`

HCL
INFOSYSTEMS
LIMITED

PROJECT REPORT ON

Working capital management

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SUPERVISOR SUBMITTED BY
MR. Virender Pasricha Mishrkeshi Mishra

MANAGER ACCOUNTS MBF (2006-2008)

HCL Indian Institute of Finance

DELHI

ROLL. NO.4106095095
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TABLE OF CONTENTS

>AIM OF THE PROJECT

>STATEMENT OF PROBLEM
>INTRODUCTION OF THE PROJECT
>INTRODUCTION OF HCL
>COMPANY PROFILE
>FINANCIAL HIGHLIGHTS
>PRODUCTS
>SCOPE OF STUDY
>ANALYSIS OF DATA
>METHOD OF COLLECTING DATA & SOURCE
>SUMMARY OF FINDINGS
>RECOMMENDATIONS
>LIMITATIONS
>CONCLUSION
>REFERENCES /BIBLOGRAPHY
>GLOSSARY
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ACKNOWLEDGEMENT

I take this oppurtunity to express my heart-felt thankfulness to

every one who has given a valuable contribution towards the successful
completion of my project

I also want to convey my deepest gratitude to my project guide Mr.

Virendra Pasricha for his continuous guidance and never ending
encouragement. I would also like to extend my thanks to Mr.N.Sharma
and Ms. R. K.Goel for their guidance, help and cooperation.

I also wish to express my gratitude to Prof (Col) J D Agarwal

Chairman, Indian Institute of Finance, Delhi and all the Faculty members
and friends who played an important role in the successful completion of
this project.

Date:
Place: Mishrkeshi Mishra
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AIM OF THE PROJECT

TO LEARN ABOUT PRACTICAL MANAGEMENT OF

WORKING CAPITAL.
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STATEMENT OF THE PROBLEM

 How to improve the cash position of the company & how to

reduce bills receivable.

 How to keep a sufficient inventory level so as to meet the

requirements of the customer on time.
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INTRODUCTION

This project deals with working capital management. Working capital management
involves with two things I)- current assets management, II)-financing of these current
assets. Current assets include: cash, marketable securities, bills receivable, inventory,
prepaid expenses etc. this project only cash, inventory, and bills receivable
management have been reviewed for the concern, under study.

The first part of the project deals with cash management the terms current assets and
cash are most often used synonymously. Cash is the most liquid current asset and is
the common denominator to which all current assets can be reduced. This underlines
the significance of cash management.

The basic objective of cash management is two-fold: to meet the cash disbursement
needs or the payment schedules and to minimize funds committed to cash balances.
These are mutually contradictory and conflicting and the task of cash management is
to reconcile them. The broad cash management strategies are essentially related to the
cash cycle together with the cash turnover. The cash cycle refers to the process by
which cash is used to purchase materials from which goods are produced, which are
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then sold to customers, who later pay the bills. The firm receives cash from the
customers and the cycle repeats itself. The number of repetitions is the cash turnover.
In addressing the issue of cash management major concern is on the time periods

involved in material received, payments, cheque Clearance, Customer mailed

payments, payments received, cheque deposited with banks, funds collection.

OVERVIEW

HCL is a leading global Technology and IT enterprises with annual revenues

of US$ 4 billion. The HCL Enterprise comprises two companies listed in India,
HCL Technologies (www.hcltech.com) and HCL Infosystems
(www.hclinfosystems.in)
The 30 year old enterprise, founded in 1976, is one of India's original IT
garage start ups. Its range of offerings span R&D and Technology Services,
Enterprise and Applications Consulting, Remote Infrastructure Management,
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BPO services, IT Hardware, Systems Integration and Distribution of
Technology and Telecom products in India. The HCL team comprises 45,000
professionals of diverse nationalities, operating across 17 countries including
360 points of presence in India. HCL has global partnerships with several
leading Fortune 1000 firms, including several IT and Technology majors.
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THE HCL DNA

• Fueled by the entrepreneurial zeal of its founders, HCL developed the

first indigenous micro-computer in 1978, at the same time as Apple.
Since then, HCL has had a 3 decade rich history of inventions and
innovations. Intrapreneur is the term that best describes the HCL
employees. The TIME magazine has referred to HCL as an "intellectual
clean room where its employees could imagine endless possibilities."

• Ever since HCL entered into an alliance in 1970s, partnerships and

HCL have been inseparable. Bonds have been forged with partners to
co-create value. Strong inorganic growth is a testimony to the spirit of
partnerships.

• This entrepreneurial and win-win relationship driven culture continues

to guide HCL in all its endeavors.
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OUR PURPOSE

Vision Statement

“Together we create enterprises of tomorrow.’’

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Mission Statement

“To provide world class information technology solutions and

services to enable our customers to serve their customers better.
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QUALITY POLICY STATEMENT

"We will deliver defect-free products, Services and solutions to meet the
requirements our external and internal customers the first time, every time.”
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HISTORY

Born in 1976, HCL has a 3 decade rich history of inventions and innovations. In 1978, HCL
developed the first indigenous micro-computer at the same time as Apple and 3 years before IBM's
PC. During this period, India was a black box to the world and the world was a black box to India.
This micro-computer virtually gave birth to the Indian computer industry. The 80's saw HCL
developing know-how in many other technologies. HCL's in-depth knowledge of Unix led to the
development of a fine grained multi-processor Unix in 1988, three years ahead of Sun and HP.

HCL's R&D was spun off as HCL Technologies in 1997 to mark their advent into the software
services arena. During the last eight years, HCL has strengthened its processes and applied its
know-how, developed over 30 years into multiple practices - semi-conductor, operating systems,
automobile, avionics, bio-medical engineering, wireless, telecom technologies, and many more.

Today, HCL sells more PCs in India than any other brand, runs Northern Ireland's largest BPO
operation, and manages the network for Asia's largest stock exchange network apart from
designing zero visibility landing systems to land the world's most popular airplane.
TIMELINE
1976
- Hindustan Computers Limited (HCL) born.

1977
- Distribution alliance formed with Toshiba for copiers.

1978
HCL successfully ships in-house designed micro-computer at the same time as Apple. The Indian
computer industry is born.
1980
- HCL introduces bit sliced, 16-bit processor based micro-computer.
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1983
- Indigenously develops an RDBMS, a Networking OS and a Client Server architecture, at the
same time as global IT peers.
1986
- HCL becomes the largest IT company in India.

1988
- HCL introduces fine grained multi-processor Unix-3 years ahead of “Sun” and “HP

1990
- Data Quest marks HCL No.1 amongst top ten computer giants.

1991
- HCL Ltd. and Hewlett Packard, USA, partner to form HCL-Hewlett Packard Ltd.
- JV develops multi-processor Unix for HP-heralds HCL’s entry into contract R&D.

1994
- Distribution alliances formed with Ericsson Switches and Nokia Cell phones.

1997
- HCL Infosystems is formed.
- HCL's R&D spun-off as HCL Technologies- marks advent into software services.
- JV with Perot Systems, stake divested in 2003.

1999
- Initial Public Offering made by HCL Technologies Ltd.
- Formation of Global Board of Directors.
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2000
- Large contracts won from Bankers Trust, KLA Tencor, Cisco, GTech, NEC among others.

2001
- JV with Deutsche Bank- DSL software formed.
- HCL BPO Incorporated.
- Acquired British Telecom’s Apollo’s contact center in Belfast, Northern Ireland.
- HCL Infosystems becomes largest hardware company.

2002
- Strong pursuit of nonlinear strategy to widen services portfolio; several JVs and alliances
formed.
- Strategic alliance forged with Jones Apparel Group, Inc. a fortune 500 company.
- Infrastructure services division launched to address emerging global needs.
- Software businesses of HCL Infosystems and HCL Technologies merged.

2003
- Largest BPO order ever outsourced to an Indian BPO firm, won from British Telecom.
- Landmark deals signed with Airbus and AMD.

2004
-Accorded leader status by Meta Group in Offshore Outsourcing.
- HCL is India’s No.1 PC 4th year in a row

2005
- HCL signs Software Development Agreement with Boeing for the 787 Dreamliner program.
- JV with NEC, Japan.
- HCL sets up first Power PC architecture design centre outside of IBM.
- Completes buy-out of JVs with Deutsche Bank and British Telecom's Apollo Contact Centre.
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- HCL integrates all group employees under hcl.in domain.
- Sets up a dedicated Offshore Design Center for leading Tier-1 Aerospace supplier, Hamilton
Sundstrand.
- HCL Infosystems launches sub Rs.10,000 PC. Joins hands with AMD, Microsoft to bridge the
digital divide.

2006
- 75,000+ machines produced in a single month.
- HCL Infosystems in partnership with Toshiba expands its retail presence in India by unveiling
'shopToshiba'.
- HCL Infosystems & Nokia announce a long term distribution strategy.
- HCL the leader in Desktops PCs unveils India's first segment specific range of notebooks brand -
'HCL Leaptops'.
- HCL Infosystems showcases Computer Solutions for the Rural Markets in India.
- HCL Support wins the DQ Channels-2006 GOLD Award for Best After Sales Service on a
nationwide customer satisfaction survey conducted by IDC.
- HCL AND ZEE - Dish TV team up to take DTH TV to its next level of growth in India
- HCL Infosystems First in India to Launch the New Generation of High Performance Server
Platforms Powered by Intel Dual - Core Xeon 5000 Processor.
- HCL Forms a Strategic Partnership with APPLE to provide Sales & Service Support for iPods in
India.

Business Model
The HCL Enterprise comprises two companies listed in India, HCL Technologies and HCL
Infosystems. HCL Technologies is the IT and BPO services arm focused on global markets, while
HCL Infosystems is the IT, Communication, Office Automation Products & System Integration
arm focused on the Indian market. Together, these entities have uniquely positioned HCL as an
enterprise with service offerings spanning the IT Services and Product spectrum.
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INITIATIVES AND ACHIEVEMENTS 2005-2006

Some of the initiatives and achievements are: -

• IDC reported that the company was number one in desktop PC sales for the fifth
year in a row
• DATAQUEST Top20 Report 2005 rates HCL Infosystems as the largest PC
manufacturer with market share of over 13.7%
• HCL announced the launch of PC for India the HCL sub 10K PC
• It entered into a partnership with a Bank to make PCs more affordable. Lowest
ever EMI in India : Rs499 for HCL Ezebee
• Launched the next generation Xeon processor based Infiniti Global Line 2700
server series
• It launched RP2 system to overcome power problems for PC users
• It got the SAP standard Application Benchmarks certification on the Infiniti
Global Line 4800TG high performance enterprise server.
• The company launched a ground breaking platform with four terminal PC-One
that offers multiple user system.

Performance

The consolidated net revenue of the company was Rs. 11402.16 crores as against Rs. 7788.58
crores in the previous year. The consolidated profit befor tax was rs. 385.26 crores as against rs.
296.01 crores in previous year.
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The net revenue and profit before tax of the parent company were rs. 2311.71 crores and rs
131.52 crores respectively.
During the year, your company and nokia jointly announced a long term distribution strategy for
further developing the rapidly growing Indian mobile phones market.As per the revised
arrangement, nokia would add certain areas for direct billing by them so as to ultimately maintain a
balanced channel mix, for GSM handsets. As a part of this announcement, your company’s
distribution agreement with Nokia has been extended for the next several years.

In FY 2005-2006, HCL Infosystems Ltd., India’s premier information enabling company,

continued its growth and maintained its leadership position in the Desktop PC market.

FINANCIAL INFORMATION

YEAR ENDED JUNE 30 2006 2005 2004 2003 2002

TOTAL REVENUE 11455 7787 4412 2705 1367
PROFIT AFTER TAX 280 228 175 93 15
OPERATING MARGIN 8% 9% 7% 5% 8%
RETURN ON NET WORTH 40% 41% 41% 31% 6%
RETURN ON CAPITA EMPLOYED 35% 35% 35% 23% 4%
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ALLIANCES AND PARTNERSHIPS

To provide world- class solutions and services to all the customers, HCL has formed alliances and
partnerships with leading IT companies’ worldwide.

HCL Infosystems Ltd has alliances with global technology leaders like Intel, AMD, Toshiba,
Ericsson, Microsoft, SAP, Scansoft, SCO, EMC, Veritas, Citrix, CISCO, Oracle, Computer
associates, RedHat, Infocus, Duplo, Samsung, Novell.

These alliances on one hand give the best technology and products as well as enhance the
understanding of the latest technology. On the other hand they enhance our product portfolio, and
enable the company to be one stop shop for customers.
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Shares Holding Pattern

Holding Pattern of HCL Infosystem as on

Description % of Holding
Total Foreign 31.03
Total Institutions 5.50
Total Govt. Holding 0.00
Total Non-Promoter Corporate Holdings 0.93
Total Promoters 54.59
Total Public & Others 7.95
Total 100.00

SALES AND MARKETING

Sales & Marketing function at HCL Infosystems spearheads the delivery of solutions in the
corporate market. The Direct Sales Organization (DSO) has nine major business geographic
entities, headed by a business entity manager. In addition to the Enterprise 2000, addresses the
solution market in three major verticals of Manufacturing, Finance & Banking and Telecom. The
marketing Head-Office is located at Noida, which looks after all product management activities &
coordinates large deals.

Professional Services Organization (PSO)

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The company with its focus shifting towards total solutions enhanced its PSO. HCL Infosystem
PSO provides it’s solutions expertise through 600 software experts, 9 domestic support
development centers, 3 export software factories and it’s specialized centers of excellence at
Mumbai and Chennai and the SAP center of excellence at Noida. PSO continues to consolidate it’s
position as the largest technology integrator in the country, by offering systems integration and
software consultancy services to industries such as finance, banking, telecommunications and
manufacturing.

PSO has now matured its processes to extend its charter into the following four major service
areas: High level IT consulting High value, large systems integration projects execution with the
company being the prime contractor Turnkey software development projects both for domestic and
overseas customers Functional consulting and implementation services for ERP projects. PSO
entered into a very significant alliance with SAP, the world’s largest ERP software company, by
setting up the SAP centers of excellence at Noida dedicated to providing functional consulting and
implementation services. Another milestone achieved by PSO in creating business relationship for
offshore projects is CIGNA, leading provider of health care, insurance and financial services,
throughout the US and around the world by opening CIGNA-HCL Technology Center (CHTC)
wherein HCL has a MOU extending HCL’s six-year relationship till the year 2000 on CHTC. PSO
follows world class standards for development and delivery of solutions. PSO’s facilities at
Chennai and Coimbatore are ISO 9001 certified. To further elevate its software process capability,
PSO aims to attain SEI Level III as prescribed by the SEI (Software Engineering Institute) of the
US at Noida and Level IV at Chennai.

SYSTEMS SUPPORT ORGANIZATION (SSO)

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Even as every branch of the company geared itself to take on the new role of a technology
integrator, customer support continues to be one of the HCL lnfosystem’s competitive edges today
and tomorrow. It’s SSO is perhaps the only support set up in the country capable of Providing
direct support even at inaccessible locations and 21 test and repair centers, value added services
such as APEX, site preparation, complex networking, performance tuning, and disaster recovery
play an important role in it’s increasing success among it’s customers in India.

Information Management by Information Systems Department

HCL Infosystems has one of the most extensive and multi locational networks for information
sharing. The management initiative and focus started way back in 1987 where a centralized
Information System (IS) group was formed for managing the company’s critical information for
key business processes and decision-making. Subsequent to this, major thrust was given to
strengthen and widen the scope information capturing & sharing the information throughout the
organization. With this, centralized data was made available to decentralized servers with daily
upload and downloads for ensuring data parity. Over the years we have upgraded our IS servers
with faster and latest technology hardware (from 8088 based computers to the latest K Class
RISC servers from HP). The RDBMS application software was also upgraded from Unify to
Oracle and further to the currently used SAP R/3 systems. With implementation of ERP system
the data was shifted from decentralized to centralized servers with online sharing, countrywide
via fast communication means through VSAT, leased lines, LAN & Radio links.

Right from customer sales order punching, information related to

inventories, production, shipment delivery and finance are available online. Availability of key
critical business information like customer order management, material inventory management,
vendor management & cash flow management has helped in managing our key processes
effectively and efficiently. General security of information is ensured by extensive backup
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procedures, controlled by well-designed processes for disaster management & recovery. Limited
& controlled access is allowed to the Information System servers. The relevant data for
employees like attendance, payroll, salary slips, tax are also available on ERP system. The
information access is controlled through provision of different function wise logins, protected by
passwords. Unauthorized network access to ERP server has been protected by "Firewall"
software. Only authorized personnel are allowed to access & work on the system. The
continuous functioning of the ERP system server is ensured through fault tolerant UPS and
Generator combination. The access to the server room is restricted and only authorized personnel
are allowed to access. The back up of data is taken periodically and the backup tapes/cartridges
are stored in fireproof storage.

Information is captured manually or through ERP system in different reports (like, DORT, BFT,
QAG etc.) which and shared in different forum at Management/working level (like MCM, QIT
etc.).

Lot of information sharing happens through circulars, regular meetings, quality notice
boards, Intouch magazine, Technical Advisory note, technical mails, DTSR etc. Most of this
information is shared electronically through email and HCL Insys Intranet. HCL Insys’s Intranet
is regularly updated by the relevant functions wherein a lot of technical/general information is
made available to all the employees. Information updation / accesses on these are also controlled
through authorized logins and passwords. This information is also protected against VIRUS by
VIRUS Scanning Software.
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Escalati on P rocess
HCLInfosystems Support
Support Requested
Requested Problem
Problem Escalated
Escalated
Support
Representatives
resolve most
Activate
Activate
problems quickly Additional
Timely
NO Additional Resources
Resources
Resolution
?
NO
Problem
Resolved?
YES YES

HCL Infosystems Monitor

Monitor
activates
additional
resources to ensure
efficient resolution Problem
Problem Solved
Solved Review
Review
of unusual
problems.
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The escalation process management and back-up systems and processes enhance the
support quality. The customer satisfaction level of the company is at par with the best in
the world. The company conducts User Meets of the customers, technical seminars and
indirect feedback to analyze lapses and implement the solutions to meet the continuously
increasing customer expectations. Thus to support the largest installed base of computers
in the industry, HCL has set up maintenance watch that guarantees proactive support
service and maintains the performance of critical elements of the system.

 Escalation Management Program, which involves the application of an

increasingly higher level of expertise to any maintenance problem until it, is
completely resolved.

 Regular User meets, wherein senior HCL Infosystems interact with customers to
get a direct feedback on customer satisfaction levels.


MANUFACTURING

HCL Infosystems Manufacturing Organization –is the largest manufacturing

organization in the country with its ISO 9001 certified factory, for computers at
Pondicherry. In recognizing the challenges posed by the changing IT environment, HCL
Manufacturing has consistently and continuously evolved and improved its processes,
guided the development and transition to the latest technology and products for its
customers, both internal and external.

As information technology needs mature, the IT industry has witnessed a continual

evolution through a progressively finer segmentation of markets. Design and delivery of
solutions across diverse hardware platforms, and the ability to respond to the rapid
penetration & usage of PC s, fast changing roadmaps, convergence in technology,
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turbulence in supply chain are key determinants for success in the current IT
environment.

HCL Manufacturing has always performed beyond the expectations of its customers.
Growing continuously the HCL Manufacturing has developed a strong combination of
competent people and technologies. Currently the HCL Manufacturing factories have
got the capacity to manufacture 15,000 PCs per month per shift.

Manufacturing Objectives

*Ensure that the delivery commitments made to our customers

are met on time.

*Improve the rate of defect free shipments

*Improve the response time to resolve customer problems

Key Activities

HCL Manufacturing Organization has following key activities

*Design and Development of Products and Solutions

*Product and Process Engineering

*Supply Chain Management and Vendor Development

*Manufacturing resource planning and scheduling

*Materials Management

*Quality Management

*Production , System Integration and Test control

*Configuring to Customers’ requirements

*Outbound shipments and Delivery management

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ENGINEERING FUNCTION -

As a manufacturing company, One of the main focus and key strength is our engineering
function. We lay a lot of emphasis on the engineering function, thereby building the
quality into the design itself.

The key focus areas in our Product Engineering function are:

* Product Development – Taking inputs from Customers, Markets and competition

product analysis, we develop the specifications and products.

* Product Engineering: To evaluate a product before its launch and release to

manufacturing.

* Process Engineering: To arrive at correct processes to ensure productivity & reliability

* Test Engineering: To ensure fool proof testing methods and facilities

* Industrial Engineering: To ensure proper layout and equipment for optimum

productivity

* Materials engineering: To ensure that only good quality material are selected for our
products and conformance to specifications and standards.

* Other key activities include Change management, Technical marketing and Technical
Training for Internal and external customers.

We continuously improve our products and processes to provide leading edge

technology products and services to or customers ahead of competition.
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HCL LAB –

The facility in Noida and Pondicherry identify, evaluate, test, exploit and qualify the
technology and products. The Labs ensure the functionality and compatibility of
components and sub-assemblies approved.

HCL Labs has been functioning since long to provide quality hardware to the Indian
market. Our specialized technology skill spans hardware, operating systems, drivers and
middlewares for distributed computing and management.

QUALITY IN MANUFACTURING -

Quality for us is not just conformance to standards but meeting or exceeding the
customer expectations. We believe customer satisfaction is achieving customer delight.

Quality is built into our processes right from beginning. We certified our plants under
ISO 9002 with System Improvement as a goal. Some of our quality processes are:

Fool Proof Integration and Testing Processes to ensure minimum operator intervention.

Maximum care handling processes for Electrostatic Discharge (ESD) sensitive items and
Hard Disks to avoid immediate and latent failures. (These handling standards are at par
and even exceed to that used by MNCs across the globe).

Frequent Process and Product Audits.

Apart from these areas, quality is a way of life in the Manufacturing Organization.
Factory QIT (Quality Improvement Team) leads the company-wide implementation of
Philip B. Crosby's Quality Improvement Process. This improvement process ensures that

everybody in the company is educated on quality and the tools required to build quality
into our working, not just products.
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HCL Labs has been functioning since long to provide quality hardware to the Indian
market. Our specialized technology skill spans hardware, operating systems, drivers and
middlewares for distributed computing and management. We carry our special
environmental testing so that our products operate smoothly under the varied weather,
power and transportation conditions in India.

Over time, we have developed close interaction with other test labs all over the world
such as Intel, Microsoft, NSTL, SCO, Novell, Seagate, Quantum, to name a few. We
work as a Beta testing site of Intel server products. Our products are certified from
Microsoft, Novell and SCO; this helps us to remain a technology leader as well as
provide quick solutions to our customers in this highly dynamic, open-ended and high-
tech world.

PRODUCTION FACILITY –

The Production facility at Pondicherry is a state-of-art manufacturing unit and the largest
in the country with a capacity to manufacture 1,50,000 units per shift per annum. To
meet the international quality and process standards and to adhere to product test
methodology the factory is equipped with latest tools and equipment, ESD certified
workforce and workstations, special Hard Disk handling work areas.

With SAP ERP controlling the production and planning the organization exercises not
only better control over resources and planning but also more flexibility and online real
time accessibility of information.

Through this we achieve lowest Annualized Failure Rates and best cycle times
consistently. The production facility is flexible enough to handle peak loads when the
situation demands.
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STRENGHTHS OF MANUFACTURING -

*Processes Benchmarked against the world’s best

*ISO 9001 Certified.

*Company wide implementation of Philip B. Crosby’s Quality Improvement Process

Management

*Working on the Excellence model as per EFQM

*High investment in Engineering resources

*World class plant layout

*Proven and reliable delivery network across the country

*Factory Electronically connected to all major offices in India and world wide

*Web enabled transactions with major vendors and Customs etc.

*24 Years of Manufacturing experience

*Expertise in Technology transfer

*Experience in Contract Manufacturing for overseas markets.

*Processes and reliable delivery network.

*Factory accessible through dedicated VSAT link from

all major cities in India

Pondicherry Manufacturing Operations (PMO) is an extension of HCL INFOSYSTEMS

Computer manufacturing function. It is located at Pondicherry (150Km. from Chennai)
on a 33,000 Sq. Ft. facility and became operational from Nov'96.
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HCL Infosystems manufacturing unit both at Noida & Pondicherry has been awarded the
ISO 9002 Certification by the BVQI for quality systems. The plants are fully automatic
& equipped with the state-of-the-art facilities. The processes are in-built with Quality.
The key activities in manufacturing are.
-Vendor Development and Materials Management

 Product and Process Engineering

 Quality Management

 Integration and Testing

 Quality is the way of life in our manufacturing organization.

PRODUCTS & SOLUTIONS

HCL recommends Microsoft,windows,xp professional for business.

HCL Infosystems' portfolio of products covers the entire spectrum of the information
technology needs of its customers.

By virtue of the immense diversity of markets and customers that it addresses, HCL
Infosystems' products offerings include everything from high end enterprise level
servers for mission critical applications to multimedia home computers.

You may be a large multi-location company exploring solutions to e-enable your

organization or you may be a new born rising star looking for someone for IT Planning
or setting up your IT Infrastructure, HCL Infosystems has a solution tailor-made for you.
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DESKTOPS

-Business PCs
-Home PCs
-Workstations
-Mobile Desktops

SERVERS

Intel Servers
-Infiniti GL Servers
-Infiniti Solutions

In today's competitive business environment, these servers are your foundation for a
dependable network- helping you reduce costs and boost profits and keeping you ahead
of competition. If you are investing in computer technology , invest in these servers and
get a new level of dependability and productivity.

HCL presents power packed performance through its wide range of servers to choose
from . The wide range of servers are designed to respond to your changing business
needs.

They provide the perfect building block necessary to run your business, today and
tomorrow.
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Infiniti Xcel Line Servers

-Infiniti Xcel Line 2200AZ

SUN Servers

HP Risc Servers & Workstations

WINBEE Thin Clients

SUN Thin Clients

WINBEE Thin Clients

SUN Thin Clients

Display Products

HCL Peripherals offers a powerful range of WINBee Thin Clients based on Beelin,
which gives
the end customers the look and feel of working on a Windows environment. Its superior
graphical interface provides the users with the most easiest and efficient way of getting
connected to respective servers. The Clients Remote management software, the Bee
Control gives the administrator Zero Administration risk which allows him to have full
control of WINBee from a single location with ease and security. In addition to this we
have provided the administrator to administer the client from any location just with the
help of a PC Browser .

With our new Desktop and Application mode, the administrator has the flexibility to
assign the common users with the ability to get to what the user actually want in term of
ease of use and quickness.

We have added many other features such as Single and Multi-user mode, WINBee
connection manager and so on that makes them feel at home. With WINBee 4000 JB the
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user gets to have all the features of WINBee 4000 B along with a local browser which
supports both Shockwave Flash player and Nfuse.

NETWORKING PRODUCTS

Modems
Cables
Switches
DSL
Wireless LAN

SECURITY PRODUCTS

-HCL Info NetMon

-HCL InfoWall
-HCL Info SecuMon

STORAGE

HCL Storage Products

-HCL Infiniti InfoStore 320 JBOD
-HCL INfiniti SAN ARRAY 2502FC

EMC Storage Solutions

HP Storage Solutions

TOSHIBA NOTEBOOKS

Increase your productivity anywhere ,anytime and anyway you want. Toshiba's new
range of Notebooks gives you the freedom. Freedom to roam around the office, thanks to
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the built-in wireless-ready capabilities that gives instant access to network resources.
Freedom on the move, thanks to advanced technology, intelligent design and fully
equipped communication features.

Toshiba Notebooks have the versatility that you need to reach your peak performance
and to be at your best, wherever you are, whenever you are.

SOLUTIONS

-Infostructure Services
-Networking Services
-Security Services
-Facilities Management Services
-Domestic Hardware Services

SOFTWARE LICENSES

HCL Infosystems , India's premier technology integration company has the capability to
deliver end-to-end implementations for its clients across regions and segments.

To provide end-to-end solutions to the customers, HCL has partnered with many leading
companies to provide software licenses like.:

• Oracle

• SAP

• BroadVision

• Microsoft

• Novell

• Linux/SCO

• Computer Associates
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• Citrix

• Veritas

Besides, HCL Insys can support these products and develop solutions on these
products.

Philosophy of Quality

"We deliver defect-free products, services and solutions to meet the requirements of
our external and internal customers, the first time, every time."

To exist as a market leader in a globally competitive marketplace, organizations need to

adopt and implement a continuous improvement-based quality policy. One of the key
elements to HCL 's success is its never-ending pursuit of superior quality in all its
endeavors.

HCL INFOSYSTEMS believes in the Total Quality Management philosophy as a means

for continuous improvement, total employee participation in quality improvement and
customer satisfaction. Its concept of quality addresses people, processes and products.

Over the last 20 years, we have adapted to newer and better Quality standards that
helped us effectively tie Quality with Business Goals, leading to customer and employee
satisfaction.

QUALITY AT HCL INFOSYSTEMS LTD.

The history of structured quality implementation in HCL Infosystems began in the late
1980s with the focus on improving quality of its products by using basis QC tools and
Failure Reporting and Corrective Active Systems (FRACAS). We also employed
`

concurrent engineering practices including design reviews, and rigorous reliability tests
to uncover latent design defects.

In the early 90s, the focus was not merely on the quality of products but also the process
quality systems. We were certified for ISO 9002 by BVQI in 1994 and re-certified in
1997 to ISO 9001-2000 (for Design & Manufacture of Personal Computers, Business
Servers, Work Stations and their Associated Sub-Assemblies).

In early 1995, a major quality initiative was launched across the company based on
Philip B. Crosby's methodology of QIPM (Quality Improvement Process Management).
This model was selected to because it considered the need and commitment by an
organization to improve but more importantly, the individual's need towards better
quality in his personal life.

Under our Quality Education System program, we train our employees on the basic
concepts and tools of quality. A number of improvement projects have been undertaken

by our employees, whereby process deficiencies and bottlenecks are identified, and
Corrective Action Projects (CAPs) are undertaken. This reduces defect rates and
improves cycle times in various processes, including personal quality.

We have received MAIT's 'Level II recognition for Business Excellence' for our
initiatives in the Information Technology Industry, adding another commendation to our
fold. MAIT's Level II recognition is based on the 'European Foundation for Quality
Management' (EFQM), for gaining quality leadership and business competitiveness.
Our certifications / awards in 2003 include ISO 9001-2000 certification by BVQI for
our Infostructure Services (for Consultancy, Implementation, Support, Audit &
Management Services for Information Technology Solutions in the domain of
Networking, Security, Facilities Management and System Integration) and award of
First Prize by ELCINA (Electronic Component Industries Association) for Quality,
2002-03. The ELCINA award criteria considers two aspects. (1) Enablers (Leadership &
Management commitment, Resource Management, Product Realisation, Measurement
`

Analysis & Improvement) and Results (Product Quality, Customer / Stake holder
satisfaction , Business results).

The tryst for continuous quality improvement is never-ending in HCL Infosystems. We

always strive to maintain high quality standards, which help us fulfill our mission to
provide world-class information technology solutions and services, to enable our
customers to serve their customers better.

Frontline Division

Frontline Division formerly HCL Infosolutions Ltd. (HCL Insol) started with the aim of
increasing market penetration by handling segments not covered by HCL Insys and
creating new niches. Today it specializes in distribution of reputed national and
international brands, as well as its own range of home computers - the Beanstalk. In the
Enterprise Segment it has end products from HP, HCL and Siemens Nixdorf, as well as
desktops and Toshiba notebooks. It also markets printers, plotters and scanners from HP.
The products are supported through a network of ‘Authorized Service Providers".
Frontline division provides Tele support to its customers and is the only accredited
remote support partners for Microsoft products. The acquisition of HCL Insol would
enable close monitoring of pricing and costing, better assets management, leveraging a
sales network and savings on overheads

Office Automation Division

Office Automation Division formerly HCL Office Automation Ltd. is into marketing of
both office automation and communication products. Among the former it has Toshiba
copiers, Sharp and HP fax machines, HP copyjets, Cannon electronic typewriters and
Cannon imaging products. Its communication products include Key Telephone Systems
and IVRs from intervoice. It is also the distributors of Nokia Cellular phones and pages.
`

The acquisition of the CSO activities will help Infos to utilize its support services
manpower both in the domestic and export markets HCL Infos has been reorganizing
itself for higher value-added businesses. The company is consolidating the hardware and
services businesses of the group in itself. This will better equip it to offer both solutions
development, implementation and support services, in India and globally Indian
customers as well as the global market. The approach synergizes with the growth of the
professional services as well as support services HCL Infosys has direct customer
service centers at 143 locations and state-of-the-art manufacturing facilities at Noida and
Pondicherry.

With a mission statement to provide world class information technology solutions and
services, to enable it’s customers to serve their customers better; HCL Infosys is setting
new standards of technology in India. All this has been made possible only through a
shared vision of the organization and a strong belief in its people. This value is
inculcated in each department and in each employee. It is translated in the belief that the
customer, whether internal or external, deserves the BEST. In brief, we can quote HCL
Infosystems will continue to focus on the domestic market by delivering solutions to the
Indian companies in industries such as banking, finance, telecommunications and
manufacturing Quality and research are the core strengths Wide array of products and
services Largest and most comprehensive network for support and services are being
practiced in different functions.

Peripherals Division
`

Peripherals Divisions formerly HCL Peripherals Ltd. is into peripheral design,

development and manufacturing. It has a plant at Chennai. The acquisition of HCL
Peripherals would improve coordination and reduce cycle time as the bulk of sales of
HCL Peripherals are to HCL Insys. This will also lead to increasing sales to other
companies due to leveraging on sales network.

Large Projects

Some of the Networking Projects Implemented by HCL Infosystems Limited

Sl. Name & Address Scope of the No of Project Project Order

No. of site project Nodes Start Completed Value
Date Date Contact Person Address Tele
1 National This is a 350 7/7/97 25/09/97 50L Dr. Krishnan National 021
Chemical Lab., Campus wide Chemical 338
Pune network Laboratory,
connecting 350 Dr. Homi
nodes. This Bhabha
order includes Road, Pune
supply and 411 008
installation of
switches, hub,
structured
cabling,
Routers. This
order also
included supply
HP RISC based
`

servers and
Netscape
software. This
is a turnkey
project for
installation of
Web server,
Proxy server,
Email servers,
DNS server and
a leased line
connectivity to
Internet.

2 Hindustan This is a 300 1/10/97 20/12/97 45L

Times,New Delhi Building
& Lucknow Network with
wide area
network
connectivity
with Delhi and
Lucknow press.
The Network
includes supply
and installation
of Riuters,
Switches,Hub H.T Tower,
and structured Mr.SM K.G.Marg,
cabling Dutta,Chief New Delhi - 318
equipments. Enginer 110 001 331
`

3 CBI (Nation wide This contract 400 1/10/97 Installation 250L

network) includes Supply under
and installation progress.
of HP RISC and
Netservers,
Routers,
Switches. Also
implementation 4th Floor, B-
of Lotus mail Mr. NR Wasan, III,CGO 436
across 90 CBI Dy. Director, Complex, 436
locations. Administration New Delhi. 436

4 IFCI (Country This order 600 1/1/96 30/06/96 300L

wide networK) includes supply
and Installation
of HP RISC
(UNIX) servers,
Infiniti (Novell)
servers,
Switches, hubs
and structured
cabling. This is
also includes
establishing
countrywide
network (11
locations)
linking through IFCI Tower,
X.25 with Lotus Mr.B.S.S. Nehru Place,
Email Gupta, Chief New Delhi -
application. G.M 110 019 648
`

5 IIT, Kanpur This is a 325 5/4/97 6/6/97 40L

Campus wide
network
connecting
300+ network.
This is a
completely
switch based
network with
ATM backbone.
This also
includes Deptt. Of
structured Mr Sanjeev Computer
cabling Aggarwal, Science &
including the Associate Engineer,
fiber cabling Professor & Indian
connecting Head Institute of 051
various Computer Technology, 257
buildings. Centre Kanpur 257

6 CII This order is for 400 10/9/97 28/12/97 200L Col. 23-26,Lodi 462
(Mumbai,Delhi, Supply and Manchanda Road, New 462
Chennai,Calcutta, installation of Delhi - 110
Chandigargh) HP servers, 003
Switches,
routers and
structured
cabling. This is
a nation wide
network
`

connecting 7
CII offices
through ISDN
network. MS
Backoffice is
implemented
for workflow
application.

FINANCIAL CONDITION OF COMPANY

`

Business Income grew to Rs. 11455 crores in the current financial year ended
30.06.2006, from Rs. 7787 crores in the previous year,an increase of 47%.

Total revenue including ‘other income’ grew from Rs. 7813 crores in the previous
year to Rs. 11489 crores for the year under-review.

REVENUE
FY Revenue
2002 1367
2003 2705
2004 4412
2005 7787
2006 11455

Revenue

15000
Rs crores

10000
Revenue
5000
0
1 2 3 4 5
Financial year

Segment performance

Computer systems and related products & Services:

`

The segment operations comprises of sale of hardware and system integration

products and providing a comprehensive range of IT services including system
maintenance,facilities management etc in different industries.

Segment revenue grew by 21% from rs 1971 crores in the previous year to rs 2381
crores in current year .PBIT for current year is rs 126 crores .capital employed in the
segment is Rs 387 crores as on june 30, 2006 as against Rs 298 crores as on 30 june
2005.Return on capital employed is 32%.

TELECOMMUNICATION & OFFICE AUTOMATION:

The segment operations comprise of distribution of telecommunication products,

office automation products and related comprehensive maintenance services.

Revenue of segment for current year grew by 57% from Rs 147 crores in previous
year to Rs 9050 crores.The PBIT grew by 66% from RS 147 crores in the previous
year to rs 244 crores in current year .capital employed in the segment is negative rs
1.2 crores as on june 30, 2006 as against rs 39 crores as on june 30, 2005.

INTERNET & RELATED SERVICES:

The segment provides virtual private network, internet access services and other
connectivity services. Revenue of the segment for the current year is rs 37 crores and
PBIT isrs 4 crores.the segment achieved significant growth in its profitability
through continuous efforts on acquiring new customers and reducing cost of
operations.

As indicated by the management in the beginning of the year, business environment

continued to remain challenging. However, the company recorded an improvement
in revenue performance.
`

Other income’ is Rs. 34 crores in the current financial year as against Rs. 26 crores in
the previous year. The income from investments in growth funds, forming part of
other income, is recognized at the time of realization.

2. Gross Margins:

Gross Margins (excluding ‘Other income’) for the current financial year are at Rs.
779 crores as against Rs. 605 crores in the previous year.

3. Personnel-Costs:

staff costs for the current year are rs 181 crores as against rs 149 crores in the
previous year.manpwer increased from 3879 as at june 2005 to 4323 as at june
2006.staff costs as a % of sales has declined to 1.6 % from 1.9 %.

4. Administrative, Selling & Repairs:

Expenses for the current year are rs 221 crores as against rs 189 crores in the
previous year .the expenses as a % to sales declined to 1.9% from 2.4%. The
company has continued with it’s austerity drive during the current year, as a result,
the Administration & Selling costs decreased. Major reductions were in Printing &
Stationary items.

5.OperatingProfit (EBIDT):

Operating profit grew by 45% from rs 252 crores in the previous year to rs 365
`

crores in the current year.

6. Finance Costs:

Net finance income for the current financial year under review is Rs. 1 crore as
against Rs. 3 crores in the previous year.

7. Profit-Before-Tax:

PBT grew by 30% from rs 296 crores in the previous year to rs 385 crores in the
current year.the five year compounded annual growth rate is 109%.

Exchange fluctuations are accounted for in accordance with AS .rupee has been
sharply volatile during the year, resulting in exchange loss of rs 14 crores including
unrealised loss of rs 7 crores .exchange gain in previous year was rs 14 crores.

Profit before tax

FY PBT
2002 20
2003 78
2004 212
2005 296
2006 385

PBT

600
Rs crores

400
PBT
200

0
Financial year
`

8. Taxation:

The Company has provision of Rs.105 crores for current taxation, and Rs. 11 crores
for deferred tax during the current financial year.

9. Profit-After-Tax:

The Profit after tax grew by 23% from the rs 228 crores in the previous year to rs
280 crores.the five years compounded annual growth rate is 107% .

The profit for the current year are after a provision for rs 99 crores for the current tax
expense and rs 3 crores for fringe benefit tax.

Profit before tax

FY PAT
2002 15
2003 93
2004 175
2005 228
2006 280
 `

PAT

Rs crores
300
200
PAT
100
0
1 2 3 4 5
Financial year

10. Dividend:

The company distributed interim dividends @ 100% in each of the first three
quarters .the company proposes to pay a final dividend of 100% per fully paid up
equity share of rs 2/- each. The interim dividend paid together with proposed final
dividend total to 400% for the current year, entailing an outflow of rs 154 crores,
including distribution tax.

Dividend %

400
300
200
Dividend %
100
0
1 2 3 4 5 6 7
`

11. Earnings Per Share:

Basic EPS grew from rs 13.7 in the previous year to rs 16.7 in the current year
.diluted EPS grew from rs13.5 in the previous year to rs 16.5 in the current year.

The earning considered in ascertaining the company’s EPS represent profit for the year
after tax. Basic EPS is computed and disclosed using the weighted average number of
equity shares outstanding during the year. Diluted earning per share is computed and
disclosed using the weighted average number of equity and dilutive equivalent shares
outstanding during the year, except when results would be anti-dilutive.

BASIC EPS
FY EPS
2002 1
2003 5.8
2004 10.9
2005 13.7
2006 16.7

EPS

1 5.8
16.7

10.9

13.7
`

Key Financial Ratios ------------------- in Rs. Cr. -------------------

Jun Jun Jun Jun Jun

'02 '03 '04 '05 '06

Profitability Ratios
Adjusted Net Profit Margin (%) 3.66 5.28 7.94 6.74 4.75
Cash Profit Margin (%) 4.66 5.96 8.61 7.07 5.04
Gross Profit Margin (%) 5.08 6.14 9.11 7.88 5.81
Operating Profit Margin (%) 6.70 7.13 10.04 8.59 6.69
Profit Before Interest And Tax Margin
5.69 6.46 9.37 8.26 6.41
(%)
Return On Capital Employed(%) 16.66 23.87 31.42 33.19 27.30
Return On Net Worth(%) 14.81 26.84 33.64 32.08 26.93
`

Management Efficiency Ratios

Debtors Turnover Ratio 5.25 6.98 5.92 5.93 5.40
Fixed Assets Turnover Ratio 11.85 15.69 14.93 19.84 23.77
Inventory Turnover Ratio 11.30 16.40 12.16 11.28 11.12
Loans Turnover Ratio -- -- -- -- --
Total Assets Turnover Ratio 2.93 3.68 3.33 3.99 4.24
Liquidity And Solvency Ratios
Current Ratio 1.62 1.51 1.31 1.36 1.32
Debt Equity Ratio 0.38 0.38 0.26 0.19 0.33
Long Term Debt Equity Ratio 0.22 0.25 0.16 0.06 0.01
Balance Sheet Ratios
Interest Cover 3.53 6.54 10.07 11.69 7.23

FINANCIAL CONDITIONS

1. Shareholders funds/Net Worth:

Net worth as on june 30, 2006 is rs 698 crores .share capital as at the year end is rs 34
crores divided in to 16.9 crores share of rs 2/- each.reserve and surplus as at year end
are rs 664 crores after appropriating rs 156 crores for interim and proposed final
dividend.
During the current financial year there is an addition of the reserves, taking the total
Reserves of the Company to Rs. 377.59 crores

2. Borrowings:
Growth has been largely financed through internal accruals
`

The year end loan balances marginally increased from Rs. 82 crores as on
30.06.2005 to Rs. 84 crores as on 30.06.2006.

3. Fixed assets:

Gross block increased from Rs. 95.27 crores as on 30.06.05 to Rs. 111.09 crores as
on 30.06.06. Additions are mainly in the areas of premises, plant, equipment and
software.

4. Investments:

Investments in Maturity plan increased by Rs 12.77 crores. During the year the
Company invested Rs. 15.00 crores in HSBC cash fund and made further investments of
Rs. 2.51 crores in DSPML liquidity fund.total investment increased from rs 122.77
crores as on 30 june 2005 to rs 135.39
Crores as on 30 june 2006.investment in subsidiary is rs 1.68 crores.

5. Inventories:

Inventories increased during the current financial year from Rs. 349 crores as on
30.06.05 to Rs. 470 crores as on 30.06.06. With efficient inventory management, the
inventory turn over on sales is 24.4 times in the current year as against 22.3 times in
previous year.

6. Debtors:

Debtors increased from Rs. 532 crores as on 30.06.05 to Rs. 705 crores as on
30.06.06. Debtors as number of days of sales stands reduced to 22 days as on june 30,
2006 from 25 days as on june 30, 2005.
`

7. Liquid assets (investment in mutual funds and fixed deposits with bank) :

Liquid assets as on june 30, 2006 is Rs. 354 crores as against rs 253 crores as on
june 30, 2005.

8. Other current assets including loans and advances:

Other current assets decreased marginally from Rs. 154 crores as on previous year
end to Rs. 153 crores as at current year-end. Other current assets of parent company
increased marginally from rs 112 crores as on june 30,2005 to rs. 113 crores as on june
30, 2006.

9. Net Working Capital :

The Net working capital of the Company

decreased from Rs. 424 crores as at previous year end to Rs.
400 crores as at current year-end.

The current ratio stands at 1.35 as at 30.06.06 as against 1.49 as on

30.06.05.

10. Deferred Tax Liability :

The accumulated net deferred tax liability arising on account of timing differences as
at 30 june 2006, Rs 10.76 crores from Rs. 7.35 crores as on 30 june 2005.current
liabilities and provisions increased from rs 863 crores as on june 30, 2005 to rs 1143
crores as on june 30, 2006.Deferred revenues as at june 30 , 2006 are Rs. 131 crores.
`

Current liabilities and provisions of the parent company increased from rs. 468
crores as on june 30, 2005 to rs. 606 crores as on june 30, 2006.

11. Cash flow :

The cash generation from operating activities in the current year is rs. 278.63 crores
while in previous year it was rs 126.75 crores.Cash from investing activities is rs
(168.33) crores in current year as against rs 62.24 crores in previous year.Cash from
financing activities is rs (146.65) crores as against rs (82.95) crores in previous year.

CASH FLOWS

CASH FLOWS 2006 2005 2004

NET CASH FROM OPERATING ACTIVITIES 278.63 126.75
NET CASH FROM INVESTING ACTIVITIES -168.33 62.24
NET CASH FROM FINANCING ACTIVITIES -146.65 -82.95

The decrease in cash flows has been due to the purchase of investment in the year 2006.
The firm has disposed of investments worth around 1957 Crores to meet it’s growing
needs. The other notable feature is decline is the firm’s inflows from operations
primarily due to the reason that the cash generated from the operations is the lowest in
three years. And the firm’s growing dividend policy has contributed to the outflows in
financing activities.
`

CASH FLOW IN OPERATING ACTIVITIES

WORKING CAPITAL CHANGES 2006 2005 CHANGE

TRADE AND OTHER RECEIVABLES 705.30 532.39 172.91
INVENTORIES 469.61 349.39 120.22
TRADE PAYABLES AND OTHER LIABILITIES 652.27 452.93 199.34

The cash from the operation has been subject to considerable change due to the changes
that could be adjusted towards trade receivables and trade payables. The resulting
reduction in the cash outflows might be because of the inventories being procured more
on credit. That the cash from operations has increased.

CASH FLOW IN INVESTING ACTIVITIES

INVESTMENTS IN MUTUAL FUNDS 2006 2005

PURCHASE OF INVESTMENTS 2101.82 1675.66
DISPOSAL/REDEMPTION OF INVESTMENTS 1956.46 1759.80
INVESTMENT 295 143

The investments have increased from the last year due to the purchase of investments.
We can see that the firm has in these two years decreased their cash inflow from the
investing activities. Now what has to be asked here is that why did the firm cut down on
its revenue earning fund for the procurement of the inventory which had a huge %in
closing raw materials and that too at a time in which its availability is quite easy as
compared to the earlier years when almost all the inventory had to be imported, there
was a very long time lag involved and there were strict import restrictions.

The investment in mutual funds are beneficial to the firm in the context that they contain
interest bearing securities which adds up as a source of revenue for the firm unlike cash
`

which remains idle and unproductive when not in use. In the year 2006 the revenue
earned by the firm in the form of interest and dividend has increased from Rs.11.43 in
2006 to Rs.3.62. This increase of dividend could be attributed to investments in mutual
funds,shares and subsidiary.

CASH vs. MARKETABLE SECURITIES

The investment in marketable securities rather than having large cash balances is
something that has been given thought for by the firm. This is because while a firm gets
revenue in the form of interests by investments, it actually has to pay a certain amount of
money to the banks for maintaining current accounts and fixed deposits usually have a
longer maturity period. That is, the problem with high investment is that the opportunity
to earn is lost, thus a firm has to maintain an optimal cash balance. . But the investment
in mutual funds or other marketable securities might create a problem of investment, as
they might not be readily realizable as say liquid cash or the amount deposited in the
current account. The investments in say fixed assets say may earn a fixed rate of interest
but they have a maturity period attached to them.

In HCL, STANDERED CHARTERD is the concentration bank in which all the cash
inflows from the deposit banks are concentrated and passed on to the disbursement
banks for further disbursement.

LIQUID CASH BALANCE

The liquid cash maintained in the business is only that much as is required to satisfy the
daily requirements of the firm and not more. The rest of the cash is invested into
mutual funds and also held in fixed deposits and current accounts.
`

INSTRUMENTS USED

The instrument used here are primarily cheques comprising of around 97% of what is
used in. The rest 2-3% comprise of the letters of credit.

WORKING CAPITAL MANAGEMENT

 WORKING CAPITAL POSITION

 CURRENT ASSET SCENARIO
 INVENTORY MANAGEMENT
 CASH MANAGEMENT
 WORKING CAPITAL AND SHORT TERM FINANCING
 RECEIVABLE MANAGEMENT
`

Working Capital Management

We are enjoying Rs. 115 Crs. of Fund Based limit and Rs.285 Crs. Non-Fund based limit
from a consortium of 13 Banks. The details are as under:

The present allocation of limits is hereunder:

Rs./Lacs
Non Fund
Fund Basedbased
Bank limit limit Total Limit
State Bank of India 3600 9500 13100
ICICI bank 1282 3790 5072
HDFC bank 1200 4525 5725
Canara bank 1203 2335 3538
Standard Chartered Bank 1200 2000 3200
State Bank of Patiala 1300 2350 3650
State Bank of Saurastra 715 3000 3715
Societe Generale 1000 1000 2000
Total 11500 28500 40000

The Fund based limits & non-fund based limits have been allocated to various divisions
and regions as per their requirements.

The following activities are the subset of the working capital management.

A) Renewal of limits.
B) Sanction of adhoc limit.
`

C) Documentations.
D) Allocation of limit by the lead bank (SBI-CAG) to other banks.
E) Consortium meeting.
F) Stock Statement
G) Financial Follow-up reports (I&II)
H) Allocating limits to regions
I) Factory Visit etc.
J) Stock Audit

Renewal of Limits

All banks sanction the limits for a period of one year. There it is to be renewed every
year. The lead bank, SBI-CAG appraises the total limit on behalf of the consortium. The
individual banks appraise for their own individual limit. The company need to provide
the following information to bank for appraisals:

1. Credit Monitoring Appraisal (CMA)

2. Write up on company
3. Share holding pattern
4. List of the directors

Credit Monitoring Appraisal (CMA) - CMA is nothing but the detailed financials of
the company submitted in a prescribed format of RBI. The CMA is mainly contains the
following statements:

i) Operating Statement (P&L)

ii) Balance Sheet Spread (B/S)
iii) Comparative statement of Current Assets & liabilities
iv) Computation of Maximum permissible bank finance for working capital
v) Funds Flow Statement
`

In CMA the data has to be provided for four years. Actual data for last year and current
year and the projections for next two years. The projections are to be prepared and
finalized by the finance section based on the data available like business plans etc. after
discussion with the CFO. Since the projections depend upon various factors like market
conditions, Govt. policies, management perceptions etc., the preparation of the same is
not explained here.

Write up on Company. Write up on Company has to be submitted to the banks.

Broadly it should contain the following:

 Highlights of past performance

 Future growth trend
 Future business strategy
 IT industry scenario
 Note / status / performance of subsidiaries
 Limit requirements
 Other proposals for the banks.

Share holding pattern & List of the directors: The present shareholding pattern and
the list of Board of Directors are to be submitted along with renewal proposal. Both the
lists have to be collected from Secretarial Dept.

Any other information as and when asked for by the banks has to be provided.

On the basis of the information provided the lead bank (SBI) would apprise the banks
about the limits sanctioned by SBI, as well as for the limits appraised on behalf of the
consortium.
`

Sanction of adhoc limit.

Adhoc Limit - As the name clearly indicates it is a one time limit for a short-term
period. Sometimes we are required to provide bank guarantee or LC on an urgent basis
but the limits sanctioned are fully utilized. In this case we can approach the banks for
sanction of adhoc limits.

The banks may ask for the following information:

- Limit utilization in various banks

- Quarterly / half yearly results
- Details of BG/LC to be opened
 Amount
 Tenure
 Beneficiary’s name
 Any special clause etc.

Important points for adhoc limits

The following must be clarified to the banks at the beginning that

1. NOC for lead bank will not be possible.
2. This adhoc limits will be over and above the consortium limits.
3. All the necessary documents will be signed, but no personal guarantee.
4. No margins for LC/BG.
`

Documentation

There are various documents need to be signed at the time of renewal or inducting any
bank to the consortium. The various documents are as below:

1. Loan Agreement
2. Hypothecation agreement for movable machinery
3. Hypothecation agreement for movables and book debts
4. Counter Indemnity

The above are the standard agreements asked for by the banks. There may be other
additional agreements asked for by some of the banks as per their internal guidelines.
But no personal guarantee papers should be signed.

The common seal has to be affixed on the documents, wherever necessary. The common
seal has to be witnessed by the Company Secretary and one of the directors of the
Company.

Note: A copy of the documents must be kept for our records.

Joint Documentation

Joint documentation is executed between the company and the consortium of banks for
the working capital facilities extended by the consortium to the company. The
documents comprising joint documentation are:

1) Working capital consortium agreement

2) Joint Deed of Hypothecation
3) Inter se Agreement between bankers
`

4) Letter of Authority to lead bank by other consortium banks

5) Letter of Authority to second lead bank by other consortium banks
6) Undertaking to create charge on the assets of the company.

Allocating limits to regions

We park CC/BG/LC limits at various regions for our operational convenience. When it is
decided to park any type of the limit at the regions, we approach the respective banks in
Delhi for allocation of the limit to the region.

Once the limits are allocated, the other formalities are taken care of by the respective
regions and the regional accounts head.

Factory Visit

As per our sanction norms stock inspection and factory visit has to be carried out by the
banks at regular intervals. Our major stocks are at plant at Pondicherry. In the past it had
become very difficult to handle the plant visit and stock inspection because all the
individual banks used to request for the plant visit now and then. Therefore this matter
was discussed in one of the consortium meetings and it was decided that there would be
one visit in one quarter. The consortium leader with consultation of the company will
decide the time and the members for the visit.

The company will make all the necessary arrangements for the visit. The member banks
visiting the plant will prepare the inspection report and circulate it to all the member
banks.
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Preparation of Financial Model for System Integration and BOOT projects

a. The company is bidding for various BOOT tenders like

 Implementation of core banking solutions for the banks

 Issuance of smart card based licenses for a state transport company
 Billing systems for a PSU telecom company
 Total solutions and billing for civic amenities for state government or Municipal
Corporations.

b. The company acts as a consortium leader in all these projects where the major
hardware and equipment are supplied by the Company besides roping in other vendors
for supply of software and equipment that may be required for the project. The financing
is arranged by the company to meet the capex requirements.

c. The project period is typically in the range of 3-5 years with the estimated revenue
in the range of Rs.50-100 Crores for low value projects and Rs.500-1000 Crores for high
value projects.

d. The projects need to be funded to meet the capex requirements because in most of
these projects, the capex is recovered over the period of project. The funding may be in
the form of term loan with disbursement at the time of actual expenditure, it may be in
form of equity participation or may be funded from internal surpluses.

e. The period of funding for the project, depending upon the cash accrual pattern,
may be either spread over the period of project or the period over which the cash
accruals are sufficient to repay the loan, whichever is earlier.

f. The security for the term loan extended is limited to the project assets.
 `

g. The process of preparation of financial model is as under;

1. A tender copy is provided by the marketing/SI team

2. The feedback is provided by us on the financial parameters of the tender
3. The marketing/SI team provides the cost sheet of the project with period-
wise schedule of various expenditure heads.
4. A quotation sheet is prepared by us, followed by a cash flow and abstract
Profit and Loss

A specimen set of financial model is attached for the reference.

h. Role of Finance and Accounts department once the order is bagged by the
company:

1. Negotiations with banks for financing tie up for the project if required
2. Preparation of revised cash flows based on the actual costs incurred and
revenues received.
3. Monitoring of financial position of the project in terms of financing
requirements.

STOCK STATEMENT PROCESS

We are enjoying Rs 115 crs. of Fund Based Limits from the consortium of banks. The
Drawing power for fund based limits out of the consortium arrangement are determined
based on stock statement submitted by the company. As per the sanction terms, we are
required to submit the stock statement to all the member banks in the consortium for
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every month on or before 21st of the next month i.e. stock statement for the month of
January is to be submitted by 21st of February.

CAUTION

Delay in submission of this statement is a violation of the sanction terms, and the banks
can charge 2.25% p.a. on the entire fund base limit for the delayed period.

Various Steps

1. Collection of data from all the divisions.

2. Compilation of stock statement.

3. Preparation of covering letter and sending it to the banks.

4. Getting the acknowledgement and filing it properly.

Collection of data from all divisions

All the divisions are supposed to send the data (details of inventory, debtors etc. copy
of the report attached) latest by 13th of next month. If does not reach by 13th then the
reminder have to be escalated to the following persons:

Frontline division.

OA division.

Peripheral division.

If not received by 15th then escalate it to the following division.

Insys division.

OA Division.

Frontline Division.
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Peripherals Division .

Compilation of stock statement.

Please refer to the attached copy of the stock statement to understand the method of
preparation of the stock statement. (The required inputs are numbered in the enclosed
copy of Stock Statement for reference. Pl. refers to the relevant numbers below to
understand each figure).

1. Update the last months closing stock as opening stock in the current month.

2. Update the division wise closing stock to arrive at the total closing for the month.

3. Put in the purchase figure for the month.

4. Key in the export debtors and domestic debtors (>4 months and < 4 months)
division wise.

5. Table 3 figures are linked. The figures will be arrived automatically. This table
shows total of inventory + debtors. 25% margin (except for export debtors) ? raw
material creditors.

6. Update last month gross sales, consumption of R.M and purchases.

7. Key in current month sales.

8. Consumption of R.M and purchase figures is linked and will be arrived from the
top.

9. (i) This shows the cumulative figure of sales, consumption and purchases. Add the
current months figure to last month’s cumulative figure.
(ii) Key in the current month’s raw material creditors for all the divisions.

10. It is linked to the utilization level.

11. Check up with the insurance section, whether it is the same figure or it has been
changed.
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12. Key in the current month. GIT figure.

13. Update the current month end utilization level obtained from various divisions.

14. Check for any change in the allocation limits with the banks.

15. Update for reduction in limit incase of earmarking, if any because of issuance of
commercial papers.

Points to remember

16. Check the figure properly if there is any major deviation in the figure as compared
to the last month.

17. Check if the > 4 months debtors figure has gone up drastically.

18. The drawing power has to be more than the allocated limit otherwise D.P will get
reduced accordingly. At present the allocated limit is Rs. 115 Lacs.

19. The stock statement send to the bank is given above.

Preparation of covering letter and sending it to the banks.

There is a mail merge document. Change the date; the drawing power (as per the stock
statement) and the month, and then click the mail merge icon. It will generate the letter
for all the banks. Print the letter in two copies, one in letterhead (for banks) and one in
plain paper (office copy). Prepare the set for all the banks and send to the banks
maximum by 19th of the next month.

Getting the acknowledgement and filing it in properly

The office copy must be acknowledged by the banks along with the signature and the
rubber stamp and date to keep proof that it has been delivered before due date i.e 21 st of
the next month. These acknowledged copies must be filed properly for future reference
in case of any dispute with the banks.
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The address of the banks and the name of contact persons with the bank are enclosed
herewith. We need to give some declarations to few banks and also additional sets -
details enclosed (Specimen copies of the declaration are attached).
LIST OF BANKS

S.NO BANK WITH ADDRESS & CONTACT PERSON REMARKS

1 Mr. Swami Nathan, A Declaration

(Specimen copy
State Bank of India, CAG
enclosed) duly signed
Jawahar Vyapar Bhawan by authorized
signatories to be
10 Janpath, Tolstoy Marg,
attached (SBI 1)
New Delhi 110 001

2 Mr. Kishore Karla,

Societies Generals,

Mohan Dev Building, Tolstoy Marg,

New Delhi 110 001

3 Mr. A.R. Saha

State Bank of Saurashtra,

C-37, Atma Ram House, Connaught Place,

New Delhi 110 001

4 Mr. Rakesh Bhutoria,

Standard Chartered Bank,

H-2, Connaught Circus

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New Delhi 110 001.

5 Mr. Vineet Ahuja

ICICI Bank Ltd.

NBCC Place, Lodhi Road

New Delhi 110 001

6 Mr. L.K Dhamija,

HDFC Bank,

Safdarjung enclave

New Delhi

7 Mr. U.G Pai,

Canara Bank,

DDA Building, Nehru Place Branch,

Nehru Place, New Delhi 110 019.

8 Mr. Bhalla,

state Bank of Patiala,

32, 33 Nehru Place.

New Delhi 110 001.

Financial Follow-up reports (FFR)

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As per the sanction terms, we are required to submit FFR I & II to all the member banks
in quarterly and half yearly intervals.

FFR I? It is an extract of balance sheet. In this report we are required to submit the
details of sales, current assets & current liabilities for the quarter and the estimates for
the current year. These data are to be collected from the monthly MIS reports.

Cautions? The debtors, inventory and the creditors level must match with the stock
statement submitted to the banks. The sales figure must match with the quarterly
published results.

This report has to be submitted to the bank within 6 weeks from the close of the quarter.

Financial Follow-up reports (FFR)

As per the sanction terms, we are required to submit FFR II&I to all the member banks
in quarterly and half yearly intervals.

FFR II? We are required to prepare P&L, B/Sheet and Cash Flow in a different format.
As it is a very detailed exercise, therefore the preparation of the same is not explained
here. The information is to be provided for last year (actual), current year half yearly
results (actual) and the estimates for the next year.

Caution - The debtors, inventory and the creditor’s level must match with the stock
statement submitted to the banks. The sales figure must match with the quarterly
published results. The balance sheet is not sending to the banks. This is prepared for the
cash flow linking.

This report has to be submitted to the bank within 8 weeks from the close of the half
year.
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CAUTION- Submission of FF Reports are stipulated as one of the conditions for

sanction of advances to the company. Though there is no penalty for non-submission or
delayed submission of the reports, but this is treated as a violation of the sanction terms.

Credit Rating
Credit rating is an appraisal of company’s inherent strengths by an outside rating
agency. It reflects the quality and the reliability of the instrumented rated. Rating helps
us in raising funds in an easier way and at lower cost.

We have got our Commercial Paper program (Rs. 75 Crs.) rated by ICRA. ICRA has
assigned A1+ credit rating for the same. This rating indicates highest safety where
timely payment of debt/obligation is the best.

Rating agency does detailed appraisal about company. The whole process can be
explained through following steps.

1. Mandate letter to ICRA

2. Financial appraisal

3. Appraisal of business segments

4. Discussion with all the department heads

5. Discussion with the higher management

1. Mandate Latter ? The mandate letter has to be given to ICRA as per their
prescribed format along with the prevailing fees (0.1% of mandate / rated amount at
present) at that point of time before the rating process begins. The format of the mandate
can be obtained from ICRA on request.
`

2. Financial Appraisal ? We are required to submit the following inputs/documents for

the financial appraisal by ICRA:

a) Past three years financial results with detailed break up of revenue (business
segment-wise details) from various activities, current assets, current liabilities, fixed
assets and investments.

b) Next three year projections i.e. the profit & loss a/c, balance sheet, cash flow and the
detailed break up as mentioned above.

c) Monthly break up of the P&L, B/Sheet & Cash Flow of the current year results & the
next year projections.

d) Detailed break up and explanation of the figures specifically asked by the analysts of
ICRA.

e) Detailed break up of revenues (1) from HW sales, (2) service revenue. The
consistency level of these streams gives more comfort level to the analysts as these
streams gives better margin.

f) The following additional inputs are also required to be given:

a. Impact of the budget and various Govt. announcements on the organization.

b. Impact of Foreign exchange fluctuation (INR depreciation against USD).

c. Bank limit utilization.

d. Quality of the investments & assets.

e. Return on various investments & surpluses.

f. Impact of any new project/investment in projections and the justification of the

same.

g. Any fresh borrowings, reasons and the utilization of the same.

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The projections are prepared by the finance section based on data available like
business plan etc and finalized after discussion with Mr. Sandeep Kanwar, CFO. Since
projections depend on various factors like actuals as on that date, market conditions,
Govt. policies, management perceptions etc., we cannot make a process for preparing
projections. But for the reference purpose one can refer to the previous year workings
[hard copies is kept in the ICRA file and the soft copy is maintained in Alok?s PC
(F:\user\alok\icra].

Appraisal of the Business Segments: we need to give input / documents /information

on following segments to substantiate our financial data:

- Market of the products & market share of the company. This is to be supported by
various survey studies/ reports.

- Production capacity, utilization, modernization plan of plant etc.

- Manpower: breakup as per skill, qualification, experience etc. to know the quality
of manpower. Details of employee turnover rate, ESOP & others schemes like PSS etc.

- Benefit from Quality programme

- Details of tax benefits.

- Write up on Corporate governance

- Details of new subsidiaries in business areas

Discussion with all the Department Heads - The analysts meets all the department
heads and the division heads for detailed discussion to clarify and to take input on any
query and to understand that area in macro and micro point of view. Any queries left on
answered at the time of the discussion has to be obtained form the concerned persons
and delivered to the analysts.

After all the above-mentioned discussions, analysts list down the area where they have
concerns/need more clarity & comfort. Those are to be discussed with the CEO of the
Company.
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Discussion with the higher management - A meeting is arranged with CEO with the
head of rating agency . One should get a list of expected questionnaire form the analysts
and appraise CEO before the meeting. Here the focuses of analysts are usually on the
broader view of the organizations business prospective, future business trend, the
industry scenario, and strength & weakness of the company vis- is to the competitors
etc.

This proposal is appraised by the committee of ICRA and based on assessment rating is
assigned. This is communicated through a letter to the Company. The Company has right
to accept/reject the rating. A Board resolution is to be passed authorizing the some
officials who can accept the rating on behalf of the company.

PROCESS FOR PLACEMENT OF COMMERCIAL PAPER

Commercial Paper (CP) is an effective tool for reduction of interest cost for any
corporate. By using CP instrument, corporate is in a position to do interest arbitrage by
replacing high cost funds with lower cost CP. CP is freely transferable, the banks,
financial institutions and other holders of short term funds are able to easily invest their
short-term surplus funds in this highly liquid instrument at attractive rates of return.

The pre-requisite for issuance of the commercial paper is to have the instrument rated by
any RBI approved credit rating agency. We have A1+ credit rating, which indicates
highest safety from ICRA for placement of Commercial Paper up to Rs. 75 Crores.

The process of issuing the CP is as below:

 Negotiation with the banks directly or through the brokers.

 Documentation for placement of commercial paper
 Placement of the commercial paper, fund raising and the fund utilization?
 Repayment of CP.
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Negotiation with the banks directly or through the brokers.

We are required to approach the bankers directly or through the brokers when we decide
to place the commercial papers. As the CP interest rate is linked to call money market,
the quotes are usually available 2-3 days before the placement of CP. After the deal is
confirmed the banker/broker will give a confirmation by fax (copy enclosed).

Documentation for placement of commercial paper

The documents required for the placement of commercial paper are as mentioned
below:
1) Letter of Intent.
2) Master Creation form.
3) Corporate Action for.
4) Deal confirmation note.
5) Letter of offer.
6) Letter from SBI for placement of CP.
7) Limit Earmarking from lead bank.
8) Credit rating copy.
9) Stamped jumbo CP.
10) Eligibility confirmation letter to IPA.
11) Transfer letter for transfer of funds to normal a/c.
12) Authority letter for collection of high value cheque (if deal done through broker)
RBI Reporting letter.
14) CP redemption to IPA (if redemption is taking place on same date.
15) Board resolution for placement of Commercial paper.
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16) Letter to NSDL.

Activities before placement of commercial Paper.

1) 1) A board resolution authorizing the placement of commercial paper stating

the authorized signatories is passed by the board of director in their meeting.
This remains valid until there is any change in the issue size or the authorized
signatories. This resolution also authorizes opening of CP Allotment a/c and
CP redemption a/c.

2) 2) The IPA Agreement (Issuing & Paying Agent Agreement) is signed with
IPA Agent, which can be a schedule bank. We have appointed Standard
Chartered Bank as our IPA agent. The IPA Agreement is an annual agreement
and needs to be renewed every year.

3) 3) A CP allotment A/c and CP redemption A/c is opened with IPA. The funds
received from issue of CP are first credited to CP allotment account and then
transferred to CC a/c. For payment of CP are funds are transferred to CP
redemption a/c from the Cash Credit Account.

4) 4) Credit Rating for commercial paper is obtained from credit rating agency.
This is an annual rating subject to review by the credit rating agency in the
interim if required. Currently ICRA has rated our commercial paper size of
Rs 75 Crore as A1+ indicating the highest safety. The CP Market is active for
A1+ Paper only which get the best rate in the market depending upon the
company and industry profile.

5) 5) We have appointed Alan kit Assignments Limited as Registrar for

electronic issue of CP.
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Charges currently effective in issuing commercial paper

1) 1) IPA charges? 0.10% per annum of the issue amount subject to maximum
20,000
2) 2) NSDL charges? Rs 10000/- per annum
3) 3) Registrar Charges? Rs 2500/- per issue.
4) 4) Broker Charges? 0.05% of the issued amount if investor is arranged through
him. If the Investing bank is arranged by us then the brokerage is Rs 5000/=
5) 5) CP Stamping charges? 0.05% p.a. of issued amount plus agent commission.

Process of placement of Commercial Paper assuming .V. as the value date

Date Process
V- 4 days 1) 1) Credit rating letter from ICRA is obtained for issue of CP.
The rating letter is valid for 3 months.

2) 2) NOC letter is obtained from the lead bank (SBI) for issue
of CP. The CP is issued against the earmarking of consortium
limits. The request to lead bank should contain the proposed
earmarking of these limits. The NOC is valid for 15 days
V-4 days The jumbo CP is stamped in Tis Hazari Courts. The unsigned jumbo CP
is valid for six months.
V-4 days The deal is conformed with the investor and the deal confirmation note
is obtained form the investor stating the following:

1) 1) Issue size

2) 2) Discounted value. This needs to be checked at our end.

3) 3) Tenor

4) 4) Investor DP ID and Client ID

V-3 days 1) 1) Letter of intent for issuance of CP is sent to NSDL Mumbai
requesting for activation of ISIN NO. Wherein the CP units in demat
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form are created.

2) 2) The ISIN NO is obtained by the day end.
3) 3) The master creation form, Corporate Action Form & One page
summary of issue details is to be sent to NSDL
V-2 days The following documents are sent to IPA against which the IPA issues a
IPA Certificate. The IPA confirms through IPA certificate that all the
documents and necessary conditions to issue of CP are in order.
1) 1) Letter of Offer.
2) 2) Deal confirmation note
3) 3) Eligibility confirmation letter to IPA
4) 4) Stamped Jumbo CP
5) 5) Copy of Credit rating letter.
6) 6) Funds transfer letter for transferring funds from CP allotment
account to the cash credit account.
7) 7) Board resolution if the CP is issued for the first time.
8) 8) Letter from NSDL allotting ISIN NO.
9) 9) NOC from the lead bank.

V-1 day. 1) 1) The IPA issues IPA certificate & signature confirmation
certificate. This has to be faxed to NSDL & registrar.
Confirmation from the registrar is obtained for receipt of fax and
uploading of data in NSDL.
V 1 day Broker collects the following documents form us to present them to
investor:-
1) 1) Letter of Offer.
2) 2) Deal confirmation note
3) 3) Copy of Credit rating letter.
4) 4) NOC from the lead bank
5) 5) IPA Certificate and the signature verification letter
6) 6) Authority letter to broker for collecting the high value cheque
on value date from the investor on our behalf.
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V day1 The cheque is collected by the broker and deposited with IPA agent. The
cheque should be deposited within the high value clearing time. The
funds are first credited to the CP Allotments a/c and then transferred to
the CC account.
V day The RBI reporting is sent to the IPA agent. This should reach to the IPA
within V+1 day so that IPA can report it to RBI. The time limit for
reporting to RBI is V+3 days.

Process of CP redemption

1) 1) Before the due date of redemption, it is decided whether to replace the CP

maturing with a fresh CP or not.
2) 2) The cash credit account is funded for transfer of amount to CP redemption
a/c for redemption of CP
3) 3) A fund transfer letter is send to the IPA agent for transfer of funds.
4) 4) If the CP redemption proceeds are to be funded through the issue of fresh
CP, the process of CP issue mentioned above is followed.

Caution - The CP must be paid on the due date. It should be ensured that funds are
available with the IPA. If the CP payment is not honored, it affects the reputation of the
company in the market, & it will be difficult to arrange funds from the market in future.

FOREX MANAGEMENT

The forex management- The objective of foreign exchange management is to protect

our Imports Liabilities against fluctuation in the foreign currency and keep cost low.

This activity is very important for our organization since our imports are around USD
120-150 million p.a.?
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We do the following activities to manage our forex exposure

A) Forex rate updating

B) Forex Sheet (Report consolidating the liability for next 3 months).
C) Forex risk hedging through Forward cover and Dollar/Rupee option booking
D) Circulation of prevailing rate to Marketing

The above processes are described in detail:

Forex rate updation

At the time of accounting for any foreign currency transaction, the system picks up the
rate available in the system. But in case of export transactions, it has been agreed to
punch the rates at the time of entering the transactions separately without taking the
system rates. There are three types of rate maintained in the system.

M- Import rate
B- Average rate of imports & Exports
G- Export rate

We update the M rate twice a week i.e. on Tuesday & Friday. For this we obtain the Bill
selling/buying rates except USD/INR rate from State Bank of India treasury to update
into our system. The USD rate is taken as Closing inter bank rate for the day + 7 paisa.
The interbank closing rate is ascertained from the Telerate terminal .This is the effective
rate at which our day to day payments take place.

At the month end all the three rates are to be updated in the similar manner except
manner in which USD/INR is ascertained. The certificate of closing interbank rate is
obtained from the bank.
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Forex Sheet

The forex sheet shows the consolidated import liability and the forward cover taken for
the same. This is compiled for the liabilities of the current month and next two months.

The following liabilities are considered for NMO/PMO and Frontline division. We also?
Include the forex liability of Office Automation division (HCL Infinet) while compiling
the forex sheet:

1. LC based liabilities? Obtained from MMS?

2. Confirmed DA cases - Obtained from MMS
3. Shipment based liabilities - Obtained from MMS
4. PO based liabilities? Given by the procurement for the major suppliers depending
the amount of orders placed.

This also reflects the amount of cover taken for the respective month.

This is updated as soon as any forward cover is booked.

A copy of the report is attached.

Note: Other Divisions (OA, FLD, PD & Infinet) manage operational modalities on their
own. We advise them on regular intervals on forex booking.

Booking of Forward Cover

Forward Cover - A forward contract is simply an agreement to buy or sell foreign
exchange at a stipulated rate at a specified point of time in the future. It is a contract
calling for a settlement beyond a spot rate. A forward contract locks the company to a
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particular rate at which the contract would be performed with no relation to the existing
rate. Forward contracts are usually available for a period up to 12 months and forward
premiums governed by the demand & supply, which provides the corporate with the
arbitrage opportunities.

We take forward cover for a certain percentage of our liability to keep our-shelves
hedged against the short-term market fluctuations. For the $ liability we decide the
extent of cover a) depending upon the market condition/trend, b) advise of our forex
consultants, Trend etc. c) advise of our higher management.
As a matter of policy, we usually cover 25% to 30%. Of the USD liability for the month
& 15% to 20% of the liability for the next month irrespective of the prevailing rate. We
also have to take immediate action if there is major fluctuation in the market.

Cover for confirmed/crystallized liability

The instruction has to be given by way of a letter to the banker signed by the authorized
signatories. The letter must contain the following details:

i) Bill value

ii) Amount (including the interest)

iii) LC/bank reference number

iv) Due date

v) Suppliers name &

vi) Instruction to book the forward cover

Once the letter is faxed to the banker one has to discuss with the banker for the current
prevailing rate, negotiate if required for the margins etc. and give a verbal confirmation
to book the forward cover.
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The forward cover rate comprises of the following:

i) Inter bank spot

ii) Forward premia for the period

iii) The bankers margin

Once the cover is booked, the original letter must be send to the banker. The banker will
send across a contract copy, which has to be signed and return back after keeping a copy
of the same.

Note: booking is done in the branch where the liability lies except in HDFC, ICICI, SBI
& Standard Chartered Bank. These are booked in Delhi for Chennai Branch Exposure
because branches are online & data are communicated between the branches on online
basis.

Purchased Order based liability

The forward cover booking process is the same as above. As the liability is not
crystallized we need to provide the banker the amount of liability, the date range when
the liability is tentatively falling due and the proof for the under lying transaction.

Caution - The entire amount covered must be utilized during the option period given
above. If it is not utilized then we are required to cancel on the contract on the due date
where we may suffer a loss. Therefore, it is advised that book maximum upto 50% to
60% of the total PO based liability in a particular bank.

Booking of Dollar/Rupee option or other currency derivatives

The currency risk may be hedged through Currency options like dollar/rupee option. The
bank treasury works out a dollar/rupee option levels. The option structure is reviewed. If
the structure is attractive depending upon the market conditions, the transaction is closed
telephonically.
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The option structure should be more beneficial vis-à-vis hedging through forward covers
and is usually optimal when the currency markets are volatile.

After the deal is closed, the bank sends a deal confirmation note, which is to be signed
by the authorised signatories and returned back to the bank.

Note: As soon as the forward cover/ option is taken, it must be updated in the forex
report file.
Circulation of prevailing rate to Marketing Deptt.
The import contents in our PCs and servers are higher than 50% and our major imports
are in US $. As indicated by procurement, the payment terms for PC purchases and Sun
servers are 75 days and 45 days respectively. As rupee is generally depreciating against
the dollar, the material purchased and accounted for may be at lower rate, while the
payment will take place at higher rate irrespective of the fact that whether the forward
cover is booked or not.

Therefore, the US $ rate is circulated to marketing department, by considering the

prevailing market rate + premia for 75/45 days so as to make necessary adjustment while
giving the quotes to the customers. This rate is circulated on or before 30th of every
month for the succeeding month.

However based on the market view and the Rupee movement, we may revise the rates in
the interim.

The rate is calculated as below:

a) Average of last six days bill selling rate, add

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b) Forward premia for 75/45 days

LEASE FINANCE

This is one of the ways of financing. Assets are taken on lease rather than buying it.
Outflow are scattered over a period of time. The rent payments become revenue
expenditure rather than capitalization of assets in books.

Lease financing enables for renting the services of an asset rather than buying it. It is a
contract whereby the owner of asset [the lesser] grants to another party. [The lessee] the
exclusive right to use the asset, usually for agreed period of time, in return for the
payment of rent.

Lease & Sale Back: Under the sale & lease back arrangement a firm sells the asset to a
leasing company and that leasing company virtually leases it back to the firm. Seller get
the funds on sale of assets and then continue to use the same assets by acquiring it on
lease from the financer who becomes the lesser and selling firm becomes the lessee.
Another parallel agreement entered with the Customer who intends to take assets on
rental basis & possession of asset is transferred to that company.

Steps:

1. Negotiation with the leasing

company
2. Documentation with leasing
company
3. Receipts of the sale proceeds.
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4. Payments of lease rentals.

5. Closure of the lease.
6. Pre-closure of the lease.

Negotiation with the leasing company

One must discuss with at least 4-5 leasing companies, while negotiating for the lease.
Depending upon the periodicity of the rental from the customer, one should ask for the
quote from the leasing company in the similar lines. For example, if we are going to
receive the rentals from the customer quarterly in arrears, we must ask the leasing
company to provide the quote for the lease rent payment on quarterly arrears basis. The
leasing company is finalized financing us at the lowest IRR, calculated on the basis of
their quotes.

The leases are usually for a period of 3-5 years. The rate depends on Depreciation rate
on the equipment, prevailing interest rates in the market and the rating of the company
etc.

While calculating the IRR the following must be considered:

a) Lease Management Fees

b) Rentals (quarterly/monthly, in advance/arrears)
c) Residual value
d) Security advance, if any.
Note: One must also see other terms & conditions like the interest variation clause etc.

Documentation with leasing company

`

We are required to sign the lease agreement with the leasing company. The list of the
documents required by the leasing companies be given hereunder:

i) Copy of the invoice along with the location of the assets.

ii) Board resolution
iii) Signed lease agreement
iv) Residual Value letter, if any.
v) Excise duty gate pass,
vi) Lorry receipt and delivery challan
vii) Installation note etc.

Receipts of the sale proceeds.

In case of the sale & lease back transactions the leasing company will disburse the sale
proceeds after deducting the following:

i) Lease management fee

ii) Security deposit, if any
iii) 1st month/quarter lease rental, if the terms are to pay the rental in advance.

After receiving the proceeds it must be informed to SMS and the banking section with
all the details.

Payments of lease rentals.

The lease rent has to be paid as per the agreement, on or before the due date. The lease
rental payment schedule must be provided to the banking section. The rentals are
calculated as per the agreement plus the lease tax, which depends upon the location of
the asset.
`

Caution- If the rental not paid by the due date, then the leasing companies will start
charging the penal rate of interest, which may be as high as 36% p.a.

Note: The rental payment process is covered by the banking section.

Closure of the lease

After the lease period is over the lease must be closed formally. The residual value must
be paid or adjusted with the security deposit, if any. If the leasing company is
comfortable, then request to raise the invoice in favour of the company. If the leasing
company does not agree with the above, then we may be required to buy back the assets
through a nominated company.

If possible, get a No Dues Certificate from the leasing company.

The process of accounting after the assets are purchased by the company is covered by
the MMS.

Pre-closure of the lease.

Investments

1. A tender copy is provided by the marketing/SI team

2. The feedback is provided by us on the financial parameters of the tender
`

3. The marketing/SI team provides the cost sheet of the project with period-wise
schedule of various expenditure heads.
4. A quotation sheet is prepared by us, followed by a cash flow and abstract Profit
and Loss

A specimen set of financial model is attached for the reference.

h. Role of Finance and Accounts department once the order is bagged by the
company:

1. Negotiations with banks for financing tie up for the project if required
2. Preparation of revised cash flows based on the actual costs incurred and revenues
received.
3. Monitoring of financial position of the project in terms of financing requirements.

Monthly Cash Budget

Monthly Cash Budget is prepared at the beginning of every month. This indicates the
requirements of funds are to run the day to day operations of the company for next one
month. Normally a substantial portion of Cash Budget reflects Materials related
requirements & balances other expenses like Administration, Staff, Regional
Remittances & Local Purchase, Sales Commission EMD etc. A very detailed working is
`

made to compile this report. This report helps to monitor the usage of funds and
analysis of actual expenditure on the budget.

This consists of following information: -

1. The Materials & Custom Duty Requirement

The materials related cash flow requirements is provided by the Procurement

Department. The Procurement starts compiles requirement on the basis of Business
segments wise Billing Plan [SSO, DSO, and FL], which is decided by the Management
Council Meeting, held at the start of every month. With the help of Billing Plan, the
procurement works out actual material requirements for each Business segments wise. A
detailed calculation is made to find out cost of materials by doing reversal working. The
past sales trend of each business segments gives an idea of their products wise sales.
The percentage of product wise sales would be fixed on basis of above trend & requisite
materials would get procured accordingly after considering opening balance of each
product.

The procurement provides billing figures, Materials to be procured during that month,
Advance payment to supplier & Custom Duty requirement for both NMO & PMO.

2. Committed Liability Payments

Committed liabilities are to be discharged on due date without fail, which includes all
DALC Liability, DA Cases which mainly comprises of HP. Intel & Other suppliers
liability if any & Post Dated Cheque Liability. Bank wise, Due date wise & Amount
`

Payable on due date is provided by PMO & MM section. This would help us to make
funds availability in respective bank on or before due date.

1. Vendor Liability

This is based on the system liability as on cut off date. In other words this indicates the
liability against materials received in Plant for which GR made. Further Credit period is
added on GR Date as defined in Purchase Order to derive the due dates. Since DALC,
PDC & Advance payment liability is considered in under the head “Committed Liability
Payments” [mentioned above], this is not cash flow under this head.

4. Local Purchase, EMD, Octroi & Sales Commission

The SMS section provides this information. This is complied on the basis of
information received from all the Regions. Local purchase liability is against the
materials procured locally at Region to meet out the Customer order requirement. EMD
is paid normally Tender is submitted against any Government order. Octroi is an entry
tax levied by the

Municipal Corporation in some states. Sales commission is payable on achievement of

sales target.

5. Interest & Bank Charges. [Interest on Cash Credit]

The interest on Cash Credit utilization is payable on quarterly basis. A provision is made
on the basis of daily physical balances & the same is considered for cash flow purpose.
Bank Charges is based on the past trend, which broadly includes Bank Guarantee
Charges, L C Opening & Amendment Charges, Processing Charges & Penal interest
charges etc.
`

6. Lease Rental Payments

This is based on the various lease rental agreements entered with leasing companies &
the date wise payment schedule is complied by banking section.

These payments are made on due date with out fail, as any delay of these payments
would attract heavy penal interest.

7. Administrative Expenses

The Administrative expenses is comprises of Office Rent, Electricity, Telephones, Repair

& Maintenance Expense, Dispatch, Travels, CLA, Staff welfare & other miscellaneous
expenses etc. This is provided by the Overhead section & complied on the basis of past
trend and any anticipated liability.

8. Staff Compensation

Staff compensation is provided by the Overhead Section is compiled on the basis of past
trend or any anticipated payment during coming month. This includes Salaries, Income
Tax, Provident Fund & ESI etc.

9. Regional Remittance & Foreign Travels

Regional remittances are sent to take care of day to day operational expenses at Regional
offices as per budgets compiled at HO at the commencement of the year. Foreign
Travels expenses are provided based on the input received from respective PSO
Department.
`

10. Sales Tax

The respective State Government as prescribed by the Sales Tax Act levies sales tax & is
payable in the following month on basis of sales affected in immediately preceding
month.

11. Capex

Capital expenditure includes all hard furnishing expenditure payable to employee &
other expenses to buy any capital related items.

12. Royalty

A good amount of outflow goes towards Royalty payments, which is payable in the
second month of the immediately preceding quarter. This based on the number of
machines dispatched in the previous quarter & this would help us to plan in advance.
The Royalty computation is prepared by MMS section & paid to Micro Soft thru State
Bank of Saurashtra, New Delhi.

How to compile Cash Budget?

A mail is sent to NMO Procurement, PMO Accounts & All Sectional heads in
accounts department with a request to provide their inputs on monthly cash flow
requirement for the following month by 25th of every month.

On receipt of all information from respective section, a careful scrutiny & study is
done.
`

A comparison is done with previous month cash flow requirement & clarification is
obtained wherever abnormal figures are reported.

All the supporting documents are serially numbered as per Date wise Cash Outflow
Sheet & filed in a folder.

On the outcome of discussion, changes if any, is incorporated in the respective

sheet.

The final set of complete copy is sent to CHAIRMAN, one copy is retained as office
copy .

Cash Projections would help us in following way to make better planning:

Cash Projections would helps the management to know the cash required for
operations at the start of the month.

Revenue targets can be fixed with the help of Cash Budget.

It gives clear-cut visibility on all Committed Liability Payments like DALC, Post
Dated Checks, DA Bills etc., to avoid any default & save the corporate image.

Statutory payments like Income Tax, Sales Tax, PF, EPF and Other tax liabilities
payment can be effected as per stipulated time frame to avoid heavy penalties.

A good amount of outflow goes towards Royalty payments, as per the credit term
agreed with the Vendor [normally falls due in 3rd weekend of the month. Projections
would help us to plan in advance.
`

Local Purchase is depends upon liability report sent by Region. Materials

procured locally at Region would get reflected in this report.

Other Expenses like Administration, Staff Compensation, Bank charges are

depends upon past trends.

Regional remittances are sent to take care of day to day operational expenses at
Regional offices as per budgets.

Benefits from Daily Cash Reports:

Daily Cash Flow reports reflects both inflows & expense head wise outflows
incurred for the previous day as well as month to date.

Corporate inflows like WCDL Drawn down from Bank, Commercial Papers
Placed, FCNR [B] & NCDs and outflows there of are reflected separately to have
better focus.

It also indicates what is actual expenditure against planned at the start of month.

It helps to prioritize payment for critical activities etc.

To take borrowings in case of deficit of funds.

Make investment in case of surplus funds.

Shortfalls:

As we cannot predict exactly inflows for the following day, it would be very
difficult to plan in advance.
`

Payment for unplanned expenditure would impact seriously other planned

expenditure.

Import Sight Bills are paid on receipt of actual documents at Bank. It is practically
very difficult to predict the dates & requisite fund to effect this kind of payment.
Any major payment would seriously impact the cash flow. Further delay would
result in loosing credit worthiness of the company in the international market.

Any wrong reporting in committed liability payment would also adversely impacts
the cash flow.

Since there are no fixed due dates for non-commitment payment, these get
accumulated and keep pressure on cash flows.

Daily Cash Flow Report

Cash Flow is broadly divided into 4 reports:

1. Bank Position

2. Funds Position

3. Date wise fund outflow report.

4. Cash Position and Expected Payments

1. Bank Position

Bank Position Sheet reflects bank wise availability of funds after considering all inflows
and outflows of funds. Finance section provides Drawing Powers of banks & changes if
 `

any are also intimated time to time, to banking section & the same is considered in the
report. Bank wise WCDL utilization level also incorporated in this report.

2. Fund Position

Fund Position reflects Collection's and Expenditure. It is a summary of Bank Position

(2) and Date wise fund outflow (4). In fund position sheet we can see total inflow of
funds, outflow of funds and availability of funds as on date.

3 Date wise Fund Outflow Report

This report shows head wise & date wise outflow of funds and balance projected
outflow of funds for rest of the month.

4. Cash Position & Expected Payments.

This sheet shows collection for the day and head wise bare minimum requirement of
funds for next two days.

Steps for making Bank Position on daily basis: -

Replace bank wise opening balance with closing balance of previous day. (Copy the
closing balance excluding grand total column, E.Cls Bal row, Paste the value at
opening balance row A.Opening Bal by using paste special.)
`

Delete all bank wise previous day's outflow and inflow figures appearing under head
Payments and Deposits.

In Manual Cash Flow Scroll Register, Do bank wise and Expense head wise total of
cheques issued for the previous day.

Plot bank wise total under payments head against cheques row.

All Bank to Bank transfers have to be reported against Transfer row under Payment
Head & Deposits Head. Transfer reported under payment head indicates outflow
of funds from respective bank & under deposit head indicates inflow of funds in
respective bank.

Fund transfer to PMO and Other Banks which are not forming, as a part of bank
position would be treated as fund outflow.

The Sum of all Debit Advice's received from banks have to be reported in respective
banks under Payments head against advice's row.

All the collection figures are reported by SMS section through e-mails on daily
basis. These inflows are plotted against respective bank under Deposit head.

These inflows are also to be plotted in bank wise inflow table being maintained at
right side of Bank Position's excel sheet. (Date wise inflow total and MTD
inflows are linked with a cell reference at Fund Position under Inflow Head
against Collection row.)

Daily physical balances are also plotted bank wise down below the bank position
sheet to find out the average cash credit utilization level.

Prepayment or restoration of WCDL to be reported as below:

`

 In case of prepayment of WCDL subtract the amount in bank position under

Drawing Power head and WCDL row in respective bank.

 In case of restoration of WCDL add the amount in bank position under Drawing
Power head and WCDL row in respective bank.

Date wise Outflow of Funds

Insert a row before previous day's outflow row and copy figures of previous day in
newly inserted row. Then delete figures from last row [newly inserted excluding
formula column] and also change the date.

From Cash flow Scroll register pickup expense wise outflow and plot the same
against respective expense heads.

Plot total of debit advises received from in respective expense heads. [e.g. DALC,
DA Cases, HP Cases etc ]

All funds transfers related to PMO to be plotted under PMO Funds Transfer
Column.

PMO sends daily cash flow report through e-mail. The total expense to be plotted
under PMO column in outflow sheet.
`

Deduct actual expense for the day from budgeted for the day (row). Expenses
which were not done for the day to be added with next day expenses. In case of

any expense head exceeds against budgeted figure than to the extend of amount
exceeded to be plotted in additional row.

Fund Position

In Fund Position the closing balance of the previous day will become opening
balance for the following day (Subtract minus dollar balance if any).

Change the linked reference cell no. To next cell no to get inflow for day. This cell
reference is linked with the date wise collection table in the bank position sheet.

The outflows in Fund Position sheet are linked with Date wise outflow sheet. The
Date wise outflow would get changed automatically as soon the inflow plotted at
Outflow sheet.

Erase previous day’s inflow and outflow figures incorporated directly against
Others head and Other/Corporate/WCDL head respectively. Plot new figures
if any in these place(Normally this cell indicates inflow & outflow related to
corporate transactions, Any increase & decrease in WCDL Level, Increase in cc
limits and other than operating inflows etc.)
Availability figures under NMO for the day excluding Dollar balance should tie up
with total availability of bank position and it is holds truth for PMO also.
`

Cash Position and Expected Payments

One more MIS report is being prepared, this indicates summary of inflows and
outflows also indicates corporate inflows and outflows with more details.

This report also reflects average CC utilization Lavel and Funds borrowed from
banks (i.e. WCDL utilization, FCNR (B) & Commercial Papers etc.)

Expected payments for next three days for NMO and PMO. Like committed
payments for DALC, PDC?s, DA bills, backlogs are considered.

Also indicates other critical & bare minimum required for next three days for
operations.

Other recoverable

This is a part of current asset schedule. In our books we have different recoverable
schedule like Sales tax, Excise tax & Custom Duty recoverable etc. All other
recoverable which are not covered in the above mentioned are covered under this
schedule. As this a common schedule, it has been suggested to circulate a copy of this
schedule at end of every month & also have it confirmed the same from the person
responsible.

Most of the figures reported under this schedule are linked with Income & Tax Deducted
at source. i.e. Interest Income on Bank TDR, LC margin money & Money held trust,
Interest on Investment etc. It is also suggested to obtain a detailed working sheet of
each component from the person concerned at the every month end. It should reflect
Total Income, TDS Components, Net of TDS & Amount receivable under other
recoverable. The income part should tie-up with Other Income Schedule & TDS part
with related TDS receivable schedule. For Person Responsible, please refer the schedule.
`

The Closing Balances of this schedule are grouped with Amount recoverable in cash or
in kind or for value to be received under schedule 11 of Loans & Advances in the
Published Result of the company

Accounting Aspects:

SAP Transaction Code:

1. If the any amount is recoverable.

GL Code GL Code

Debit Other Recoverable 64260 Dr

Credit to Respective Income Account Vendor Cr

2. On recovery of amount

GL Code GL Code

Debit to Bank where cheques deposited

Credit to Other Recoverable 64260 Cr

Lease Rental - Plant & Machinery & Vehicles

Lease financing enables the renting services of an asset rather than buying it. It is a
contract whereby the owner of asset [the lesser] grants to another party [the lessee] the
`

exclusive right to use the asset, usually for agreed period of time, in return for the
payment of rent.

Lease & Sale Back: This has been a very popular mode of leasing transactions. Under
the sale & lease back arrangement a firm sells an asset to a leasing company and leasing
company leases it back to the former. This enables the seller company to raise cash
inflow from the sales of asset and then continue the use of same assets by acquiring it on
lease from the purchaser who becomes the lessor and selling firm become the lessee.
Another parallel agreement entered with the Customer who intends to take the same
assets on rental basis & possession of asset is transferred to that company.

Finance section provides lease agreement, which contains Lessee's Name & address,
Lease Value, Lease Period, Mode of Payment, Frequency of payment, Repayment
Schedule etc. All the payments are effected as per the agreements.

All payments are made on or before due date of payment as per the agreement. Any
delay in payment attracts heavy penal interest & impact of the credit worthiness of the
company adversely. It is advised that all the payments should be made well in time.

Un-expired Lease rental amount on lease agreements have to be reported in notes to

accounts in the published results of the company.

Payment Process:
`

1. Prepare a Lease rental payment chart, which indicates due date of payments as per
the agreement.

2. Create liability document .

3. Prepare the cheque for the rental amount & ensure that it reaches leasing company
before three banks working from the due date to avoid delay & consequence penal
interest.

4. To get scroll & signature from authorized signatories.

5. Prepare a covering letter & dispatch the same to the Leasing Company.

6. Update monthly Lease Rental Payment Schedule.

7. Compute the prepaid amount at the month end & pass the requisite accounting
entries in the books of accounts.

8. The prepaid Documents have to be reversed in the following succeeding

month.

9. All the payments which falls due in 1st week of the following month should be
made in the last week of preceding month.

10. In case of any security deposit paid, the same is to be adjusted while making final
payment.

Daily Bank to Bank Fund Transfer

All major collections are pooled in two banks namely State Bank of Saurashtra &
Standard Chartered Bank on daily basis. These funds are transferred to different banks
on daily basis to meet out committed liability & other requirement arises in these banks.
In case of surplus funds, it is required to spread the same across all Cash Credit banks to
reduce the Cash Credit utilization level & to save the interest cost.
 `

Any delay or non-compliance on this may result in dishonor of cheque issued by the
company, which is a legal offence under the Banking, Public Financial Institutions and
Negotiable Instrument Laws. (Amendment) Act, 1988 as per section 138 to 143 under
the chapter XVII. The punishment prescribed for an offence under this Chapter is
imprisonment for a term, which may extend to one year or with fine, which may extend
to twice the amount of the cheque or with both.

The ripple effect on this could affect the image of the Company very adversely. This is
a time bound exercise & should be monitored very closely always to avoid such events.

In case of Cross Company

The accounting entry same as mentioned above, except the code, this need to be changed
depends upon the transactions. In case of two different company involved then, system
by default generate Cross Company docs in both company codes.

Investments in Mutual Funds

Currently we are making Investments in Mutual Funds whenever we have surplus

funds to derive the maximize returns. Operational surplus funds are deployed in
Overnight Liquid Funds, the same would get returns as per current market
conditions.

Procedure for Investment: -

The investment in Mutual Fund can be broadly divided into Operational Funds &
Corporate Funds.
`

Operational funds are generally made out of temporarily operational surplus funds &
invested for very short period is called Operational Funds. [eg. Out of surplus collection
after meeting all requisite expenditure]

The investment other than operational surpluses are invested for long-period are
Corporate Funds. [ eg. Business Consideration, Tax Refund, Any Specific Purpose]

Proposal for Investment is made by finance section as per investment guidelines and
duly approved by the committee of Investment, then forwarded to banking section for
execution.

1. To Fill the Mutual Fund application form as per Investment Proposal.

2. To Prepare cheques or to prepare funds transfer letter directly to Mutual Funds

Account.

3. To make accounting documents.

4. To enter the details in cash flow register.

5. To have the documents scrolled.

6. Have the document authorized.

7. To get the signature from the Authorized Signatory on the application form,
Cheques or Transfer Letter.

8. Fax the Fund transfer letter to Bank & get confirmation to ensure the receipt of the
same at their end.
`

9. Fax the Fund transfer letter/ copy of cheque and application form to the Fund
House & get confirmation to ensure the receipt of the same at their end.

10. Follow-up with bank to effect the transfer to the Mutual Fund Account, in case of
funds transfer letter.

11. Co-ordinate with the Broker & Mutual Fund house & to hand over Original
application form, Cheque and copy of funds transfer letter etc.

12. To get the statement of account from Mutual fund & check the details of investment
like date of investment, value, units & NAV etc.

13. Update the details in excel file for compiling report & analysis etc.

14. File the Copy of application, cheques, fund transfer letter & account statement.

Compliance

As per 372 A of the Indian Companies Act 1956, no loan or investment shall be made or
any guarantee or security be provided unless duly authorized by a Board Resolution
(and prior approval of public financial institutions, where any term loan is subsisting).

How to Calculate Profit & Loss on Disposal of Current Investment

In order to compute profit & loss on sale of Investment average method is adopted. Eg.
In case multiple folios for any given fund, it is necessary to find out the average Unit
Price. [ Let us assume that XYZ named folios were Purchased in various dates, in this
case to find out the average unit price.

Average Per Unit Price of XYZ Folio = Summation of value of all XYZ Folios/ Total
Units of XYZ Folios
`

[only outstanding amount & Units there of on the date of redemption have to be taken
into account for the above computation.]

On Partial or Full Redemption any of the XYZ folio, the profit or loss is the difference
between the actual Sale Unit Price Less Average Purchase Unit Price then multiplied by
the total units sold.

Review / Monitoring

The Closing Balances of the Investments is to be reported under schedule 6 of

Investments in the Published Result of the company. The Dividend Income & Profit on
disposal of Current Investment have to be reported under schedule 14 of Other Income
in the Published Result. The Diminution in value of Current Investment is to be
reported under schedule 17 of Administration, Selling, Distribution and Others.

A weekly report is complied to review the return on various investments made. This
report comprises of week-to-week fund wise performance, cumulative performance of
the fund, Fund wise corpus status, NAV statement & summary status on company as a
whole. This report states the performance of various funds on any given week or date.
In turn this would helps the management to take decision like switchover between funds
or redemption of any fund etc or any alternative mode of Investment etc.
`

Accounting Aspects:

SAP Transaction Code:

On making investment

1. GL Code GL Code

Investment - Others 60400 Dr

Credit to Respective Bank Account Bk Cd Cr

2. On receipt of Dividend (reinvest option)

Investment 60400 Dr

Income from Investments Dividend 71045 Cr

3. On Sale/maturity of Investment

Debit to respective bank

Loss on sale of Investment if any 86155

Profit on Sale of Investment if any 86155

Investment 60400 Cr
`

4. Diminution in value of Investment

Diminution in value of Current Investment 86154 Dr

Investment 60400 Cr

Capital gains

In order to compile advance tax computation a detailed excel sheet is comprises of

Name of the Fund, Date Investment, Purchase Value, Purchase NAV value, No of Units
Purchased, Dividend Units, Dividend Value, Redemption date, Sale Value, Sale Unit
Price, Profit or Loss on sale of Investment etc to be compiled. Basically line item wise
details is required for each investment made till the date of disposal investment for the
given period. This would help the taxation section in deciding whether the profit gained
is on short term or long term. This information is complied & forwarded to the taxation
as per the period defined by them on quarterly basis for tax computation.
`
`

DESKTOP MARKET SHARE

TOTAL MARKET SHARE-06 HCL

HP

IBM/LENOVO

ZENITH

OTHER
BRANDED
UNBRANDED
`

WORKING CAPITAL NEEDS

There are many factors that determine working capital needs of an enterprise:

NATURE OR CHARACTER OF BUSINESS: HCL Infosystems carry on the

activities related to computer systems. Though they are primarily an assembling firm
they also have manufacturing facilities in Chennai and Pondichery. This requires them to
keep a very sizeable amount in working capital.

SIZE OF BUSINESS/ SCALE OF OPERATIONS: HCL is the leader in its segment in

both consumer as well as commercial market share they have increased their share in the
consumer segment notably in the last two years. This they have achieved through retail
expansion. The scale of operation and the size it holds in the Indian IT market makes it a
must for them to hold their inventory and current asset at a huge level.
`

COMMERCIAL MARKET SHARE

20.00%
15.00%
10.00%
5.00%
0.00%
HCL HP IBM
COMPANY

CONSUMER MARKET SHARE

20.00%
15.00%
10.00%
5.00%
0.00%
HCL HP ZENITH
COMPANY

2006(9M) 2006 2005

RATE OF GROWTH OF BUSINESS: The rate of growth of sales indicates a need for
increase in the working capital requirements of the firm. As the firm is projected to
increase their sales by 73% from what it is on 2005. The firm is required to guard them
against the increasing requirements of the net current asset by way of efficient working
capital management. The sales and projected sales level projected determine the
investment in inventories and receivables.
`

HCL Infosystems Limited 2004 2005 2006 2007 2008

PROJECTED
GROSS SALES/INCOME FROM OPERATIONS I522.03 1967.37 2361 2833 3400

PRICE LEVEL CHANGES: Changes in the price level also affect the working capital
requirements. It was the reduced margins in the price of the raw materials that had
prompted them to go for bulk purchases thus making on additions to their net current
assets. They might have gone for this large-scale procurement for availing discounts and
anticipating a rise in prices, which would have meant that more funds are required to
maintain the same current assets.

WORKING CAPITAL POSITION

CURRENT ASSET –TOTAL ASSET

PARTICULARS 2006 2005 2004 2003 2002

CURRENT ASSETS 1543 1287 912 676 569
NET BLOCK 98 76 66 66 80
TOTAL ASSETS 1641 1363 978 742 649
CA/TA 0.94 0.94 0.93 0.91 0.88

The current asset %on total asset is the highest over the years. This increasing %of
current assets to the total assets at first might indicate a preference for liquidity in place
of profitability. But a look into the nature of the business carried on by HCL
Infosystems reveal the reason behind it. How far their preference to current assets has
affected the sales is shown below.
`

NET CURRENT ASSET-SALES

The sales has increased and the profits risen .But what is noteworthy here is that the firm
has reversed the trend of a decline in net current assets. Whether the change has worked
for the company has to be analyzed in the context of the growth in sales as compared to
the previous year. There has been a30%rise in sales or revenue generated this would
automatically suggest towards a very efficient working capital management were the
assets of the firm which are short term in nature has been utilized optimally in
connection to their fixed assets. That the firm has gone towards such a dramatic shift in
their working capital position might be because of the tremendous growth witnessed in
the domestic IT market. In this the hardware alone comprises a high growth . And in
this market HCL being the market leader they are expected to visualize the movements
in market and make the maximum out of it.

CURRENT ASSET-FIXED ASSET

PARTICULARS 2006 2005 2004 2003 2002

NET CA/ NET BLOCK 4.08:1 5.58:1 3.26:1 1.82:1 2.93:1

`

The ratio of the net current asset to the fixed ones is an indicator as to the liquidity
position of the firm. This ratio is the highest for the firm in the year as compared to the
preceding years.

There could be an argument as to whether the increased ratio of working capital to net
block is a conservative policy and whether it would be detrimental to the interest of the
company. Or whether it would have been proper if the company invested more into the
capital expenditure in the form of plant and machinery or invested in any other form that
would have got them an internal rate of return. What has to be kept in mind before
coming to a conclusion as to the policy of the company is the fact that the firm being
primarily into assembling, its investment in the fixed asset segment need not be high? A
look into the capacity utilization of the plant would reaffirm this point. It would be ideal
for the firm to continue in the same line and not have excessive investment in the fixed
asset as they can easily add on to this part if the need arise as their capital expenditure is
not more than 23.13crores so addition of an extra line of production isn’t going to cost
company much. The additions made to the net fixed assts for the past years show that
has been the policy followed by the company. The amounts spend on capital
expenditure for computer systems were Rs15.71 crores in 2006.

COMPUTER AND MICRO PROCESSOR BASED SYSTEMS

YEAR INSTALLED CAPACITY ACTUAL PRODUCTION

2006 1150000 581805

INDIA PC SHIPMENTS BY FORM FACTOR

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Year on year growth ( april 2005 - march 2006)

Consumer desktops 33%

Commercial desktops 15%
Desktop pc total 21%
Note books 168%

DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS

YEAR INSTALLED CAPACITY ACTUAL PRODUCTION

2006 250000 267326

That the fixed assets of the firm are being put to efficient use and the firm is trying for
optimum capacity utilization is something that can be easily deduced. Whether the
current assets or the working capital of the firm has anything to do with it is for us to
see. An increased production in normal circumstances means better raw material to
finished good conversion rate, i.e., the firm is taking less of time in the production
process and this happens when the current asset employed in relation with the fixed ones
are at optimum. The other notable feature here is that though the firm has added on to its
installed capacity in all three years they were still able to increase the capacity
utilization. That they have been able to do it shows that the more current assets,
especially inventory used in relation to the fixed assets, i.e., plant and machinery and
their management has only helped in increasing their utilization to the maxim.

CURRENT ASSET-CURRENT LIABILITY

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PARTICULARS 2006 2005 2004 2003 2002

CURRENT ASSETS 1543 1287 912 676 569
CURRENT LIABILITIES 1143 863 697 556 335
%CURRENT ASSET INCREASE 20.0 41.0 35.0 19.0
%CURRENT LIABILITY INCREASE 32.0 24.0 25.0 66.0

The Net Current Assets has been decreased by 6% and increase in Current Liability
has been only 8% over that of the previous year. This is an indication as to the expanding
operations of the firm. HCL has increased its current assets in order to meet the
increasing sales. The firm’s level of liquidity being high we need a check on whether it
affects the return on assets.

.
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RISK-RETURN ANALYSIS

Here ROI= EBIDT / Net Current Asset + Net Block

PARTICULARS 2006 2005 2004 2003 2002

Net CA+ Net BLOCK 498 500 281 186 314
EBIDT 396 308 238 137 48
RETURN ON INVESTMENT 80.0% 62.0% 85.0% 74.0% 15.0%

The scenario witnessed here is that the returns have been increased by the marked
growth in working capital and though a 80% return on investment is more than what it
was last year. But what has to be understood here is that the net current asset in 2003
was the lowest in all five years and that in 2005 the highest.

CURRENT ASSET SCENARIO

CURRENT ASSET 2006 2005

INVENTORY 240.31 188.10
SUNDRY DEBTORS 511.26 369.92
CASH AND BANK ASSETS 145.29 146.32
OTHER CURRENT ASSETS 74.97 79.42
LOAN AND ADVANCES 37.87 32.08
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2006

INVENTORY

SUNDRY DEBTORS

CASH AND BANK

ASSETS
OTHER CURRENT
ASSETS
LOAN AND ADVANCES

2005

INVENTORY

SUNDRY DEBTORS

CASH AND BANK

ASSETS
OTHER CURRENT
ASSETS
LOAN AND
ADVANCES

That inventory and debtors are the largest contributors to the current assets over the three
years. That is understandable for a manufacturing concern given the sizeable inventory it
should have at its disposal and the major portion of the finished goods they have to sell
on credit. But while there is an increase in the value of all components of the Current
Assets the proportion of inventory, debtors and loans and advances to the current assets
have declined. Whether this proportionate decline to current assets is as a result of
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reduced lead time and better operating cycle This might directly implicate better
receivables management and inventory control. The other notable feature is that cash
and bank balances as a %of current assets are on a rise. Now this ensures high liquidity
and funds, which are easily realizable when the need arises.

COMPONENT INCREASE OVER THE YEARS

CURRENT ASSET 2006 2005

INVENTORY 469.61 349.39
SUNDRY DEBTORS 705.30 532.39
CASH AND BANK ASSETS 214.92 251.27
OTHER CURRENT ASSETS 97.25 108.12
LOAN AND ADVANCES 55.49 45.69

The above table is a clear indicator as to the increasing liquidity of the firm. The cash
balances and other current assets (prepaid expenses) along with loans and advances have
increased to a marked extend as compared to last year. This increase indicates an
improvement in the solvency position of the firm, as these assets are more liquid and
easily realizable than inventory. Is having such a huge increase in unproductive sources
such as cash and bank balances thus hampering the profitability position of the firm is
the question.

LIQUIDITY RATIOS

RATIO 2006 2005 2004 2003 2002

CURRENT RATIO 1.35 1.49 1.31 1.22 1.70
QUICK RATIO 0.93 1.08 0.90 0.78
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The current ratio after a decline in 2003 has increased which means an increase in
liquidity and solvency position of the firm. This reaffirms what had been stated earlier
firm’s current assets are at an all time high. This they might have done to cover the risk
involved in their expanding operations. The firm’s ability to meet its financial
obligations in the immediate future is the best for three years The present ratio of 1.35:1
could be claimed to be optimal as the desired ratio of the company is about is about
1.33:1. But the higher ratio might also be that a greater %of the firm’s resources are tied
in unproductive resources. But how far is the ratio successful in indicating the relative
liquidity of current assets and urgency of repayment of current liabilities and short-term
financial position of the firm has not been answered. Because when certain current
assets and assets have to be realized in a couple of weeks others might take months.

INVENTORY MANAGEMENT

COMPOSITION 2006 2005 % INC

RAW MATERIAL 63.49 77.94 -19.0
STORES AND SPARES 37.13 29.87 24.0
FINISHED GOODS 133.7 4 72.45 85.0
WORK IN PROGRESS 5.95 7.84 -24.0
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%INCREASE

100
80
60
40 %INCREASE
20
0
MATERIAL

FINISHED
-20

GOODS
-40
RAW

The increasing component of raw materials in inventory is due to the fact that the
company has gone for bulk purchases and has increased consumption due to a fall in
prices and reduced margins for the year. Another reason might be the increasing sales,
which might have induced them to purchase more in anticipation of a further increase in
the demand of the product. And the low composition of work in progress is
understandable as because of the nature of the business firm is involved in.

To the question as to whether the increasing costs in inventory are justified by

the returns from it the answer could be found in the HCL retail expansion. HCL caters to
the need of the two separate segments today are the institutions for which they
manufacture against orders and the other the retail segment of the market. They are more
into retail than earlier and at present more than 650 retail outlets branded with HCL
signages and more are in the pipeline. With retail segment the problem is that a wide
variety and magnitude of the components have to be kept at the disposal, as this segment
is very volatile and also vary in their needs. This also ensures availability of products to
meet the increasing sales.

The company in order to meet its raw material requirements could have gone for
frequent purchases, which would have resulted in lesser cash flows for the firm rather
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than the high expenditure involved when procuring it at bulk. The reason why the firm
has gone for these bulk purchases is because of the lower margins and the discounts it
availed because of procuring in bulk quantities.

A negative growth in WIP could be because of

1) Better and efficient conversion of raw materials to finished goods i.e. the time
taken to convert raw materials after procurement to the end product is
very minimum.
2) This also is due to capacity being not utilized at the optimum, which should
mean that more of goods are stagnant at the operations. But this is not the
scenario witnessed here as could be easily seen from the increased utilization of
plant capacity.

As to the work in progress time taken it is in normal circumstances very less.

They have more than 7 assembly units in which5000 machines work at a single time.
This increased automation has not only reduced the W.I.P. conversion time but also has
brought down the processing and labor charges to a significant extent.

ABC system
ABC system of inventory keeping is followed in the factories. Various items are
categorized into three different levels in the order of their importance. For e.g. items
such as memory, high capacity processors and royalty are placed in the ‘A’ category.

JIT
The relevance of JIT in HCL Infosystem can be questioned. This is because they procure
materials on the basis of projections made atleast two to three months before. Even at
the time of procurement they ensure that they procure much more than what actually is
required by the firm that is they hold significant amount of inventory as safety stock.
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This is done to counter the threat involved in default and accidental breakdowns. The
levels of safety stock usually vary according to the usage.

PEAK & OFF SEASONS

As they are in to the computer system business we cannot clearly demarcate their
business into peak and off-seasons as their sales fluctuate and vary. The working capital
utilization for inventories is made on the forecasts of demand three months prior to the
procurement.

CASH FLOWS IN INVENTORY PROCUREMENT

The cash flows also play an important role in the purchase of raw materials. In case they
are not able to realize their cash flows in receivables at the time when inventory is
required they pledge the existing stock of inventory as collateral security to the banks in
order to avail finance for the working capital management.

CONVERSION PERIODS

RAW MATERIAL

PARTICULARS 2006 2005

RAW MATERIAL CONSUMPTION 1210.77 980.48
RAW MATERIAL CNSUMPTION PER DAY 3.31 2.68
RAW MATERIAL INVENTORY 63.49 77.94
RAW MATERIAL HOLDING DAYS
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The raw material conversion period or the raw material holding cost has reduced
from28 to 26. This is despite an increase in its consumption. This indicates that the firm
is able to convert the raw material at its disposal to the work in progress at a lesser time
as compared to the last year. It would be to the benefit of the firm to reduce the
production process and increase the conversion rate still as the firm is required to meet
the increasing demand.

WORK IN PROGRESS

PARTICULARS 2006 2005

COST OF PRODUCTION 1978.51 1604.69
COST OF PRODUCTOION PER DAY 5.4 4.4
WORK IN PROGRESS INVENTORY 5.95 7.84
WIP HOLDING DAYS

The working progress holding time is important for a firm in the sense that it determines
the rate of time at which the production process will be complete or the finished goods
will be ready for disposal by the firm. The firm as it is in the process of assembling
should take the least possible time in conversion to finished goods unlike a hard core
manufacturing firm, as any firm would like to have its inventory in the work in progress
at the minimum. There would also be less of stock out costs as due to better conversion
rates the firm is able to meet the rise in demand situations. More the time it spends
lesser its efficiency would be in the market. Here the firm has been able to bring down
its WIP conversion periods.

FINISHED GOODS

PARTICULARS 2006 2005

COST OF GOODS SOLD 1919.11 1598.17
COST OF GOODS SOLD PER DAY 5.25 4.37
FINISHED GOODS INVENTORY 133.74 72.45
FINISHED GOODS INVENTORY HOLDING DAYS
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The time taken for the firm to realize its finished goods as sales has improved as
compared to last year. This growth in sales could be traced back to the growing domestic
IT market for the commercial as consumer segment in India. HCL has around 15%of the
market in desktop and it is the market leader at this segment. So it is only natural that
they are able to better their conversion rate of finished goods to sales.

OPERATING CYCLE

PARTICULARS 2005 2004 2003 2002

INVENTORY CONVERSION PERIOD 42 45 28 43
AVERAGE COLLECTION PERIOD 63 66 55 74
GROSS OPERATING CYCLE 105 111 83 117
AVERAGE PAYMENT PERIOD 23 17 16 21
OPERATING CYCLE 82 94 67 96

The operating cycle of the firm reveals the days within which the inventory procured
gets converted to sales or revenue for the firm. This time period is of importance to the
firm as a lag here could significantly affect the profitability, liquidity, credit terms and
the policies of the firm. All the firms would like to reduce it to such extend that their
cash inflows are timely enough to meet their obligations and support the operations. That
the firm has been able to reduce the ratio is in itself an achievement as they were having
huge stocks of inventory. But the reduction in the cycle could also be attributed to the
boom in the market and the growth it is expected to reach. This boom automatically
ensures the demand for the finished goods and thus helping it to garner sales for the
firm.

RAW MATERIAL CONSUMPTION

RAW MATERIALS CONSUMED 2006 2005

IMPORTED 920.07 708.40
INDIGENOUS 290.70 272.09
%IMPORTS 75.99 72.25
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A major chunk of the imports come from Korea and Thaiwan and is purchased in US$.
The value of imported and indigenous raw material consumed give a clear picture that if
there is a change in the EXIM policy of the government it is bound to affect the
company adversely as more than70%of their consumption is from imports. But this is a
scenario witnessed in the industry as a whole and though HCL is into expanding its
operations to Uttaranchal it in the present state is would be affected by a change in the
import duty structure.
A major chunk of their current assets are in the form of inventory and the change in
technology will invariably be a threat faced by the firm. The question of technology
applying here like say a certain device going say out of fashion or outdated. For e.g. TFT
monitors being in demand more than CRT. This scenario in all probability is not one,
which is applicable to the Indian market as might be with say foreign. As in India say a
product doesn’t co outdated as obsolescence here could always be countered by selling
the product at a lower cost

The output or the production in units has increased in both the products they are related
with. This increase has not been in the same proportion as compared to the year 2004.
This however doesn’t project any significant details as to whether the operating cycle
and the working capital management policy is efficient or not. It indicates towards better
capacity utilization by the firm. Thus we can conclude that the firm not only in terms of
value but units has justified the increase in raw material consumption.

CASH MANAGEMENT

The cash management system followed by the firm is mainly lock box system
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Cash Management System involves the following steps: -

• The branch offices of the company at various locations hold the collection of
cheques of the customers.
• Those cheques are either handed over to the CMS agencies or bank of the
particular location take charge of whole collection.
• These CMS agencies or bank send those cheques to the clearinghouse to make
them realized. These cheques can be local or outstation.
• The CMS agencies or bank send information to the central hub of the company
regarding realization/cheque bounced.
• The central hub passes on the realized funds to the company as per the agreed
arrangements.
• The CMS agencies or concerned bank provides the necessary MIS to the
company as per requirement.

In cash management the collect float taken for the cheques to be realized into cash is
irrelevant and non- interfering because banks such as Standard Chartered, HDFC and
CITI who give credit on the basis of these cheques after charging a very small amount.
These credits are given to immediately and the maximum time taken might be just a day.
The amount they charge is very low and this might cover the threat of the cheque sent in
by two or three customers bouncing. Even otherwise the time taken for the cheques to be
processed is instantaneous. Their Cash Management System is quite efficient.

CASH- CURRENT LIABILITY

PARTICULARS 2005 2004 2003

ABSOLUTE LIQUID RATIO 0.31:1 0.11:1 0.165:1

The absolute liquid ratio is the best for three years and the cash balances as to the
current liability has improved for the firm. Firm has large resources in cash and bank
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balances. While large resources in cash and bank balances may seem to affect the
revenue the firm could have earned by investing it elsewhere as maintenance of current
assets as cash and in near cash assets and marketable securities may increase the
liquidity position but not the revenue or profit earning capacity of the firm.

CURRENT- LIQUIDITY INDEX

PARTICULARS 2005 2004 2003

CURRENT LIQUIDITY INDEX 36.88 45.66 36.01

This computation of current liquidity index for the firm is acting as a contradiction of the
earlier mentioned statements on high liquidity. This percentage here is indicating that the
liquidity position of the firm has worsened as compared to last year. This decline is
primarily due to the fact that the cash flow from the operation has declined considerably
over that in the last year.

DIVIDEND POLICY-CASH

PARTICULARS 2005 2006

DIVIDEND POLICY% 310 400
SHIFT IN SALES 7548.77 11180.90
CASH BALANCE 190.64 218.38
CASH IN HAND 0.26 0.26
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Dividend %

400
300
200
Dividend %
100
0
1 2 3 4 5 6 7

The other notable feature in HCL statements has been the growing dividend policy of the
firm. The payment of dividend means a cash outflow. Thus cash position is an important
criterion at the time of paying dividends. There is a theory that greater the cash position
and the liquidity of the firm better it would be in a position and ability to pay dividends.
The firm has adopted a policy of disbursing the revenue earned as profits to the
shareholders as dividends as could be seen from the increasing % of dividends declared.

PARTICULARS 2006 2005 2004 2003 2002

PBIDT 396 308 238 137 48
EQUITY DIVIDEND% 135 103 68 32 8

This could mean two things for the firm the amount of cash retained in the business for
capital expenditure purposes are minimal or nil. But rather than investing more in plant
and machine which they can at any point in time by adding on a additional line if need
be they would like to optimize their utilization in fixed assets at present. This also means
that the percentage of cash in hand maintained by the firm as a source of liquidity could
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be reduced, i.e., the amount of idle cash in the business could be made to a level which
the firm feels optimum.
The firm feels that there is no point in retention of cash and it would be in the interest of
the firm as well as the shareholders to give away these profits as dividends. This would
automatically mean an increase in Earning Per Share (EPS)(Basic EPS has gone up
from 13.7 in 2005 % to 16.7% in 2006) It would prompt more of investors being
interested in the shares of the company, which could boost the purchase of the securities
and increase the Market Price Per Share thus being beneficial for the firm.
If the optimal working capital policy is one, which increases the shareholders wealth,
then the firm is following one. There are also various other factors such as variability in
sales that we have dealt with and cash flows that govern the policy.

CURRENT ASSETS

CASH

TRAVEL SANCTION CLAIMS:

Travel sanction claims deal with providing the employees with advance payments for
CO. tours and also to reimburse them for the balance amount on their return. The
employee going on tour fills the travel requisition forms with details of the expenses
involved.
The Co. has provided certain guidelines for settlement of travel sanction claims, which
are as follows: -

PROCESS FOR CLAIMING ADVANCE PAYMENTS FOR TOUR

PAYMENT.
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A form is filled in quadruplicate by the employee and is submitted to the account dept.
For getting tour advance duly approved by the head of the dept, at least 24 hours before
proceeding on tour.
 Green colored copy is for taking advance payment.
 White colored copy is for submission of tour claims on return .Pink colored copy
is for administration to book the tickets.
 Yellow colored copy is for regularizing attendance.
For exceptional cases of mode of travel prior approval of the concerned manager is
taken.

Before releasing the advance, it is checked whether any previous unsettled accounts are
pending against the employee or not. If this is the case, then the employee has to settle
all the previous advances and claims before making a fresh claim. . Accounts return all
the three copies except the green one to the employee. Then the accounts department for
taking advance clears the green form.

PROCESS OF PAYMENT OF TOUR EXPENSES

An employee has to submit the claim within 3 days from the return of the tour on the
white form, along with: -
 Departure/ Arrival date & time must be entered in tour claim.
 Travel ticket /air ticket / taxi bills
 Hotel bills for room rent and taxes or an undertaking of own arrangements.
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 Food bills (for travel plan TP5 &TP6 it is not applicable, they can claim on a flat
rate basis.)
 STD Bills or any other official expenses incurred during tour with proper bills
only.
 Any exception should be listed on the claim duly approved from director before
sending to accounts for clearance.
Travel claim should be as per travel rule.

PROCESS OF BOOKING OF LOCAL CONVEYANCE BILLS

Conveyance expenses must be submitted on weekly basis along

with the following details.

 Serial no.
 Date
 From
 To (customer name)
 Mode of conveyance
 Total amount

Employee has to fill customer contact time report and call report along with copy of
local conveyance voucher.

After getting approval from the concern manager employee can submit their
conveyance voucher with accounts dept. For payment / approval. Accounts dept.
Verifies the claim with their own customer contact time and call report, for clearance
of vouchers. If it is not as per their customer contact time and call report, it is then
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sent back to their reporting manager. Accounts clear the voucher after verification of
all details. HCL follows the following procedural path for updating the books: -

PATH: HRMS-PAYMENT RECEIPTS-PAYMENTS-CASH PAYMENT

VOUCHER-CREATE.

PROCESS OF CASH PAYMENT OF LOCAL CONVEYANCE

VOUCHER

1.) The process starts with the checking of the vouchers for the authencity of the
claims and whether they are applicable to the employee in his particular grade.
2.) In the system ,first the module ZUSR is opened.Then the path followed is :

 HRMS-PAYMENT/RECEIPTS-GENERAL VOUCHER.

Then on screen comes the document date and posting date. In which the date is typed on
which the voucher is being punched. The document type here is SP.It is for payments .It
is different for different items like vendors, supplier etc. it is so because the SAP no.,
which is generated, is accordingly different.then there is header text where the details of
the conveyance like from which date to which date it is being claimed. The transaction
being done in Indian rupees, currency rate is taken as INR.
1.) Then this customer is debited (put 40 infront of PST KY and in a/c code
enter the corresponding code given in the voucher)
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2.) Then simulate.

3.) Then information regarding amount, cost center are inputted also in text
the name of the claimant and conveyance details are input then personnel
code is also input.
4.) Now the cash account is credited amount, business area Corp, value date,
and in text name and details of the claimant is put.
5.) Now the sap document no. Generated is noted
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OVERSEAS TRAVEL

SHORT TRIPS:

If the employee travels overseas for a month then his expenses are covered under daily
allowances.these consists of three parts:
1. food, laundry,and miscellaneous (boarding)

2. hotel (lodging)

3. conveyance and incidentals (conveyance)

OTHER ENTITLEMENTS:

1. Conveyance from residence to airport and back

2.Airport tax wherever applicable

3.Conveyance from airport to hotel and back at overseas location

4.Visa processing charges

LONGER DURATION TRIPS:

If the duration of the tour is more than 30 days then the employee will be paid monthly
allowances, which is inclusive of accommodation, conveyance, miscellaneous expenses
as well as applicable taxes.
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TAX DEDUCTED AT SOURCE (TDS) COLLECTIONS

Tax deducted at source is the tax deducted on each monetary transaction held with the
vendor, customer or on the job trainees (temporary employees). According to the
prevalent slab rate, form 16 in the case of salary. Timely collection of TDS is quite
important else the government levies a penalty on the company.
TDS is usually deducted from the following three categories of people in the Co.
1.Temporary employees or OJT’s on salary
2.Suppliers
3.Customer

PROCESS OF COLLECTION OF TDS FROM TEMPORARY

EMPLOYEES

Temporary employees are also considered as vendors by the Co. this helps the Co. to
avoid costs of the facilities that the permanent employees of the co. avail.
The basic account entries for this are: -

STI PEND A/C—Dr.

To EMPLOYEE A/C-------Cr.
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And when TDS is cut according to the applicable slab rate on the employee’s salary. The
following book entry is passed.
EMPLOYEE A/C—Dr.
To TDS PAYABLE A/C------Cr.

When the salary is paid to the concerned employee, the following entry is passed.
EMPLOYEE A/C –Dr.
To BANK A/C ------Cr.

Now when the tax is deposited in the bank the following journal entry is made.

TDS PAYABLE A/C—Dr.

TO BANK A/C -------Cr.

The path followed in the system is: -

ZUSR-MODULE IS ACTIVATED.

HRMS-PAYMENT / RECEIPTS-GENERAL VOUCHER

Now the document date and the posting date are made. The narration about the kind of
entry being made is given. Document type here is SA. Now the stipend a/c is debited,
(PST ky-40) now the amount, the area, and narration is given and TDS is deducted
according to the rate applicable. Then the employee a/c is credited by the remaining
amount. The SAP document number is then generated automatically by the system and
noted down.
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PROCESS OF COLLECTION OF TDS FROM SUPPLIERS.

In general accounting practices if a firm is registered and getting supply of materials

from the vendor of more than Rs. 20,000/- per order, then the then the taxable amount is
deducted as per the income tax slab rate from the total amount and balance is to be paid
to the vendor.

The TDS amount is then deposited with the central government within 7 days of the next
month, non submittance of which is treated as a crime and the company can be penalized
for it. The process followed in the system is more or less similar as that for in the case of
temporary employees except the code changes.

PROCESS OF COLLECTION OF TDS FROM CUSTOMERS:

If the services are delivered to any big organization or dealer, then they also deduct tax
on the total amount of services or Annual Maintenance Contract (AMC) delivered as per
the prevalent slab rate in the market.when the customer has deducted the TDS, he
attaches the covering note giving complete details.the Co. then sees that the customer
has deducted the correct prevailing rate of TDS .for more accuracy the Co can fill the
certificate itself and give it to the customer, who provides his signature and all the
details.All TDS forms are then sent to HO for verification and then dispatched to the
concerned customers.
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PROCESS OF ISSUANCE OF EARNEST MONEY DEPOSITS

For competing in a tender bid, details of the tender are sent to the regional office. These
include Tender information, Order details, delivery information, installation information,
warranty details, payment terms, pricing and training details.

In HCL all tenders less than RS 100/- Lac can be sent directly by the sales executive to
the regional office but if greater then the aforesaid then the request form must be signed
by the RCEM.

EMD i.e. earnest money deposit is a percentage amount of the expected order value of
the tender to be submitted and which is returned after the closing of the order.

In tender information, information like customer name, customer profile, tender number,
tender date, tender due on, EOV (expected order value), whether EMD is requested in
the form of DD or BG, expected date of refund, expected time frame of closing the
order, whether any existing EMD is pending with the particular customer, whether any
B/R is pending with the customer, any S/W or N/W consultant is involved or not,
NIC/NICSI is involved or not, the major competitors, business of the customer with the
Co. in the last one year, Business lost to competitors, customer’s vendor /brand
preference, products to be quoted, local purchase items are mentioned.

Order details consider the following: whether technical and price are separate, i.e.
whether it is a 2 part bid, whether price bid would be opened after the technical bid,
when will the purchase order be placed, and details about distribution of different items
in L1, L2, L3 categories, vendors are placed in these categories according to the prices
quoted by them and also different items in the same category are distributed accordingly.

Delivery terms include late delivery clause, exact rates and details. whether it is a single
location delivery or multi location delivery, whether customer will give any road permit,
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whether any PDI (pre dispatch inspection)/acceptance testing is involved or not

Installation details include information about installation / integration period provided
after delivery, late delivery charges on late installation after delivery, and what would
happen in case of SNR (site not ready) Warranty details deal with for how many years is
the warranty, what will be the post warranty AMC rate required in the tender. warranty
support commitment if any, any penalty clause on delay in problem attending/resolution
during warranty period Payment terms deal with like what the payment terms are,
installation, submission of bank guarantee, security and performance deposit required,
bills receivable time etc.

Pricing clause includes the margin in the deal, information regarding requirement of
forms C/D for sales tax, whether the customer is eligible for duty exemption, whether
there is any requirement for insurance coverage beyond the delivery.
Training information includes whether any training is required or not, and in the former
case whether the customer would be paying for it, whether the balance of payment is
linked to it, etc.

PROCEDURE FOR RECORDING AND UPDATING THE EARNEST

MONEY DEPOSIT IN THE BOOKS OF ACCOUNTS.

PATH: ACCOUNTING-FINANCIAL ACCOUNTING- GENERAL LEDGER-

DOCUMENT ENTRY-GL POSTING
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After this it is required to type the document date, type, co. code and the posting date,
the currency (here it being Indian rupees, INR is typed), then reference document here
the narration of the text is typed.then the name is searched.now .now the amount,
business area, the due date of the tender and in the text narration the tender no., and
tender date is put.

PROCESS OF REFUND OF EMD FROM CUSTOMERS

A follow up with the sales team is done so as to know whether the tender is open or
closed. Then correspondence is initiated with the concerned departments through the
business entity manager for refund sanction note is raised, giving complete details, if the
customer through the BEM only has forfeited the EMD. Copies of the letter to higher
authorities are sent in case there is no response from the concerned departments.
Indemnity bond is given to the bank for closed case, in case of local pay order which are
still unpaid by the bank through the customer giving following reasons: -

1.) Pay order has been lost in transit.

2.) Being an old case &since it pertains to government department it is very difficult to
dig out the old records.

3.) The validity of the pay order has been lapsed.

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Then a letter is taken from the bank where the demand draft is payable stating that the
draft is still outstanding after getting the same is submitted to the issuing branch with an
indemnity bond on stamp paper of Rs 10/- giving any reason out of the above three and
then this is cancelled and credited to the Co. Sometimes it may so happen that the
customer has made the refund but the same has been locked wrongly to the bills
receivable or AMC or local billing etc., in this case details are taken from the customer ,
checked through the system and the same then being locked against the EMD.

PROCEDURE FOR UPDATING THE ENTRIES IN THE BOOKS.

PATH: ACCOUNTING-FINANCIAL ACCOUNTING-ACCOUNT RECEIVABLE-

DOCUMENT ENTRY-INCOMING PAYMENT.

When the EMD is punched it is done so in a special GL A/C, which has a code C: EMD,
O: OCTROI, M: AMC, and PST Ky. 09.and a customer card is maintained having
customer code, address, name, etc

When EMD is paid, the entry is:

Bank A/C------Dr.
To Customer A/C ------Cr.
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And when EMD is returned the entry is:

Customer A/C ------Dr.

To Bank A/C-----------Cr.

PROCESS OF INVOICES

Invoices are issued to the customers for the materials supplied to them and the invoice
amount includes the sales tax to be charged.

Invoices are of the following types: -

LOCAL BILLING INVOICE

Local billing is for networking, which a customer may desire along with a machine. This
and other uncoded items can only be locally procured through the process of sub
contract. (Suppose the customer gives the Co., an order, this will be through the main
contract now the networking part may further be given to a vendor; the contract between
the Co. and the vendor would be the sub-contract.). And it should not be for more than
10% of the total order value. If other wise so then approval of the head of the department
is required. The net profit is found out after deducting sales tax and local billing amount
of the vendors.
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PROCESS IN CASE OF LOCAL BILLING / PROCESS OF

PURCHASE FROM VENDORS

1.) Receipt of local billing request along with customer purchase order for
procurement of material duly approved by BEM/RCEM.Check the customer
purchase order and give the sanction for purchase of material as per
customer order to procurement department/commercial department.
2.) Quotations are invited from different vendors and one of them is selected on
the basis of quality and rate.
3.) Procurement department then issues the order to this vendor.
4.) After completion of work at the customer place, procurement department
gives the copy of the vendor bill, delivery challan copy duly signed by
customer as a mark of satisfaction.
5.) Accounts department will certify the vendor bill as per the purchase order
given to them and book the purchase and also deduct the TDS if applicable.

ANNUAL MAINTAINENACE CONTRACT (AMC) INVOICE

1.) SSO enters the information about the period of AMC, discount given,
TDS deducted by customer etc.,
2.) SSO also provides the contract no. In the PRA request form for issuance
of AMC invoice for the customer.
3.) Accounts then issues the AMC invoice as per the contract number in the
system.
4.) And on the basis of this invoice no. Accounts lock the payment against
the AMC invoice

The path followed by the System is:

`

LOGISTICS-SERVICE-MANAGEMENT CONTRACTS &

PLANNING CONTRACTS-DISPLAY.

Now the system asks for the contract no., then the AMC period is
checked and also the amount, for it billing plan is checked.

For billing purposes the PATH followed is:

LOGISTICS-SALES-DISTRIBUTION-BILLING-BILLING
DOCUMENT-CREATE.

Now the contract number is inputted along with the default data which
includes billing type (code is ZV in the SAP system for the AMC Invoice),
billing date i.e. the date of entry.then the above information is executed.

For raising the invoice the PATH followed is:

ACCOUNTING-FINANCIAL ACCOUNTING-ACCOUNTS RECEIVABLE-

DOCUMENT ENTRY-INCOMING PAYMENT.

Now the information asked on the screen is typed in, document being an AMC invoice
the doc. Type code is DZ for B/R it is DV and for rentals it is DB. it serves the purpose
of differentiating the different types of accounts receivable. in the reference document
the contract number is given and in header text the cheque no., then the next step is to go
to residual item screen, select all items, inactivate them, sort them with reference no.,
choose the relevant ones and send the not assigned amount to the partial payment screen
and save the document and to write down the sap document no. generated in the process.

PROCESS OF ANALYSIS OF MARGIN ON SALES ORDER

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for this month are filed the book entry is: -

TAX A/C—Dr.
To BANK A/C------Cr.

Now the sales invoice is raised with the customer to bill the customer on the basis of the
services provided to him. The amount the customer is asked to pay is equal to the
payment made by the Co. to the vendor plus the margin desired by the Co. the entry
made at this stage in the books of accounts is: -
CUSTOMER A/C—Dr. Here margin is defined as:

SALES PRICE-PURCHASE PRICE = MARGIN

When an order is received it consists of hardware as well as networking, i. e.,

installation, providing UPS, cable laying, providing accessory furniture, etc. THE
hardware part is billed at the plant itself and the networking part is billed at the regional
office. For networking, the Co. employs Vendors. The process of selecting the
appropriate vendor starts with the Co., inviting quotations from them. These quotations
are then compared for the rates quoted the quality and the reliability the vendor is going
to provide. Then the order is placed with the vendor selected to do the work at the site
place i.e., at the customer’s place. The Vendors does the work and gets a sign-off receipt
from the customer, which he submits at the co., As soon as the vendor is employed he is
issued a delivery challan and the following entry is made in the books of accounts.

PURCHASE A/C—Dr.
To VENDOR A/C------Cr.
If TDS (Tax Deducted at Source) is applicable while paying the vendor the following
entry is made alongside.

VENDOR A/C—Dr.
To TAX A/C--------Cr.
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And after payment to the vendor for his services, the book entry is: -

VENDOR A/C—Dr.
To BANK A/C------Cr.

And when during the next month, the tax returns

To SALES A/C--------Cr.

And after receipt of payment from the customer the book entry is:
BANK A/C—Dr.
To CUSTOMER A/C--------Cr.

Now the amount of margin the CO. desires varies with the order size. It is usually 15 %
of the total order value. But in case the order value of networking for the hardware part
is of a lesser amount and even if losses are to be incurred if the networking part is under-
taken then too it may be done so because the losses incurred on the networking part will
more or less be covered by the huge profits made in the hardware part of the deal.

Margin is usually calculated as a % of sales.(MARGIN/SALES)*100 = % OF

MARGIN ON SALES.

For calculating the margin on the hardware part the procedure is:

1.) A Daily Pickup Registration (DPR) register is maintained and entry of daily booking
of all customers’ order is done. With the entry in DPR the processing time starts.
2.) Then the quotation is prepared in the system as per the purchase order and handed
over to the Order Clearance Department.
3.) Then after the clearance, the complete set moves to New Installation Group (NIG)
for technical order clearance.
`

4.) W hen NIG approves the order moves to the business entity manager to evaluate the
margin on sales and get the order approved by the concerned manager.
5.) After the approval, the order moves to the accounts for clearance after that it goes
back to Order Clearance Department for clearing the order to the customer.
6.) Three sets of the finally cleared order are photocopied. One for New Installation
Department, second for Sales Executive who has booked the order and third copy for
the Business Entity Manager.

The process followed in the system is: -

LOGISTICS-SALES-QUOTATION-DISPLAY

From the purchase order value the system generates the quotation value. First the
program VA23 for quotation inquiry is started. Then the system asks for quotation
number and under header pricing and details of pricing.
Margin is calculated as follows:

SALES PRICE-BASIC PRICE- H/W WARRANTY-PROJECT MANAGEMENT

COST = MARGIN.

Here basic price includes office price +plant cost+manufacturing cost.

PROCESS OF REFUND OF ADVANCE TO CUSTOMER TOWARDS ADVANCE

CANCELLATION

If the customer is not satisfied with the quality of the products and services provided to
him by the Co. or if the vendor has not followed the terms and conditions of the
purchase order then the customer may cancel the order and the advance which he has
already paid needs to be refunded back to him
The normal procedure for refund of advances to the customer against order cancellation
is as follows:
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REGIONAL OFFICE SANCTION NOTE-HEAD OFFICE FOR APPROVAL-

HEAD OFFICE A/Cs FOR CLEARANCE – REFUND OF ADVANCE/EXCESS
PAYMENT TO CUSTOMER.

STEPS:

 The process begins with the regional office getting a request letter from
customer for order cancellation.

 The regional office then prepares a sanction note after verifying the
records from sales executives concerned.

 Then the sanction note is sent to the head office for approval.

 Then the approved sanction note is received back from the head office
duly numbered along with the refund of the cheque.

 The cheque is then sent to the customer along with the

Covering letter of the Co.
\

PROCESS OF MAKING OCTROI PAYMENTS:

Octroi payments are the tax levied by the govt. On the goods entering a particular
city or state. This is paid at the borders while crossing into a particular city or state. This
`

is paid at the borders while crossing into a particular state or city. The amount of the tax,
to be paid, depends upon the amount of the material entering the state.

Octroi payment made is of two types:

1.) Paid by the customer: -

It is when the customer makes the payment. The transporter calls the customer
at the border for clearance. The customer makes the payment and takes charge of the
delivery.

2.) Borne by the Co.: -

In this case the Co. bears the Octroi charges.

In some cases the Co. bears the Octroi charges on behalf of the customer who
repays the amount later. the book entry made is:

OCTROI TAX A/C –Dr.

To BANK A/C----------Cr.

And when the customer makes the payment the following entry is made: -

BANK A/C—Dr.
To CUSTOMER A/C----------Cr.

THE PROCEDURE OF MAKING OCTROI PAYMENT AT

STATE LEVEL IN HCL IS AS FOLLOWS: -
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The process starts with the finance dept. Getting a notice for Octroi payment from
the commercial / Logistic Dept. To pay Octroi on behalf of the customer or to be
paid by HCL as the case may be.
1.) Then an advance voucher is given, for the Octroi payment, to the transporter by
cash or cheque.
2.) If out location Octroi is payable then demand draft are sent to the respective
location.
3.) Then the original Octroi receipt is received along with complete order no. from
the transporter.
4.) The books of accounts are then checked regarding Octroi as to who will bear the
Octroi charges.
5.) If payable by customer as per customer order, accounts has to follow the
following process for updating of Octroi in the system.

PATH: ACCOUNTING-FINANCIAL ACCOUNTING- GENERAL LEDGER-

DOCUMENT ENTRY-POSTING OF THE TRANSACTION.

6.) Then the original Octroi slip is handed over to the sales executive for collection
of the payment from the customer.
7.) Then the cheques are received from the customers and updated in the system.
The path followed is:

ACCOUNTING-FINANCIAL ACCOUNTING-ACCOUNTS RECEIVABLE-

DOCUMENT ENTRY-INCOMING PAYMENT.

When the Octroi charges are payable by HCL as per customer purchase order, Accounts
Dept. Has to follow the following process for updating of Octroi.
`

1.) Receiving the original Octroi slip with complete details i.e., order number etc.
2.) The customer purchase order in the system is compared with HCL reference no.,
for Octroi payment.
3.) On receipt of the original Octroi slip, the following journal entry is passed.

OCTROI EXPENSE A/C—Dr.

To TRANSPORTER A/C-------Cr.

With the following path in the system:

ACCOUNTING-GENERAL ACCOUNTING – DOCUMENT ENTRY POSTING.

ANALYSIS OF TARGET Vs ACTUAL

Head Office issues an yearly budget to various regional offices so as to meet all day to
day expenses.the accounts head sees that the various expenses incurred are as per the
projects.he money is thus paid to the regional accounts head who allocates the amount to
various department heads under him. Various projects which different departments
undertake may have different expenses but it must be in limit.any +/- variation can be
looked upon by the HO. Proper monthly expense statement is then made & filed for
future purpose as and when require to

PATH FOR TARGET VS ACTUAL IN THE SYSTEM

PATH: ACCOUNTING-CONTROLLING/COST CENTRE-INFORMATION

SYSTEMS-CHOOSE REPORT-FURTHER REPORT-COST CENTRE
`

Then the system asks for the controlling area i.e. the group DSO/SSO/ACC for which
the comparison is to be made.the fiscal year and then the period find out the total cost of
a particular project. Also if the monthly budget exceeds in a particular month it can be
adjusted in the subsequent months but the total expenses made should not exceed the
yearly expense. It must be within limits. Proper vouchers are maintained for each head
and entered into the system for future reference.

The accounts department has to analyze the budget Vs actual report on monthly basis or
ortnightly basis &also to give physical report to business entity manager alongwith the
covering letter to control the expenses where negative variance is coming.

The expenses taken exclude salary, perks, incentive etc.now if expenses are greater then
that allotted then a sanction note has to be raised with the HO for the excess amount.
for which the comparison is to be made like from which date to which date. Then the
plan version, which in this case is plan Vs actual and lastly the cost center.

CONTROLLING OF FUNDS

All details as per budget amount are given to all the departments and a monthly report is
prepared by every department head showing all the details where they have allocated
what amount of money and if the funds exceed the budgeted amount then proper
decisions have to be taken for controlling of the funds.
`

PROCESS OF THE MEDICAL POLICY

The medical policy is a facility given to the employees of the organization whose gross
pay is more than RS. 6500/-. This covers self, spouse, dependent, children and parents.
For employees whose salary is under Rs. 6500/- there is the facility of ESI. The benefit,
which the employee gets under this policy, is one-month basic salary as “ Domiciliary”
and 15 months basic salary under “hospitalization”.

The employees get their medical claim from National Insurance company (NIC) & the
procedure is as follows: -

The employee writes his claim on the prescribed claim form, mentioning his employee
code, region code and location.this form should be submitted by 10th of each
month.doctor’s prescription must be attached for claims of medicines greater than Rs.
500/-. The maximum limit for spectacles is Rs. 750/- and Rs. 1000/- for dental treatment.
Reports are to be attached for claims of clinical tests irrespective of the bill amount. For
hospitalization claim all reports, documents and discharge summary should be
attached.separate claims should be submitted for domicilliary and hospitalization. Bills
are sent on 10 th of every month to head office accounts department for
reimbursement.employees will get medical reimbursement from head office with the
next month salary.
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PROCESS FOR DEDUCTION OF EMPLOYEE STATE INSURANCE

(ESI)

ESI is also deducted from an employee’s salary if his monthly salary is less than Rs.
6500/-. According to the labor act, the co. is bound to deduct ESI from the casual
employee salary and to deposit the same in the ESI a/c .It is deducted @ 1.75% of the
employees salary.
This has great advantage for the employees. If the employee or their dependent
fall sick, they can get themselves treated free of cost in any of the ESI hospitals .If the
hospital refers them to some other non- – ESI hospital then the money is refunded to
them.
Now, if the hospital suggests rest to the patient and as they don’t have the
facility of leave for greater than a day, therefore the ESI pays the employee ½ a month’s
salary for a month’s leave.
ESI also issues ESI cards, on the basis of which different facilities can be
availed off. The Co. has also to pay 4.5 % of the temporary employees’ salary to the ESI
account.
The process of punching the entries is quite similar to that followed while
deducting TDS from temporary employee’s salary.
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PROCESS FOR PREPARATION OF MONTHLY SALES TAX

REPORT FOR FILING RETURN WITH SALES TAX
DEPARTMENT

Monthly sales tax report is prepared at the end of each month and needs to be deposited
with the sales tax department within 15 days of the next month. Sales tax details include:

Invoice no., order no, date, customer name, place and invoice value.

This invoice value is bifurcated according to the different item categories in the invoice.
Because sales tax dept. has levied different amount of sales tax on different item
categories. The categories being computers, UPS, networking, and so on.

Then a consolidated sales tax report is made. Local Sales Tax (LST) & Central Sales Tax
(CST) are also defined. LST for transport of goods within the state and CST for
materials going outside the state.

The procedure, which is followed, is as follows: -

 The finance department firstly verifies the CST or LST applicable before
filing the return.

 The data is downloaded from the system to excel worksheet for calculating
the CST and LST payable figures and also manually as no proper format is
available in SAP to know the CST and LST.
`

 The sales book and stock transfer figures are compared with manual figures.
The details are generated by the system but also have to be done manually
because the system is not foolproof.

 The sales tax figures separately item wise and scraps sales and also sales
against form C/D are collected. (as applicable as per sales tax rule).

 The private sector firms due to which they will receive concession in sales
tax fill form C. for the same reason, form D is filled by the government
sector.

 The cheque is then prepared and the bank voucher is passed in the SAP
system for payment and also to clear all open items of sales tax with the
following entry.

Path:

ACCOUNTING-FINANCIAL ACCOUNTING- GENERAL LEDGER-

DOCUMENT ENTRY-OUTGOING PAYMENT.

And the accounting entry will be:

SALES TAX A/C—Dr.

To BANK A/C-------Cr.
`

 Then the sales tax payment challan is sent to respective banker along with
sales tax return.

 The challan is returned to the CO. from the bank duly signed and stamped
from the respective banker.

 Then the sales tax return is filed with the sales tax dept. Along with the copy
of the deposit challan.
THE PROCESS OF SALES INCENTIVE

The highlights of the incentive scheme for the year 2003-04 are: -
GRADE BILLING MULTIPLE PER Rs 100/-

P1 0.40
P2 0.35
P3 0.27
P4 0.18
P5 0.12
P6 0.10

This is according to the different category in which the sales executives are
placed and the incentive, which they earn, is the billing multiplier of the
category to which they belong into the purchase order value. Above this,
additional incentives are given on margin boosters of advance collection,
dollar sales commission business, VPN business, SAP product sales and
service sales by DSO.
`

ADVANCE COLLECTIONS: Additional incentive on the above billing to

the extent of 20% of billing multiplier for advance collection is given.

DOLLAR SALES: 2% of commission value will be distributed as incentive

to be shared 4:3:3 between sales executive: accounts manager: business
entity manager.

SOFTARE PRODUCT SALES: The BEM will earn Rs 0.2 per Rs 100/-billed and the
account manager and sales executive will earn 0.1 per Rs 100/- billed. There is no
minimum target to be achieved.

SERVICE SALES: Additional incentive of Rs 1/- per Rs 100/- is given to be distributed

between the SAM VPN BANDWIDTH: sales executive and accounts managers earn an
incentive of 0.2 per Rs 100/-

MINIMUM ELIGIBILITY CRITERIA

On every order (1-year warranty) with margin greater than or equal to 12% and bills
receivable collected in 90 days full billing incentive is given.

On every order (1-year warranty) with margin greater than or equal to 10 % and bills
receivable collected in 90 days 75 % of the billing incentive is given. Moreover the
collections should be 100% & there is no target to be achieved.

THE PROCESS:

For giving sales incentive the order bookings are checked for chief executive’s name,
amount of collections, MDP for margin, and whether the delivery is late or not as there
is no sales incentive on late deliveries.
`

In excel now a worksheet is created having following columns.P.O.No, Order,

document no., type, date, cumulative amount, MDP for margin: A-100% of billing, B-
75% of billing days, value: 100% in terms of total amount to earn sales incentive,
multiplier according to the incentive scheme and the hierarchical position of the person,
and finally the calculated incentive.

Sales incentive is given in a hierarchical manner. The sales person directly

responsible for the sales gets the highest % amount of sales incentive, then the manager
above him gets a % amount from all the sales executives under him and the BEM a
lesser amount of sales incentive from all such managers under him.

PROCESS OF SALES COMISSION PAYMENT

In HCL Infosystems, sales commission is generally paid to the sales agent who are
responsible for sale.generally sales commission request is received from the
BEM/RCEM.The finance department requires a sales commission form to be filled
up.The following procedure is followed by finance department with regard to payment
of sales commission

RECEIPT OF SALES COMMISSION REQUEST FROM BEM/RCEM

The following details are to be provided in sales commission request form

1. Customer name
2 Customer code
3 HCL order reference number
4 Total order value
5 Invoice no./date/amount
`

6 Payment details with PRA number

7 Amount of sales commission
Sales commission request should be duly signed by RCEM/BEM

VERIFICATION

1. The order value of customer is checked in SAP

2. Sales commission amount is also checked in SAP (A/C head 54050)
3. The B/R status is checked on the system and for commission it should be nil.
4. Now the sales commission papers are prepared along with agreement and clearance
letter
5. If all the dues are nil then it is signed by the BEM/RCEM ,in case of exceptions the
same are sent for directors approval.

5. Sales commission papers are sent to the head office accounts through
transmittal note alongwith complete address of sales agent
6. Minimum seven days time is taken by the HO for processing of the sales
commission forms
7. HO accounts then verifies the paper .if they are found in order then they issue the
cheque.
8. HO accounts send directly the cheque to the sales agent’s address along with the
intimation to the regional finance office with complete details.
9. Regional accounts/finance then updates its manual ledger

The following is the format of the sales commission form:

Date:
Name of the sales agent:
Name of the customer
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Sales agreement (no & date)

Clearance letter (no. & date)
Sales tax charged @

Invoice format:

NO. INVOICE DATE AMOUN CHALLA DATE AMOUNT

NO. T N NO.

Commission payable

NO. CONFIGUR PRICE COMMISSION COMMISSION REMAR

ATION WITHOUT CST RATE PAYABLE K

The path followed in the system is:

LOGISTICS-SALES/DISTRIBUTION-SALES-ORDER-
DISPLAY
`

Now the order is checked and under header pricing is given. Now ZSCB module is
started to check the commission stated against the given order, if not given then
percentage of the PO value is taken. Now the BR is checked.the path followed is:

Accounting-financial accounting-accounts receivables-accounts display

Now against the customer code a/c balance is checked. If B/R is nil then the commission
is paid, else commission isn’t released. Then it is sent to the HO for signature and
payment.

PURCHASE OF RAW MATERIALS

Purchase of raw materials involves inviting quotations from various suppliers.purchase

department carefully analyzes these quotations and book orders with the suppliers which
offer least price and the most acceptable quality of the required materials as a large
portion of cash is utilized in purchasing raw materials.

5. BANK

BANK GUARANTEE

Bank guarantee is a guarantee provided by a bank to a customer for the material supplied
or for the performance of the company. The bank issues such guarantee against certain
immovable assets of the co., which it holds as security and charges a fixed amount as
service charge for providing such; a service.each bank has a time limit. The span of time
`

for which an issued BG will remain valid .It can be 3 years, 5 years and so on. Moreover
each bank provides a limit upto, which it would provide the BGs for a particular Co.

TYPES OF BANK GUARANTEES

1.) ADVANCE BANK GUARANTEE

This type of BG is issued when the Co. requires payment in advance.this advance
payment can be 90%, 70%, or 30% of the total order value. A customer making an
advance payment requires assurance for the supply of material and for this purpose BG
is issued

2.) PERFORMANCE BANK GUARANTEE-This BG is issued when the machine has

been already been installed, for the balance payment remaining the Co. issues a
performance BG which is usually 10% of the total order value.

3.) EARNEST MONEY DEPOSIT (EMD)

This is issued as an irrevocable BG against earnest money deposit, which is required to

be submitted by the bidder as a condition precedent foe participation in the bid. The
amount is liable to be forfeited on the happening of any contingencies mentioned in the
bidding document

4.) BID

This is issued as security if the bidder i.e. the Co withdraws its bid during the period of
the bid validity or if the bidder having been notified of the acceptance of its bid fails or
refuses to execute the contract or fails or refuses to furnish the performance security.

5.) ANNUAL MAINTAINENACE CHARGE, (AMC) ADVANCE

`

This BG is issued against the advance payment made by the customer for the
Annual Maintenance Charges (AMC) of the machines supplied by the Co. it is
sometimes 100%. Then for the full year the Co. provides service free of cost. Mostly
it is quarterly and for banks it is usually half yearly.

TIME LIMITS OF DIFFERENT BANK GUARANTEES

1.ADVANCE BG
It is usually valid for 1 month to 3 months. As the balance amount is still to be paid by
the customer the Co. tries to minimize it.

2. PERFORMANCE BG:
It is for 12 months or 13 months. Mostly it is for the warranty period.

3. EMD:
It is for 120 days, 180 days, or 6 months.

4. BID:
It is valid for the period for which the bid is valid. Usually it is valid for 180 days.

5. AMC:

Quarterly, six months, or one year is the time for which it is usually valid.

Legally a BG is valid for 30 years, after the date of issue, and a customer can lay his
claim any time during this period. So in order to limit its risk a bank incorporates a not
withstanding clause in all types of BGs. the main focus of this clause is on:
 `

1.) THE BANK GUARANTEE AMOUNT:

The amount of money for which the bank is responsible.

2.) VALIDITY PERIOD:

The date unto which the BG is valid, i.e. unto the time the customer can lay his claim.

3.) CLAIM PERIOD:

This is after the validity period and is usually one month or three months or six
months .In case the claim period is not given then the validity date is considered as the
claim date.

PROCESS OF ISSUANCE OF BG

1.) The process starts with the finance department receiving a request for a BG with
a specified amount and other details on a BG request form along with the details
of the original purchase order receipt.

2.) Then the name of the customer, the HO or SAP order no., purchase order no., the
issuance date, the validity date and the BG no are noted in the books of account.
This order form has to be signed by the BEM/RCEM and authorized by the
concerned manager.

3.) Usually BGs are issued on a standard format, which requires minimum
language and is quite simple. Sometimes customers ask for a specified format
then the bank may have to take approval from its legal cell and an extra weeks
time may be given to it.

Sometimes customers may show a preference for a particular bank or for a

nationalized/scheduled/foreign bank .if feasible the request is complied with.if not
`

feasible or if such a request is not made the Co. may choose upon the bank whose
financial charges are minimum.

PATH FOLLOWED TO UP DATE FRESH BANK GUARANTEES IN THE

BOOKS OF ACCOUNTS

PATH: ACCOUNTING-GENERAL ACCOUNTING-ACCOUNTS RECEIVABLE-

DOCUMENT ENTRY-OTHER-STATISTICAL POSTING

PROCESS OF REVERSAL BANK GUARANTEES

As soon as the validity date expires, the bank writes a letter to the customer, informing
him about the details and asks him about the course of action he wish to undertake, to be
conveyed to the bank within one month. If the customer fails to do so a second reminder
is sent to the customer with the same time constraint of one month. According to its
clause, the bank considers the BG to stand canceled after (1+1) month after the validity
date. Mostly the terms of the BG are favorable for the Co. and by issuing a BG which is
of a lesser amount the Co. easily gets a payment (usually partial) which is of a larger
amount quite easily.then cash inflows of the Co. increases as compared to cash outflows.

PROCESS OF REFUND OF EXPIRED BGs

The company also requires the original BG back after the date of expiration. It follows
more or less the similar process as of the bank. In case customer is able to give the
original BG due to any reason a “NO CLAIM LETTER” addressed to the customer
`

issues the concerned bank. This usually happens when the customer retains the original
BGs for their audit purposes. But this NCL should be on the customer’s letterhead with
correct BG reference numbers and preferably should be signed by some authorized
signatory alongwith his rubber-stamp.

In case of loss of expired BGs, indemnity bond is to be issued by the bank to the
customer & customer’s signature is taken as a proof &then deposited in the bank for
their records.
As soon as the Co. receives the BG letter it gives it to the concerned bank so that they
can delete it in their books of accounts. Sometimes customers can directly ask the bank
to return the BG to the Co. As soon as the bank receives the letter it releases a new limit
for the Co. against which it can issue new BGs.

HOW TO PUNCH EXPIRED BGs IN THE BOOK OF ACCOUNTS

PATH: ACCOUNTING-FINANCIAL ACCOUNTING-ACCOUNTS RECEIVABLE-

DOCUMENT-REVERSE INDIVIDUAL DOCUMENT

EXTENSION OF BANK GUARANTEES

It is on rupees hundred-stamp paper. All the terms and conditions of the original BG
remain the same except for the date, which is extended after the expiry date of the
original BG.

AMENDMENT OF BANK GUARANTEES

Except the amount every thing else can be changed but a proof has to be given that there
has been a typing error. It is also made out on a Rs. 100/- stamp paper .If changes in the
amount are required then another fresh BG for the balance amount is made out.
`

REVOCATION OF BANK GUARANTEES

When the bank receives a revocation letter from the customers it sends the same to the
Co., which tries to settle the matter without the customer having to resort to revoking the
BG as the losses incurred by the Co. would be greater in the later case.

PROCESS OF CHEQUES DEPOSITED WITH BANKS

The process starts with the collection of cheques from the customers for the materials
supplied by the Co. this is to be updated in the books of accounts as follows:
 The finance dept. receives the PAYMENT RECEIPT ADVICE (PRA) from
DSO/PSO/SSO in which the following details are mentioned.
Customer name
Customer address
Customer code
Type of payment (AMC, B/R, Advance, rental)
Customer purchase order no.
Check no.
Amount
Date
% Of payment received
Deductions if any with the PRA form
The PRA should be duly signed by the Sales Executive & authorized by the
concerned BEM (business entity manager)/RCEM (regional customer engineer
manager)
`

 The second step is to verify the PRA in the books of accounts .for it the order no. is
input ,as given in the PRA and check the customer name whether it is same as that of
the PRA or not .

The path followed is:

LOGISTICS-SALES/ DISTRIBUTION-SALES- ORDER-DISPLAY.

 Next the accounts documents for that customer are checked for those accounts,
which have been marked not cleared, and the total invoice value against that
particular order. Then if the payment made out is complete then the check value
should correspond with this order value. In case it is a % payment then it is
calculated on the total invoice value and matched with the value given in the check.

 The Co. code given along with the customer name is also checked; it provides the
information about, which division of the co has serviced the customer, so that the
cheque is deposited for that division.

Some of the location codes are:

1000-NDC (Noida distribution center)

3000-PMP (Pondicherry manufacturing plant)
3100-PMP1
3200-PMP2
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 After completing the PRA in the system all the cheques are listed with their internal
document reference number generated by the system.

HCL Infosystems Ltd has four types of PRAs and follows different procedural steps for
each.

1.) PROCEDURE FOR MONEY LOCKING AGAINST RECEIVABLE

ACCOUNTS.

The path followed in the system is:

ACCOUNTS-FINANCIALACCOUNTING-ACCOUNTS RECEIVABLE-
DOCUMENTENTRY-INCOMINGPAYMENT

On screen now appears “ Post Incoming Payment: header

Data”
Now the following information is input.
For the DOCUMENT DATE the date given on the cheque is filled.
COMPANY CODE is filled according to the division servicing the customer, and
can be 1000,3000,and so on as explained earlier.
DOCUMENT TYPE it tells about the type of entry whether it is bills receivable, of
vendor, advance, rental etc. In this case it is DZ
POSTING DATE is the date on which the B/R is being punched.

For CURRENT/RATE INR is typed as all transaction here take place in Indian rupees.

PERIOD is generated automatically. It begins from July for which the code is 01,
for august 02 and so on.
`

REFERENCE DOC. Is the order number.

In the HEADER TEXT the check no is noted

Under ACCOUNT the account no. of the bank in which the cash will be deposited
is noted. Banks used are Standard Chartered, Citibank, Bank of Madura, SBI,
HDFC, and PNB
AMOUNT is the cheque amount.
VALUE DATE is the date on which the cheque will be deposited in the bank.
TEXT under it the bank name and address is written down.
BUSINESS AREA, it basically defines the code of the concerned division. It can be
CORP (FOR ACCOUNTS, the same is applicable here), DSO (Direct Support
System), SSO (Service Support System).
ALLOCATION, this is the internal sequence no., issued by the co on yearly basis,
and it is different for different days.
ACCOUNT TYPE: here it is D, which stands for customers, can also be K for
Vendors, M for Materials, S for general a/c for expenses. A for assets.
ACCOUNT it is for the customer code.

Now on screen the heading reads “Post Incoming Payment: Process

Open item”, select menu path.

The Path followed here is GOTO- PARTIAL PAYMENT SCREEN.

And the information is entered as per the specifications on the screen. Then this
entry is saved in the system, which automatically generates a document no. For
this entry. Which is noted down before depositing the cheque in the bank.
`

The process for customer advance payment and rentals is more or less the same as that
followed in the case of account receivables.

PROCESS FOR ANNUAL MAINTENANCE CONTRACT (AMC)

LOCKING.

1.) The Service Support Organization provides the information to the accounts
department about items like period of AMC, discount given, TDS deducted by
the customer etc.

2.) SSO provides the contract no. In PRA request form for issuance of AMC invoice
to the customer.
3.) Accounts issue the AMC as per the contract no. in the system.
4.) And on this basis accounts lock the payment against the AMC invoice
5.) The path followed in the system is:

LOGISTICS-SERVICE MGMT.- CONTRACT&PLANNING CONTRACT-

DISPLAY

Now the contract no. Is typed to check upon the AMC period and the amount
(for it we move to billing plan)
For billing the Path followed is:-
LOGISTICS-SALESDISTRIBUTION-BILLING-BILLING DOCUMENT-
CREATE

Now for billing the path followed is:

`

LOGISTICS-SALEAS DISTRIBUTION-BILLING-BILLING DOCUMRNT-

CREATE.

Now the system asks for the contract no., in the billing type, since the entry is
being made for AMC invoice, the code is ZV.for the billing date, the date of
entry is typed. Then this information is executed.

Now for raising the invoice the PRA no. Is punched, then in document type DZ
is typed, this being the AMC invoice for bill receivables the code being DV and
for rental being DB. For reference document the contract number is written.
Header text is the check number.

For saving this entry the path followed is:-

GOTO-RESIDUAL ITEMS.

Then this particular entry is saved. And the doc. Entry no generated is
noted down.

PROCESS OF BANK RECONCILIATION

First the cheque balance details obtained from the bank are converted to EXCEL
worksheet with the following columns: -

SEQ. DT.OF CLEARING CHQ/DT. Dr./Cr. AMT.

ISSUE
`

For those cheque entries whose cheque number is not given, the same is found out from
the information regarding not cleared cheques through G/L accounting.this is then saved
as a text file.

Then the module ZBB1 is activated in order to update this file to SAP .Now the system
asks the following things, including the A/C no, of the bank to be updated
.

Statement Date: The date of the Bank Statement

Beginning Balance : Closing Balance/Ending balance of

the last statement entered.

(Balance would be zero for the first time of bank reconcilation.for debit in Bank
statement the amount should be entered with a negative sign.

Closing Balance : It should be the closing balance as

Per the statement .For debit in bank
statement the amount should be entered
with a negative sign.

Posting date : Posting date should be preferably

Last day of the month.

Now the data already in SAP and that entered as bank data is reconciled through cheque
number through the program module F.13.Then the system asks for: -
Co. code, financial year, bank code etc. Then it is tested. Now the system shows the
following statements:
`

PARTICULARS DEBIT CREDIT BALANCE

Bank balance as per bank book xxxx

Cheques issued but not presented for payment xxxx

Cheques deposited but not credited by bank xxxx

Credited by bank but not adjusted by us xxxx

Debited by bank but not adjusted by us xxxx

Total:

The bank balance calculated as per bank statement/certificate &the bank balance as per
bank statement/certificate should be equal otherwise the bank reconciliation statement is
not correct. Now credit /debit done by bank but not adjusted are done. Through ZBRC
module the bank reconciliation is printed and for it, the system asks for GL code,
financial year, and posting date.

BILLS RECEIVABLE

Bills receivables are payments, which are due from customers or recoverable from
customers. One bill receivable report is generated, it shows outstanding payments. It
shows the amount paid by the customers and the balance due from the customers. Co.
also maintains an aging schedule of bills receivable, which shows the amount due from
customers as on a particular date.
In case customer makes advance payment before giving the purchase order the company
raises a debit note in the dummy account of the customer. When a customer gives the
purchase order then the amount is adjusted to correct account by raising a credit note.
`

So, the bank a/c first gets debited and then credited against that particular customer
name.

DSO/SSO gets advances from customers for supply of the material in order to issue the
customer code to them. But if the order is wrongly entered in to other customer code
then in order to rectify the same the accounts dept. Has to issue the debit or credit note
for transfer of amount from one customer code to correct customer code account. Such
issued debit and credit notes the head of dept. Usually signs for adjustments of the
wrong entries. Such a note is then sent to the head office for adjustments and they will
then issue a J.V. no. After adjustment in the correct order.

GENERATION OF B/R REPORT

HCL prepares bills receivable report showing the amount received from customers and
the amount outstanding .T o give correct B/R report to BEM/RCEM on monthly process
for generation of bills receivable report at regional basis with the following transaction
code.

ZFB2
ZAGE
ZPBR

The following path is to be followed: -

PATH: - ACCOUNTING-FINANCIAL ACCOUNTING-ACCOUNTS RECEIVABLE-

PERIODIC PROCESSING-INFORMATION-REPORTS-OTHER ANALYSIS-LINE
ITEMS

B/R SIGN-OFF REPORTS; -

`

Each month all the managers associated with the DSO and SSO receives a B/R sign-off
report for the customers under his area. It provides a detailed account about the actual
amount receivable from the customers at the date of the preparation of the sign – off.
Then this goes to the head office where the performance of the managers are evaluated.

B/R-COMMENTS/ADJUSTMENTS SHEETS

It is always in the standard format as approved by HCL management.it is an internal

process followed by HCL .it is used mainly for adjustments of wrong entries of
customers,or for adjustments of vendors who are customers as well.or for TDS
certificates that are received from the customers and on payment the adjustments are
done by the HO through the B/R C sent by the RO TO the HO.adjustments are for
suppose the customer has given the balance payment after deducting TDS but the HO
considers the TDS amount deducted as bills receivable.Then the customer entry has to
be adjusted by the RO accordingly and sent to the HO.IT is also used for machines sent
out for demonstration and are received back and then sold.the debit /credit entries
changes can only be done by the HO.the information about in which GL code the entry
is lying and in which it should be punched is written on a standard performa of the BRC
and is signed by the manager accounts and the regional accounts officer and sent to the
HO ,.all changes in the customer accounts except for cheques are made through BRC.

STOCK

INVENTORIES ( in Rs/Lacs) 2006(rs/cr) 2005(rs/cr) 2004(rs/lacs 2003(rs/lac

) s)
`

Raw Materials & components

In hand & in transit 63.49 77.94 6126.95 2602.52

Stores & Spares 37.13 29.87 3810.56 3209.00

Work In Progress 5.95 7.84 871.23 487.68

Finished Goods 133.74 72.45 17233.28 17510.01

TOTAL 240.31 188.10 28042.02 23809.21

Raw materials:

HCL Infosystems purchases for hardware such as monitor, keyboard etc. certain
software also forms part of raw material purchases. Raw material is purchased either in
the northern region (Noida, Jaipur, Chandigarh) or eastern region. It is then transported
to the company’s manufacturing plant 1(company code 3000) or manufacturing plant 2
(company code 3100) in Pondicherry .The transportation cost forms a part of the
purchase price.the transported material is then utilized in either of the Pondicherry plant
for manufacturing of various segments. For purchasing raw materials it invites tenders
from various suppliers with special emphasis on the quality of materials.

The following purchases are made in respect of raw materials are ;

1. Server with novel net ware
2. Node with disk
3. Node without disk
4. Ethernet switch
5. Cat 5 UTP cable (305 meters)
6. 3’ patch cord
7. 7’ patch cord
8. 24 port patch /jack panel
9. serial port
10. VSB port
`

11. Parallel port

12. Key tops

Stores and Spares: Stores and Spares include various peripherals, which are
mentioned as under: -

-Touch screen kiosk cabinets with LCD monitors and panel PC

-Metallic infrastructure specially made from IBM servers
-Turbo terminals with integrated in house developed CRT controller.

Software Work in Progress: It includes:

Case 1: Generally when HCL installs software, customer does not make full payment
rather it makes part payment, 100% is only paid when the customer is satisfied with the
installation, the outstanding amount to be paid by the customer is regarded as software
work in progress.

Case 2: Sometimes the software to be installed is quite large and therefore the
installation is done in parts. Thus the customer also makes part payment, the outstanding
amount to be paid by the customer is treated as software work in progress.

Finished goods: Finished goods men systems which have undergone all stages of
manufacturing and are ready for sale, Until they are sold they form a part of the closing
stock.

ANALYSIS OF THE STOCK YEARWISE:

2003: In the financial year 2003, the company has used the closing stock of raw
materials of the previous year (the raw materials for the year 2002 being greater than the
amount of finished goods produced), and it also has a fair deal of stock in stores also.
`

The finished goods are more than the raw materials in hand implying that the Co. has
used the stock to the fullest extent, may be due to more demand during the year.

2004: In the financial year 2004,the company has followed the method of inventory
control as they have maintained minimum inventory level,at the same time keeping
almost the same amount in stores and spares.Also as there is some amount of stock both
in S/Wand H/W it has lead to a good amount of finished goods ready for dispatch.This
may be due to reduction in prices of raw material or may be due to development of some
new technology in the area of software and hardware services.

2005: In the financial year 2005, the amount of raw material is more as compared with
the previous year that indicates that there must be some closing stock at the end of the
previous year. The amount of finished goods is also more as compared to previous years,
indicating that the company is making huge amount of H/W sales while maintaining
minimum inventory level.

2006: In the financial year 2006,against a minimum stock level the amount of finished
goods has increased so has the stores and spares and also hardware WIP and in software
WIP the increase has been manifold.

FINANCING THE WORKING CAPITAL

`

In order to finance the working capital needs of the firm in the form of Working Capital
Demand Loan there is a consortium of eight banks. The consortium of banks provide a
fund based limit of 115 Crores which comprises of cash credit and working capital
demand loans and non fund based limits which has bank guarantee and letter of credit
subject to a limit of 385 Crores. The lead bank in this consortium of banks is State
Bank of India and the second lead bank is ICICI. It is SBI, which fixes the limit on
the basis of consortium. They in consultation of the company decide the allocation of
limit to various member banks. The allocation cannot be higher than the limits fixed by
it. SBI is the biggest contributor in the consortium for both fund and non-fund based

limits with about 3600 rs crores in funds and 9500 rs crores in non- fund limits.
It is on the basis of the accounts receivables that the banks come to an agreement with
regards to the limits imposed. Though it is the fund based limits that finance the working
capital requirements the non-fund based limits are important for the management of the
working capital as there might be clients who are not willing to sell on open credit and
might be demanding letters of credit before any advances.

All banks sanction the limits for a period of one year. Thereafter it is to be
renewed every year. SBI appraises the limit on the basis of consortium. The individual
banks appraise for their own individual limit. The non-fund based limit of the firm in
consortium financing has been subjected to change for the past two years as per the
requirements of the firm and the consent of the lead bank to its proposal.

Allocation of the fund based and non-fund based limits among the banks based
on operational convenience rather than allocating the fund based and non-fund based on
the same ratio is also among the proposals made by the firm.
The company needs to provide the following information to bank for appraisals
• Credit Monitoring Appraisal
• Write up on company
• Share holding pattern
• List of the directors
 `

SHORT TERM FINANCING

Other than the investment in current assets the firm also has to be concerned with short term to
long-term debt as this plays a role in determining the amount of risk undertaken by the firm. That is
the firm not only have to be concerned about current assets but also the sources through which they
are financed. A firm before financing in either of the two has to take into consideration various
aspects. While short term might seem the ideal way to finance your assets than the long term due to
shorter maturity period and also less of costs involved there is an inherent risk in short term
financing due to fluctuating interest rates and due to the reason that the firm might be unable to
repay the amount in a shorter span of time.

Under secured loan cash credit along with non-fund based facilities, foreign
currency term loan from banks are secured by way of hypothecation of stock-in trade,
book debts as first charge and by way of second charge on all the immovable and
movable assets of the parent company. Term loan in Indian rupees from a bank is

subject to a prior charge in favor of Company’s bankers on book debts and stock
in trade for working capital facilities.
`

Here HCL has a major portion of their financing done through short term
financing than long term financing. The preference of short term financing to long term
as such is not the part of any policy employed by the firm but it was due to the reason
that the interest rates in short term were more investor friendly and the cost involved in
them were also low. At present we can see that the firm is moving more towards long
term financing as the interest terms in the long term has reduced compared to the short
term.

YEAR END COMMERCIAL PAPERS

The credit rating by ICRA continued at ‘A1+’indicating highest safety to

company’s commercial paper program of Rs.75 Crores. It acts as an effective tool in
reducing the interest cost and is used for financing inventories and other receivables.. As
and when the firm issues commercial papers it sends a letter to the leader of the

consortium, i.e., SBI to reduce from the fund based limits the amount it has
issued in the form of the commercial papers. Suppose the firm issues 30crores as
commercial papers and the fund based limits are say 115 Crores. Then firm sends a
letter to SBI to reduce the existing fund based limits from 115 to 85 Crores.

In terms of desirability the commercial papers are cheaper and advantageous to

the firm compared to the consortium financing. The main advantage being the interest
rate which is lower than the bank rates existing under consortium financing. But the firm
depends on both and for working capital financing is depended on the banks for funds
such as working capital demand loans and cash credits. There is no point in the firm in
not making use of the fund based limits in the consortium banking as their commercial
paper are restricted to 75 Crores.
`

ACCRUED EXPENSES AND DEFERRED INCOME

The advances from customer and accrued expenses as sources of short-term

credit and interest free source of financing is not at all depended or relied by the firm.
Their decline over the two years doesn’t have any implication on the short-term credit
position of the firm.

Factoring of accounts receivables to various financial institutions is something that the

firm is giving thought to at present.

CURRENT ASSETS OF THE COMPANY FOR THE LAST FIVE

FINANCIAL YEARS

2006 2005 2004 2003

Rs(crores) Rs(crores) Rs(lacs) Rs(lacs)
INVENTORIES
Raw materials & comp. 63.49 77.94 6126.95 2602.52

in hand & transit

Stores &spares 52.55 43.16 2621.56 2267.72
WIP 5.95 7.84 871.23 487.68
Finished goods 347.62 220.45 6506.15 3546.86
Total 469.61 349.39 16125.89 8904.78

SUNDRY DEBTORS
debts >6 months 75.13 65.88 1646.56 1890.84
Other debts 631.34 468.79 27807.88 20041.64

Total 705.30 532.39 29454.44 21932.48

`

CASH & BANK BAL.

Cash in hand &transit 24.28 32.89 2464.18 2342.31
bal. With scheduled banks
On current A/Cs 130.33 108.13 958.10 720.20
On margin A/Cs 0.41 0.39 2.00 3.28
On fixed deposits 58.59 109.51 975.44 1265.35
On dividend a/c 2.05 1.46 99.15 46.14
Total 214.92 251.27 4461.89 4338.43

PROCESS OF PHYSICAL VERIFICATION OF STOCK

The objective of physical verification of stock, done at the end of each quarter is to
check the Inventory present against inventory as per report provided by Head Office
Accounts.Administration department or commercial department carries out all the
activities of physical verification of stocks. Accounts executive/auditors observe the
actual verification of regional stock. The department follows the instructions and
guidelines as per the stock circular. Before starting the physical count the postings are
blocked and book inventory is freezed and no movement of material is allowed to take
place while stocktaking is going on. The material is physically counted and stores person
notes the actual count and also verifies with the Head office list. The role of accounts
personnel here is to check the physical inventory.

After the count of a storage location is complete, the counts are updated in physical
inventory report. The reports are then duly signed by the Stores-in-charge which are then
handed over to Accounts/Auditors at the end of stock taking process duly signed by the
BEM.List of serialized stock i.e. machine stock is scrutinized. The total number of serial
numbers allotted for machines should be equal to the total number of machines
physically found at the time of stock verificationAfter completing the stock verification,
`

stores department gives the account department a Discrepancy Report, if any

discrepancies are found during the process, duly signed by BEM.After getting the report
from stores, accounts checks the report as per the list provided by the head office along
with the physical stock and sent to the Head Office.Physical verification of the stock
asper the list provided by the headoffice is done.

PROCESS OF ACQUISITION OF STOCK AND NUMBERING

The process begins with the receipt of the bill from the administration department
alongwith the Purchase Order in the name of the vendor and a copy of sanction note
duly approved by the directors. Then the following things are verified; copy of the
purchase order, original vendor bill, copy of the sanction note duly numbered from Head
Office Accounts, Supplier name/supplier code, amount, payment terms with purchase
order, original Delivery Challan signed by respective department “who” has received the
material with the clause “material received in good condition”. In the system all the
details are entered with proper supplier code and name from whom the purchase has
been made and saved, the system will generate the asset no. for that particular asset and
thus it will be numbered accordingly copy of the Vendor bill along with all detailsis sent
to the head office accounts and also one copy is given to administration department for
updating/numbering the items.

METHOD OF DATA COLLECTION

For this project the data incorporated is secondary data mainly taken from balance sheets
and profit and loss accounts.and for the methodology involved in various processes, the
same has been provided by the various people working on the same.
`

LIMITATIONS

For this project secondary source of information has been employed mainly, so it isn’t
fully relevant for the purpose more so ever it may also be biased.
`

BIBLIOGRAPHY

1.] Khan, M.Y. & Jain, P.K. : Financial Management

`

2.] Khan, M.Y. & Jain, P.K. : Management Accounting

GLOSSARY

AMC: Annual Maintenance Contract.After the delivery of the

machine ,if the customer wants any kind of system support
`

then a contract is drawn and the customer pays some

additional charges for a specific duration, normally not less
than one year.

BEM: Business Entity Manager.He is responsible for all the

projects assigned to him by his RCEM.They are assigned
teams ,whom they manage and are responsible for.

BG: Bank Guarantee.It is a guarantee given to the customer as a

surety against the delivery and proper working of the
material. The bank issues it on the company’s behalf that if
the company is not able to satisfy the customer,then the
bank can be held liable for it.

B/R: Bills Receivable.It means that the customer has got the
Delivery of the machine and the money is still outstanding
i.e. bills are yet to be received.

DSO: Direct sales Organization. A team is formed under DSO &

It basically deals with selling of PCs directly to the
customers .

EMD: Earnest Money Deposit. When the tender is closed and the
Amount of work is not known, the vendor then pays the
amount in the form of demand draft or BG, as a form of
security to the customer that if he gets the tender then he
will be performing the work and if he isn’t able to do so
as per the tender terms then the amount will be forfeited
by the customer.
OCTROI: Octroi are the char ges which either the company pays or
the customer themse lves pay at the borders while
`

crossing different states for delivering the materials.

PHILIP The designer of Quality Education System.He introduced

CROSBY: tools and techniques to help the companies to make
Quality a part of their jobs.

PRA: Payment Receipt Advice.Whenever a customer pays the

cheque for the payment against his order, this receipt is
issued to him against the cheque.

PSO: Professional Support Organization.The main function of

PSO is developing software for customers according to
Their requirements and also to provide System support to
them.

RCEM: Regional Customer Entity Manager i.e. they are the

Regional heads. All the BEMs have to report to their
RCEM for all the work they are assigned for..

SAP: Systems,Applications,Products in Data Processing.SAP is

An ERP: Enterprise Resource Planning software which
Interlinks all the departments of the company all over
India, wherever the connectivity exists. In SAP
Basically,different kinds of modules are there like
Production, Finance, marketing etc., which caters to
The different needs of the different departments. Any
Information whenever required can be gathered
Immediately by logging onto the system without any
`

Hassels.Thus, it helps the company by saving time and

Money which can be used elsewhere in some productive
Work.

SSO: System Support organization team is formed under

SSO which not only deals with selling of machines but
Provides system support to the customers of DSO, SSO
And PSO.

SUPPLIERS: Those who provide inputs to a process. Suppliers can

Be external or internal to the organization.

SUMMARY OF THE FINDINGS

CASH:

The company has a fairly good estimate of its cash position.This helps in the
synchronization of the cash inflows and outflows.Cash out flows can be estimated as the
date for payment to the suppliers is fixed at the time of placing the order.Generally the
`

raw materials purchased are done so in bulk,requiring a significant amount of investment

on the behalf of the company ,so the company procures the same from the bank against
some charge, which is usually the material being purchased and the credit limit ,the
extent to which the company can draw cash from the bank , is fixed.It is decided on the
basis of the fixed assets of the company.Now the limit can be overdrawn to a certain
extent which is determined by the business strength reflected by the market value of the
shares.Also other main outflows include salaries of on-the-job trainees, local
conveyance of the employees on official work, travel claims of the employees all of
which can be estimated to a certain extent.Cash inflows are mainly in the form of bills
receivable which are to be realized in that period and there amount is known in advance.

TRAVEL:

This is a major outflow of cash. As whenever an employee goes for a tour, according to
his grade he gets a minimum cash amount to meet his day to day expenses. Now before
releasing any such amount to an employee all records against him are checked, to see
whether at an earlier date he took an advance and didn’t submit the bills or not. And
whenever the employee returns from the trip, he is required to produce all the bills and
vouchers within three days of return to the accounts department for the settlement of the
balance amount of the expenses and to update the books of accounts.

TDS:

TDS is usually deducted by the customers and also by the company for the suppliers.
Now the TDS deducted by the customer is a sort of cash outflow for the company as
when the customer makes the payment he does so for the remaining amount,i.e. the Total
Invoice Value.-TDS.And the TDS amounts deducted by the suppliers are a source of
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cash inflow for the company as the company pays to the suppliers for the goods an
amount which is less than the total purchase value by the TDS amount.

CASH PAYMENT TO SUPPLIERS:

HCL generally predicts what will be the inflows and outflows since the dates are fixed
for payment to suppliers so it needs sufficient cash balance for remittance. or this
purpose, t largely relies upon cash credit limit.So cash inflow and outflow should be
properly monitored and managed so as to avoid extra outflow in the form of interest
payment to bank. ue to the company’s operating efficiency the bank does extend the
credit limit but this brings an additional cost of financial charge on the bank. lso to avail
of favourable prices of raw materials the company buys them in bulk and then uses them
over time

OCTROI CHARGES:

They are payable at every state border and forms a significant amount of outflow of the
company.The company has a tie up with the transporters ,who pay at every border and
get the payment after producing all the receipts regarding octroi.
HCL Infosystems follows a systematic procedure for collecting of proper receipts and
updating all the entries into the system.Any outstanding balance in any of the
transporter’s account immediately comes into notice and is adjusted accordingly.

SALES COMMISSION:

This also forms a major part of the company’s outflows.To keep an edge over its
competitors the company offers lucrative offers to its vendors on the terms and
conditions of the company and with the intimation that the commission would only be
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delivered to him after the completion of the project i.e., after the receipt of the full and
final payment by the company.

FINANCE COST:

Finance cost is the cost which are borne by the company in case they fail to collect the
balance of bills receivable from the customer on time against the material delivered.As
the entire process is through bank,so if the bills are not collected , the company has to
pay extra finance charge in the form of interest to the bank.To maintain such an outflow
sales executives are intimated to tell the customers to clear the bills timely.Then only the
sales executives are entitled for sales incentives.This also leads to control of finance
charges.

FINANCING SCHEMES:

Though the IDBI scheme is still in existence, the company has stopped using it,because
the funds are now available more easily and at lesser financial charge from the banks
under different schemes.

MEDICAL POLICY:

A fixed limit is disbursed for hospitalization. Excess expenditure is to be borne by the

employee.The employee gets the reimbursement with the next months salary.
`

BANK:

HCL Infosystems maintains three types of accounts with banks :-

Collection account- all the amounts collected from the customers are deposited in this
account.

Current account- this is used for meeting day to day expenses of the company.

Margin account- from this account limit for bank guarantees is drawn and some security
should always exist in it as margin.

STOCK:

HCL follows a very systematic procedure for managing stock.The goods dispatched are
of both refundable and non-refundable kind.In case of non-refundable kind of goods the
company faces no kind of limitation,but in case of refundable kind of goods the co has a
major draw back that they aren’t returned to the co. at the designated time ,from the
customer’s place where they are sent for demonstration.this may be due to the laziness
of sales people or negligence of the higher authorities.moresoever no documentation of
receiving back of goods was also present.In case of non-refundable the company faces
another kind of problem ,sometimes complete delivery of all the items does not take
place,some item may be left behind ,the customer then intimates the regional office of
the same ,which then further passes the information to the manufacturing plant which
then through short shipment sends it to the regional office which in turn dispatches it to
the customer.This leads to delay to the customer.HCL maintains a minimum inventory
level by analyzing the past orders that are received.In HCL the stock maintained is of
three kinds: raw materials, work in progress, software work in progress, [for the partial
installation of the software the customer pays the advance and the remaining amount
that hasn’t been paid by the customer is treated as software work in progress.The
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company receives both bulk orders and small orders,for this purpose HCL is divided into
two segments:-

-RETAIL SEGMENT
-CORPORATE SEGMENT

In RETAIL SEGMENT, HCL Infosystems receives small orders which can be met
through minimum inventory level ,so that materials can be dispatched as soon the order
is received.In Retail segment no credit period is there and the orders are usually standard
configuration type.

In CORPORATE SEGMENT ,usually bulk orders are received of varied configurations

and thus there is a credit period .As the raw material required may not be available at
the time of the order and the purchase department may have to procure it after the
order,so there may be a gap between demand and supply.In this case the purchase
department needs to forecast the raw material requirements,which depends upon past
experience.

Valuation of stock is done according to the generally accepted accounting

principles.Managemet every year physically verifies stock of finished goods,stores &
spares and raw materials of the company at all the locations.Confirmation of stock lying
with third party is also made.The company also determines unserviceable or damaged
stores,raw materials and finished goods on the basis of technical evaluation.On this basis

adequate amount is written off each year for such stocks.However proper records of
disposal of such stock are maintained each year.

RECEIVABLES MANAGEMENT
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PARTICULARS 2005 2004 2003 2002

DEBTORS TURNOVER RATIO 5.80 5.53 6.62 4.94
AVERAGE COLLECTION PERIOD 63 66 55 74

A better turnover ratio implies for the firm more efficiency in converting the
accounts receivable to cash. A firm with very high turnover ratio can take the freedom of
holding very little balances in cash, as their debtors are easily realizable. In case of HCL
the collection period for the firm is 63 days. That in spite of the growth in sales the
collection period has improved is noteworthy.

PARTICULARS 2005 2004 2003

PROVISION FOR DOUBTFUL DEBTS (CASH FLOW) 49.85 25 3321.97
DEBTS DOUBTFUL (EXEEDING 6 MONTHS) 134.09 69.8 44.8
%ONDEBTS (EXEEDING 6 MONTHS) 2.22 4.23 2.36

The debts doubtful has doubled but their percentage on the debts have almost become
half. This implies a sales and collection policy that get along with the receivables
management of the firm.

COLLECTION POLICIES:

It refers to the collection procedures such as letters, phone calls and other follow
up mechanism to recover the amount due from the customers. It is obvious that costs are

incurred towards the collection efforts, but bad debts as well as average
collection period would decrease. Further, a strict collection policy of the firm is
expensive for the firm because of the high cost is required to be incurred by the firm and
it may also result in loss of goodwill. But at the same time it minimizes the loss on
account of bad debts. Therefore, a firm has to strike a balance between the cost and
benefits associated with collection policies.
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The steps usually followed in collection efforts are: -

• Sending repeated letters and reminders to the customers
• Personal visits
• Using agencies involved in collection process
• Making telephonic reminders
• Initiating legal actions
• Real Time Gross Settlement (RTGS)-

Real time gross settlement as such is a concept new in nature and though the firm uses
the system with all the members of the consortium. It is still in its primal stage and will
take time before all of the clients of the firm are willing to accept it. The firm has made a
proposal to the consortium of the banks during appraisal for faster implementation of
Internet based banking facility by all the banks and adoption of RTGS payment system
through net.

The debtor’s turnover ratio is completely depended upon the credit policy followed by
the firm. The credit policy followed by the firm should be such that the threat of bad
debts and the default rate involved should be terminated.

PARTICULARS 2005 2003 2004 2005

CREDITORS TURNOVER RATIO 15.68 21.29 21.14 17.26
PAYMENT PERIOD 23 17 16 21
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That the creditors turnover ratio has declined and payment period has increased indicate
that the company has got a leeway in making the payment to the creditors by way of
increased time.
With creditors they are having pre-agreements and have undertaken arrangements with
them, which they believe to be the best in the business and these are fixed.

(NOTE:- acceptances not included in the computation of creditors turnover)

The company updates the bill receivable report on a continuous basis.This helps in
knowing the position of B/R of the company on a particular date.Hence by referring to
B/R report company can send intimations,send letters to its customers and can adopt
other collection steps for collection of due money.Raising of debit/credit note also
enables the company to make adjustment for advance payment so that there is no effect
on cash balances.ageing schedule helps in knowing from how much time amount is due
from the customer.

TAX REDUCTION:

-The company shifted its plant to pondicherry from Noida and thus started paying less
tax.this was mainly due to lesser tax rates existing in Pondicherry.So HCL was able to
reduce its tax to a greater extent.
 `

- Another reason for tax reduction is that for filing tax returns ,the profit or loss
reported is for HCL infosystems on the whole irrespective of the
contributions of the different units as a result losses incurred by one unit are
more or less compensated by the excess profits of another.This has reduced
the amount of taxes to be paid to a greater extent.

RECOMMENDATIONS
Some suggestions for improving the present system at the regional finance and
accounts office are:

1. In case of giving sales incentive to the sales executives there is a provision that if
the entire billing amount is not received within 90 days , the sales executive will lose
out on the incentive.now sometimes it may so happen that the goods are dispatched
late from the plant itself,and thus the billing is not received in the stipulated period
so the incentive is not given.But in this case ,the delay isn’t the sales executives
responsibility.so whenever the payment is received with a delay ,the reason for the
delay must be looked into before deciding upon the incentive.

2. In the process of paying monthly salaries to the on –the –job trainees, the salary
vouchers are sent to the accounts department by the different heads at different times
as a result this process is stretched till almost fifteen of the month
Thus a fixed time can be decided by the finance and accounts department by which
the salary vouchers would be received by them and after that they would be
processed and consequently paid out.

1. In case of medical policy claims, the settlement of the claim is done according to the
basic salary of the employee .But it should be done according to the graveness of the
illness. In the medical policy instead of the compensations according to the grades,
 `

different illness should be defined along with the compensations for the same,
irrespective of the grades.

2. Though bank guarantee creates a feeling of security both for the firm as well as the
customer, it is a financial burden on the firm. As the company has to pay a service
charge to the bank, which may be monthly, quarterly ,half yearly, yearly or on the
percentage basis of the total BG amount. Moreover a BG creates a charge on the fixed
assets of the company. Whereas on the other hand corporate finance requires no such
charge so the company should emphasize on the latter.

3. Most of the BGs received by the company are of the performance kind as balance of
money is blocked till the machinery is fully installed and the customer is satisfied. In
case of advance BG the money is received before the delivery and installation.
Therefore the company should focus on the latter.

4. In case of cheques deposited with banks, different banks have different weekly days
off. The company having numerous Customers, who give cheques of their respective
banks, is unable to remember the different days off of different banks. So, often
cheques are sent for deposition during weekly off days. As a result they get bounced
and are returned for which the company has to bear the bounce charges. So, if the

5. company could convince the banks not to bounce the cheques but to deposit the same
on the next working day. This could be one solution to the problem.

In case of local travel different rates per kilometers are assigned to employees
according to their grades. But employees can take undue advantage of this by taking
auto rickshaw in place of taxi, bus in place of auto rickshaw, for which they are entitled
for and pocket the balance amount when there claims are settled.
 `

So the company vehicles can be:

fixed for different areas so that wherever the employees need to go for call, they can
use company’s vehicles for commuting purposes.

6. In case of TDS deductions by the customers, the company receives the balance amount
of the total pay order value. This has a direct impact on the cash inflows of the
company. So if the customers made the full payment instead without any tax
deductions then the extra amount can be used to earn profit and the tax amount can be
paid by the company on the customer’s behalf within the stipulated time frame.

7. In case of sales tax return being filed, the same is computed both manually and also
through the system. Thus double labour is required because of the lesser reliability of
the system’s calculations. Thus the fallacy should be corrected to speed up the process
and to do away with the manual calculations totally.

7.In the case of payment of local conveyance vouchers, the employees claim their
payments at their convenience, the frequency varies from employee to employee.
The greater the frequency, greater the processing time and greater the human effort
used. SO, the company can estimate the requirement of the employees, and on
monthly basis pay the said amount as an advance to the employee and on
submittance of proper
documentation ,the next month adjust the excess or less balance of the present month

8.In case of non-refundable goods if any part is missing by chance,then under the
present procedure the customer intimates the regional office which forwards the
information to the plant from where the required part is dispatched first to the
regional office and from there to the customer.this is a long procedure as
manufacturing plant and the regional office are in different cities so if this method
could be short circuited it would definitely benefit the company.
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9 At present,the company doesn’t provide any discount to the customer,neither cash nor
bulk.So the company could incorporate these to reduce the time of accounts
receivables.

CONCLUSION

There is always a scope of improvement. Although the processes followed in the

company for the management of current assets are well defined and Efficient ,yet after
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an intensive study of the same it was found that some lacunae existed in the
same.Different remedies have been suggested for them in the recommendations.Also a
survey of different people of the finanace department of the company at different
hierarchical levels was undertaken for their opinions regarding their field of
expertise,the existing method of working and the changes they would like to
incorporate to increase the efficiency.The answers have then been analysed and stated

Current assets management forms a major part of the working capital

management.And at HCL due importance has been given to it .Much emphasis is laid
on efficient management of the current assets of the company in order to increase the
profitability of the company.
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HCL INFOSYSTEMS LIMITED-COMPANY PROFILE

HCL Infosystems Ltd. is the Flagship Company of the US$ 600 million HCL group,
India’s largest Information Technology (IT) transnational conglomerate. With its in
depth expertise in developing solutions spanning diverse technologies, HCL Infosystems
aims to propel its course on to the high growth path of total technology integration:

In recognizing the challenges posed by the changing IT environment, HCL has

consistently guided the development of this business. As information technologies needs
to be mature, the IT industry has witnessed a continuous evolution through a
progressively finer segmentation of markets. Design and delivery of solutions across
diverse hardware platforms, and the ability to respond to the rapid penetration of PCs,
are key determinants for the success in the current information technology environment.

Towards capturing two ends of the market spectrum-enterprise solutions and PCs-HCL
Infosystems has made significant strategic infrastructure investments in the Professional
Service Organizations (PSO), the Support Service Organizations (SSO) and its
manufacturing plant at Pondicherry.

HCL Infosystems is the manufacturer of general-purpose computers and provided

services in the areas of IT consultancy, systems integration, software development and
training. In addition to modern manufacturing facilities at Pondicherry, HCL
Infosystems has 34 sales offices and 143 customer support locations. HCL Infosystems
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has an electronic hardware technology park and three software technology parks to
dedicatedly address export opportunities in contact.

ASSETS AND LIABILITIES OF HCL INFOSYSTEMS

LIMITED
RS/crores
2006 2005 2004 2003 2002
Sources of Funds

Equity Funds 34 33 33 32 32

Reserves and Surplus 664 521 390 265 238

Loans Funds 84 82 72 118 141

Deferred Tax Liabilities (Net) 11 7 5 (10) 8

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Total 793 643 500 405 419

Application of Funds

Net Block 98 76 66 66 80

Investments 295 143 219 219 102

Current Assets 1543 1287 912 676 569

Current Liabilities 1143 863 697 556 335

Net Current Assets 400 424 215 120 234

Total 793 643 500 405 419

IDBI FINANCING SCHEME

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The main objective and purpose of this financing scheme is that purchaser can buy the
machinery by paying only % advance and balance can be paid over a period of 3, 5 & 7
years. It is very useful for the seller also as he gets the money from IDBI as soon as he
delivers the equipment to the purchaser. There are two scheme under IDBI financing :-

a) IDBI Bills Re-discounting Scheme.

b) IDBI Direct Discounting Scheme.

Under “IDBI Bills rediscounting Scheme” HCL don’t have any limit. The only
difference between the two scheme is that in Rediscounting scheme, the bills will be
discounted by the seller bankers and the bank will rediscount the ‘Hundies’ from IDBI
and gets the payment. Under this scheme the rate of interest is slightly higher.

There are enough limits under “IDBI Direct Discounting Scheme”. The purchaser need
not have to take any approval from IDBI and all the discounting have to be done under
HCL limits. The main points to be taken care of are as under :-

 HCL must get a firm order from the customer with at least 10% advance clearly
stating the balance money is to be financed through IDBI Direct Discounting
Scheme.
 The customer must have deferred limit with the banker as the banker has to accept
the ‘Hundies’.
 After the receipt of the firm order the advance payment, the ‘Hundies’ has to be
drawn and stamped from the court.
 The stamps applicable on ‘Hundies’ are special adhesive stamps.
 The parties have to sign the ‘Hundies’ only after proper stamping is done.
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The documents required under this scheme are as under :-

‘Hundies’ :- This can be in following forms :-

 Bills of Exchange / ‘Hundies’ drawn by us accepted by the customer and co-accepted

by the customer banker.
 Bills of Exchange drawn by customer and accepted by their banker.
 Bills of Exchange drawn by us accepted by customer and supported by a bank
guarantee issued by customer banker.
 Promissory Note drawn by us.
 10 Nos. of ‘Hundies’ are to be prepared. The first Hundi is payable after 6 month and
the last Hundi is payable after 60 months keeping a gap of every 6 months.
 The date of ‘Hundies’ should be after the stamping date.
 IDBI does not accept the cases which are below 1 lakh (Principal Amount).

Break up Chart :-

 The break up chart has to be prepared by reflecting the total invoice value, advance
received and the amount to be financed by IDBI i.e. Principal Amount.
 The Principal amount is to be divided into ten installments, the amount which are
payable after every six months along with interest.
 The rate of interest applicable currently @1807% p.a. Normally IDBI declare the
rate of interest during April every year.
 The interest is to be calculated on reducing balance (Diminishing method).
 In case the machine is shipped after the date of Bills of Exchange, HCL have to
refund the interest to the customer. That means IDBI will advise the company to
refund the interest part due to the customer from the date of bills of exchange to the
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date of shipment and from the date of shipment to the date of discounting the bills of
exchange. IDBI will refund the interest to HCL Infosystems Limited.

Industrial Concern Certificate

The customer has to issue the certificate on his letter head stating that he is an Industrial
Concern as defined under Section 2(C) of Industrial Development Act, 1964.

“Industrial Concern” means any concern engaged or to be engaged in:-

 The manufacture, preservation or processing of goods.

 Shipping
 Mining including development of Mines
 Hotel Industry
 Transport of passengers or goods or by air or by ropeway or lift.
 Generation, storage or distribution of electricity or any other form of energy.

Purchasing Certificate:-

The customer has to issue this certificate stating the purpose of purchasing the
machinery, IDBI financing the equipment only for the following purposes :-

 Diversification
 Expansion
 Replacement
 Modernisation
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In case the machinery is required for implementation of a new project, prior approval
from IDBI is required. The customer has also to undertake that he will not sell or dispose
off the machinery as long as the bills remains unpaid. He has also to undertake IDBI can
inspect/verify the relative machinery as long the records pertaining to its scale at any
time at its discretion either before or after the discounting of the ‘Hundies’. The nature
of the industry in which the customer is involved is also to be mentioned. This certificate
has to be signed by authorized officials of the customer with his rubber stamp and it has
also to be counter signed by his banker.

Banker’s authorization certificate

This certificate is very important and special care must be taken while getting the
certificate. This certificate has to be issued by the customer banker’s stating that the
officials who has/have signed the ‘Hundies’ and certificate are the Authorized Purchaser
persons and their signatures have been verified. The senior official of the Bank should
this certificate. This is required on the Banker’s letterhead and it should have the Rubber
stamp along with the officer signature code no.

Waiver Certificate

The purpose of this certificate is that if IDBI does not present the ‘Hundies’ on the due
dates with the Customer Banker. It is the responsibilities of the bank to make the
payment on the respective due dates to IDBI. This certificate has to be typed on
Banker’s letter head with the rubber stamp and also should have Banker officials
signature code.

Correction Certificate
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In case there are any cutting or changes in the ‘Hundies’ this certificate is a must. This
certificate has to be signed by all the parties i.e. Purchaser, Seller and Banker. All the
parties have also to sign on the cutting and changes in the ‘Hundies’. It is advised that
special care should be taken while executing ‘Hundies’.

Acceptance of the ‘Hundies’

All the Banks can accept / co-accept the ‘Hundies’ except SBI which always issues the
bank guarantee supported by ‘Hundies’. The BG should be as per the IDBI format and it
should be valid six months after the due dates of the last bill. All the formats of the
above, certificates are enclosed.

Important

IDBI has agreed as a special case to waive the requirements of bank guarantees and
instead accept the corporate guarantee of the buyer. However, this facility is available
only to buyers that are large and financially sound companies. Typically, all ‘AAA’ rated
companies will be eligible. Before processing the case under the scheme, HCL is
required to first clear the name of the company with IDBI. This approval will have to be
taken before the execution of documents with the customer.

The following documents will need to be submitted to IDBI for getting clearance
regarding waiver of bank guarantee :-
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 Annual report of the customer for the last three years.

 Un-Audited financial reports for the latest half year.
 A write up about the company.
 Copy of Performa invoice.
 Credit rating of the customers, if any.

Letter Of Credit

 Advising bank should be SBI, Noida or SBM, Nehru Place, New Delhi.
 Negotiation of letter of credit should not be restricted to any bank and should instead
be unrestricted for negotiation.
 Bank charges should be to the account of the opener.
 Partial shipment and transshipment should be permitted.
 Letter of Credit should be drawn on sight basis.
 If Letter of Credit are taken they should specifically state that interest will be to the
account of the opener.
 Some Letter of Credit are opened with a clause that documents shall be pre accepted
by the opener and shall accompany the negotiable documents. Such clauses lead to
an enormous delay and should not be accepted.

 Letter of credit including Sight Letter of credit terms them upon presentation of
documents by the beneficiary, the payment should be released immediately and
reimbursement claimed from (Delhi branch of opener bank).
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 This clause is an authorization from the letter of credit opening bank of the advising
bank to pay the beneficiary without waiting for confirmation from opening bank.

 The letter of credit should specifically have a clause that permits shipment before the
date of letter of credit.

PROCESS OF SALES INCENTIVE

Before giving the sales incentive HCL needs to verify the following:-

 Check the quarterly target of sales executive duly approved by Business Entity
Manager.

 Check order wise details.

 Bill receivable should be NIL as per incentive scheme.

 No C/D form is required.

 Incentive should be checked as per incentive scheme.

 Last step for verifying sales incentive is sending it for reimbursement of incentive
with salary duly approved by business entity manager.
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PROCESS OF SALES COMMISSION PAYMENT

In HCL Infosystems, Sales Commission is generally paid to the sales agent who is
responsible for Sale. Generally Sales Commission request is received by finance
department from BEM/RCEM. The Finance department requires a sales commission
request form to be filled up. The following procedure is followed by finance department
with regard to payment of sales commission:-

A. Receipt of sales commission request from BEM/RCEM.

a) The following details are to be provided in sales commission request form.

1) Customer Name.
2) Customer Code.
3) HCL order reference number.
4) Total order value.
5) Invoice number/date/amount.
6) Payment details with PRA number.
7) Amount of sales commission agent.

b) Sales commission request should be duly signed by BEM/RCEM.

B. Next step is to verify the following:-

1) Check order value of customer in SAP.

2) Check sales commission amount in SAP (ACCOUNT HEAD GL 54050)
3) Check the B/R status on the systems against the particular order and B/R Status
should be nil.
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4) Prepare sales commission papers along with agreement and clearance letter.

 If all the dues are nil, and get it signed from BEM/RCEM. In case of exceptions the
same are sent for directors approval.
 Sales commission paper are sent to head office accounts through transmittal note
along with complete address of sales agent.
 Minimum seven days time should be given for processing the sales commission at
Head Office.
 Head Office accounts will verify the paper, if the papers are okay then they will issue
the cheque.
 Head Office accounts will send the cheque directly to the address of sales agent
under intimation to regional finance office with complete details.

Regional accounts/finance shall update the manual ledger

The following is the format of the sales commission form

(a) Sales Commission Form

Date

Name of the sales agent

Name of the customer
Sales agreement no Date
Clearance Letter no Date
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Sales tax charged @

Is it IDBI case yes/no?

HO Invoice

Number Invoice no. Date Amount Challan no. Date Amount

1
2

Commission Payable

Number Confrigation Price without Commission Commission Remarks

cost rate payable

PURCHASE OF RAW MATERIALS

Purchase of raw materials (as enclosed in annextures) involves inviting quotations from
various suppliers. Purchase department carefully analyze these quotations and book
orders with the suppliers, which offer least price for the required materials. A large
portion of cash is utilized in purchasing raw materials.

SUGGESTIONS

The management of working capita plays a vital role in running of a successful business.
so things should go with a proper understanding for managing cash, receivables and
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inventory. Thus in this respect the suggestions for managing the working capital are as
follows:

 The business runs successfully with adequate amount of the working capital
but the company should see to it that the cash should not be tied up in
excessive amount of working capital.
 Though the present collection system is near perfect the company as due to
the increasing sales should adopt more effective measures so as to counter the
threat of bad debts
 The over purchasing function should be avoided as it can lead to liquidity
problems.
 The investment of cash in marketable securities should be increased, as it is
very profitable for the company.
 Holding of excessive and insufficient stock must be avoided as it creates a
burden on the cash resources of a business and result in lost sales, delays for
customers, etc respectively.