A STUDY ON

MAMAGEMENT OF WORKING CAPITAL

With reference to Bharat Heavy Plates &Vessels Limited (BHPV)
A project report in the area of Finance submitted to BERHAMPUR
UNIVERSITY fulfillment of the requirements for the award of degree of
BAECHLOUR OF BUSINESS ADMINISTRATION.
By
REYYA ISWAR REDDY,
Reg no:- 15969/2010

Under the esteemed guidance of

Mr. s.k.padhy
Asst. Professor
College of Business Administration, Berhampur

PRESIDENCY COLLEGES
COLLEGE OF BUSINESS ADMINISTRATION
BERHAMPUR-ORISSA

ACKNOWLEDGEMENTS
I would like to forward my sincere thanks and gratitude
to Mr. s.k.padhy for availing me the opportunity to do this
project work.
My deep gratitude also goes to Mr. s.k.padhy , faculty
member, who has patiently guided me to the successful
completion of this project work.
I would like to express my sincere gratitude to Shri
B.V.Rao, Manager (TRAINING), HR department, BHPV, for
his valuable support and guidance during the entire course of
the project work.
I would also like extend my gratitude to my parents and
friends without whose help and advice this project would not
have been possible.

REYYA ISWAR REDDY

CONTENTS
CHAPTER-1

INTRODUCTION
OBJECTIVES OF STUDY
NEED FOR THE STUDY
DESIGN OF THE STUDY
SCOPE OF THE STUDY
METHODOLOGY
LIMITATIONS
CHAPTER-2

INDUSTRY PROFILE
COMPANY PROFILE
CHAPTER-3
THEORITICAL FRAMEWORK OF THE STUDY
CHAPTER-4
ANALYSIS & INTERPRETATION OF THE STUDY
CHAPTER-5
SUMMARY
FINDINGS
SUGGESTIONS

BIBILIOGRAPHY
ANNEXURE

CHAPTER-1

INTRODUCTION
OBJECTIVES OF THE STUDY
NEED FOR THE STUDY
DESIGN OF THE STUDY
SCOPE OF THE STUDY
METHODOLOGY
LIMITATIONS

INTRODUCTION TO THE TOPIC

 FINANCIAL MANAGEMENT
Financial management is managerial activity which is concerned with the planning
and controlling of firms financial resources. It was a branch of economics till 1980
and as a separate discipline it was of recent origin. Still it has no unique body of
knowledge of its own and draws heavily from economics for its theoretical concepts
even today. Theory of financial management provides conceptual and analytical
insights to make decisions relating to the financial aspects of organization skillfully.
Definitions of financial management
Financial management is concerned with the efficient use of
resource namely, capital funds. EZRA SOLOMAN

an important

Financial management is concerned with the managerial decisions that result in

the acquisition and financing of long-term and short-term credits for the firm.
PHILLIPPATUS.
Financial management is that business activity which is concerned with the
acquisition and conservation of capital funds in meeting financial needs and
overall objectives of a business enterprise. WHEELER
These definitions we can understand the functions of the financial management. Those
are procurement of funds and effective utilization and part of these functions use
different techniques.
OBJECTIVES OF FINANCIAL MANAGEMENT
Quite obviously, the objective of the firm should be the maximization of its value of the
shareholders. The price of shares in the market indicates the value of the firm. Factors
like investment, financing and dividend exercise an influence on the market price of
the shares. The main objectives of financial management can be said as:
PROFIT MAXIMIZATION
The objective of every organization is profit maximization. Profit Maximization
means maximizing the rupee income of firms. Profit is considered as the most
appropriate measure of a firms performance.

WEALTH MAXIMIZATION

It is a long - term objective. Wealth maximization is nothing but increasing the wealth
of the shareholders by way of contributing to the net worth of the shareholders.
For attaining these above said objectives financial manager makes crucial decisions
relating to investment in different projects, dividend decisions , debt equity mix
decisions, source of finance, analysis of ratios and working capital management.

INTRODUCTION ABOUT BHPV LTD

BHPV was established in the year 1966 at Visakhapatnam, Andhra Pradesh as a Public
Sector Undertaking under the Department of Heavy industry (DHI) to manufacture
and supply custom built process plant equipments for Core Sector Industries like
Fertilizers, Oil Refineries, Petrochemicals, Steel Plants, Nuclear, Space, Defence and
Power Sectors with the technical collaboration of SKODA Export, Czechoslovakia. The
Company is located on NH-5 near to Airport, Railway Station and Sea Port in
Visakhapatnam, Andhra Pradesh. The Company is spread over a total area of 386
Acres.
BHPV is a premier Organization specializing in design, fabrication, supply and
erection of Heat Exchangers, Columns, Storage Spheres, Reactors and Strippers,
Multilayer Vessels Reactor Regenerator Package, Air Separation Plants, Purge Gas
Recovery Units, Oxygen Plants, Nitrogen Plants, Hydrogen Plants, Sulphur Recovery
Units, Crude Stabilization Units, Mounded Storage Systems, Compact Heat
Exchangers, On Board Oxygen generating system etc., to Oil Refineries, Fertilizer
Plants, Steel Plants, Defiance sector etc., and has been contributing to the Nation
building during the past four decades.
The Company has good potential to cater to the growing needs envisaged in Power, Oil
and Gas, Nuclear, Defiance and other strategic sectors in future. Also, BHPV is highly
reputed for the Quality and reliability of its products and possesses several National &
International Quality accreditations besides ISO 9001:2000 certification.
BHPV started production in the year 1971-72 with a turnover of just Rs.1.95 Crs and
crossed Rs.300 Crs in the year 1996-97. The Company contributed more than Rs. 650
Crs to the national exchequer during the past 20 years.
BHPV is the largest fabricator of process equipment in India for the petroleum,
fertilizer, chemical and allied industries. It is a subsidiary of a navaratna Central
Public Sector Enterprise Bharat Heavy Electrical Limited and is managed by an
autonomous separate board of directors.
Situated in the city of destiny of Visakhapatnam on the western see coast of the Deccan
plateau, BHPV is accessible by road, rail, sea and is well connected to all metropolitan
cities by air.
BHPV has been selected for the study. The topic selected is A study on Working
Capital Management with reference to BHPV.

 NEED FOR THE STUDY

BHPV has emerged as one of the leading heavy engineering Industries after its
incorporation, in the year 1966 to manufacture custom Built capital equipment
required by the process industries like fertilizers, Petro chemical & chemical
industries.
After its commissioning & commencement of production, the Company has been
continuously updating its technologies, by entering into Collaborations with renowned
companies like M/s BSL, Deals - France, HCG-Netherlands, Hahn & Clay-USA etc.
Mammoth Engineering capabilities & excellent designing network & Manufacturing
facilities, high degree of customer confidence, with sound work Cultures are some of
the vital factors involved in achieving continuous growth of BHPV.
However in the early 2000s, the financial performance of the industry went under
great strain, due to a combination of adverse factors, which got bunched year by year.
Since 2001 steep rise in exorbitant interest costs, increased inflation, global
competition, Government policy etc further aggravated the situation.
However, from the year 2008, the company started showing positive signs in the
operations and stared earning profits. The main reason for this development is the
decision of the Government to delink the company from BYNL, Allahabad and make it
part of Heavy Electrical Equipment Conglomerate BHEL. The year 2008 can be said
as RE-BIRTH year for BHPV.
BHEL, from the date of taking over BHPV in 2008, started to look after key areas like
utilization of plant capacity to the fullest extent, attention on financial discipline, HR
related problems, Capex etc. From the year 2008 the company re-started its business
with new look, strategies, diversification and once again started gaining customer
confidence, thereby earning positive financial figures and on the way of regaining past
glory.
The importance of the study, Working Capital Management in BHPV, Visakhapatnam
presupposes that one very important reasons for which Public sector Enterprises in
India have suffered financial strains in the late 80s and in 90s or earned low Level of
profit may relate to the misconstruing of the financial aspects. Had these Enterprises
managed the overall finance operations in an efficient manner, they would have
generated resources for its growth as well as economic growth.

OBJECTIVES OF THE STUDY

This study of BHPV has been undertaken to evaluate the financial efficiency of the
organization by establishing the following objectives.
To know about the various sources of finances, working capital to BHPV.
To judge the financial position, i.e. the short-term liquidity position and the long-term
solvency of BHPV.
To measure the operational efficiency of BHPV. To determine the profitability trends of
BHPV.
To assess the overall financial position of the company through various established
techniques.

RATIO ANALYSIS:
Ratio analysis is a technique of analysis and interpretation of financial Statements. It is
the process of establishing and interpreting ratios for helping in making certain
decisions. However ratio analysis is not an end for itself. It is a only a means of better
understanding of financial strengths and weakness of a firm.
SCOPE OF THE STUDY:
The scope of the study is connected to one of the key areas of finance i.e.
Analysis & Interpretation of Financial Statements. The study appraises the
company's meeting the requirements for the process industries in the core
sector such as fertilizer, oil refineries, chemicals etc.
METHODOLOGY:
The analysis of the project was based on the available information. Any
information about the topic is called the data. The data was gathered from
various sources i.e., Primary and Secondary sources.
Type of Data:

Primary Data
Secondary Data

 Primary Data:
Any information that is collected afresh and for the first time is called Primary
data .The primary data happen to be original in character. The
Information is gathered from concerned employees. The employees and
manager of the financial department have provided the information needed for
the study.
Secondary Data:
Information which has already been collected by somebody else or some other
agency with definite purpose and which has already been processed is called
secondary data. The secondary data for the study have been gathered from the
balance sheets, profit and loss accounts annual reports and other books and
manuals of the BHPV LTD.
LIMITATIONS OF THE STUDY :
Every study is conducted under certain limitations. The study relates only to
financial data and other areas are not taken into consideration. The study is
carried out only for a period of 2 month. It was not possible to get cent percent
correct information. The research was made according to the information
available from related departments and through annual reports published. The
sent study covers only for a period of five years. So the analysis will be made on
this basis.
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011

CHAPTER-2

INDUSTRY PROFILE
COMPANY PROFILE
INDUSTRY PROFILE
BHPV is a subsidiary of BHEL (Bharat Heavy Electricals Ltd), navaratna Central
Public Sector Enterprise and Heavy Electrical Equipment Conglomerate.
MARKET PROFILE:In addition to BHPV legacy products such as process plants, combustion systems,
boilers, cryogenic equipments for refineries, fertilizer plants, steel pants etc, with the
takeover of the company by BHEL, the company diversified into manufacturing
equipments required for power generation plants in and abroad.
CUSTOMER PROFILE:BHPVS clientele includes- Public, Private, Co-operative Sector organizations in
almost all the core sector of economy such as all the fertilizer plants, petroleum
refineries and steel plants in India and abroad. Now, with the diversification all major
power plants in India. Other major customers are from paper, chemicals, defence,
space sectors.

 COMPETITOR PROFILE
In the area of process plant:
John

L&T, GR Engg, Lloyds steel, ISGEC,

Thomson, Godrej etc

In the area of cryogenics:

Linda,
products, Kobe, Hitachi,

ICCP, INOX, Shanghais oxygen, L&T,

VJU, Essar, LINDE, Air
HOPM, Praxair

In the area of combustion system:

ABL

ISGEC, Babcock Thermax, Ignifluid boilers,

L&T KTI, Thermax etc

COMPANY PROFILE
HEAD OFFICE:- Visakhapatnam, Andhra Pradesh.
BRANCH OFFICE: - Mumbai, Chennai, New Delhi
Bharat Heavy Plates and Vessels Ltd, it is a public Limited Company. It is a job order/
shop production industry. According to customer specifications and requirements it
produces various products. Fore seeing the countrys need for fabricating equipment of
an exclusive Factory with the main object of reducing dependence on foreign suppliers
and become self sufficient ourselves.
Thus the birth of BHPV in the year 1966 to meet the demands of process equipment
for core industry like Fertilizers, petrochemicals, petroleum and other chemical
industries initially. BHPV using different types of materials manufactured and
supplied several built equipments such as pressure vessels, heat exchangers, columns,
internal trays etc. After executing some important orders, BHPV LTD gained full
confidence of customers which cleared the way to enter the line of cryogenic
field, pulp cooking plant, evaporation plant and industrial boilers on a total turnkey
basis which of later years helped in augmenting turnover of the company and
increasing profitability.
INTRODUCTION ABOUT BHPV LTD:
In the liberalized economy of India and in the era of globalization a company must
rethink its business mission and all functional strategies. In these days companies find
themselves competing in a race where the road signs and rules keep days when it was
business as usual companies could succeed only by having innovative ideas
combined with by effective financial management.
Therefore, it is not surprising that todays winning companies are those which foresee
the future and manage the finance effectively. One can manage finance effectively by
managing working capital, capital structure and taking decision on capital budgeting.

Ultimately, finance is at its best about value adding, developing new products and
raising the worlds standards of living.
The heavy engineering industry is a major strength of any economy. These heavy
engineering industries which produce capital goods are the most modern of the entire
industrial group.
In India these heavy engineering industries occupy a crucial role in its economic
development in view of the huge investment as well as the critical importance to
nation. These industries are mostly confined to the public sector only. BHPV Ltd. is the
largest fabricator of process equipment in India for the petroleum, chemical and allied
industries. It is fully owned by the government of India and is managed by an
autonomous board of directors.
Situated in the City of destiny of Visakhapatnam on the western see coast of the
Deccan Plateau, BHPV is accessible by road, rail, sea and is well connected to all
metropolitan cities by air.
BHPV, Visakhapatnam is a public sector undertaking BHPV has been selected for the
study. The topic selected is A study on Working Capital Management.
Bharat Heavy plates & Vessels Ltd., started off in 1966 as fully owned Government
Company for Design, Manufacture & Supply of capital equipment required for process
industries in the core sector such as fertilizers, oil refineries & petrochemicals etc. Sri
D. Sanjeevayya laid the foundation stone, the then Minister of Industry on 8 th Jan 1967
in Visakhapatnam. It comes under the purview of the Department of Heavy Industry,
Ministry of Industry.
With the technical collaboration of SKODA Export Company of Czechoslovakia in the
year 1968, it got expertise and guidance for establishing the project and for the Design
& manufacture of various process equipments. BHPV became a fully owned subsidiary
of Bharat Heavy Electricals Ltd.
Licensed installed capacity is 23210MT. The initial capital outlay is Rs.17.5 crores. The
product mix included heat exchangers, columns, and pressure vessels, Storage vessels,
piping etc. During the year of it commercial production i.e. 1971-1972 the turnover was
just Rs 5 lakhs. In 1996-97 it has recorded on turnover of Rs 29998 lakhs i.e. all time
high. Last Five year performance is produced here under.

PHYSICAL OUTPUT
Sl

Year

Licensed Cap

Installed Capacity

Achieved

T/o (Rs-Crs)

2001-02

23210 MT

23210 MT

13893 MT

234

2002-03

23210 MT

23210 MT

7770 MT

148

2003-04

23210 MT

23210 MT

2710 MT

60

2004-05

23210 MT

23210 MT

6010 MT

109

2005-06

23210 MT

23210 MT

4828 MT

122

2006-07

23210 MT

23210 MT

8701 MT

180

2007-08

23210 MT

23210 MT

11787 MT

180

2008-09

23210 MT

23210 MT

5876 MT

84

2009-10

23210 MT

23210 MT

104

10

2010-11

23210 MT

23210 MT

5100 MT
12289
MT

137

Rs lakhs

2010-11
Description

2009-10

2008-09

2007-08

2006-07

2005-06

12640.84
I

GTO (Net of Excise Duty)

8678.90

8241.82

17144.68

15684.49

10392.87

3555.42

1978.40

4586.66

6801.68

4463.70

-893.28

-8734.19

-4094.23

2832.15

-18.27

-1019.08

-9582.48

-4240.36

2658.38

-194.19

0.00

23008.28

0.00

0.00

-750.99

9692.93

-3469.87

-7137.90

108.70

57.41

0.00

0.00

5836.87
II

Value Added ( I- II)

353.01

III

Gross Margin(PBDIT)
243.09

IV

Gross Profit(PBIT)
774.77

Extra Ordinary Income

877.72

VI

Profit before Tax (PBT)

0.16

VII

Income Tax

0.00
-5588.80
16.05

877.56
VIII

Profit after Tax (PAT)

-859.69

9635.52

-5604.85

-3469.87

-7137.90

HISTORY OF BHPV

Licensed to start construction of plant at Visakhapatnam in 1966, BHPV confronted

many obstacles such as water problems, frequent power cuts both at initial stage as
well as at the time when construction was going on.
In spite of all those obstacles the civil and structural work was completed to a major
extent by the end of 31st March1967.The licensed and installed capacity is 23210 MT.
The initial capital outlay being Rs.17.5 crores. Later after Completion of installation
work BHPV had received orders for the 1st time from M/S BOKARO steel plant and
Fertilizer Corporation of India ltd., for fabrication and supply of equipment.
The factory at initial stages had suffered a loss in fabrication and delivery of
equipment to customers due to delay in the procurement of required raw material. The
factory was scheduled to go into production initially in July 1967, but due to backlog of
some uncompleted construction work the Company went into commercial production
only in 1971. Sir K.C.Panth then the Minister of State for steel and heavy engineering
inaugurated the initial production in 1970 where some production facilities had
already been established by installation of fabricating machinery like bending rolls,
welding equipment etc.
During the first year production, the company has incurred a loss of Rs 27.47 lakhs
mainly due to incidence of fixed expenditure apportion-able to Production like
establishment depreciation etc. The same loss position was continued till 1978 - 1979.
The continuous losses put BHPV far from profiteering companies.

In 1979-80 BHPV has witnessed several significant events both on financial as well as
production fronts. BHPV for the first time in its years of commercial production
attained a break-even level with a marginal profit of Rs 33.09 lakhs as against a net
loss of Rs 129 lakhs projected at the beginning of the year.
During 1980-81 the company for the second consecutive year, earned a net Profit (after
tax) Rs 48.21 lakhs from its operations. This year BHPV Ltd operations included
manufacturing of very critical and sophisticated equipment to core industries. Again in
1981-82 the company operations resulted in a net profit of Rs 60.19 lakhs as against a
budgeted loss of Rs 20/- lakhs.
Major pending interest on loan from GOI was cleared in this year. During 1982-83
BHPV reached 100% target production and resulted in a net profit of Rs103.71 lakhs
as against the budgeted loss of Rs 95 lakhs. With prestigious work orders from
Visakhapatnam steel plant for supply of air and gas separation plants BHPV crossed a
target production and its operations resulted in a net profit of Rs 575 lakhs.
Again in 1987-88 BHPVs projects were successfully fabricated and its profits took an
upward trend and its operations resulted in PAT of Rs 290 lakhs. It was expected to
emerge an increasing trend in the profits of BHPV for the year 1988-89.
However, due to changes in the economy with entry of global players in 1990s,
increased private sector competition, introduction of LSTK concept by customers and
Governments policy towards PSU i.e. implementation of VRS and proposals for
disinvestment, the Company has suffered huge losses in 2002-03 and 2003-04. By virtue
of this, entire net worth of the company got eroded. This resulted for reference of the
company to BIFR in August 2004.
Various revival proposals tried after 2004 for rehabilitation of the company through
outright sale, merging with other PSUs, stand alone revival etc. However, due to
change in Government policy after 2005 and considering the potential of BHPV, GOI
has finally made the company as subsidiary of BHEL, a Navaratna PSU.
AN OVERVIEW OF TOP MANAGEMENT:
From May 2008 the company became subsidiary of BHEL. At Corporate level the
companys affairs are managed by the Board consist of full time Managing Director
and CMD, BHEL as the chairman of the board. In addition, 1 Ex officio Director from
DHI (administrative ministry) & 2 functional Directors also constitute the Board.
Technology & Market Issues:
The present plant & machinery & infrastructure utilizing by the company is of 30
years old and have been fully depreciated. At present the internal lead time is high
when compare to competitors. Similarly in the areas of engineering the lead time
required for design and drawings is to be reduced which requires implementation of
sophisticated process design software.

As per rehabilitation scheme approved by GOI, BHEL will invest Rs 231 crores for
modernization of the plant in the years 2011-12 to 2013-14.
Product Diversification
The company has undertaken several EPC contracts on EPC/LSTK basis at various
locations in India and abroad. The Company R&D Department has developed
technology for manufacture of compact Heat Exchanger for the light Combat Aircraft
(LCA) under the funding by Aeronautical Development Agency (ADA). BHPV now
with the technology acquired from BHEL (Holding Company), diversified into power
plant equipment, namely HRSG Boilers, Dearators etc.
Revival and Turnaround of the company:
On 09.05.2008, the company was formally taken over by BHEL, a navaratna PSU, as per
the revival scheme sanctioned by GOI.
The salient features of revival scheme are as below.
(As per the Govt. of India, Ministry of Heavy Industries & Public Enterprises,
Department of Heavy Industry, letter F.No. 1 (11) / 2004 PE (IV) Dated 07.05.2008)
1. GOI will waive and write off loan and interest amounting to Rs.415.61 Crs.
2. GOI to provide guarantee amounting to Rs.250 Crs to enable BHPV to
raise bonds from the domestic market subject to the conditions as intimated
vide this office letter of even no. dated 29.04.2008
3. The entire paid up capital of BHPV to the tune of Rs. 33.79 Crs would be
transferred to BHEL at a notional value of Re. 1/-.
4. BHEL will take over both the assets and liabilities (including contingent
liabilities) of BHPV as a going concern.
5. The takeover will entail the following concessions from the

6. Government of Andhra Pradesh:

a) Transfer of title of land measuring 386.73 acres in possession of BHPV as gift
along with waiver of registration and stamp duty.
b) Waiver of Sales Tax arrears amounting to Rs.42.16 Crs
c) Waiver of NALA Tax of Rs.43 lakh and
d) Waiver of dues towards Water Tax, Property Tax, and Vacant Land Tax of
Rs.3.96 Crs.

7. The consortium of Bankers has agreed for One-Time-Settlement BHEL may

take timely advantage of the offer.
8. BHEL will infuse at least Rs.34 Crs as additional Equity Capital and adequate
funds for up-gradation of manufacturing facilities, Capex and Working
Capital.
9. BHEL will take over BHPV with all its employees.
10. DHI will assist BHEL in settling the disputed demands relating to excise,
customs,
income-tax etc., on a case to case basis.
11. BHEL will take-over BHPV as its subsidiary and take all possible steps for its
revival. The matter regarding reconstitution of the Board of Directors is under
consideration of the competent authority.
The Sanctioned Rehabilitation-cum-Take-over Scheme
The Revival Scheme envisages take-over of Bharat Heavy Plate and Vessels Limited
(BHPV), a Government of India Enterprise and Subsidiary of Bharat Yantra Nigam
Limited (under The Ministry of Heavy Industries and Public Enterprises) by Bharat
Heavy Electricals Limited (BHEL), a Government of India Enterprise (also under the
Ministry of Heavy Industries and Public Enterprises) as its subsidiary.
As per the scheme, the entire undertaking of BHPV shall be transferred to BHEL as
its subsidiary. The entire paid-up capital of Rs 33.79 Crs would be transferred to
BHEL at a nominal value of Re 1/- .
BHEL will take-over both assets and liabilities (including contingent liabilities)
of BHPV as a going concern. BHEL will take-over BHPV with all its employees.
BHEL will infuse at least Rs 34 Crs as additional Equity Capital and adequate funds
for up-gradation of manufacturing facilities, CAPEX and working capital. Above cited
Sanctioned Rehabilitationover-Scheme has been found acceptable to all the
employees and secured creditors.
Above scheme was approved by BIFR in October 2010.

 Synergy of Business between BHEL and BHPV:

In addition to improvement in present business of BHPV, the take-over by BHEL will
have the following advantages:

Managerial and marketing support from BHEL.

Diversification into High Pressure Power Boilers.
Technological Support for new products.
Financial Support for up gradation of manufacturing facilities, Capex
and Working Capital Requirements.
Ensured flow of new orders.
Synergy between the two organizations in view of similarity of
products/technologies.
Business advantage due to excellent Brand Image of BHEL.

Factors for revival of BHPV through takeover by BHEL:

BHEL on its part has worked out the viability of the BHPV takeover, taking into
consideration the points:
BHEL to enhance the capabilities & capacities of BHPV to build upon its strengths in
the existing business of supplying process equipment to sectors like Oil,
Petrochemicals, Fertilizers etc.
In addition, BHEL plans to enhance BHPVs capabilities & capacities in the area of
industrial boilers, heat exchangers, condensers etc.In capital investment of Rs. 235 Crs
is envisaged for the up-gradation of required facilities.
Expected growth in the market for BHPVs products , especially in process
equipment and cryogenics. As per Industry analysis, orders worth Rs. 1700 Crs per
annum are expected in the next five years from oil Refineries and Petrochemical
projects to flow to the engineering & fabrication industry.
With a market share of BHPV of 15% 18% in the past in this segment, BHPV can
become more confident in addressing this market overcoming its financial constraints
by participating in some of the tenders with BHEL support.
As such, BHPVs financial weakness would be mitigated once its restructuring is
completed and BHEL takes over its functioning. The Captive Power Projects (CPP)
and Industrial boilers market segment is expected to grow from around Rs. 1800 Crs
in 2007-08 to an estimated level of Rs. 2400 Crs in next five years based on projected
12 % industrial growth in the coming years.

BHPV can target a share of 25% 30% of this market, provided market expectations
on delivery and price are fulfilled. Currently, the Trichy unit of BHEL is constrained
in targeting the industrial boilers market due to heavy load of boiler orders from
the utility segment. In this regard, BHPV can be developed as a dedicated center for
industrial boilers by BHEL.
The sales turnover from this segment has been projected to reach to level of Rs, 800
Crs by the fifth year after functional take over by BHEL, based on factors like
increased volume, better financial capabilities leading to lower working capital
borrowing costs etc.

B H P V: A N O V E R V I E W.
INTRODUCTION
Incorporation of the Company

1966

Primary Objective

Technical Collaboration provided by

Commencement of Construction
Completion of Construction
Commencement of Production
Initial Project Cost
Initial Product Mix
Pressure vessels, Technological
Structures, Piping etc.
Installed Capacity
Turnover for the year 2009-10
RESOURCES
PRODUCTION FACILTIES
Factory Area
Total Covered Area
Covered area of Production Shops
Power Requirement
No. of Ancillary Units

:
:
:
:
:
:

SKODA, Czechoslovakia.
1968
1971
1971
Rs. 17.5 cores
Heat Exchangers, columns,

:
:

23, 210 M.T.

Rs. 104 corers

:
:
:
:
:

197 Acres
90,000 sq. Meters
56,000 sq. Meters
3,000 KW from APSEB
Around a Dozen

To manufacture custom built Capital

Equipment for the process of
Industries such as Fertilizers,
Petrochemicals,
Petroleum

 IMPORTANT MACHINERY
The maximum crane lifting capacity is 120 tones, but loads up to 250 tones can be
lifted with improvisation. Maximum Rolling capacity is 60mm in cold condition and
170mm in hot condition. BHPV has the largest heat treatment furnace in India, the
size being Meters width, 5.5 meters height and 36.5 meters long.
One more furnace of 200 Ton capacity and 15mtrs. Bogie length has been added. Other
critical equipment available with BHPV are Deep Drawing Hydraulic Press of 1600T
capacity Single Spindle CNC Deep hole Drilling Machine with Gun Drilling
attachment and 2Nos. CNC drilling machines which can employ conventional drills.
Another CNC Deep hole drilling machine has been installed recently by HMT.
A number of Welding Rotators of capacity up to 250 Tones. Welding equipment such as
manual Arc, Sub merged Arc, TIG, MIG, Plasma
including the latest high
productive welding equipment such tune head submerged arc welding, and Bicathode TIG welding .Tube fining Machine.A number of vertical and horizontal
boring machines with a maximum capacity of 5 meters dia and 200mm spindle dia
respectively.
Different types of Non-destruction Testing Equipment. Well equipped Physical and
Chemical Laboratories. Metrology section etc. HCL Super-Mini Computer, Two Mini
computers 56 CAD Machines and 118 Personal computers.
MANPOWER (As on 31st Mar, 2011)

Workmen / Staff
Supervisors
Executives
Total

:
:
:
: 1109

EMPLOYEE WELFARE AMENITIES

Township Area
151 Acres
No. of Quarters
1192
20 bed Hospital
Protected Water Supply
Underground drainage system
English medium school with CBSE Syllabus
Telugu medium school with AP State Syllabus
Special school for mentally handicapped children.
Vocational training centre for mentally handicapped
Community center for cultural activities & sports open air theatre facilities
Kalyana Mandapam.

By absorbing know-how from various world renowned collaborators, BHPV upgraded

its status from a mere fabricator of process equipment to that of an engineering
company of international repute.

PROJECTS OF NATIONAL IMPORTANCE EXECUTED/UNDER EXECUTION

S.NO. CUSTOMER

PROJECT/EQUIPMENT

1.

IOCL, Panipat

Hydro cracker reactors-3Nos

2.

IOCL, Panipat

Reactor, Regenerator & Office Chamber

3.

IOCL, Panipat

Reformer & WHR Package

4.

IOCL, Mumbai

150 MT Capacity LPC bullets

5.

IOCL, Chennai

Sphere

6.

Argon Recovery unit

7.

BOKARD STEEL PLANT,

Bokaro
NRL, Numaligarh

8.

HPCL, Visakhapatnam

9.
10.

HPCL, VREP II
Visakhapatnam
HPCL, Visakhapatnam

11.

HPCL, Visakhapatnam

Revamping of 50TPH oil & gas fired boiler

12.

HPCL, Mumbai

50 TPH Boiler

13.

BPCL, Mumbai

Nitrogen Plant

14.

Hyundai Heavy Industries,

New Delhi
Space application centre,
Ahmadabad
TECHNIMONT ICB LTD.
Mumbai
OSWAL CHEMI
FERTILIZER LTD-Para deep

Cryo Nitrogen plant

15.
16.
17.

Air Fin coolers/SS Clad Vessels, Spheres

etc.
CDU Heater with APH System/VDU
Heater
Clad/CS Columns/CS heat Exchangers etc
Co-boiler

505m Dia thermal vacuus system

Nitrogen plant
Waste Heat LP boilers

As a part of total quality management program, BHPV has acquired ISO 9001
certification during the year 1993-94, particularly to boost up its exports and to be
competitive in the international market.

Re-certification of ISO 9001 has been obtained in September, 1996.

In recognition of high standards of our quality, confederation of Indian
industry (CII), Southern Region, AP presented the Quality Award.

RESEARCH & DEVELOPMENT

Research & Development department was established in 1975 and is well equipped
with high tech equipment to cater to Applies Research and Product Development.
R&D has developed 136 Projects so far. Some of the products commercialized include:

Titanium Anodes
Titanium Air Bottles
Cryogenic Vats
Individual Quick Freezing Unit
Super Insulated Piping.
Super Insulated Cryogenic Storage tanks
D.M. Water Plants

A prestigious order for Development of Heat Exchangers for Light Combat Aircraft
(LCA) Phase-II has been received from Aeronautical Development Agency, Bangalore.

Some of the Awards received for excellence in R&D include:

CIS Award for R&D achievement in 1992-93.

ANCILLARISATION
BHPV has developed some ancillary industries in its vicinity to cater to its
requirements. Apart from offering sufficient work load to these industrial units,
BHPV has been assigning work to a number of small sector industries. BHPV
provides material, transportation and inspection services to the Ancillaries to
help them rise to its quality requirements.
PRESENT STRENGTHS

Financial, Managerial, Technical back-up and support of Navaratna PSU,

BHEL
Excellent Design & Engineering capabilities.
State of the Art Manufacturing facilities.
Accomplished image as a supplier of Quality Products in the domestic and
international markets.
High degree of customer confidence.
Technological tie-up arrangements.
Well trained and qualified work force and Engineers.

Sound work culture & harmonious Industrial Relations.

Extensive computerization.
Capability to supply Projects & Systems on turnkey basis.
Project Management Skills.

PLANS & STRATEGIES

To grow as an Engineering, Procurement and Construction Company.

To enlarge Export Business.
To resort to extensive computerization and Automation for reduction of cycle
time, improvement of quality and reducing costs.
To forge strategic business alliances with International Companies to derive
technological and marketing advantages.
To strive for continuous updating of technologies to be on par with
International Companies.
To focus on Human Resources Development.
To change the work culture to be compatible with market demands.

CONSTRAINTS

Non computerization / No ERP

High average age of employees / no executive recruitment since 1998
Working capital constraints
Replacement/updating of machinery

CHAPTER -3
THEORITICAL FRAMEWORK OF THE STUDY
WORKING CAPITAL MANAGEMENT
INTRODUCTION
Every business needs funds for two purposes for its establishment and to carry out its
day to day operations. Working capital refers to that part of the firms capital, which is
required for financing short term or current assets such as cash, marketable securities,
debtors and inventories. Working capital is the amount of funds to cover the cost of
operating the enterprise.
The goal of working capital management is to manage the current assets and current
liabilities of the firm in such a way that a satisfactory level of working capital is
maintained. Working capital is the difference between the inflow and outflow of funds.
Working capital is also known as revolving or circulating or short term capital.
MEANING AND DEFINITION OF WORKING CAPITAL

 DEFINITION
According to Ralph Kennedy and Steward Mc Muller a study of working
capital is of major importance to internal and external analysis because of
its close relationship with the current day to day operations of business.
MEANING:
Working capital refers to the funds invested in current assets i.e. investment in stocks,
sundry debtors, cash and other current assets. Current assets are essential to use fixed
assets profitably . For example a machine cannot be used without raw material. Thus
it is obvious that certain amount of funds is always tied up in raw materials, work in
progress and finished goods. However, the business also enjoys credit facilities from
its suppliers who may supply raw materials on credit and the firm may not pay
all the expenses immediately. Therefore, certain amount of funds is automatically
available to finance the current assets requirements. However the requirements for
current assets are usually greater than the amount of funds payable through current
liabilities . In other words, current assets are to be kept at a higher level than the
current liabilities.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital
(a) Gross working capital
(b) Net working capital
Gross working capital
Gross working capital refers to the firms investment in current assets. Current
assets are the assets, which can be converted into cash with in an accounting year
and include cash, short-term securities, debtors (accounts receivables or book debts),
bills receivables and stock (inventory).
Net working capital
Net working capital refers to the difference between current assets And current
liabilities. Current liabilities are those claims of outsiders which are expected to
mature for payment with in an accounting year and include creditors (accounts
payable), bills payable and outstanding expenses. Net working capital can be positive
or negative. A positive working capital will arise when current assets exceed current

liabilities. A negative working capital will occur when current liabilities are in excess of
current assets.
List of current assets and current liabilities
CURRENT ASSETS
o
o
o
o
o
o
o
o

CURRENT LIABILITIES

Cash in hand
Cash at bank
Bills receivables
Sundry Debtors
Stock
Prepaid expenses
Accrued income
Short term investments

Bills payable
Sundry creditors
Accrued expenses
Short term loans
Dividend payable
Bank overdraft
Provision for taxes

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in two ways.
On the basis of concept
Gross Working Capital
Net Working Capital

On the basis of time

Permanent or Fixed Working Capital
Regular Working Capital
Reserve Working Capital
Temporary or Variable Working Capital
Seasonal Working Capital
Special Working Capital

SOURCES OF WORKING CAPITAL

There are two sources of working capital.
Permanent or Fixed
The fixed proportion of working capital should be generally financed from the fixed
capital sources like
o Shares
o Debentures
o Public deposits

o Retaining profits
o Loans from financial institutions
2. Temporary or Variable
Temporary working capital requirement of a concern may be met from the short term
sources of capital like
o
o
o
o
o
o

Commercial bankers
Indigenous bankers
Trade creditors
Accrued expenses
Commercial papers
Accounts receivables

Working capital is very essential to maintain the smooth running of business. No

business can run successfully without an adequate amount of working capital.
However it must also be noted that working capital is a means to run the business
smoothly and profitably and not an end in itself. Thus concept of working capital
can be conducted through a number of devices such as
o Ratio analysis
o Funds flow analysis
o Budget

RATIO ANALYSIS
A ratio is a simple arithmetic expression of the relationship of one number to another.
The technique of ratio analysis can be employed for measuring short term
liquidity or working capital position of a firm. Several ratios like current ratio ,
quick ratio , inventory turnover ratio , receivable turnover ratio , payables
turnover ratio , working capital turnover ratio, cash position ratio etc.
2.FUNDS FLOW ANALYSIS
Funds flow analysis is a technical device designated to study the sources from which
additional funds are derived and the use to which these sources are put. It is an
effective management tool to study changes in the financial position (working
capital) of a business enterprise between beginning and ending financial statements
dates. The funds flow analysis consists of:
(a) Preparing schedule of changes in working capital
(b) Statement of sources and application of funds.
3. WORKING CAPITAL BUDGET

Working capital budget, as a part of total budgeting process of a business, is

prepared estimating future long term and short term working capital needs and the
sources to finance them, and then comparing the budgeted figures with the
actual performance for calculating variances, if any, so that corrective actions may
be taken in the future. Its main objective is to ensure availability of funds as and
when needed , and to ensure effective utilization of these resources . The
successful implementation of working capital budget involves preparing separate
budgets for various elements of working capital, such as, cash, inventories and
receivables.
OBJECTIVES OR NEED OF WORKING CAPITAL
The need for working capital cannot be over emphasized. Every business needs some
amount of working capital. The need for working capital arises due to the time gap
between production and realization of cash from sales.
It requires

For the purchase of materials, components and spares. To pay wages and
salaries.
To incur day- to- day expenses and overheads such as fuel, power and office
expenses etc.
To meet the selling costs as packing, advertising etc. To provide credit facilities
to the customers.
To maintain the inventories of raw materials, work in progress, stores and
spares, and finished stock.

IMPORTANCE OF WORKING CAPITAL

Working capital is just like the heart of the business. If it becomes weak; the business
can hardly prosper and survive. It is an index of solvency of a concern. Its proper
circulation provides to the business the right amount of cash to maintain in
business. Without adequate amount of working capital, production interruption may
take place and results in reduction of profit.
Just as circulation of blood is very necessary in human body to maintain life,
smooth flow or circulation of working capital is necessary for the health of the
enterprise. The prime object of management is to make profit. Whether or not this
is accomplished
in most business depends largely in the manner in which the
working capital is administered.

KEY AREAS OF WORKING CAPITAL

Generally in the working capital management there are three important areas.
Those are

Cash management
Receivables management
Inventory management
ADVANTAGES OF ADEQUATE WORKING CAPITAL

Working capital is the life blood of the business. Just as circulation of blood is essential
in the human body for maintaining life, working capital is very essential to maintain
the business. The main advantages of maintaining adequate amount of working capital
are as follows:
Good solvency position in the business
Goodwill, it is easy to get loans
Cash discounts
Regular supply of raw materials
Regular payment of salaries, wages and other day to day Commitments
Exploitation of favorable market conditions
Ability to face crisis
Quick and regular return on investment
High morale
Every business concern should have adequate working capital to run its business
operations. It should not have either redundant/ excess or shortage of working capital.

DISADVANTAGES OF EXCESSIVE WORKING CAPITAL

Excessive working capital means idle funds which earn no profit for the business and
hence the business cannot earn a proper rate of return on its investment. Where there
is a redundant working capital, it may lead to unnecessary purchasing and
accumulation of inventories causing more chances of theft, wastage and losses.
Excessive working capital implies excessive debtors and defective credit policy which
may cause higher incidence of bad debts. It may result in overall inefficiency in the
organization. When there is excessive working capital, relations with banks and other
financial institutions may not be maintained. Due to low rate of return on
investments the value of shares may also fall.
The redundant working capital gives rise to speculative transactions.
DISADVANTAGES OF INADEQUATE WORKING CAPITAL

A concern, which has inadequate working capital, cannot pay its short time liabilities
in time. Thus it will loose its reputation and shall not be able to get good credit
facilities. it cannot buy its requirements in bulk and cannot avail of discount etc.
It becomes difficult for the firm to exploit favorable market conditions and undertake
projects due to lack of working capital. The firm cannot pay day to day expenses of its
operations and it creates inefficiencies, increase costs and reduces the profits of the
business. It becomes impossible to utilize efficiently the fixed assets due to non
-availability of liquid funds. The rate of return on investments also falls with the
shortage of working capital.
FACTORS DETERMINING THE WORKING CAPITAL REQUIRMENTS
A firm should plan its operations in such a way that it should have neither too much
nor too little working capital . The working capital requirements are determined by
a wide variety of factors.
Nature and size of business
Working capital requirements of a firm are basically influenced by the nature of its
business. Trading and financial firms have a very small investment in fixed assets, but
require a large sum of money to be invested in working capital. Whereas public
utilities have a very limited need for working capital and have to invest abundantly in
fixed assets.
Their working capital requirements are nominal because they may have cash sales only
and supply services but not products. Working capital needs of most manufacturing
concerns fall between too extreme requirements of trading firms and public utilities.
Such concerns have to make adequate investments in current assets depending upon
the total assets structure and other variables.
The size of the business that is measured in terms of scale of operations also has an
impact on the working capital needs. As BHPVs scale of operations is large, the firm
needs more working capital then small firm does.
Manufacturing cycle
The manufacturing cycle comprises of the purchase and use of raw material in the
production of finished goods. As the firms manufacturing cycle is lengthy the working
capital requirement of the firm is large.

Sales growth
The working capital needs of firm increase as its sales grow. Current assets will have to
be employed before growth takes place. A growing firm needs to invest funds in
fixed assets in order to sustain its growing production and sales . This in turn
increase investment in current assets to support enlarged scale of operations, a
growing firm needs funds continuously.

Demand conditions

The business variations such as seasonal and cyclical fluctuations in the demand for
products and services affect the working capital requirements. When there is an
upward swing in the economy, sales will increase. Correspondingly, the firms
investment in inventories and book debts will also increase. During boom, additional
investments in fixed assets may be made by some firms to increase their productive
capacity. These act as further additions to working capital.
2. Production policy
To reduce working capital problems arising due to changes in demand for the firms
products, a steady production policy may be maintained. If the firms productive
capacities can be utilized for manufacturing varied products, it can have the
advantage of diversified activities and solve its working capital problems.

Price level changes

Generally, rising price levels will require a firm to maintain higher amount of working
capital. However companies which can immediately revise their product prices with
rising price levels will not face a severe working capital problem.

Operating efficiency and performance

The operating efficiency of the firm relates to the optimum utilization of resources at
minimum costs. The use of working capital is improved and the pace of cash cycle is
accelerated with operating efficiency. Better
utilization
of resources improves
profitability and thus helps in decreasing the pressure on working capital.
A high net profit margin contributes towards the working capital pool. In fact, the
net profit is a source of working capital to the extent it has been earned in cash. A firm
can enhance its working capital funds by saving taxes through appropriate tax
planning.
Firms credit policy
The credit policy of the firm affects working capital by influencing the level of book
debts. The credit terms to be granted to customers may depend upon norms of the
industry to which the firm belongs. The firm should be discretionary in generating
credit terms to its customer. Depending upon the individual case different terms may
be given to different customers.
A liberal credit policy without rating the credit worthiness of customers will be
detrimental to the firm and will create a problem for collecting funds later on. Slack
collection procedures result in increase of book debts. The firm should follow a
rationalized credit policy based on the credit standing of customers and other
relevant factors.

 OPERATING CYCLE
Operating cycle is the time duration required to convert sales, after the conversion of
recourses into inventories into cash. The operating cycle of a manufacturing company
involves three phases
Acquisition of resources such as raw material, labor, power and fuel, Manufacturing
of the product which includes conversion of raw material l into work in progress
and WIP into finished goods, Sale of the product either for cash or on credit.
Credit sales create accounts receivables for collection.
If the operating cycle length is high, we need to invest large amount as working
capital and vice- versa.
Sometimes basing on the competition we need to invest huge amount in debtors as a
credit sales. Fluctuations in the prices also need increase or decrease in the amount of
working capital. Some seasonal factors also influence the need of working capital.
Operating cycle involves the following sequence of events
o
o
o
o
o

Conversion of cash into raw materials and labor.

Conversion of raw material and labor into work in progress.
Conversion of work in progress into finished goods.
Conversion of finished goods into debtors through credit sales.
Conversion of debtors and bills receivables into cash.

Cash

Debtors

Raw
Materials
Finished
Goods

Work-in-progress

WORKING CAPITAL CYCLE OF A MANUFACTURING FIRM

Uses of operating cycle

The operating cycle is helpful to the company in two ways It helps in forecasting working capital requirements.
Control of working capital can be done efficiently by the use of operating cycle.
Determination of the length of operating cycle:
The length of the operating cycle of a manufacturing firm is the sum of:
.
Inventory conversion period.
Book debts conversion period.
GROSS OPERATING CYCLE (GOC):
The firms gross operating cycle (GOC) can be determined as inventory conversion
period (ICP) plus debtors conversion period (DCP).
Thus, GOC is given as follows:
Gross operating cycle = Inventory conversion period + Debtors conversion period

 INVENTORY CONVERSION PERIOD

The inventory conversion is the sum of raw material conversion period (RMCP) ,
work-in-progress conversion period (WIPCP) and finished goods conversion period
(FGCP)
ICP = RMCP + WIPCP + FGCP
RAW MATERIAL CONVERSION PERIOD (RMCP)
The raw material conversion period (RMCP) is the average time period taken to
convert material into work-in-progress. It depends on:
Raw material consumption per day
Raw material inventory
The raw material conversion period is obtained when raw material inventory is
divided by raw material consumption per day.
Raw material inventory
Raw material conversion period =
[Raw material consumption]/360
WORK-IN-PROGRESS CONVERSION PERIOD (WIPCP)
Work-in-progress conversion period (WIPCP) is the average time taken to complete
the semi-finished or work-in-progress. It is given by the following formula:
Work-in-process inventory
Work-in-process conversion period =
[Cost of production]/360
FINISHED GOODS CONVERSION PERIOD (FGCP)
Finished goods conversion period (FGCP) is the average time taken to sell the finished
goods. FGCP is given by the following formula
Finished goods inventory
Finished goods conversion period =
[Cost of goods sold]/360
DEBTORS (RECEIVABLES) CONVERSION PREIOD (DCP)
Debtors conversion period (DCP) is the average time taken to convert debtors into
cash. DCP represents the average collection period. It is calculated as follows:
Debtors
Debtors conversion period (DCP)

=
Credit sales/360

 CREDITORS (PAYABLES) DEFERRAL PERIOD (CDP)

Creditors (Payables) Deferral Period (CDP) is the average time taken by the firm in
paying its suppliers (creditors). CDP is given as follows
Creditors
Creditors Deferral Period (CDP)

=
Credit purchases/360

CASH CONVERSION OR NET OPERATING CYCLE:

Net Operating Cycle (NOC) is the difference between gross operating cycle and
payables deferral period.
Net Operating Cycle (NOC) = Gross operating cycle Creditors deferral period.
KEY AREAS OF WORKING CAPITAL
Generally in the working capital management there are three important areas which
are very important .Those are
Cash management
Receivables management
Inventory management

MANAGEMENT OF CASH
Cash management is one of the key areas of working capital management. The term
cash refers to cash management is used in two senses. In a narrow sense it is used
broadly to cover currency and generally accepted equivalent cash such as cheques,
drafts and demand deposits in banks. The broader view of cash also includes near
cash assets such as marketable securities and time deposits in banks .The main
characteristic of these is that they can be readily converted into cash . The
three primary motives for main cash balance are as follows:

Transaction motives

This refers to the holding of cash to meet routine cash requirements to finance the
transactions which a firm carries on , in the ordinary course of business.

Precautionary motives

This motive of holding cash implies the need to hold cash to meet unpredictable
obligations.

Speculation motive

Speculation motive refers to the desire of a firm to take advantage of opportunities

which present themselves at unexpected moments and which are typically outside the
normal course of business.

Cash cycle:

The cash cycle refers to the process by which cash is used to purchase material from
which goods are purchased and then sold to customers to pay bills later. The firm
receives cash from customers and the cycle repeats itself.

Cash budget:

It is a device to help a firm to plan and control the use of cash. It is a statement
showing the estimated cash inflow and cash outflow over the firms planning horizon.

CASH MANAGEMENT SYSTEM IN BHPV

Company has cash credit arrangements with banks.

Collections from sales are centralized.
Payment to indigenous suppliers is through cash section.
MIS for monitoring cash with details.

RECEIVABLES MANAGEMENT:

When a firm makes an ordinary sale of goods and services and does not receive
payment, the firm grants trade credit and creates accounts receivables, which would
be collected in future. The management of these is known as receivables management.
The management of receivables involves crucial decision in three key areas: credit
policies, credit terms and collection policies.

Credit policy:

The credit policy of a firm provides a frame work to determine whether or not to
extend credit to customer. How much credit to extend Credit standards are criteria to
decide the type of customer to whom the goods could be sold on credit. If a firm has
more slow paying customers its investment in accounts receivables will increase.
The firm will also be exposed to higher risk of default. The choice of optimum credit
standards involves a tradeoff between incremental return and incremental cost.

Analysis of customers:

Credit standards influence the quality of the firms customers. The two aspects of the
quality of customers The time taken by customer to repay credit obligations and
The default rate

CREDIT TERMS:

Credit terms specify the duration of credit and terns of payment by customers.
Investment in accounts receivables will be high if customers are allowed extended
time period for making payments.

Credit period:

Credit period is the length of the time for which credit is extended to customers. A firm
lengthens credit period to increase its operating profit through expanded sales.

Cash Discount:

Cash discount is a reduction in payment offered to customer to induce them to repay

credit amount within a specified period of time which will be less than the normal
credit period.

COLLECTION EFFORTS:

This determines actual collection period. The lower the collection period, the lower is
the investment in accounts receivables and vice versa. Prompt collection is needed
for fast turnover of working capital. Keeping collection costs and bad debts within
limits and maintaining collection efficiency also influence the working capital needs of
the firm.

INVENTORY MANAGEMENT:

Inventory is one of the major current assets. The term inventory refers to the
stockpile of the product a firm is offering for sale and components that make up the
product. The assets which firms stores as inventory in anticipation of need are raw
materials, work in progress and finished goods.

The main objective of inventory management is:

1. To minimize the firms investment in inventory
2. To meet a demand for the product by efficiently organizing the firms
production and sales operations.
3. The major objective of inventory management is to minimize cost. The cost
associated with inventory management falls into two basic categories.
Ordering / acquisition / set-up cost
Carrying cost
Many sophisticated mathematical techniques are available to handle inventory
management problems. The major problem areas that comprise the heart of inventory
controls are. Classification problem to determine the type of control required.

The order quantity problem

Safety stocks

ABC Analysis
This technique is based on the assumption that a firm Should not exercise the same
degree of control for all items of inventory. It should rather keep a more rigorous
control on items that are Most required, and / or slowest turning
Items that are less expensive should be given less control efforts.
On the basis of cost involved inventory items are categorized into three classes.
A group items involve largest investment and inventory control should be most
rigorous and intensive.
B group stands midway.
C group consists of items of inventory, which involve relatively small investment
although the number of items is fairly large. These items deserve minimum attention.
The company has prepared lists of items of inventory identifying the same as category
A, B & C items, but only for the purpose of physical verification.
ECONOMIC ORDER QUANTITY
It is the optimum level of inventory, which is also defined as that level of inventory
order that minimizes total costs associated with inventory management. The two
costs associated with inventory is ordering and carrying costs. The determination of
appropriate quantity to be purchased in each lot to replenish stock as a solution, which
assures Smooth production or sales operations
Lower ordering or setup costs
But it involves higher carrying costs. On the other hand small orders would reduce the
carrying costs but the ordering cost would increase, as there is a likelihood of
interruption of operations due to stock outs.
The company usually procures inventory in excess of requirement which leads to extra
carrying costs and demurrage changes due to non clearance of imported materials in
time from ports.

SAFETY STOCKS
Safety stock is defined as the minimum inventory to serve as a safety margin or buffer
to meet an anticipated increase in usage resulting from an unusually high demand and
or an uncontrollable late receipt of incoming inventory.
It involves two types of costs. Stock out cost associated with shortage of inventory.
Carrying costs associated with maintenance of inventory.
The company keeps a safety stock of only electrodes, loose tools and spare parts. The
company holds a stock of six months consumption.
Norms for holding each category of inventory fixed by bureau of public enterprise in
1976 were followed by the company till the company fixed its norms in Feb. 1995
for better inventory control and increasing overall efficiency.

CHAPTER-4
ANALYSIS & INTERPRETATION OF THE STUDY

During my study with BHPV Limited, I have gone through the accounting statements
of last five years. Brief details of the same are given below before commencing into the
analysis and interpretation.

ANALYSIS COMPARISION COMMON SIZE

PROFIT & LOSS ACCOUNT
Description
Income
Turnover
Accretion/ Decretion (FG/WIP)
Less : Excise Duty
GTO (Net of Excise Duty)

2010-11

2009-10

13697.54
-105.78
950.92
12640.84

10431.32
-1052.14
700.28
8678.90

Direct Expenditure
Raw Material & Sub-Cont.
Erection Expenditure
Power & Fuel
Total II
Value Added ( I- II)

6252.17
209.37
342.43
6803.97
5836.87

Indirect Expenditure
Employee Remuneration
Manufacturing Expenses
Other Expenditure
Provisions
Less: Other Revenues
Total IV

2007-08

2006-07

8439.45
597.78
795.41
8241.82

18029.96
660.72
1546.00
17144.68

18036.06
-1364.93
986.64
15684.49

4102.96
750.62
269.9
5123.48
3555.42

4639.97
1366.39
257.06
6263.42
1978.40

10252.50
2088.25
217.27
12558.02
4586.66

6423.13
2207.28
252.40
8882.81
6801.68

4661.20
417.97
612.92
236.05
444.28
5483.86

4394.84
208.64
360.09
14.45
529.32
4448.70

6220.63
433.45
385.06
4320.53
647.08
10712.59

3302.83
419.46
395.08
5006.08
442.56
8680.89

3099.17
580.05
465.45
552.16
727.30
3969.53

GROSS MARGIN (PBDIT)

353.01

-893.28

-8734.19

-4094.23

2832.15

DEPRECIATION

109.92

125.80

848.29

146.13

173.77

GROSS PROFIT (PBIT)

243.09

-1019.08

-9582.48

-4240.36

2658.38

140.14

0.00
-268.09

0.00
1103.64

0.00
1096.84

4490.62
1134.31

2563.87

602.97

602.97

-65.36

351.37

99.65

Interest
*Govt
Others

2008-09

DRE

0.00

Prior period Adjustments

0.00

0.00
0.00
0.00

102.95

-750.99

-13315.35

-5588.80

774.77

0.00

23008.28

0.00

-3469.87
0.00
0.00

877.72

-750.99

9692.93

-5588.80

-3469.87

0.16

108.70

57.41

16.05

0.00

877.56

-859.69

9635.52

-5604.85

-3469.87

PROFIT (+) / LOSS (-)

Interest / Others Waived
Extra Ordinary items
Net Profit / Loss before Tax
(PBT)
Income Tax
Net Profit / Loss after Tax (PAT)

BALANCE SHEET
Description
Sources of Funds
Share Holders Funds
Reserves & Surplus
Secured Loans
Un-Secured Loans
Total
Fixed Assets (incl Capital WIP)
Accumulated Depreciation
Net Fixed Assets
Investments
Inventory
Debtors
Cash
Loans
Current Assets
Less: Current Liabilities &
Prov
Sundry Creditors
Deposits
Advance from Customers
Other Liabilities
Current Liabilities
Provisions
Current Liabilities & Prov
Working Capital (CA-CL)
Misc. Exp. the extent not wrt
off
Accumulated Loss
Total

2010-11

2009-10

2008-09

2007-08

2006-07

3379.78
2.01
0.00
26048.40
29430.19

3379.78
2.01
183.11
26897.64
30462.54

3379.78
2.01
0.00
23839.68
27221.47

3379.78
2.01
21815.24
43033.18
68230.21

3379.78
2.01
21734.92
40825.10
65941.81

8153.47
7712.57
440.90

8063.56
7602.65
460.91

7999.43
7476.85
522.58

7977.12
6628.55
1348.57

7922.02
6486.09
1435.93

1.31

1.31

1.31

1.31

1.31

5257.09
9559.62
720.99
8100.04
23637.74

4569.06
9320.91
1564.04
7213.09
22667.10

5347.82
6462.83
440.69
8006.73
20258.07

4847.90
9541.46
585.57
11039.14
26014.07

4550.01
7144.53
1465.26
6596.84
19756.64

2845.31
863.15
5676.07
8910.68
18295.21
2712.28
21007.49
2630.25

3183.80
805.39
4164.61
9638.72
17792.52
2109.55
19902.07
2765.03

1811.90
842.13
4523.32
11109.35
18286.70
1649.39
19936.09
321.98

1139.29
724.68
9394.31
7123.88
18382.16
1806.90
20189.06
5825.01

1111.97
620.72
2500.52
6800.80
11034.01
271.54
11305.55
8451.09

0.00

0.00

0.00

2563.87

3166.84

26357.73
29430.19

27235.29
30462.54

26375.60
27221.47

58491.45
68230.21

52886.64
65941.81

Rs Lakhs
RAW MATERIAL
PURCHASES
Details

31.03.11

31.03.10

Raw Material OB
Add: Purchases
Total
Less: Issues / Consumed

2836.05
6231.151
9067.20
5412.14

2424.99
3517.68
5942.67
3106.61

2519.60
4642.01
7161.61
4736.63

3739.12
10413.49
14152.61
11633.01

2639.71
7759.58
10399.29
6660.16

3655.06

2836.06

2424.98

2519.60

3739.13

31.03.11

31.03.10

31.03.09

31.03.08

31.03.07

877.56

-859.69

9635.52

-5604.84

-3469.87

109.92

125.80

848.30

142.46

134.54

-688.03
-886.95

778.76
719.61
2784.05

-499.92
3032.41

-297.89
3843.22

981.48
991.39

3078.63

-2396.93

173.90

2563.87
-95.46
-157.51

602.97
-937.37
1535.37

615.98
-6280.59
19.74

279.21

0.00
-494.18
460.16
2053.59

18405.84

-3113.01

-6833.43

-89.91

-64.13

-22.31

-55.09

-0.29

0.00

0.00

0.00

0.00

0.00

-89.91

-64.13

-22.31

-55.09

-0.29

-183.11
-849.24

22.33
3218.74

-21815.24
-19193.50
22480.33

80.33
2208.08

1808.56
5653.75

-1032.35

3241.07

-18528.41

2288.41

7462.31

-843.05
1564.04
720.99

1123.35
440.69
1564.04

-144.88
585.57
440.69

-879.69
1465.26
585.57

628.59
836.67
1465.26

Stock as on closing date

CASH FLOW STATEMENT
Details
Cash Flow from Operating
activities
Net Profit for the year
Adjustments for :
Depreciation charge for the year
Adjustments for :
Increase / Decrease in inventory
Decrease in Loans & advances
Increase / Decrease in Debtors
Increase in Deffered Revenue
Expenditure
Increase / Decrease in Liabilities
Increase / Decrease in Provisions
Net cash flow from Operating
activities
Purchase of Fixed Assets
Increase / Decrease in
investments
Cash flow from investing
activities
Increase in Secured Loans
Increase in Unsecured Loans
GOI Loan Waiver
Cash flow from financing
activities
Net incr. in cash and cash
equivalents
Cash and cash equivalents OB
Cash and cash equivalents CB

-238.71
0.00
502.69
602.73

31.03.09

31.03.08

31.03.07

IMPORTANT RATIOS / OTHER INFORMATION

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26

Description
Direct exp as a % of GTO (net of
ED)
Value added as a % of GTO (net
of ED)
PBDIT as a % of Turnover
PAT as a % of Turnover
Interest Coverage Ratio
Gross Profit Ratio %
Net Profit Ratio %
Cost Goods sold
Net Sales / Capital Employed
Inventory / Turnover (days)
Current Ratio
Liquidity Ratio
Super Quick Ratio
Debt -Equity Ratio
Proprietary Ratio
Fixed Assets Ratio
No of Equity Shares @ `1000
Capital Additions
Average Inventory
Average Debtors
Average Creditors
Average Working Capital
Average Raw Material
Average Work-in-progress
Average Finished Goods
Capital Employed

2010-11

2009-10

2008-09

2007-08

2006-07

53.83

59.03

76.00

73.25

56.63

46.17
2.58
6.41
2.52
46.17
6.94
12397.75
4.12
140
1.29
1.00
0.48
7.70
7.67
0.02
337978
89.91
4913.08
9440.27
3014.56
2697.64
3754.21
1604.33
30.37
3071.15

40.97
-8.56
-8.24
3.33
40.97
-9.91
9697.98
2.69
160
1.27
1.02
0.49
8.01
7.34
0.02
337978
64.13
4958.44
7891.87
2497.85
1543.51
3109.20
2101.02
112.64
3225.94

24.00
-103.49
114.17
-7.91
24.00
116.91
17824.30
9.76
231
1.11
0.82
0.46
7.05
6.47
0.02
337978
22.31
5097.86
8002.15
1475.60
3073.50
2973.63
2120.82
320.01
844.56

26.75
-22.71
-31.09
-3.73
26.75
-32.69
21385.04
2.39
98
1.42
1.15
0.63
19.18
2.51
0.02
337978
55.10
4698.96
8343.00
1125.63
7138.05
3626.52
1272.79
391.44
7173.58

43.37
15.70
-19.24
0.50
43.37
-22.12
13026.11
1.59
92
1.79
1.38
0.73
18.50
2.36
0.02
337978
0.29
5040.75
7231.48
1159.62
6079.76
3652.38
1259.77
623.47
9887.02

READY RECONER
Sl
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33

Particulars
Turnover
Gross Turnover (Net of ED)
Value added
Gross Margin (PBDIT)
Depreciation
PBIT
(a) Interest on Govt. loans
(b) Interest on Other loans
Profit before Tax
Profit after tax
Gross Block
Net Block incl Cap WIP
Current Assets
Current Liabilities
Provisions
Working Capital
Lg term loans + Interest accrued
Sh term loans + Interest accrued
Share Capital
Reserves & Surplus
Capital employed (Net Bl + WC)
Accumulated Losses
Net Worth
Number of employees
Value added per employee
Salaries, Wages & Benefits
Value added per Rupee of wages
Contribution to Exchequer
Exports
Net Profit to Net Worth %
Salaries & Wages to turnover %
Matl. Uasage to GTO (Net of
ED)
Sun debtors to Turnover ( days)

2010-11
13697.54
12640.84
5653.53
353.01
109.92
243.09
0.00
140.14
102.95
877.56
8153.47
440.90
23637.74
18295.21
2712.28
2630.25
894.17
25154.23
3379.78
2.01
3071.15
26357.73
-22975.94
1109
5.10
4661.20
1.21
1788.64
0
3.82
34.03

2009-10
10431.3
8678.9
3740.22
-893.28
125.8
-1019.08
0.00
-268.09
-750.99
-859.69
8063.56
460.91
22667.1
17792.5
2109.55
2765.03
1926.52
25154.2
3379.78
2.01
3225.94
27235.3
-23853.5
1250
2.99
4367.36
0.86
2176.52
0
-3.60
41.87

2008-09
8439.45
7644.04
1978.41
-11363.43
848.29
-12211.72
0.00
1103.64
9692.93
9635.52
7999.43
522.58
20258.07
18286.70
1649.39
321.98
1692.33
22147.35
3379.78
2.01
844.56
26375.60
-22993.81
1370
1.44
6220.63
0.32
1872.12
0.00
41.90
73.71

49.46
255

45.15
326

54.98
280

2007-08
18029.96
16483.96
3925.94
-4345.82
146.13
-4491.95
0.00
1096.84
-5588.79
-5604.84
7976.08
1348.57
26014.07
18382.17
1806.90
5825.00
43033.18
21815.25
3379.78
2.01
7173.57
58491.48
-57673.56
1459
2.69
3302.82
1.19
2631.28
0.00
-9.72
18.32
62.20
193

2006-07
18036.06
17049.42
8166.61
2362.51
173.77
2188.74
4490.62
1134.31
-3436.19
-3469.87
7920.98
1435.93
28042.16
19319.53
271.54
8451.09
40825.10
21734.92
3379.78
2.01
9887.02
52886.64
-52671.69
1512
5.40
3099.17
2.64
2823.79
0.00
-6.59
17.18
37.67
145

 Working capital statement for a period of five years from the year (2006-07 to
2010-11) (Rs. In lakhs)
2010-11

2009-10

2008-09

2007-08

2006-07

5257.09

4569.05

5347.82

4847.90

4550.01

Sundry debtors

9559.62

9320.91

6462.83

9541.46

7144.53

Cash & bank bal.

720.99

1564.04

440.69

585.57

1465.53

Loans & advances

8100.04

7213.09

8006.73

11039.14

6596.84

TOTAL (A)

23637.74

22667.10

20258.07

26014.07

19756.64

2845.31

3183.80

1811.90

1139.29

Deposits

863.15

805.39

842.13

724.68

620.72

Advance from customers

5676.07

4164.61

4523.32

9394.31

2500.52

Other liabilities

8910.68

9638.72

11109.35

7123.88

6800.80

Current liabilities

18295.21

17792.52

18286.70

18382.16

11034.01

Provisions

2712.28

2109.55

1649.39

1806.90

271.54

Current liabilities &

Provisions

21007.49

19902.07

19936.09

20189.06

11305.55

TOTAL (B)

21007.49

19902.07

19936.09

20189.06

11305.55

Net working capital

(A-B)

2630.25

2765.03

321.98

5825.01

8451.09

(A) Current assets

Inventories

(B) Current liabilities

Sundry creditors

1111.97

 Interpretation:
During the 5 year period, the working capital position of BHPVL is declining. During
2006-07 to 2010-11 only the working capital shows an Down ward trend. From the
above table we can observe that the net working capital i.e., current assets and current
liabilities is very low in the year 2008-09 i.e., 321.98 when compared to 2007-08 and
again it was increased by 2765.03 in the year 2009-10 and decreased in the year 201011. This shows that the firm is not in a position to maintain its current assets and
current liabilities. Because of this reason the net working capital is fluctuating.

 Statement showing changes in working capital of BHPV Ltd from 2009-10 to

2010-11 (Rs. In lakhs)
Particulars

2009-10

2010-11

Increase

(A)Current assets
Inventory

4569.05

5257.09

688.04

Sundry debtors

9320.91

9559.62

238.71

Cash & bank bal.

1564.04

720.99

Loans & advances

7213.09

8100.04

886.95

TOTAL (A)

22667.10

23637.74

1125.66

3183.80

2845.31

338.49

Depositors

805.39

863.15

57.76

Advance from customers

4164.61

5676.07

1511.46

Others liabilities

9638.72

8910.68

Provisions

2109.55

2712.28

19902.07

21007.49

2765.03

2630.25

(B) Current liabilities

Decrease

843.05

843.05

Sundry creditors

TOTAL (B)
Net working capital(A-B)
Decrease in working
capital
TOTAL

728.04
602.73
1066.53

2171.68
134.78

134.78

2765.03

2765.03

59.13

59.13

 Interpretation:
From the above table we can observe that In between 2009-10 and 2010-11 the net
working capital position shows a Down ward trend i.e., 134.78 because there is a
more proportionate decrease in current assets position (inventory, debtors and loans
advances) over the proportionate increase in current liabilities position (liabilities and
provisions ) which ultimately resulted in decrease in working capital position
management at BHPVL during the above mentioned period. During this period the
current assets position is not satisfactory.

Statement showing changes in working capital of BHPV Ltd from 2008-09 to

2009-10 (Rs. In lakhs)

Particulars

2008-09

2009-10

Increase

(A) Current assets

5347.82

4569.05

Sundry debtors

6462.83

9320.91

2858.08

Cash & bank bal.

440.69

1564.04

1123.35

Loans and advances

8006.73

7213.09

20258.07

22667.10

(B) Current liabilities

1811.90

3183.80

Sundry creditors
Depositors

842.13

805.39

36.74

Advance from customers

4523.32

4164.61

358.71

Other Liabilities

11109.35

9638.72

1470.63

Provisions

1649.39

2109.55

19936.09

19902.07

1866.08

Net working capital (A-B)

321.98

2765.03

2443.05

Increase in working
Capital

2443.05

2765.03

2115.35

Decrease
778.77

Inventory

TOTAL(A)

TOTAL (B)

TOTAL

2765.03

793.64
3981.43

1572.41
1371.90

460.16
1832.06

2115.35

 Interpretation:From the above table we can observe that In between 2008-09and2009-10 the net
working capital position shows a upward trend i.e., 2443.05 because there is more
increase in the current liabilities position (liabilities and interest accrued on loans)
which reduces the working capital even when there is an increase in current
assets like inventory and sundry debtors.

Statement showing changes in working capital position of BHPV Ltd from

2007-08 to 2008-09 (Rs. In lakhs)

Particulars

2007-08

2008-09

Increase

(A) Current assets

Inventory

4847.90

5347.82

499.92

Sundry debtors

9541.46

6462.83

3078.63

Cash & bank bal.

585.57

440.69

144.88

Loans and advances

11039.14

8006.73

3032.41

26014.07

20258.07

(B) Current liabilities

Sundry creditors

1139.29

1811.90

672.61

Depositors

724.68

842.13

117.45

Advance from customers

9394.31

4523.32

Other Liabilities

7123.88

11109.35

Provisions

1806.90

1649.39

157.51

20189.06

19936.09

157.51

5825.01

321.98

TOTAL (A)

TOTAL (B)
Net working capital (A-B)
Decrease in working
Capital

TOTAL

499.92

Decrease

6255.92

3985.47

4775.53
5503.03

5503.03

5825.01

5825.01

342.41

342.41

 Interpretation :From the above table we can observe that In between 2007-08 and 2008-09 the
net working capital position shows a Down ward trend i.e., 5503.03 because
there is a more proportionate decrease in current assets position (inventory
and cash balances) over the proportionate increase in current liabilities
position (bonds repayable and interest accrued on loans) which ultimately
resulted in decrease in working capital position posing a negative sign of
working capital management at BHPVL during the above mentioned period.

 Statement showing changes in working capital of BHPV Ltd from 2006-07 to

2007-08 (Rs. In lakhs)

Particulars

2006-07

2007-08

Increase

(A) Current assets

Inventory

4550.01

4847.90

297.89

Sundry debtors

7144.53

9541.46

2396.93

Cash & bank bal.

1465.26

585.57

Loans and advances

6596.84

11039.14

4442.3

19756.64

26014.07

7137.12

(B) Current liabilities

Sundry creditors

1111.97

1139.29

27.32

Depositors

620.72

724.68

103.96

Advance from customers

2500.52

9394.31

Other Liabilities

6800.80

7123.88

323.08

Provisions

271.54

1806.90

1535.36

11305.55

20189.06

8451.09

5825.01

TOTAL (A)

TOTAL (B)
Net working capital (A-B)
Decrease in working
Capital
TOTAL

Decrease

897.69

897.69

6893.79

6893.79

1989.72
2626.08

2626.08
8451.09

8451.09

243.33

243.33

 Interpretation:From the above table we can observe that In between 2006-07 to 2007-08, the
working capital position shows an downward trend i.e., 2626.08 over its previous year
because there is a proportionate increase in sundry debtors and cash over the
proportionate decrease in current liabilities like liabilities and bonds repayable
which ultimately resulted in net increase in working capital position posing a
positive sign of working capital management at BHPVL during the above
mentioned period.

RATIO ANALYSIS

A ratio is a simple arithmetical expression of the relationship of one number to

another. It may be defined as the indicated co-efficient of two mathematical
expressions. The technique of ratio analysis can be employed for ensuring short term
liquidity or working capital position of a firm. The following ratios may be calculated
for this purpose.
Current ratio
Acid test ratio
Absolute liquid ratio or cash position ratio
Inventory turnover ratio
Receivables / Debtors turnover ratio
Payable / Creditors turnover ratio
Working capital turnover ratio
Current liabilities to working capital
CURRENT RATIO
Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio is also known as working capital ratio, is a measure of general
liquidity and is most widely used to make the analysis of a short-term financial position
or liquidity of a firm.

CURRENT RATIO

CURRENT ASSETS

CURRENT LIABILITIES

Current assets = Inventory+ Debtors + Cash & banks balances +Other Current Assets
+Loans & advances.
Current liabilities = current liabilities+ provisions
Calculation of current ratio of BHPVL from 2006-07 to 2010-11 (Rs. In lakhs)
YEAR

Current assets

Current

liabilities

Current ratio

2010-11

23637.74

21007.49

1.12

2009-10

22667.10

19902.07

1.13

2008-09

20258.07

19936.09

1.01

2007-08

26014.07

20189.06

1.28

2006-07

19756.64

11305.55

1.74

 Interpretation: A current ratio of 2:1 is considered as ideal. The current ratio of B.H.P.V. in 2006-07 is
1.74 and it is decreased to 1.28 in2007- 2008, .and it is decreased to 1.01 in 2008-09 and
again it is increased to 1.13 in 2009-10, and again it is decreased to 1.12 in 2010-11. The
current ratio of the firm is for below the standard, the liquidity position of firm is not
all satisfactory.

 QUICK RATIO
Quick ratio is also known as Liquid Ratio or Acid Test Ratio. The term liquidity
reforms to the ability of a firm to pay its short-term obligation as and when they
become due. Quick ratio may be defined as the relationship between Quick / Liquid
assets and Current / Liquid liabilities. An asset is said to be liquid if it can be
converted into cash within a short period without loss of value.

QUICK RATIO =

QUICK ASSETS

CURRENT LIABILITIES

QUICK ASSETS = CURRENT ASSETS (INVENTORIES + PREPAID EXPENSES)

Calculation of quick ratio of BHPVL from 2006-07 to 2010-11 (Rs. In lakhs)

Year

Quick Assets

Current Liabilities

Ratio

2010-11

18380.65

18295.21

1.00

2009-10

18098.05

17792.52

1.02

2008-09

14910.25

18286.70

0.82

2007-08

21166.17

18382.16

1.15

2006-07

15206.63

11034.01

1.38

 Interpretation: A Quick ratio of 1:1 is considered as ideal. The Quick ratio is 1.38 in 2006-07 and it is
gradually decreased in 2007-08, 2008-09.and again increased in 2009-10 i.e., 1.02, and
again decreased to 1.00 in 2010-11. The Quick ratio of the firm is below the standards.
The short term liquidity position of the firm is not satisfactory.

 INVENTORY TURNOVER RATIO

Every firm has to maintain a certain level of inventory, so as to meet the requirements
of the business. But the level of inventory should neither be too high nor too low.
Inventory turnover ratio is also known as stock velocity. It would indicate whether
inventory has been efficiently used or not.

INVENTORY TURNOVER RATIO =

Inventory
* 365
Turn over

Calculation of inventory turnover ratio of BHPVL from 2006-07 to 2010-11

YEAR

Turnover

Average
inventory (in
lakhs)

Inventory
turnover ratio

No of days

2010-11

13697.54

4913.08

0.35

140

2009-10

10431.32

4958.44

0.47

160

2008-09

8439.45

5097.86

0.60

231

2007-08

18029.96

4698.96

0.26

98

2006-07

18036.06

5040.75

0.27

92

 Interpretation: -

Inventory turnover ratio is recorded highest in the year 2008-09 i.e., 0.60 and lowest in
the year 2007-08 i.e.,0.26 The ratio indicates the improper management of inventory
which leads to the unnecessary blocking of working capital which is not good for any
organization, for which interest is to be paid.

 DEBTORS TURNOVER RATIO

Debtors turnover ratio indicates the velocity of debt collection of firm. In simple it
indicates the number of times average debtors are turned over during a year.
Generally the higher the value of debtors turnover the more efficient is the
management of debtors / sales or more liquid the debtors. Similarly low debtors
turnover implies efficient management of debtors / sales and less liquid debtors.

DEBTORS TURNOVER RATIO =

DEBTORS
* 365
TURNOVER

Calculation of debtors turnover ratio of BHPVL from 2006-07 - 2010-11

YEAR

TURNOVER

Debtors

Debtors
turnover
Ratio

No of days

2010-11

13697.54

9559.62

0.69

255

2009-10

10431.32

9320.91

0.89

326

2008-09

8439.45

6462.83

0.76

280

2007-08

18029.96

9541.46

0.52

193

2006-07

18036.06

7144.01

0.39

145

 Interpretation: Debtors turnover ratio is recorded highest in the year 2009-10 i.e.,0.89 and lowest
in the year 2006-07i.e.,0.39.

 CREDITORS TURNOVER RATIO

In the course of business operation a firm has to make credit purchases and in the
short term liabilities. The ratio indicates the velocity with which the creditors are
turnover in relation to purchases. Generally higher the creditors velocity better it is or
otherwise lower the creditors velocity less favorable are results.

CREDITORS
CREDITORS TURNOVER RATIO =
PURCHASES
Calculation of creditors turnover ratio of BHPVL from 2006-07to 2010-11 In Lakhs

No of days
YEAR

CREDITORS

PURCHASES

Creditors
turnover
Ratio

2010-11

2845.31

3655.06

0.77

2009-10

3183.80

2836.06

1.12

2008-09

1811.90

2424..98

0.74

2007-08

1139.90

2519.60

0.45

2006-07

1111.97

3739.13

0.29

284
409
272
165
108

 Interpretation: The ratio was recorded highest in 2007-08 and lowest in 2005-06 which is above the
limit. The ratio indicates the companys credibility and trust with creditors which are
very satisfactory.

 WORKING CAPITAL TURNOVER RATIO

The working capital turnover ratio indicates the velocity of the utilization of net
working capital. The ratio indicates the number of times the working capital is turned
over in the course of a year. The ratio measures the efficiency with which the working
capital is being used by the firm.

WORKING CAPITAL TURNOVER RATIO =

Turnover

WORKING CAPITAL

Calculation of working capital turnover ratio of BHPVL from 2004-05 to 2008-09 in

lakhs
YEAR

Turnover

2010-11

13697.54

2009-10

10431.32

2008-09
2007-08
2006-07

8439.45
18029.96
18036.06

W.C.

Ratio

2630.25

5.2

2765.03

3.7

321.98

26.2

5825.00

3.0

8451.09

2.1

 Interpretation: -

A higher W.C. turnover ratio indicates the efficient management of working

capital. The W.C.T.R. is 8.24 in 2004-2005 It indicates efficient management of
working capital. In 2005-06 it was decreased to 4.08 Later it was decreased up to
2008-09. In 2008-09 it is 2.74 It means the management fails to proper use of working
capital.

 Trends in working capital management from 2006-07 to

2010-11
Year

Current assets
(A)

Current
liabilities (B)

Networking
capital

Percentage of
change

2006-07

28042.16

19319.53

8451.09

62.69

2007-08

26014.07

18382.17

5825.00

41.51

2008-09

20258.07

18286.70

321.98

10.78

2009-10

22667.10

17792.52

2765.03

27.39

2010-11

23637.74

18295.21

2630.25

29.20

 Interpretation:
From the above table we can observe that the net working capital is very high in the
year 2006-2007 i.e8451.09 and it is very low in the year 2008-2009 i.e321.98.this shows
that the firm is not in a position to maintain its current assets and current liabilities.

BHPV: Trends in current assets

Year

Current assets

Percentage of change

2006-07

28042.16

2007-08

26014.07

7.79

2008-09

20258.07

28.41

2009-10

22667.10

(10.62)

2010-11

23637.74

(4.10)

 Interpretation:

the above table we can observe that the percentage of change in current assets show a
negative trends in the year 2009-2010 &2010-11 i.e. 10.62.&4.10 this show that that the
firm is not in a position to maintain its current assets.

 BHPV: Trends in current liabilities

Year

Current liabilities

Percentage of change

2006-07

19319.53

2007-08

18382.17

5.09

2008-09

18286.70

0.52

2009-10

17792.52

2.77

2010-11

18295.21

(2.74)

 Interpretation:
From the above table we can observe that the percentage of change in current
liabilities show a negative trend in the year 2010-2011 i.e. 2.74. The highest percentage
of change in the year 2007-08 i.e., 5.09 .The lowest percentage of change in the year
2008-09 i.e,.0.52.

BHPV: Break up of current assets

Particulars/Years

2006-07

2007-08

2008-09

2009-10

2010-11

Inventory

4550.01

4847.90

5347.82

4569.06

5257.09

Sundry debtors

7144.53

9541.46

6462.83

9320.91

9559.62

Cash bank

1465.26

585.57

440.69

1564.04

720.99

Loans

6596.84

11039.14

8006.73

7213.09

8100.04

 Interpretation:

 BHPV: Trends in stock

Year

Inventory

Percentage of change

2006-07

4550.01

2007-08

4847.90

(6.14)

2008-09

5347.82

(9.34)

2009-10

4569.06

17.04

2010-11

5257.09

(13.08)

 Interpretation:
From the above table we can observe that the percentage of change in Inventory show
a positive trend in the year 2009-2010 i.e. 17.04.And remaining all the years showing a
negative terms. This show that the firm is not in a position to maintain sufficient
Inventory. The firm has to take measures to maintain inventory

BHPV: Trends in sundry debtors

Year

sundry debtors

Percentage of change

2006-07

7144.53

2007-08

9541.46

(25.12)

2008-09

6462.83

47.63

2009-10

9320.91

(30.66)

2010-11

9559.62

(2.49)

 Interpretation:
From the above table we can observe that the percentage of change in sundry debtors
in show a positive trend in the year 2008-2009 i.e. 47.63. It is highest percentage of
change, and remaining all the years showing a negative term. This shows that the firm
is not in a position to maintain sufficient sundry debtors.

 BHPV: Trends in cash & bank

Year

cash & bank

Percentage of change

2006-07

1465.26

2007-08

585.57

150.22

2008-09

440.69

32.87

2009-10

1564.04

(71.82)

2010-11

720.99

116.92

 Interpretation:
From the above table we can observe that the percentage of change in cash & bank in
show negative term in the year 2009-2010 i.e. 71.8 .The highest percentage of change in
the year 2007-08 i.e., 150.

BHPV: Trends in loans

Year

loans

Percentage of change

2006-07

6596.84

2007-08

11039.14

(40.24)

2008-09

8006.73

37.87

2009-10

7213.09

11.00

2010-11

8100.04

(10.94)

 Interpretation:
From the above table we can observe that the percentage of change in Loans in show
negative trends in the year 2007-2008 & 2010-11 i.e. 40.24 & 10.94. The highest
percentage of change in the year 2008-09 i.e., 37.87.

BHPV: Break up of current liabilities

Particulars/Years

2006-07

2007-08

2008-09

2009-10

2010-11

Sundry creditors

1111.97

1139.29

1811.90

3183.80

2845.31

Deposits

620.72

724.68

842.13

805.39

863.15

Advance from
customers

2500.52

9394.31

4523.32

4164.61

5676.07

Others liabilities

6800.80

7123.88

11109.35

9638.72

8910.68

Provisions

271.54

1806.90

1649.39

2109.55

2712.28

 Interpretation:

BHPV: Trends in sundry creditors

Year

sundry creditors

Percentage of change

2006-07

1111.97

2007-08

1139.29

(2.39)

2008-09

1811.90

(37.12)

2009-10

3183.80

(43.09)

2010-11

2845.31

11.89

 Interpretation:
From the above table we can observe that the percentage of change in sundry creditors
in show negative terms in the years 2007-2008 ,2008-09 & 2009-10 i.e.,2.39 , 37.12
&43.09 The highest percentage of change in the year 2010-11 i.e., 11.89.

BHPV: Trends in Deposits

Year

Deposits

Percentage of change

2006-07

620.72

2007-08

724.68

(14.34)

2008-09

842.13

(13.94)

2009-10

805.39

4.56

2010-11

863.15

(6.69)

 Interpretation:
From the above analysis we can observe that the firm is not maintain sufficient
advance from customers why because it is showing negative terms from 2007-08 &
2010-11.the highest percentage of change in the year 2008-09 i.e.,107.68.

BHPV: Trends in Advance from customers

Year

Advance from customers

Percentage of change

2006-07

2500.52

2007-08

9394.31

(73.38)

2008-09

4523.32

107.68

2009-10

4164.61

8.61

2010-11

5676.07

(26.62)

 Interpretation:
From the above analysis we can observe that the firm is not maintain sufficient
advance from customers why because it is showing negative terms from 2007-08 &
2010-11.the highest percentage of change in the year 2008-09 i.e.,107.68.

 BHPV: Trends in Other liabilities

Year

Other liabilities

Percentage of change

2006-07

6800.80

2007-08

7123.88

(4.53)

2008-09

11109.35

(35.87)

2009-10

9638.72

15.25

2010-11

8910.68

8.17

Interpretation:
From the above analysis we can observe that the firm is not maintain sufficient other
liabilities why because it is showing negative terms from 2007-08 & 2008-09 i.e.,4.53 &
35.87 the firm has to taken measures to maintain other liabilities.

 BHPV: Trends in provisions:

Year

provisions

Percentage of change

2006-07

271.54

2007-08

1806.90

(84.97)

2008-09

1649.39

9.54

2009-10

2109.55

(21.81)

2010-11

2712.28

(22.22)

Interpretation:
From the above analysis we can observe that the percentage of change in Provision is
show negative trends in the year 2007-2008, 2009-10 &2010-11 i.e. 84.97, 21.81 & 22.22.
This shows that that the firm is not in a position to maintain its provisions.
ANALYSIS

The company could achieve operating profits in 2010-11 after a gap of three years. The
reason for this is control of cost of production. The order book position of the company
is on improvement trend. Because of regular order booking, the company is able to get
initial advances from customers and thereby by managing its working capital need to
some extent.
As receivables from the customers also improving considerable, mainly due to vigorous
follow up, planned collection schedule, the company is somewhat comfort in meeting
its working capital needs even though there is regular cash credit agreement with any
bank.
The company is regular in clearing salaries of the employees and clear statutory dues
in time. With the cash flows generated from old debtors and also fund support from its
holding company, the company has cleared majority of long pending dues and thereby
improved its working capital ratio in the years 2009-10 and 2010-11.
In the past two years the current ratio position is comfortable when compared to
previous years. However, there are fluctuations in the current ratio.
A high inventory turnover ratio indicates good liquidity position. Procurement of
inventory in excess of requirement in some cases and non-availability in respect of
other materials resulting stoppage of production.
There is a continuous increase in the debtor turnover ratio during the past five
years, which is due to the decrease in debtors collection period (the time lag
between credit sales and cash collection).
The creditors turnover ratio is increasing over the past five years which is due to
increase in the creditors collection period which shows the company is delaying the
payments to creditors. This is happening as per the new procedure company is
following in clearing its creditors.
BHPVL raises bills at periodic intervals for the work done at the site depending on the
mile stones identified. However the company recognizes income using the
percentage completion method for the work done at sites, which results in
accumulation of accrued income.

CHAPTER-5

FINIDINGS & SUGGESTIONS:

FINDINGS
Post 2000, most of the central public sector enterprises in India are doing well. The
reason is, the PSUs have had introspection about their declining performance during
late 80s and entire 90s and started applying various techniques for improvement,
thereby to compete with the private sector and global entrepreneurs and stand
themselves in the national as well as international markets.
Government policy towards PSUs also encouraged the PSUs to improvise themselves.
As a part of rehabilitation programme, GOI has written off loans and waived interest
valuing Rs 415 corers. Government of AP waived various state and local taxes to the
tune of Rs 47 chores, besides registering the land possessed by the company as a gift
deed.
Similarly, BHPV also with the help of Government policy coupled with change in the
management started showing positive results. The year 2008 can be said as
Turnaround year or Rebirth year for BHPV.
After take-over of BHPV by BHEL, the company is enjoying good monetary support
from its holding company. With the support of the funds pumped by holding company,
BHPV cleared the outstanding loans of consortium banks, liquidated most of the
statutory and other liabilities and enjoying working capital requirements.
Its holding company has already cleared the Capex program and in the coming two to
three years, an amount of Rs 230 cores would be invested towards Capex.
1. The current ratio of B.H.P.V. in 2003 is 1.14 and it is decreased to 0.63 in 2006
and it is decreased to 0.59 in 2007-08.
2. The Quick ratio is 0.83 during 2003 decreased in 2004, 05 and 06 and stood at
0.49 on 31.03.2006 and it is decreased to 0.45 in 2007-08.
3. The ratio of the firm is 0.02 in 2003 and it increased to 0.04 in 2003-04 and
again decreased in 2004-05 and to .02 in 2005-06.
4. The debt of the company is very high and the Net worth of the Company has
become negative and has increased to Rs. (-) 498.20crores as on 31.03.2006. The
creditors of the company are in a high risky position. In 2007-08 also the
company has in a high risky position.

5. A lower solvency ratio is an indicator of the firm which is in good position. The
solvency ratio of the firm is 1.52 in 2002-03 and it increased to 2.88 in 2005-06.
The solvency position of the firm is not satisfactory.

Higher operating profit ratio is an indicator of good financial performance of the

company. The operating profit is positive in 2010-11 hence operating profit ratio of the
firm is good.
The higher the return on net worth ratio the better is the financial performance of the
firm from the perspective of the shareholders. The net worth ratio of the firm is
negative during the above period. It indicates the bad financial performance of the
firm.
An Inventory turnover ratio of 8 is considered ideal. The inventory turnover ratio
shows decrease in recent years in B.H.P.V. Then the firm is inefficient inventory
management
A higher W.C. turnover ratio indicates the efficient management of working capital.
The W.C.T.R. is 2.58 in 2002-03 which is very low and as the Working Capital became
negative the ratios could not be calculated from 2003-04. It indicates inefficient
management of working capital.
The ratio indicates the stability of efficient utilization of owners and long term
creditors funds. The ratio during the year 2002-03 is 4.82. However as the Capital
employed has become negative, the ratios could not be calculated. It indicates
inefficient utilization of funds.

SUGGESTIONS
The marketing department can be further strengthened for order book of more legacy
products.
Implementation of SAP / ERP is immediate requirement in BHPV. This area must be
concentrated especially keeping in view of high targets set by the company in the
coming years and also keeping in view of proposed capex programme.
Interest free advances should be collected from the customers. With this the liquidity
position improves.

Young and energetic workforce induction is need of the hour for BHPV as its average
employee age is above 40.
ABC analysis is to be followed for effective management of inventory. This is required
because; the raw material portion is around 60% for every Rs 100 spent by the
company.
In order to increase its production and profitability, BHPV has to secure more export
orders. The company has to identify new export markets. Effort is to be made to earn
more return on capital employed.
There must be better coordination among purchase, production, marketing and
financial divisions. This will help in achieving greater efficiency in inventory
management.
BHPV has to check the man power as per the requirement and existed at present.
The cost control mechanism of the firm should be improved so that wasteful
expenditure can be avoided and areas of costs reduction can be identified.

BIBILIOGRAPHY
1.
2.
3.
4.

Annual Reports of BHPV

Management Accounting By R.S.N. PILLAI, BAGAVATHI
Financial Management By R.K.SHARMA AND SHASHI K. GUPTA
Financial management INSTITUTE OF CHARTERED ACCOUNTENTS
OF INDIA
5. Journals and Magazines.