proves that the debts are being collected very
quickly.
The final result shows us that the credit policy, which is
understood as the amount of credit the company is allowing
and the amount of sales.
This gives the idea about the policy of the firm. Here the
firm has strict credit policies and as the result the ratio for
last five years is almost constant and the value is around 2.
Though we may see the variation in the debtors’s turnover
ratio , for the year 2005-06 its 2.02 which has considerably
 fallen to 1.79 for the year 2007-08 but has again picked up for
the year 1.90, closing to 2.0. as we know higher the ratio the
better it is, hence company is considerably at an average of
1.8. Responses to confirmation of outstanding balances of
deductible expenditure. Sundry debtors, creditors,
contractor’s advances,deposits and stocks/materials lying
with sub contractors/fabricators were received in few cases,
some of them seeking details. The reconciliations with
requirement the parties are carried out as an ongoing
process.

DEBTOR TURNOVER RATIO

2.1
2.05
2
1.95
1.9
1.85 Series1
1.8
1.75
1.7
1.65
1.6
Mar 2009 Mar 2008 Mar 2007 Mar 2006 Mar 2005
e) Inventory management policy

YEAR 2004-05 2005-06 2006-07 2007-08 2008-09

BHEL
inventory 3.54 3.8 4.6 3.8 3.7
turnover

This ratio is a relationship between the cost of goods sold

during a particular period of time and the cost of average
inventory during a particular period. It is expressed in
number of times. Stock turn over ratio /Inventory turn over
ratio indicates the number of time the stock has been turned
over during the period and evaluates the efficiency with
which a firm is able to manage its inventory. This ratio
indicates whether investment in stock is within proper limit
or not.

Inventory Turnover Ratio = Net Sales / Inventory

Significance:

Inventory turnover ratio measures the velocity of conversion

of stock into sales. Usually a high inventory turnover/stock
velocity indicates efficient management of inventory because
more frequently the stocks are sold, the lesser amount of
money is required to finance the inventory. A low inventory
turnover ratio indicates an inefficient management of
inventory. A low inventory turnover implies over-
investment in inventories, dull business, poor quality of
goods, stock accumulation, accumulation of obsolete and
slow moving goods and low profits as compared to total
investment.
To get the idea about the company policy for the inventories,
we have found out the ratio of sales and the inventory.
This ratio for the firm moves around value 4.That means that
the firm is moving its inventories. Overall the firm is doing
well.

INVENTORY TURNOVER RATIO

5
4.5
4
3.5
3
Series1
2.5
Series2
2
1.5
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09

Inventory Valuation

I. Inventory is valued at actual/estimated cost or net

realizable value, whichever is lower.

II. Finished goods in Plant and work in progress involving

Hydro and Thermal sets including gas based power plants,
boilers, boiler auxiliaries, compressors and industrial turbo
sets are valued at actual/estimated factory cost or at 97.5%
of the realizable value, whichever is lower.

III. In respect of valuation of finished goods in plant and

work-in-progress, cost means factory cost; actual/estimated
factory cost includes excise duty payable on manufactured
goods

IV. In respect of raw material, components, loose tools,

stores and spares cost means weighted average cost.

V. a) For Construction contracts entered into on or after

01.04.2003:
Where current estimates of cost and selling price of a
contract indicates loss, the anticipated loss in respect of such
contract is recognized immediately irrespective of whether
or not work has commenced.
b) For all other contracts:
Where current estimates of cost and selling price of an
individually identified project forming part of a contract
indicates loss, the anticipated loss in respect of such project
on which the work had commenced, is recognized.
c) In arriving at the anticipated loss, total income including
incentives on exports/deemed exports is taken into
consideration.

VI. The components and other materials purchased /

manufactured against production orders but declared
surplus are charged off to revenue retaining residual value
based on technical estimates.
 Inventories
YEAR 2008-09
Figures in Rs. Crore

Financial year 2008-09 2007-08

Inventories 7837 5736

Inventory increased by Rs. 2101 crore over previous year in

tune with the increase in volume of operations. In terms of
days of turnover, it has increased from 98(ninety eight) days
in 2007- 08 to 102 days in 2008-09.

YEAR 2007-08
Figures in Rs. Crore

Financial year 2007-08 2006-07

Inventories 5736 4218

Inventory increased by Rs. 1518 crore over previous year in

tune with the increase in volume of operations. In terms of
days of turnover, it has increased from 82 days in 2006-07 to
98 days in 2007-08. The inventory build up is also part of the
strategies of the management considering long lead time for
certain special steel material and to meet shorter delivery
requirements the customers.
 YEAR 2006-07
Figures in Rs. Crore

Financial year 2006-07 2005-06

Inventories 4217.7 3744.4

Inventory increased by Rs. 473.30 crore or 12.64% over

previous year in tune with the increase in volume of
operations. In terms of days of turnover, it has decreased
from 94(ninety four) days in 2005-06 to 82 days in 2006-07.

YEAR 2005-06
Figures in Rs. Crore

Financial year 2005-06 2004-05

Inventories 3744.37 2916.1

Inventory increased by 28.40% over previous year, i.e. from

Rs. 2916.1 crore in 2004-05 to Rs. 3744.4 crore in 2005-06.
Inventory, in number of days of turnover, decreased from
103 days in 2004-05 to 94 days in 2005-06.
 YEAR 2004-05
Figures in Rs. Crore

Financial year 2004-05 2003-04

Inventories 2916.1 2103.9

Inventory increased by 38.60% over previous year, i.e. from

Rs.2103.9 crore in 2003-04 to Rs. 2916.1 crore in 2004-05.
Inventory, in number of days of turnover, increased from
89 days in 2003-04 to 103 days in 2004-05. The increase is
mainly attributed to higher inventory holding for steel
and pipes on account of uncertainty of availability,
longer deliveries from vendors, steel price increase and
to meet higher turnover targets for the year 2005-06. The
increase is also due to some finished goods awaiting
customer clearance.