PROJECT REPORT ON WORKING CAPITAL MANAGEMENT OF BHEL

Under the guidance of: Mr. K.S. Mathur AGM (Finance)

Submitted by: Ruchi Gattani Proton Id: 09PR001011B032

PROTON business school Indore (M.P.) INDIA

CERTIFICATE
This is to certify that Ms. Ruchi Gattani, of PROTON business school, Indore has worked under my supervision for 6 weeks as per the course requirements of the institute for the independent project on Working Capital Management of BHEL. The study is only for academic purpose and is a genuine work done by the student. I further clarify that the above study is duly approved by me and the work has been carried out under my guidance.

Mr. K.S. Mathur AGM (Finance Department) BHEL, Bhopal

ACKNOWLEDGEMENT
I would like to express my profound gratitude to Mr. K.S.Mathur (A.G.M.) and the head of the department of finance B.H.E.L (Bhopal), for providing me the opportunity of writing this project report. No words can express my gratitude for Mr. S.N. Daga, the person who brought me into this unit & for providing all support and necessary guidance during these weeks of my internship/training. I am highly grateful & indebted to staff members of the cost, excise and sales department of B.H.E.L. I would like to extent my deep gratitude for their constant supervision, expert guidance, enthusiasm, continuous encouragement, sharp observation, suggestion. Their keen interest and support was the driving element in this project report. I would especially like to thank Mr. Vijay Jha for his guidance and his insights that helped a lot in making this report. I would also like to thank Vinay Goyal sir (Dean of PROTON business school, Indore), Tareen sir, Manmeet sir (Finance faculty) and all the other faculty members at PROTON business school who corrected me at every step. Lastly, I am highly indebted to my family, without their moral support this project could not have been possible. Ruchi Gattani (09PR001011B032) PROTON business school, Indore

Table of contents
S.N Index o. 1 1 About BHEL 2 1.1 Company Profile 3 1.2 Historical background and Milestones of BHEL 4 1.3 Different units of BHEL 5 1.4 Major manufacturing units plants and their products 6 1.5 BHEL Bhopal 7 1.5.1 BHEL Bhopals product profile 8 2 Finance and Accounts Department 9 2.1 Functions of the finance department 10 2.2 Names of the sections 11 3 Working Capital Management 12 3.1 Introduction 13 3.2 Factors determining the working capital requirements 14 3.3 Management of working capital 15 3.4 Establishing working capital needs 16 3.4.1 Operating cycle calculation 17 3.4.2 Ratio Analysis 18 3.5 Policies for financing current assets 19 4 Conclusion 20 5 Appendix

CHAPTER -1

ABOUT BHEL

1.1 COMPANY PROFILE

Bharat Heavy Electrical Limited (BHEL) was established in the late 50s, today, a name to reckon with in the industrial world. It is the largest engineering and manufacturing enterprise of its kind in India, and one of the leading international companies in the power field. BHEL manufactures over 180 products under 30 major product groups and caters to core sectors of the Indian Economy viz., Power Generation & Transmission, Industry, Transportation, Telecommunication, Renewable Energy, etc. The wide network of BHEL's 14 manufacturing divisions, four Power Sector regional centers, over 100 project sites, eight service centers and 18 regional offices, enables the Company to promptly serve its customers and provide them with suitable products, systems and services -- efficiently and at competitive prices. The high level of quality & reliability of its products is due to the emphasis on design, engineering and manufacturing to international standards by acquiring and adapting some of the best technologies from leading companies in the world, together with technologies developed in its own R&D centers. BHEL has acquired certifications to Quality Management Systems (ISO 9001), Environmental Management Systems (ISO 14001) and Occupational Health & Safety Management Systems (OHSAS 18001) and is also well on its journey towards Total Quality Management. BHEL's product range include: Steam turbines and generators of up to 500MW capacity for utility and combined-cycle applications; Steam turbines for CPP applications; Gas turbines of up to 260MW (ISO) rating; Custom-built conventional hydro turbines of Kaplan, Francis and Pelton types with

matching generators, pump turbines with matching motor-generators; Spherical, butterfly and rotary valves and auxiliaries for hydro station; HSD, LDO, FO, LSHS, natural-gas/biogas based diesel power plant; Industrial turbosets of ratings from 1.5 to 120MW; Steam generators for utilities, ranging from 30 to 500MW capacity, using coal, lignite, oil, natural gas or a combination of these fuels; Pulverized fuel fired boilers; Stoker boilers; Atmospheric fluidized bed combustion boilers; Circulating fluidized bed combustion boilers; Waste heat recovery boiler; Boiler Auxiliaries; Heat Exchangers & Pressure Vessels; Pumps; Power Station Control Equipment; Switchgears; Bus Ducts; Transformers; Insulators; Capacitors; Energy Meters etc.

Major Achievements of BHEL:

Acquired certifications for Quality Management Systems (ISO Environmental Management Systems (ISO 14001) and

9001),

Occupational Health & Safety Management Systems (OHSAS 18001). Installed equipment for over 90,000 MW of power generation. Supplied over 2,25,000 MVA transformer capacity and other

equipment operating in Transmission & Distribution network up to 400 kV (AC & DC).

Supplied over 25,000 Motors with Drive Control System to Power

projects, Petrochemicals, Refineries, Steel, Aluminum, Fertilizer, Cement plants, etc.

Supplied Traction electrics and AC/DC locos to power over 12,000 Supplied over one million Valves to Power Plants and other

km Railway network.

Industries.

1.2 HISTORICAL BACKGROUND AND MILESTONES OF BHEL

December 1946 August 1952 August 1952 Scope of setting up Heavy Electrical industry in India. Project revived by the ministry of production GadKari Committee formed of examining feasibility of state owned Heavy Electrical Industry. Collaboration agreement entered with EI, UK for 15 years BHEL registered Foundation stone laid Production started in Bhopal Break even reached BHEL received the ISO 9001 certificate TQM assessment undertaken that is the first among all the BHEL units.

January 1955 29thAug 1956 15th Nov. 1958 1st July 1960 1972 1973 1st Jan 1974 23rd to 28th 1998:

1.3 DIFFERENT UNITS OF BHEL

BHEL

Corporate office New Delhi

Corporate R&D Hyderabad

Region al offices
1.Noida 2.Kolkata 3.Nagpur 4.Chennai

Business offices

Manufacturing units

1.Chandigarh Services 2.Kolkata centres 3.Nagpur 4.Noida 5.Patna 6.Secunderabad 7.Vadodara 8.Varanasi

1.Bangalore 2.Bhubaneshwar 3.Chandigarh 4.Chennai 5.Guwahati 6.Haridwar 7.Jabalpur 8.Jaipur 9.Kolkata 10.Lucknow 11.Mumbai 12.New Delhi 13.Patna 14.Raipur 15.Ranchi 16.Secunderabad 17.Thiruvananthapuram 18.Vadodara

1.Bangalore [3] 2.Bhopal. 3.Goindwal 4.Haridwar [2] 5.Hyderabad 6.Jagdishpur 7.Jhansi 8.Ranipat 9.Rudrapur 10.Tiruchirappalli [2]

1.4 MAJOR MANUFACTURING PLANTS AND THEIR PRODUCTS

MANUFACTURING PLANT

PRODUCTS
Hydro Sets, Nuclear Turbines, Thermal Sets, Marine Turbines, AC Motors & Large Electric Motors, Power transformers, Traction Machines & Controls for Traction and Industrial Applications, Diesel Generating Sets, Switch Gear, Capacitors, Industrial Turbines. Power transformers, Freight Loco Transformers, ESP Transformers, Instrument Transformers, Dry type Transformers, A.C. Locos, Diesel Electric Shunters etc. Thermal sets, Gas Turbine Generator Sets, Combined Cycle/Cogan Plants, Industrial TG Sets, Compressors, Oil Rigs, Mills, Switchgear, Heat Exchanger etc. Thermal Sets, Nuclear Generators, Hydro Sets, Industrial Machines, Control Panels, Light Trainer Aircrafts, Gas Turbines, Defence Equipment, Electric Arc Furnances for melting Steel etc. Utility & Industrial Bowlers, Valves, Nuclear Steam Generators, Steam less Steel Tubes, Variable Speed Drives, Programmable Logic & Digital Controllers, Meters, Photo Voltaic/Solar panels, Insulators, Telecom Products & simulators Boiler Auxiliaries fans, Air Pre heaters. Wind Mills, Solar Water Heaters & Solar Lanterns. Industrial Valve

BHOPAL

JHANSI

HYDERABAD

HARIDWAR

TRICHY

BANGLORE RANIPET RUDRAPUR GOINDWAL

1.5 BHEL BHOPAL

Heavy Electrical Plant, Bhopal is the mother plant of Bharat Heavy Electricals Limited, the largest engineering and manufacturing enterprise in India in the energy-related and infrastructure sector, today. It is located at about 7 kms. from Bhopal Railway station, about 5 kms. from Habibganj Railway station and about 18 kms. from Raja Bhoj Airport. With technical assistance from Associated Electricals (India) Ltd., a UK based company; it came into existence on 29th of August, 1956. Pt. Jawaharlal Nehru, first Prime minister of India dedicated this plant to the nation on 6th of November, 1960. BHEL, Bhopal with state-of-the-art facilities, manufactures wide range of electrical equipments. Its product range includes Hydro, Steam, Marine & Nuclear Turbines, Heat Exchangers, Hydro & Turbo Generators, Transformers, and

Switchgears, Control gears, Transportation Equipment, Capacitors, Bushings, Electrical Motors, Rectifiers, Oil Drilling Rig Equipments and Diesel Generating sets. BHEL, Bhopal certified to ISO: 9001, ISO 14001 and OHSAS 18001, is moving towards excellence by adopting TQM as per EFQM / CII model of Business Excellence. Heat Exchanger Division is accredited with ASME U Stamp. With the slogan of Kadam kadam milana hai, grahak safal banana hai, it is committed to the customers. BHEL Bhopal has its own Laboratories for material testing and instrument calibration which are accredited with ISO 17025 by NABL. The Hydro Laboratory, Ultra High Voltage laboratory and Centre for Electric Transportation are the only laboratories of its in this part of the world. BHEL Bhopal's strength is its employees. The company continuously invests in Human Resources and pays utmost attention to their needs. The plant's Township, well known for its greenery is spread over an area of around 20 sq kms. and provides all facilities to the residents like, parks, community halls, library, shopping centers, banks, post offices etc. Besides, free health services is extended to all the employees through 350 bedded (inclusive of 50 floating beds) Kasturba Hospital and chain of dispensaries.

1.5.1 BHEL BHOPALS PRODUCT PROFILE

Hydro sets: Hydro turbines of Kaplan, Francis and pelton types with matching generators, values and auxiliaries, reversible pump storage sets, mini micro hydro sets, reversible pump turbine, and butterfly valves.

Thermal Sets: Steam turbines and generators up to 210MW,nuclear turbine of 236MW with matching condensers and Heat Exchangers and marine turbine for propulsion of naval frigates, moisture separator reheater for 500Mw nuclear turbines. Transformers: Power transformers up to 400KV, instrument transformer up to 400 KV and reactors up to 400KV. Switchgear: Indoor metal clad oil circuit breakers for 11 KV vacuum circuit breakers upto33 KV. Controlgear: 1. Controlgear contractors. 2. Traction controlgear, controlgear equipment for railways and other traction applications. 3. Control relay panels for power stations and transformer tap changers application. Capacitors: 1. Medium voltage and high voltage ratings up to 400KV systems. 2. Non PCB applicators. 3. Coupling capacitors up to 400KV class. 4. Surge capacitors for protection. 5. Electrical machines. Traction Equipment: 1. 2600/2400 Hp BG type wDM2 diesel electric locomotives with 2. traction generators as well as alternators rectifier sets. 3. 1380/1250 HP MG type YDM4 diesel electric locomotives. 4. 1400 HPBG type WDs6 diesel electric shunting locomotives. 5. 700 HP BG type WDS8d diesel electric shunting locomotives. 6. 4200 HP 1500 VDC typeWCG2 locomotives. 7. 1500 V BG DC multiple units for Bombay suburban. for industrial applications with air breaks vacuum

8. 25 KV BG electric multiple units for Calcutta, Delhi and madras. 9. 750 V DC metro railways for Calcutta. 10. 11. 600 V DC tramcars for Calcutta. Diesel multiple units for Indian railways.

Rectifier and electronic equipment: 1. Power rectifier equipment. 2. Thyristor converter for speed control of DC motors industrials drives.
3.

Power electronic equipment for power station and also for traction equipment.

CHAPTER -2

FINANCE & ACCOUNTS DEPARTMENTS

2.1 Functions of the Finance Department

The Finance Department is supposed to look after whether the expenses are going as per budget or not. Any expenses taking place cannot take place unless concurred by Finance Department. All purchase orders have to first concur by finance. After procurement bill processing and accounting is to be done by finance. They have to do stores co-ordination for pricing of materials. They are also engaged in foreign purchased bills and issue of C forms. They are involved in stores verification. All administration matters such as estimation of various expenses (finalization of budgets), computer co-ordination for design and proving of finance systems and data entry management and coordination of provident funds, keeping records of workers time and calculation of their wages, salary, administration and billing management and accounting of tour allowance and LTC are being done by them. They also manage work and miscellaneous funds, maintain the books of accounts, prepare various types of financial budgets, preparing timely MIRs, engaged in sales finance. Costing and cheque section is involved in cash planning and issue of cheques to the parties. There are mainly 11 sections (sub-departments) in the finance and accounts department of BHEL, Bhopal. They work in coalition with each other and are dependent on each other in their functions.

2.2 NAME OF THE SECTIONS

1. 2. 3. 4. 5.

Works section Cash planning section Books and budget section Sales section Purchase bills section

6. Foreign purchase section 7. Cost section 8. Stores section 9. T.A./ Pay/ Time and wages section 10. Assets section 11. Miscellaneous bills section

2.2.1 Works section:This section is assigned the job of accounting and financial control line of capital expenditures which may be for purchase, installation or erection of fixed assets within the plant or in township. For that, fixed asset register is maintained and additions, disposal, depreciation on such assets are recorded there in. This section as per the works policy of the company also authorizes the payment to contractors.

2.2.2 Cash planning section:This section is responsible for banking of all the moneys worth received by the company and disbursement of all authorized payment on behalf of company. It is concerned with receipt and payment of money in form of cash, cheque, bank drafts etc. on behalf of the company to the suppliers, contractors etc. payment of wages up to Rs.10, 000 is made by the cash section. The cash section is also entrusted certain other functions for efficient discharge of responsibilities to the section like arrangement/operation of cash credit facility with banks, preparation of cash flow statement, cash forecast and any other work Entrusted by the head of finance & accounts department.

2.2.3 Books and budget section:-

Books Section - This section deals with maintenance of journals, ledger and other records. This section collects information from all other section regarding their respective transaction. The work of accounting of all receipts and payment in cash/bank books and maintenance of register and other records is done this section. All the section transfers their data to books section through journal vouchers. The books section summarizes and consolidates the data of all section & prepares trial balance, which is drawn monthly. At the end of the financial year, books of account for that year is closed and final trial balance the profit & loss account and trail balance sheet of the unit is prepared. It coordinates inter unit reconciliation i.e. clearance of debit notes raised by other units on Bhopal unit in a meeting of BHEL units organized quarterly. It also coordinates statutory audit, government and tax audit for which they are supposed to furnish necessary information and explanation demanded by the auditors.

Budget Section It is concerned with preparation of cash budget. Cash budget is a statement forecasting future cash inflows and outflows. It is prepared annually in the month of January. At the end of each year a comparative study of budgeted and actual inflows and outflows is made. If variance is more than 10% the department explores the reasons for the variation. Cash budged are of two types: Capital Revenue Budget section prepares only revenue budgets. Forecasting revenue and expenses of recurring nature prepare cash flows statements monthly on the basis of expected cash inflows and outflows. On the basis of cash flows statement cash is sanctioned to BHEL unit by the Corporate Head Quarters.

2.2.4 Sales section: The accounting of sales is done in this section. The activity of this section start when the commercial department issues a work order. The work order is issued in three parts: Technical (part 1) Financial (part 2) Shipping dispatch (part 3)

The work order part 2 comes to sales section, which summarizes the financial terms of the contract. It contains the information like name of the customer & consignee, description of goods to be produced and sold, quantity, sales value, terms of delivery and payment, price variation clause, bank guarantee, freight, percentage of excise duty, sales tax, surcharge etc. In sales section mainly following activities are involved: Billing Accounting of advance & sundry debtors Records of collection Preparing MIR

Basic documents for billing are dispatch advice notes from clearance dispatch cell (CDC). Excise invoice. Lorry, packing list and other certificates. Here care is taken that particulars furnished in these documents matches which those given in work order part 2 then invoices are sent to customers either directly or through financial agencies like banks. Collection is done either directly by the unit or regional operation division (ROD) of BHEL scattered all over India. The proceeds collected are deposited in centralized account from which withdraw is not permitted by unit or ROD. It can be done by officer concerned at corporate office. Accounting is done for bills raised, collection from customers outstanding with them and preparation of ledger and schedules related there to.

2.2.5 Purchase bills section:This section deals with the payment of suppliers bills. This department receives the following documents: A. Purchase order from the material management department. B. Stores receipt voucher from stores department. (IFX) C. Bills from suppliers. (Directly) This section deals with the quantity and the rate of material ordered. The terms and conditions of the purchase are shown in Purchase Order (PO). Store Receipt Voucher (SRV) is duly priced in the document of the receipt of materials by the stores department. Direct suppliers bill is the documents presented by the supplier for the settlement of his claim for the materials supplied. On the basic of these documents, the payment is made to supplier either directly or though bank. Bank payment though bank is made against Letter of Credit (LC) or hundis. In such cases suppliers route their documents i.e. original copy of invoice & LR through the bank. Bank: Intimates the same to purchase bills section. On receipt of such intimates from bank bill is processed for payment. After getting payment from BHEL, the bank releases the documents in its custody of BHEL. On producing these documents with the transporter, deliver of material can be taking. Clean advance payment is done against Performa invoice or on receipt of delivery receipt voucher acknowledged from material management department in such cases adjustment of advance payment in done later when SRV comes.

2.2.6 Foreign purchase section:

In cases of foreign purchases the export of material demand latter of credit (L C). LC is opened with the local branch of bank, which intimates the overseas branches of BHEL. On knowing this the exporters supply the materials through their authorized agencies. The documents are released by the banks on getting payments from BHEL and proceeds by the banker remitted to its overseas branch, which gives credit to exporter. In some cases, BHEL demands bank guarantee from fabricators or subcontractors to ensure timely of materials. The following Management Information report are prepared by supply section & furnished to higher management. types: C-form for suppliers outside M.P. Form 33-D form suppliers within M.P. F-form for inter unit transfers. Form 33-D form for the non-productive items. Outstanding bills statement. Objectionable bill Bills dependency report Daily bills register

Supply bill section issues central sales tax forms (c-form), which are following

When CST forms are utilized by BHEL, it has to submit consumption statements to sales tax authorities certified by officers concerned of BHEL.

2.2.7 Cost section: -

This section carries out the function of determining element wise cost. The identification of cost in relation to sales realizable value is done here. The costs are determined for a specific work order as a percentage of sales on the basic of past data. A number given by commercial department identifies each work order. The cost is mainly on account of raw material. Direct material is about 45% of cost. The labour constitutes 15% and overheads 40% of cost. The profit before tax is around 5% here one thing worth mentioning is that BHEL has been able to do the orders mainly on account of low labour cost and hence quoting lower sale in comparison to the competitors. At the year-end, actual cost is compared with the budget amount and then analyzed and variance is calculated. If variance is significant it is booked to cost otherwise it is charged off through profit & loss account.

2.2.8 Store section: Price store ledger (PSL) section is entrusted with the job of material pricing and determination of material consumption. Each material consumed in the unit is given a material code of 12 digits. PSL section does pricing of SRV with the help of PO terms and send it to supply bill section for payment. PSL does the material accounting as well as their financial accounting. The documents involved are SRV Stores Receipt Voucher MIV Material Issue Voucher SRN Store Return Note STV Store Transfer Voucher EIV External Issue Voucher

The evaluation is done on the basis of weighted average method. PSL is having financial control on inventory, which is possible by physical verification of the stock. In physical verification it is seen that balance as per PSL is exiting physically in store or not.

2.2.9 T.A./ Pay /Time and wages section: This section deals with the payment of advances going on official tours, LTC etc, assessment of sales tax, export incentives & duty drawbacks and other matters relating to sales tax and, payment to transporters, welfare activities, department & petty other expenses. This section deals with the payment of salaries & T.A. to employees. This section also looks after the medical claims and funds. For the payment purposes, BHEL Bhopal has computerized pay rolls processing system. Each employee is allotted with a staff number and provided with a clock card. Employees have to punch the clock card at the time of entering and leaving the premises. At the end of month, the clock card is processed by the establishment section and time sheet is prepared by EDP. TA to employees going out side for official tours. Medical claims of employees are paid by the section.

2.2.10 Assets section:This section deals with the maintenance of the record of assets. For entering any assets in the assets books require a plant card. Plant card is prepared when any assets is installed in any requisite location.

2.2.11 Miscellaneous section:This section mostly deals with the insurance function of BHEL. Apart from insurance work it also makes some other miscellaneous payments which are not covered in any of the sections. It lodges the claims for insurance to the respective insurance companies. BHEL, Bhopal has taken the following insurance policies: Fire policy Marine open transit policy

 Special contingency insurance policy Storage cum erection policy Export-import policy

Chapter 3

WORKING CAPITAL MANAGEMENT

3.1 Introduction
Capital required for a business can be classified under two main categories via, 1) Fixed Capital 2) Working Capital Every business needs funds for two purposes for its establishment and to carry out its day- to-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day to- day expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing shortterm or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving fast and

are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital. Working capital is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. Net working capital is working capital minus cash (which is a current asset) and minus interest bearing liabilities (i.e. short term debt). Working Capital = Current Assets Current Liabilities A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing shortterm debt and upcoming operational expenses. There are two concepts of working capital gross and net. Gross Working Capital refers to the firms investment in current assets. Current assets are the assets which can be converted into cash within an accounting year and include cash, short-term securities, debtors, bills receivables and stock(inventory). Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors, bills payable and outstanding expenses. Net working capital can be positive or negative. The gross working capital focuses on two aspects of current assets management: 1. How to optimize investment in current assets? 2. How should current assets be financed?

Investment in current assets should be adequate to the needs of the firm. Excessive investment in current assets should be avoided because it impairs the firms profitability as idle investment yields nothing. Another aspect of gross working capital points to he need of arranging funds to finance current assets. Whenever a need for working capital arises financing should be made quickly. Net working capital is a qualitative concept and it indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. Current asses should be sufficiently in excess of current liabilities to constitute a margin or buffer for maturing obligations within the ordinary operating cycle of a business. Both the concepts have their own merits. The gross concept is sometimes preferred to the concept of working capital for the following reasons: 1. It enables the enterprise to provide correct amount of working capital at correct time. 2. Every management is more interested in total current assets with which it has to operate then the source from where it is made available. 3. It take into consideration of the fact every increase in the funds of the enterprise would increase its working capital. 4. This concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for following reasons: It is qualitative concept, which indicates the firms ability to meet to its operating expenses and short-term liabilities. It indicates the margin of protection available to the short term creditors. It is an indicator of the financial soundness of enterprises. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds. The need for working capital to run day-to-day business activities cannot be ignored. There is always an operating cycle involved in the conversion of sales into cash. Operating cycle is the time duration required to covert sales after the conversion of resources into inventories, into cash. On the basis of time, working capital may be classified as: Permanent or fixed working capital Temporary or variable working capital Permanent or fixed working capital: Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw material, work- in-process, finished

goods and cash balance. This minimum level of current assts is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets. Temporary or variable working capital: Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc. Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business. IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL Solvency of the business: Adequate working capital helps in maintaining the solvency of the business by providing uninterrupted of production. Goodwill: Sufficient amount of working capital enables a firm to make prompt payments and makes and maintain the goodwill. Easy loans: Adequate working capital leads to high solvency and credit standing can arrange loans from banks and other on easy and favorable terms. Cash discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence reduces cost. Regular supply of raw material: Sufficient working capital ensures regular supply of raw material and continuous production. Regular payment of salaries, wages and other day To day commitments: It leads to the satisfaction of the employees and raises the morale of its employees, increases their efficiency, reduces wastage and costs and enhances production and profits. Exploitation of favorable market conditions: If a firm is having adequate working capital then it can exploit the favorable market conditions such as purchasing its requirements in bulk when the prices are lower and holdings its inventories for higher prices. Ability to face crises: A concern can face the situation during the depression. Quick and regular return on investments: Sufficient working capital enables a concern to pay quick and regular of dividends to its investors and gains confidence of the investors and can raise more funds in future.

High morale: Adequate working capital brings an environment of securities, confidence, high morale which results in overall efficiency in a business.

EXCESS OR INADEQUATE WORKING CAPITAL Every business concern should have adequate amount of working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate nor shortages of working capital. Both excess as well as short working capital positions are bad for any business. However, it is the inadequate working capital which is more dangerous from the point of view of the firm. DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL Excessive working capital means ideal funds which earn no profit for the firm and business cannot earn the required rate of return on its investments. Redundant working capital leads to unnecessary purchasing and accumulation of inventories. Excessive working capital implies excessive debtors and defective credit policy which causes higher incidence of bad debts. It may reduce the overall efficiency of the business. If a firm is having excessive working capital then the relations with banks and other financial institution may not be maintained. Due to lower rate of return n investments, the values of shares may also fall. The redundant working capital gives rise to speculative transactions. DISADVANTAGES OF INADEQUATE WORKING CAPITAL Every business needs some amounts of working capital. The need for working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle involved in sales and realization of cash. There are time gaps in purchase of raw material and production; production and sales; and realization of cash. Thus working capital is needed for the following purposes: For the purpose of raw material, components and spares. To pay wages and salaries To incur day-to-day expenses and overload costs such as office expenses. To meet the selling costs as packing, advertising, etc. To provide credit facilities to the customer. To maintain the inventories of the raw material, work-in-progress, stores and spares and finished stock.

For studying the need of working capital in a business, one has to study the business under varying circumstances such as a new concern requires a lot of funds to meet its initial requirements such as promotion and formation etc. These expenses are called preliminary expenses and are capitalized. The amount needed for working capital depends upon the size of the company and ambitions of its promoters. Greater the size of the business unit, generally larger will be the requirements of the working capital. The requirement of the working capital goes on increasing with the growth and expensing of the business till it gains maturity. At maturity the amount of working capital required is called normal working capital. There are others factors also influence the need of working capital in a business.

3.2 FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS: The requirements of working is very limited in public utility undertakings such as electricity, water supply and railways because they offer cash sale only and supply services not products, and no funds are tied up in inventories and receivables. On the other hand the trading and financial firms requires less investment in fixed assets but have to invest large amt. of working capital along with fixed investments. 2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of working capital. 3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating inventories it will require higher working capital. 4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material and other supplies have to be carried for a longer in the process with progressive increment of labor and service costs before the final product is obtained. So working capital is directly proportional to the length of the manufacturing process. 5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger working capital than in slack season. 6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital. 7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the question of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover. 8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its product / services on cash requires lesser amt. of working capital and vice-versa.

9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need for larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business, etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtor and the firm may have a large amt. of working capital. 10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large amt. of working capital. 11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also affects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profits needs working capital than the firm that retains larger part of its profits and does not pay so high rate of cash dividend. 12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital requirements. Generally rise in prices leads to increase in working capital.

3.3 MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in attempting to manage the current assets, current liabilities. The basic goal of

working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations are bad for any firm. There should be no shortage of funds and also no working capital should be ideal. Working capital management policies of a firm has a great on its probability, liquidity and structural health of the organization. So working capital management is three dimensional in nature as: 1. It concerned with the formulation of policies with regard to profitability, liquidity and risk. 2. It is concerned with the decision about the composition and level of current assets. 3. It is concerned with the decision about the composition and level of current liabilities. We know that a firm should aim at maximizing the wealth of its shareholders. In its endeavor to do so, a firm should earn sufficient return from its operations. Earning a steady amount of profit requires successful sales activity. The firm has to invest enough funds in current assets for generating sales. Current assets are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into cash. Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The operating cycle of a manufacturing company involves three phases: Acquisition of resources such as raw material, labor, power, fuel, etc. Manufacturing the product which includes conversion of raw material into work-in-progress into finished goods. Sale of the product either for cash or on credit. Credit sales create account receivable for collection. The length of the operating cycle of a manufacturing firm is the sum of (i) inventory conversion period (ICP) and (ii) debtors conversion period (DCP). The ICP is the total time needed for producing and selling the product. It includes: (a) raw material conversion period (RMCP), (b) work-in process conversion period (WIPCP) and (c) finished goods conversion period (FGCP). The debtors conversion period is the time required to collect the outstanding amount from the customers. The total of inventory conversion period and debtors conversion period is referred to as gross operating cycle (GOC). In practice, a firm may acquire resources on credit and temporarily postpone payment of certain expenses. Payables, which the firm can defer are

spontaneous sources of capital to finance investment in current assets. The creditors (payables) deferral period (CDP) is the length of time the firm is able to defer payments on various resources purchases. The difference between gross operating cycle and payables deferral period is net operating cycle (NOC). If depreciation is excluded from expenses in the computation of operating cycle, the net operating cycle also represents the cash conversion cycle (CCC). It is the net time interval between cash collections from sale of product and cash payments from resources acquired by the firm. It also represents the time interval over which additional funds called working capital, should be obtained in order to carry out the firms operations. The firm has to negotiate working capital from resources such as commercial banks. The negotiated sources of working capital financing are called non-spontaneous sources. If net operating cycle of a firm increases, it means further need for negotiated working capital.

3.4 ESTIMATING WORKING CAPITAL NEEDS

As we know working capital is the life blood and the centre of a business. Adequate amount of working capital is very much essential for the smooth running of the business. And the most important part is the efficient management of working capital in right time. The liquidity position of the firm is totally effected by the management of working capital. So, a study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the working capital is employed in a business. This involves the need of working capital analysis. The analysis of working capital can be conducted through a number of devices, such as: 1. Calculation of the Operating cycle of the firm 2. Ratio analysis

Statement of cost of sales

S.N o. ITEMS 20072008-09 08 (Figures in Rs. Crores) 16063.9 9 1693.66 10069.3 1 2607.69 297.21 624.31 13598.5 2 1875.63 2548.53 12925.6 2 1693.66 2608.71 15148.9 4 2983.68 334.27 636.68 19103.5 7 2548.53 3612.59 18039.5 1

1 2 3 4 5 6 7 8 9 10 11

Purchase of raw material Opening raw material inventory Closing raw material inventory Raw material consumed (1+2 3) Direct labor Depreciation Other manufacturing expenses Total cost (4+5+6+7) Opening WIP inventory Closing WIP inventory Cost of production (8+9-10)

12 13 14 15 16

Opening FG inventory Closing FG inventory Cost of goods sold (11+1213) Selling, admin & general expenses Cost of sales (14+15)

302.56 472.98 12755.2 1644.23 13775.4 8

472.98 519.00 17993.4 9 1835.77 19195.8

3.4.1 Method 1: Operating cycle calculation

Table 3.2

S.No . 1 a) b ) c) d ) 2 a) b ) c) d )

Items Raw Material Conversion Period Raw material consumption Raw material consumption per day Raw material inventory Raw material inventory holding days (RMCP) Work In Process Conversion Period Cost of production Cost of production per day Work in process inventory Work in process inventory holding days (WIPCP)

2008-09 (in Rs. Crores) 15148.94 42.08 2608.71 62 days

18039.51 50.11 3612.59 73 days

3 a) b ) c) d ) 4 a) b ) c) d ) 5 a) b ) c) d )

Finished Goods Conversion Period Cost of goods sold Cost of goods sold per day Finished goods inventory Finished goods inventory holding days (FGCP) Collection Period Credit sales Sales per day Debtors Debtors outstanding days (DCP) Creditors Deferral Period Credit purchases Credit purchase per day Creditors Creditors outstanding days (CDP) 16063.99 44.62 5852.85 132 days 17993.49 49.98 519.00 2 days

27649.90 76.80 15975.50 208 days

Inventory Conversion Period (ICP) = RMCP + WIPCP + FGCP ICP = (62 + 73 + 2) days = 137 days DCP = 208 days Gross Operating Cycle (GOC) = ICP + DCP GOC = 137 + 208 = 345 days Net Operating Cycle (NOC) = GOC CDP NOC = 137 132 = 5 days Interpretation: For a big manufacturing unit like BHEL, it is not possible to make such huge transactions on a day to day basis. These transactions are made on a monthly basis so their budget is prepared accordingly. Seeing the gross

operating cycle and the net operating cycle from the above table 3.2 it is very much obvious that it takes approximately a year for BHEL for the acquisition of resources, conversion of raw materials into work-in-process into finished goods, conversion of finished goods into sales and collection of sales. And thus it is obvious that BHELs investment in current assets would be higher as compared to that of fixed assets. In fact, there are many products manufactured by BHEL which take as long as three years for the manufacturing. In such cases, the product is delivered in parts and the payment is also done accordingly as per the terms and conditions of the contract. And we can see (Schedule 8) that the current assets of BHEL are as high as Rs.34477.40 crores in 2008-09 and the fixed assets only account for Rs.2679.91 crores. And so we can see that the current assets of BHEL are as high as 92% as a percentage of the total assets. It is this value of GOC and NOC which helps the firm to determine the holding period for inventory. As this too accounts for cost, so the firm has to make its policies in such a way that their holding cost is minimum. And if we see from table 3.2, it can be clearly observed that BHEL has a very low finished goods inventory holding period of two days. And we can very understand it why is it so. The reason behind this is very simple; the products manufactured by BHEL are heavy electrical goods and are huge in size. To keep them in the warehouse would only delay their onsite operation because most of the times their products are delivered in parts and it is on the actual site, where they are assembled. The more they delay the delivery process, the more delay they would have in the payment and so BHEL cannot afford to do that as their transactions deal in thousands of crores of rupees which can affect their operating cycle to a great degree. Another reason why the finished goods holding period is very less in BHEL is because of its king of orders. BHEL gets customized orders from its customers (like the state electricity boards, power stations (thermal and hydro), etc) and therefore BHEL has no need to worry about stock out. As soon as the product is made and the paper work is done, then the product is dispatched from the BHEL unit. Also the requirement of working capital finance can be reduced to the extent the firm is able to exploit the credit extended by suppliers. And as can be seen, the creditors conversion period is 132 days which is very high and thus BHEL is able to cut down on its working capital finance needs. The RMCP and WIPCP as observed from the table 3.2 are high is we compare it to any other industry but because BHEL is a heavy electrical goods manufacturing unit therefore the above two holding periods are very high. Talking specifically about the BHEL Bhopal unit, then it caters to the maximum product range manufactured by all the BHEL units throughout India. For instance, if we talk about transformers or nuclear turbines, then manufacturing it may take as long as 2-3 years and thus the product is

manufactured and delivered in parts and it is on the actual power sit where the parts are assembled ad installed together. Any error in manufacturing could account for a huge cost because there are huge costs involved even in a single day work of rectification which could go in crores of rupees.

3.4.2 Method 2: Ratio Analysis

Ratio analysis involves establishing a relevant financial relationship between components of financial statements. It helps in identifying significant relationships between financial statement items for further investigation. If used with understanding of industry factors and general economic conditions, it can be a powerful tool for recognizing a companys strengths as well as its potential trouble spots. Although there are many financial ratios but in context of working capital management, I would be discussing the following ratios: 1. 2. 3. 4. 5. Current ratio Quick ratio Inventory turnover ratio Debtors turnover ratio Working capital turnover ratio

Current Ratio, also known as working capital ratio is a measure of general liquidity and its most widely used to make the analysis of short-term financial position or liquidity of a firm. It is defined as the relation between current assets and current liabilities. Thus, CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITES Current assets include cash, marketable securities, bill receivables, sundry debtors, inventories and work-in-progresses. Current liabilities include outstanding expenses, bill payable, dividend payable etc. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time. On the other hand, a low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to be satisfactory.

Calculation of current ratio Year Current Assets Current Liabilities Current Ratio 2007-08 27906.18 16576.45 1.68 2008-09 36901.07 23357.32 1.58 (Figures in Rupees crores) 2009-10 42934.80 28023.70 1.53

Interpretation: As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the company for last three years it has decreased from 2007-08 to 2009-10. The current ratio of company is less than the ideal ratio. This depicts that companys liquidity position is reasonable but the current liabilities of BHEL are very high. It indicates that the short-term solvency of BHEL is low. Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be liquid if it can be converted into cash with a short period without loss of value. It measures the firms capacity to pay off current obligations immediately. QUICK RATIO = QUICK ASSETS CURRENT LIABILITES Quick Assets include marketable securities, cash in hand and cash at bank and Debtors. A high ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time and on the other hand a low quick ratio represents that the firms liquidity position is not good. As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if quick assets are equal to the current liabilities then the concern may be able to meet its short-term obligations. However, a firm having high quick ratio may not have a satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm having a low liquidity position if it has fast moving inventories. Calculation of quick ratio (Figures in Year rupees crores) 2007-08 2008-09 2009-10

Quick Assets Current Liabilities Quick Ratio

15931.31 16576.45 0.96

20925.57 23357.32 0.89

33699.3 28023.70 1.20

Interpretation : A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time. The ideal quick ratio is 1:1. BHELs quick ratio is fluctuating. Though in 2007-08 and 2008-09 and if we see the debtors conversion period from table 3.2 then we can understand that why the quick ratio is low because the debtors turnover is of 208 days.

Current assets movement ratios Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume of sales. The better the management of assets, large is the amount of sales and profits. Current assets movement ratios measure the efficiency with which a firm manages its resources. These ratios are called turnover ratios because they indicate the speed with which assets are converted or turned over into sales. Depending upon the purpose, a number of turnover ratios can be calculated. These are: Inventory Turnover Ratio Debtors Turnover Ratio Working Capital Turnover Ratio The current ratio and quick ratio give misleading results if current assets include high amount of debtors due to slow credit collections and moreover if the assets include high amount of slow moving inventories. As both the ratios ignore the movement of current assets, it is important to calculate the turnover ratio. Inventory Turnover or Stock Turnover Ratio: Every firm has to maintain a certain amount of inventory of finished goods so as to meet the requirements of the business. But the level of inventory should neither be too high nor too low. Because it is harmful to hold more inventory as some amount of capital is blocked in it and some cost is involved in it. It will therefore be advisable to dispose the inventory as soon as possible. Inventory turnover ratio measures the speed with which the stock is converted into sales. Usually a high inventory ratio indicates an efficient management of inventory because more frequently the stocks are sold,

lesser is the amount of money required to finance the inventory whereas low inventory turnover ratio indicates the inefficient management of inventory. A low inventory turnover implies over investment in inventories, dull business, poor quality of goods, stock accumulations and slow moving goods and low profits as compared to total investment. Debtors turnover ratio: A concern may sell its goods on cash as well as on credit to increase its sales and a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors. Trade debtors are expected to be converted into cash within a short period and are included in current assets. So liquidity position of a concern also depends upon the quality of trade debtors. Debtors velocity indicates the number of times the debtors are turned over during a year. Generally higher the value of debtors turnover ratio the more efficient is the management of debtors/sales or more liquid are the debtors whereas a low debtors turnover ratio indicates poor management of debtors/sales and less liquid debtors. This ratio should be compared with ratios of other firms doing the same business and a trend may be found to make a better interpretation of the ratio. Chart 3.1

As evident from the data in the chart 3.1 the inventory turnover is initially decreasing then increasing from 2006-07 and same is the case with the debtors turnover. The debtors turnover is very high and it equals nearly 7 months for 2008-09. Therefore the financing of BHEL gets delayed and thus the working capital requirement increases. Working capital turnover ratio: Working capital turnover ratio indicates the velocity of utilization of net working capital. This ratio indicates the number of times the working capital

is turned over in the course of the year. This ratio measures the efficiency with which the working capital is used by the firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover is not a good situation for any firm. Working Capital Turnover Ratio = Net Sales Net current assets (Figures in rupees crores) Year 2007-08 2008-09 2009-10 Net Sales 21576.66 28861.23 32880.30 Net current assets 7883.88 8568.17 10493.10 Working Capital Turnover 2.73 times 3.36 times 3.13 times Interpretation : This ratio indicates low much net working capital required for sales. In 200708, the reciprocal of this ratio (1/2.73 = 0.36) shows that for sales of Rs. 1 the company requires 36 paisa as working capital. Similarly, for 2008-09 and 2009-10 the working capital requirement for Rs.1 sale is 29 paisa and 31 paisa respectively or we can say that for Rs. x sales, the working capital requirement for BHEL is approximately 30% of its sales. Thus this ratio is helpful to forecast the working capital requirement on the basis of sale.

A number of factors will govern the choice of methods of estimating working capital needs. Factors such as seasonal variations in operations, accuracy of sales forecasts, investments cost and variability in sales price would generally be considered. The product cycle and credit and collection policy of the firm would have an impact on working capital requirements. Therefore, they should be given a weightage in projecting working capital requirements.

3.5 Policies for Financing Current assets

A firm can adopt different financing policies vis--vis current assets. Three types of financing may be distinguished: Long-term financing: The sources of long-term financing include ordinary share capital, preference share capital, debentures, long-term borrowings from financial institutions and reserves and surplus (retained earnings). Short-term financing: the short-term financing is obtained for a period less than one year. It is arranged in advance from banks and other suppliers of short-term finance I the money market. Short-term finances include working

capital funds from banks, public deposits, commercial paper, factoring of receivables etc. Spontaneous financing: Spontaneous financing refers to the automatic sources of short-term funds arising in the normal course of a business. Trade (suppliers) credit and outstanding expenses are examples of spontaneous financing. There is no explicit cost of financing. A firm is expected to utilize these sources of finance to the fullest extent. The real choice of financing current assets, once the spontaneous sources of financing have been fully utilized, is between the long-term and short-term sources of finance. Depending upon the mix of short-term and long-term sources in financing current assets, the approach followed by a company may be referred to as: Matching approach Conservative approach Aggressive approach When the firm follows matching approach (also known as hedging approach), long-term financing will be used to finance fixed assets and permanent assets and short-term financing to finance temporary or variable current assets. However, it should be realized that exact matching is not possible because of uncertainty about the expected lives of assets. The firms fixed assets and permanent current assets are financed with long-term funds and as the level of these assets increases, the long-term financing level also increases. The temporary or variable current assets are financed with short-term funds and as their level increases, the level of short-term financing also increases. Under matching plan, no short-term financing will be used if the firm has a fixed current assets need only. Under a conservative plan, the firm finances its permanent assets and also a part of temporary current assets with long-term financing. In the periods when the firm has no need of temporary current assets, the idle long-term funds can be invested in the tradable securities to conserve liquidity. The conservative plan relies heavily on long-term financing and, therefore, the firm has less risk of facing the problem of shortage of funds. An aggressive policy is said to be followed by the firm when it uses more short-term financing than warranted by the matching plan. Under an aggressive policy, the firm finances a part of its permanent current assets with short-term financing.

From the balance sheet of BHEL, we obtain the following data:

Table 3.3 200708 Long-term 10774 financed funds .21 Short-term 95.18 financed funds Year

200809 12938 .81 149.3 7

200910 15917 .30 127.8

As per the data from the above table 3.3, we can only interpret the rough percentage of long-term and short-term capital of BHEL. We cannot interpret as to what amount of capital was used for financing current assets and fixed asset or investments.

5 Conclusion

The working capital management of a big firm like BHEL is not that easy. Since the scale of operations of BHEL is very large therefore its working capital requirements is also very large. In order to maintain a balance between risk and returns, the investment in fixed and current assets needs to be done with extreme care. One wrong decision could have a severe blow on the financial statements of the company. Since, I was able to get the data of BHEL as a whole and not BHEL (Bhopal), all my findings are as per the centralized data of the company. From observation of the two methods used to estimate the working capital needs of BHEL, we can say that the working capital requirement for BHEL in a particular year can be assumed to be around 30 percent of its total sales. The policies of taking short-term and long-term loans and financing their requirements needs to be framed by the corporate office keeping the working capital requirements in their minds.

APPENDIX