HAMDARD UNIVERSITY

WORKING CAPITAL
Working Capital Management is the process of planning and controlling the level and mix of current assets of the firm as well as financing these assets. Specifically, Working Capital Management requires financial managers to decide what quantities of cash, other liquid assets, accounts receivables and inventories the firm will hold at any point of time.

The dangers of excessive working capital:

1. It results in unnecessary accumulation of inventories. Thus the chances of inventory mishandling, waste, theft and losses increase 2. It is an indication of defective credit policy and slack collection period. Consequently higher incidences of bad debts occurs which adversely affects the profits. 3. It makes the management complacent which degenerates into managerial inefficiency 4. Tendencies of accumulating inventories to make speculative profits grow. This may tend to make the dividend policy liberal and difficult to copes within future when the firm is unable to make speculative profits.

The dangers of inadequate working capital:

1. It stagnates growth .It becomes difficult for the firms to undertake profitable projects for non-availability of the WC funds. 2. It becomes difficult to implement operating plans and achieve the firms profit targets 3. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day commitments. 4. Fixed assets are not efficiently utilized. 5. It renders the firm unable to avail attractive credit opportunities etc. 6. The firm loses its reputation when it is not in position to honor its shortterm obligations. As a result the firm faces a tight credit terms

HAMDARD UNIVERSITY
2

CALCULATION OF WORKING CAPITAL OF BHEL

2010
Total Current Assets Total Current Liabilities 429348 324417

2009
369010.7 283329

2008
279061.8 200223

2007
210629.7 144201.1

2006
163307.8 103200.2

2005
133429.79 99213.58

NET W/CAPITAL ( CA - CL )

104931

85681.7

78838.8

66428.6

60107.6

34216.2 1

HAMDARD UNIVERSITY
3

1000000 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 2005 2006 2007 2008 2009 2010

NET W/CAPITAL ( CA - CL ) Total Current Liabilities Total Current Assets

FINANCIAL PERFORMANCE
2008-2009 2009-2010 PERCENTAGE CHANGE

Tr oe unvr
(Rs. Crore) 28033 34154 22

P o B fo e r fit e r Tx a
(Rs. crore) 4849 6590 36

Ntp o e r fit
(Rs. crore) 3138 4310 37

HAMDARD UNIVERSITY
4

Ntw r e o th
(Rs. crore) 12939 15721 22

E r in s P r an g e S ae hr
(Rs.) 64.11 88 37

V lu a d dp r a e de e e p ye m lo e
(Rs. Lakh) 21.67 27.70 28

Cp l a ita In e e t v stmn
(Rs. Crore) 1082 1767 63

CHALLENGES:
o Technology Transition As BHEL moves to supercritical business need to have a strong vendor base to support also existing vendors require technology upgrade as present setup is not sufficient to support this. o Increased international competition.
o Increased domestic competition like, L&T JV with Mitsubishi.

BALANCE SHEET
for the year ended 31st March, 2009

Schedule

For the year ended 31.03.2009

For the year ended 31.03.2008

SOURCES OF FUNDS Shareholder' Fund Share Capital Reserves & Surplus Loan Funds Secured Loans Unsecured Loans

1 2 3 4

489.52 12449.29 0.00 149.37 149.37 12938.81

489.52 10284.69 10774.21 0.00 95.18 95.18

HAMDARD UNIVERSITY
5
13088.18 10869.39

APPLICATION OF FUNDS Fixed Assets Gross Block Less: Depreciation/Amortisation to-date Less: Lease Adjustment Account Net Block Capital Work -in-Progress Investments Deferred Tax Assets Net (Refer note no.20 of Schedule 19) Current Assets, Loans& Advances Current Assets Inventories Sundry Debtors Cash & Bank Balance Other Current assets Loans and Advances Less: Current Liabilities & Provisions Current Liabilities Provisions Net current assets

5224.87 3713.25 1511.62 41.22 1470.4 1156.97 52.34 1840.30 2627.37

6 7

4443.47 3403.08 1040.39 59.13 981.26 658.03 1639.29 8.29 1337.93

8
7837.02 15975.50 10314.67 350.21 2423.67 36901.07 5736.40 11974.87 8386.02 421.09 1387.80 27906.18

1 0 1 1

23357.32 4975.58 28332.90 8568.17 13088.18

16576.45 3445.85 20022.30 7883.88 10869.39

PROFIT & ACCOUNT

LOSS

HAMDARD UNIVERSITY
6

for the year ended 31st March, 2009 Schedule EARNINGS Turnover (Gross) Less: Excise duty & Service Tax Turnover (Net) Other Income Accretion/Decretion to Work-inprogress & Finished Goods OUTGOINGS Consumption of Material, Erection and Engineering Expenses Employees' remuneration & benefits Other expenses of Manufacture, Administration, selling and Distribution Provisions (net) Interest & other borrowing costs Depreciation and amortisation Less: Cost of jobs done for internal use Profit before prior period items Add/(Less): Prior period items (Net) Profit before tax Less: Provision for taxation For Current Year :- Current tax (incl. wealth tax Rs. 0.17 crore (Previous year Rs. 0.07 crore) :- Fringe Benefit Tax :- Deferred Tax For earlier years :- Tax (includes Income Tax abroad Rs. 8.48 crore) :- Fringe Benefit Tax For the year ended 31.03.2009 28033.19 1820.86 26212.33 1497.36 1151.54 28861.23 For the year ended 31.03.2008 21401.01 2096.37 19304.64 1444.76 827.26 21576.66

12

12A 13

14 15 16 17 18 5

17620.05 2983.68 1835.77 1280.97 30.71 334.27 61.18 24024.27 4836.96 11.89 4848.85

11820.87 2607.69 1644.23 778.25 35.42 297.21 38.32 17145.35 4431.31 -0.92 4430.39

18A

2250.17

1934.95

40.00 -502.37 1787.80 -77.72

27.1 -402.77 1559.28 11.77

0.56 1710.64

0.00 1571.05

Profit after tax Add: Balance of profit brought forward from last year Foreign Project Reserves written back Profit available for appropriation Less: Appropriation:- General Reserve :- Dividend (incl interim dividend of

3138.21 429.69 1.17 3569.07 2000.00 832.18

2859.34 442.72 1.02 3303.08 2000.00 746.52

HAMDARD UNIVERSITY
7

FINANCIAL RATIOS
1. CURRENT RATIO
CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITY

YEARS CURRENT RATIO

2005-2006 1.58

2006-2007 1.46

2007-2008 1.40

2008-2009 1.30

2009-2010 1.32

HAMDARD UNIVERSITY
8

Liquidity and debt-equity ratios are widely used financial ratios. Liquidity ratio, also called the 'short-term solvency' ratio shows the adequacy. It is calculated as current assets/current liabilities. An ideal current ratio would be 2, indicating that even if the current assets are to be reduced by half, the creditors will be able to able to get their money in full.

2. QUICK RATIO

QUICK RATIO = LIQUID ASSETS / CURRENT LIABILITY

YEARS QUICK RATIO

2005 2006 1.21

2006 - 2007 1.16

2007 - 2008 1.11

2008 - 2009 1.10

2009 2010 1.52

HAMDARD UNIVERSITY
9

Quick ratio (or "acid test"): Quick Assets (cash, marketable securities, and receivables) / Current Liabilitiesprovide a stricter definition of the company's ability to make payments on current obligations. Ideally, this ratio should be 1:1. If it is higher, the company may keep too much cash on hand or have a poor collection program for accounts receivable. If it is lower, it may indicate that the company relies too heavily on inventory to meet its obligations.

3. DEBTOR TURNOVER RATIO

DEBTOR TURNOVER = GROSS SALES / TOTAL DEBTORS

YEARS

2005 - 2006

2006 - 2007 1.93

2007 - 2008 1.79

2008 - 2009 1.75

2009 2010 1.65

DEBTOR 2.02 TURNOVER RATIO

HAMDARD UNIVERSITY
10

This is also called Debtors Velocity or Average Collection Period or Period of Credit given. (Average Debtors/Sales) x 365 for days (52 for weeks & 12 for months)

4. PROFIT MARGIN

PROFIT MARGIN (%) = PROFIT AFTER TAX / NET SALES

YEARS

2005 - 2006

2006 - 2007 14.00%

2007 - 2008 14.60%

2008 - 2009 12.00%

2009 2010 12.8%

PROFIT 12.5% MARGIN(%)

HAMDARD UNIVERSITY
11

The two basic components of the net profit ratio are the net profit and sales. The net profits are obtained after deducting income-tax and, generally, non-operating expenses and incomes are excluded from the net profits for calculating this ratio. Thus, incomes such as interest on investments outside the business, profit on sales of fixed assets and losses on sales of fixed assets, etc are excluded.

5. EARNING PER SHARE

EARNING PER SHARE = PROFIT AFTER TAX / NUMBER OF EQUITY SHARES

YEARS EARNING PER SHARE

2005 - 2006 68.60

2006 - 2007 98.70

2007 - 2008 58.00

2008 - 2009 64.10

2009 2010 88.05

HAMDARD UNIVERSITY
12

Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-toearnings valuation ratio.

6. AVERAGE DEBT COLLECTION PERIOD

AVERAGE DEBT COLLECTION PERIOD (DAYS) = TOTAL DEBTORS * 360 / GROSS SALES

YEARS

2005 2006

2006 - 2007 186

2007 - 2008 201

2008 - 2009 205

2009 2010 218

AVG DEBT 178 COLLECTION PERIOD(DAYS)

HAMDARD UNIVERSITY
13

The approximate time it takes for a business to receive payments owed, in terms of receivables, from its customers and clients.

7. INVENTORY TURNOVER RATIO

INVENTORY TURNOVER RATIO = GROSS TURNOVER / INVENTORIES

YEARS

2005 - 2006

2006 - 2007 4.44

2007 - 2008 3.73

2008 - 2009 3.57

2009 2010 3.70

INVENTORY 3.87 TURNOVER RATIO

HAMDARD UNIVERSITY
14

A ratio showing how many times a company's inventory is sold and replaced over a period. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days".

8. DEBT EQUITY RATIO

DEBT EQUITY RATIO = TOTAL DEBT / TOTAL EQUITY

YEARS DEBT EQUITY RATIO

2005 - 2006 0.07

2006 - 2007 0.01

2007 - 2008 0.01

2008 - 2009 0.01

2009 2010 0.01

HAMDARD UNIVERSITY
15

Debt/equity ratio is equal to long-term debt divided by common shareholders. Typically the data from the prior fiscal year is used in the calculation. Investing in a company with a higher debt/equity ratio may be riskier, especially in times of rising interest rates, due to the additional interest that has to be paid out for the debt.

9. PRICE EARNING RATIO

PRICE EARNING RATIO = MARKET PRICE PER EQUITY SHARE / EARNING PER SHARE

YEARS PRICE EARNING RATIO

2005 - 2006 20.20

2006 - 2007 23.29

2007 - 2008 44.24

2008 - 2009 21.25

2009 2010 27.32

HAMDARD UNIVERSITY
16

A valuation ratio of a company's current share price compared to its per-share earnings. Also sometimes known as "price multiple" or "earnings multiple".

10. INTEREST COVERAGE RATIO

INTEREST COVERAGE RATIO = PROFIT BEFORE INTEREST & TAX / INTEREST EXPENSES

YEARS INTEREST COVERAGE RATIO

2005 - 2006 43.65

2006 - 2007 86.22

2007 - 2008 125.08

2008 - 2009 120.60

2009 2010 197.73

HAMDARD UNIVERSITY
17

A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period.

COMPARISON OF CURRENT AND QUICK RATIO

HAMDARD UNIVERSITY
18

HAMDARD UNIVERSITY
19

Particulars SOURCES OF FUNDS Share Capital Share warrants & Outstanding Total Reserve Shareholder's Funds Secured Loans Unsecured Loans Total Debts Total Liabilities APPLICATION OF FUNDS : Gross Block Less: Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment A/c Capital Work in Progress Pre-operative Expenses pending Assets in transit Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Other Current Assets Loans and Advances Total Current Assets Less : Current Liabilities& Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets / Liabilities Total Assets

Mar 2010

Mar 2009

Mar 2008

Mar 2007

Mar 2006

Mar 2005

4895.00 0.00 154278.00 159173.00 0 1278.00 1278.00 160451.00

4895.2 0.00 124492.90 129388.10 0 1493.70 1493.70 130881.80

4895.2 0.00 102846.90 107742.10 0 951.80 951.80 108693.90

2447.6 0.00 85435.00 87882.60 0 893.30 893.30 887759.00

2447.6 0.00 70566.2 73013.38 5000.00 582.40 5582.40 78596.2

2447.60 0.00 57821.34 60268.94 5000.00 369.82 5369.82 65638.76

52248.70 37132.50 0.00 0 15116.20 -412.20 11569.70 0.00 0.00 798.00 0 0 523.40

44434.70 34030.80 0 9812.6 -591.30 6580.03 0 0 82.90

41350.50 31170.50 0 10180.00 -292.60 3025.40 0 0 82.90

38220.6 28527.6 0 9693.00 129.80 1845.72 0 0 82.93

36289.37 26193.47 0 10095.90 346.51 953.18 0 0 89.52

92355.00 206887.00 97901.00 4068.00 28137.00 429348.00

78370.20 159755.00 103146.70 3502.1 24236.7 369010.7

57364.00 119748.70 83860.20 4210.9 13878.00 279061.8

42176.70 96958.2 58089.10 1997.00 11408.7 210629.7

37443.7 71680.7 41339.7 845.00 11998.7 163307.8

29161.07 59721.42 31778.62 471.76 12296.92 133429.79

280237.00 44180.00 324417.00 104931.00 0.00 15272.00 160451.00

233573.20 49755.8 283329 85681.70 0 18403.00 130881.80

165764.50 34458.5 200223.00 78838.80 0 13379.30 108693.90

118978.7 25222.4 144201.1 66428.6 0 9351.60 88775.9

88077.4 15122.8 103200.2 60107.6 0 6737.20 78596.2

71204.46 13254.47 99213.58 48970.85 0 5182.79 65638.76