PRESENTATION ON WORKING CAPITAL MANAGEMENT OF BHEL

COMPILED BYANKIT BARANWAL

UNDER THE SUPERVISION OF

DR. RAGHVENDRA DWIVEDI

MBA 2010-12

Purpose of Study
The main aim of any firm is to maximize the wealth of shareholders. This can be

achieved only by a steady flow of profits. Which inter area depend on successful sales
activity. To generate sales, investment of sufficient funds in current assets is required. The need of current assets should be emphasized, as the sales dont convert into cash immediately but involved a cycle of operations, namely operating cycle. BHEL is multi product manufacturing unit with varying cycle for each product. The capital requirement for each department in an organization of BHEL is large which (depends on the product target for that particular year) calls for an effective

working capital management. Monitoring the operation on cycle duration is an

important aspect of working capital.

 Some prominent issues that are to be addressed are,

Duration of raw material stage (depends on regularity of supply,

transactions time).
Duration of work in progress (depends on length of manufacturing cycle, consistency in capacity utilization). Duration at the finished goods state (depends on pattern of production & sale). Thus a detailed study regarding the working capital management in BHEL is to be done to consider the effectiveness of working capital management, identify the shortcoming in management and to suggest for improvement in working capital management

Objective of Study
To study in general the working capital management procedure in

BHEL (HERP), Varanasi.

To analyze and apply operating cycle concept of working capital in BHEL (HERP), Varanasi. To know how the working capital is being financed. To know the various methods to be followed by BHEL for inventories and accounts receivables. To give suggestions, if any, for better working capital management in BHEL.

Research Methodology
Research methodology used for study includes both primary& secondary

sources of data. However most of study is conducted based on secondary sources.

Secondary sources of data mainly include annual reports of BHEL. Statement of changes in working capital for the past 5 years is done using the data taken from these financial reports. Similarly time series analysis of operating cycle and calculations of ratios is done. Apart from this, the website of BHEL is referred to know the products, product facilities, network etc.

 Industry analysis is done based on the information gathered from newspapers and websites of Indian steel ministry & other sector related

websites.

The use of primary sources is limited to interviews with some of the employees in finance department. The reason being, it is against the companys policies & producers to reveal the sensitive financial information.

Limitations of the study

Although every effort has been made to study the Working Capital Management in detail, in an organization of BHEL size, it is not possible to make an exhaustive study in a limited duration.

It is not possible to include data of2010-11 as the audited financial report has not come yet (at the time of preparation of this report). However data of2010-11 is included partially from the un-audited financial reports of BHEL.

Apart from the above constraint, one serious limitation of the study is that it is not possible to reveal some of the financial data owing to the policies and procedures laid down by BHEL. However the available data is analyzed with great effort to get an insight into Working Capital Management in BHEL.

BHARAT HEAVY Electrical LIMITED

Company background: 1956 - Company was set up at Bhopal in the name of M/s Heavy electrical (India) Ltd. in collaboration with AEI, UK. Subsequently, three more plants were set up at Hyderabad, Hardwar and Trichy. The Bhopal Unit was controlled by the company, the other three were under the control of Bharat Heavy Electricals Ltd. - The Company`s object is to manufacture of heavy electrical equipments..

 . 1972 - In July the Operations of all the four plants were integrated. 1974 - In January Heavy electrical (India) Ltd was merged with BHEL. - For the manufacture of a wide variety of products, the company has developed technological infrastructure, skills and quality to meet the stringent requirements of the power plants, transportation, petro chemicals, oil etc. - BHEL has entered into collaboration which are technical in nature. Under these agreements, the collaborators have transferred, furnished the information, documentation, including know-how relating to design, engineering, manufacturing assembly etc. 1982 - BHEL also entered into power equipments, to reduce its dependence on the power sector.

RECOMMENDATIONS AND SUGGESTIONS

There is a great need for effective management of working capital in any firm. There is no precise way to determine the exact amount of gross or net working capital for any firm. The data and problems of each company should be analyzed to determine the working capital. There is no specific rule as to how current assets should be financed. It is not feasible in practice to finance current assets by short-term sources only. Keeping in view the constraints of the company, a judicious mix of short and long term finances should be invested in current assets. Since current assets involve cost of funds, they should be put to productive use

 During my project period, I have studied the working capital management in BHEL (HERP), Varanasi. On the basis of my study I am putting forward some suggestions. Implementation of which may certainly improve the efficiency of working capital management in the unit. Due to order base work in unit the inventories are determined after the order is received. It takes time to inform the requirement for the inventories to higher authority .unit should arrange the raw material in advance which may reduce the time and leads to overcome the outstanding orders problem and defiantly help in the expansion of capacity production..

 Outstanding orders of recent past years are in increasing mode these orders should be minimize as far as possible. It shows the capacity of production of any company but with reference of past data available with us the production turnover is also increasing thus it clearly seems that the order receiving one in financial year is somewhere higher than increased production capacity.

Storage capacity should be made more reliable so that the storage of materials can be made in safe manner which leads to faster production

Conclusion
Any change in the working capital will have an effect on a

business's cash flows. A positive change in working capital

indicates that the business has paid out cash, for example in purchasing or converting inventory, paying creditors etc. Hence, an increase in working capital will have a negative effect on the business's cash holding. However, a negative change in working capital indicates lower funds to pay off short term liabilities (current liabilities), which may have bad repercussions to the future of the company.

The Company is focusing strict eye watch on cash management now days. The WC is also showing an increasing trend which is attributed to the increasing profits.

Net working capital increased year on year. The factors contributing to th

increase are: a) Increase in Sundry Debtors due to relaxing of the credit policy , although the AR days has remained more or less constant b) Increase in Inventory. c) Increase in Other Current Assets and Loans and Advances. However, increase in Current Liabilities and Provisions has offset the increase in Current Assets. The Current and Quick ratio are around 2.18 and 1.38 respectively indicating that the firm is highly liquid and would be able to meet its short term liabilities effectively.

BIBLOGRAPHY
Financial management Pandey Financial management Chandra Working capital Management Financial Management Rustagi I.M. Presanna

I.M. Pandey R.P.

Annual Reports of BHEL General Articles of BHEL (HERP), Varanasi

Website: www.bhel.com, www.indianinfoline.com,

Newspapers: Economic Times of India, The Hindu.