SUMMER TRAINING REPORT ON TITLE OF PROJECT REPORT Undertaken at “BHARAT HEAVY ELECTRICALS LIMITED” Submitted in partial fulfillment of the requirements for the award of the degree of MASTER OF BUSINESS ADMINISTRATION to Guru Gobind Singh Indraprastha University, Delhi Under the Guidance ofSubmitted by ASIM SAHOREAMIT GUPTA Prof. MBA-III Sem Enrollment No. -09817003910 Session 2011 – 12 To Whom It May Concern I _______________________, Enrolment No. _____________from MBA-III Sem of the Tecnia Institute of Advanced Studies, Delhi hereby declare that the Summer Training Report (MS-204) entitled____________________________________________________ _________________________________ ________at ________________________________ is an original work and the same has not been submitted to any other Institute for the award of any other degree. A presentation of the Summer Training Report was made on _______________________ and the suggestions as approved by the faculty were duly incorporated. Date:Signature of the Student
Certified that the Summer Training Report submitted in partial fulfillment of Master of Business Administration (MBA) to be awarded by G. G. S. I. P. University, Delhi by _________________________, Enrolment No. ________________ has been completed under my guidance and is Satisfactory. Date:Signature of the Guide Name of the Guide: Designation: (Draft Copy For Industry Guide) ON COMPANY’S LETTER HEAD CERTIFICATE This is to certify that………………(Full Name of the Student), a student of Master of Business Administration (MBA), a class of 2011, Tecnia Institute of Advanced Studies, Affiliated to GGS.
IP. University bearing Enrolment No. ………………. , has undertaken the Summer Internship Training at ………………………………… (Name of the Company) during…………… to ………………under my supervision & guidance. He / She has conducted a study & completed the Project on ………………………………………………………………………………. ………… Seal of OrganizationSignature of the Guide Date:Name of the Guide: Designation: Address: ACKNOWLEDGEMENT Behind every study there stands a myriad of people whose help and contribution make it successful. Since such a list will be a prohibitively long.
I may be excused for important omission. I am grateful to all who helped & guided me at every stage of my work. Their constant appraisal & encouragement helped me to accomplish my training smoothly. I am thankful to “ Mr C. P. Bahari”(AGM , Taxation) & Mr. Sandeep Kataria (DGM) for the cooperation extended to me in compiling the project report. This acknowledgement would be incomplete without the mention of “Mr. Devendra” who sorted out my queries time to time. I gained a lot of knowledge & experience by observing their way of working which is surely to be admired.
I extend My gratitude to the entire staff that provided a very comfortable environment which helped me deliver this performance. AMIT GUPTA MBA 3rd Sem DECLARATION CERTIFICATE This is to certify that the Project work entitled “WORKING CAPITAL MANAGEMENT IN BHEL” is a record of bonafide work carried out by Mr. AMIT GUPTA under my supervision towards partial fulfillment of the MBA course of IPU, NEW DELHI. Place: Signature Date:Name & Designation of the Project Guide CONTENTS SR. NOTOPICPAGE NO. 1. CERTIFICATE 2. SUMMER TRAINING APPRAISAL 3. ACKNOWLEDGEMENT 4. EXECUTIVE SUMMARY 5. Chapter-1 Introduction Introduction of net banking •Objective of study •Scope of study •Introduction of organization 6. Chapter-2 Review of literature 7. Chapter-3 Research Methodology 8. Chapter-4 Data reduction, presentation & interpretation •Ratio analysis •Trend analysis 9. Chapter-5 Summary & Conclusion •Facts &Findings •Recommendation & Suggestion 10. Bibliography ACKNOWLEDGEMENT Behind every study there stands a myriad of people whose help and contribution make it successful. Since such a list will be a prohibitively long. I may be excused for important omission. I am grateful to all who helped & guided me at every stage of my work.
Their constant appraisal & encouragement helped me to accomplish my training smoothly. I am thankful to “ Mr C. P. Bahari”(AGM , Taxation) & Mr. Sandeep Kataria (DGM) for the cooperation extended to me in compiling the project report. This acknowledgement would be incomplete without the mention of “Mr. Devendra” who sorted out my queries time to time. I gained a lot of knowledge & experience by observing their way of working which is surely to be admired. I extend My gratitude to the entire staff that provided a very comfortable environment which helped me deliver this performance.
AMIT GUPTA MBA 3rd Sem CHAPTER-1 INTRODUCTION ON FINANCE Finance is one of the major elements that activate the overall growth of the economy. Finance is the life blood of economic activity. A well – knit financial system directly contributes to the growth of the economy. An efficient financial system calls for the efficient performance of institution, financial instruments and financial markets. Finance which acts as the lifeblood in the modern business types is one of the most important consideration for an entrepreneur-company.
While Implementing, expanding, diversifying, modernizing or rehabilitating any project the meaning of finance is better understood. In this section we have covered finance related information and the process of managing the same. Finance is a science of managing money and other assets. It is the process of channelization of funds in the form of invested capital, credits, or loans to those economic agents who are in need of funds for productive investments or otherwise. E. g. On one hand, the consumers, business firms, and governments need funds for making their expenditures, pay their debts, or complete other transactions.
On the other hand, savers accumulate funds in the form of savings deposits, pensions, insurance claims, and savings or loan shares, etc which becomes a source of investment funds. Here, finance comes to the fore by channeling these savings into proper channels of investment, In general, finance is that business activity which is concerned with acquisition and Conservation of capital funds in meeting financial needs and over all objectives of a business entrepreneur. Finance is the common denominator for a vast range of corporate . , projects and the major part of any corporate plan must be expressed in financial terms”.
The main reasons a business needs finance are to: • Start a business • Finance expansions to production capacity • To develop and market new products • To enter new markets • Take-over or acquisition • Moving to new premises • To pay for the day to day running of business REVIEW OF LITERATURE MEANING OF WORKING CAPITAL Working capital refer to that part of total capital which is used for carrying out the routine or regular business operation. In other words, it is the amount of funds used for financing the day-to day operation. In short, it is the capital with which the business is worked over.
Thus, the capital invested and locked up in various current assets , such as stocks of raw material, work in progress , stocks of finished goods account receivable and cash and bank balances constitutes the working capital. Working capital may be regarded as life blood of a business. Its effective provision can do much to ensure the success of a business while its in provision can do much to ensure the success of a business while its in efficient management can lead not only to loss of profits but also to the ultimate downfall of what otherwise might be considered as a promising concerns. gt; According to shoo-in, “Working Capital is the amount of funds necessary to cover the cost of operating the enterprise”. Working Capital is also known as Revolving or Circulating Capital. > According to Genesterberg, “Circulating Capital means current assets of a company that are changed in the ordinary cause of business from one to another form. Example: From cash to inventory, inventories to bills receivable and bills receivable to cash. Concept of working capital There are five concepts of working capital :- o Gross Working Capital o Net Working Capital o Negative working capital Permanent working capital o Variable working capital On the basis of the components or items comprised in working capital, working capital can be classified into the following types: Gross Working capital: Simply called as working capital, refers to the firms investment in current assets. Current assets which can be converted in to cash with in the accounting year (or operating cycle) and includes cash, short term securities, debtors, Bills receivable 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 with in a year and include creditors, Bills payable and outsider’s expenses. Negative working capital or working capital deficit: means the excess of current liabilities over the current assets. It accurse when the current liabilities exceed the current assets Permanent working capital or fixed working capital: refer to the minimum amount of investment in current assets required throughout the year for carrying out the business.
In other words , it is the amount of working capital which remains in the business permanently in one form or other. Variable working capital or fluctuating working capital: refer to the amount of working capital which goes on fluctuating or changing from time to time with the change in the volume of business activities. Ratio’s : The term ratio simply means one number expressed in terms of another. It describes in mathematical terms the quantitative relationship that exists between two numbers. NEED FOR WORKING CAPITAL
Every business undertaking requires funds for two purposes, investments in fixed assets & investment in current assets. Funds required for investing in inventory, debtors & other current assets keep changing in shape & volume. Company has some cash in the beginning; this cash may be the source of raw material, keeping the labour cost & other overheads. These three combined would generate work in progress, which will be converted into finished goods on the completion of the production process into debtors & when the debtor pay, the firm may generate cash. Working capital is needed for sustaining (i. e. maintaining) the sales activities. If adequate working capital is not maintain for this period ,the firm will not be able to sustain or maintain the sales , since it may not be in a position to purchase raw material and pay wages and other expenses ands produce the goods required for the sales. NATURE OF WORKING CAPITAL In ordinary parlance, Working Capital is taken to be the fund available for meeting day-to-day requirements of enterprises. It cannot be denied that a part of the fixed or permanent capital is invested in assets, which are kept in the business or for a long period for the purpose of earning profit.
These are usually known as fixed assets viz. Land & buildings, plant & machinery, furniture & fitting & intangibles like goodwill, patents, trademarks & long-term investment. Another part of permanent capital left in the business for supporting the day-to-day normal operation is known as the “Working Capital”. This Working Capital generates the important element of cost viz. Material, wages & expenses. These cost usually lead to production & sales in case of manufacturing concerns & sales alone in others. These costs occur gradually in a flow & do not come into being abruptly at a given moment.
Hence the initial investment of cash as working capital for this specific purpose has to be continued until the sales revenue commences flowing in substantially & in a regular way. From this stage the business is found to acquire a momentum of its own. The flow of revenue is expected to continue to replace the cost lost in its day-to-day out flow for the generation of the revenue mentioned above. SOURCE OF WORKING CAPITAL The financial manager is always interested in obtaining the working capital at the right time, at a reasonable cost and at the best possible favorable terms.
A part of the working capital investment are permanent investments is fixed assets. The following is snapshot of various source of working capital. Sources of working capital divided into two • Long -term • Short –term Sources of long term working capital • Issue of shares • Floating of debentures • Ploughing back of profit • Loans • Public deposit Sources of short-term working capital Internal sources • Depreciation • Taxation • Accured expenses External sources • Trade credit • Credit papers • Bank credit • Customer’s credit • Govt. Assistances • Loans from director Security of employees WORKING CAPITAL CYCLE:- The working capital of a concern goes on changing in shape and volume. For Instance, a concern may have some cash in the beginning. The cash may be used by the concern for the purpose of purchase of raw material, payment of wages and other expenses’. These elements of cost or items of expenses, raw material , wages and overheads , will result in work- in-progress during the process of manufacture. On the in compilation of the production process, the work- in –progress becomes finished goods. Meaning
The length of time involved in this cycle of conversion of cash into raw material, raw material into work-in progress, work-in-progress into finished goods, finished goods into debtors and debtors into cash again is called the operating cycle or working capital cycle of the firm, in other words, it is period between the date raw material are purchased and the date the sale proceeds of finished goods are realized by concern. INTER-DEPENDENCE AMOUNG COMPONENTS OF WORKING CAPITAL OPERATING CYCLE : A company starting with cash purchase raw materials, components etc. on a cash or credit basis. These materials will be converted into finished goods after undergoing various stages of work-in-process. For this purpose the company has to make payments towards wages, salaries and manufacturing costs. Payments to suppliers have to be made on purchases in the case of cash purchases and on the expiry of the credit purchases. Further, the company has to meet other operating costs such as selling and distribution costs, general administration costs and non-operating costs described as financial costs (interest on borrowed capital).
In case the company sells its finished goods on cash basis, it will pass through one more stage, viz, accounts receivable and gets back cash along with profit on expiry of credit period. Once again the cash will be used for the purchase of materials and / or payments to suppliers and the whole cycle is termed as working capital or operating cycle repeats itself. This process indicates the dependents of each stage or components of working capital on its previous stage or component. WORKING CAPITAL MANAGEMENT Introduction Working capital management is one of the most important aspects of financial management.
It forms a major function of the finance manager. Meaning : Working capital management means management or administrating of all aspect of working capital, i. e. , currents assets and currents liabilities. In other words of Smith, “working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the inter-relationship that exists between them”. BASIC OBJECTIVE OF WORKING CAPITAL MANAGEMENT : The basic objective of working capital management is to manage the firm’s working capital (i. e. currents assets and currents liabilities) in such a way that a satisfactory level of working capital (i. e. , neither excessive nor inadequate working capital) is maintained. This is necessary because, if the working capital is excessive or large, the liquidity position of the firm would, no doubt, improve, but its profitability would be adversely affected, as funds would remain idle. Conversely, if the working capital is too small, the, profitability of the firm may improve, but the liquidity position of the firm would be adversely affected. Advantages of working capital: It helps the business concern in maintaining the goodwill. • It can arrange loans from banks and others on easy and favorable terms. • It enables a concern to face business crisis in emergencies such as depression. • It creates an environment of security, confidence, and over all efficiency in a business. • It helps in maintaining solvency of the business. Disadvantages of working capital: • Rate of return on investments also fall with the shortage of working capital. • Excess working capital may result into over all inefficiency in organization. Excess working capital means idle funds which earn no profits. • Inadequate working capital can not pay its short term liabilities in time. Objectives of the project The objectives of study •To analyse the liquidity position of the BHEL ?To judge the Long term solvency of the firm. ?Strengthen accountability for the performance of new investments ? Overall profitability of the firm. COMPANY PROFILE BHARAT HEAVY ELECTRICAL LIMITED- BHEL is India’s largest engineering company and one of its kind in this part of the hemisphere.
It manufactures a wide range of state of the art power generation equipment and systems besides equipment for industry, transmission, defence, telecommunication and oil business. The first plant of BHEL was set up in Bhopal in 1956, which signaled the dawn of the heavy electrical industry in India. In the early 60’s three more major plants were set up in Hardwar, Hyderabad and Tiruchirapalli. The company now has 14 manufacturing divisions, 10 services centers and power sectors regional centers besides project sites spread all over India and also abroad to provide prompt and effective service to customers.
BHEL’s business broadly covers conversions, transmission, utilizations and conservation of energy in core sectors of economy that fulfill vital infrastructure needs of the country. Its product have established an enviable reputation of high quality and reliability, which is largely due to emphasizes placed all along on contemporary some of the best technologies of the world from the leading companies in U. S. A. , EUROPE, and JAPAN together with technologies from its own R centers technologies B. H. E. L. has consistently upgraded its design and manufacturing facilities to international standards by acquiring and assimilating.
HISTORICAL PROFILE:- The construction of heavy electrical equipment Plant commenced in Oct. 1963after indo-soviet technical co-operation agreement in Sept. 1959The first product to roll out from the plant was an electric motor in January 1967. This was followed by first 100 MW Steam Turbine in Dec. 1969and first 100MW Turbo Generator in August 1971. The plant’s “break even” was achieved in March 1974. BHEL went in for technical collaboration with M/s Siemens, Germany to undertake design and manufacture to large size thermal sets upto a unit rating of 1000 MW in the year 1976.
First 200 MWTG set was commissioned at Obra in 1977. The continum of technological advancement subsequently saw the commissioning of 500 MW TG Set in 1984 . The technical cooperation of Gas Turbine manufacture was also signed with M/s Siemens Germany. First 150 MW ISO rating gas Turbine was exported to Germany in Feb”1995”. Our 250 MW thermal set up at Dahanu Plant of BSES made a history by continuous operation for over 150 days and notching up a record plant load factor greater than 100%. B. H. E. L. A CORPORATE GIANT
Established in the late 50’s BHARAT HEAVY ELECTRICALS LIMITED (BHEL) is a name which is recognized across the industrial world. It is one of the largest engineering and manufacturing enterprises in INDIA and is one of the leading international companies in the power field. BHEL offers a wide spectrum of products and services for core sectors like power transmission, industrial transportation, oil and gas, telecommunication etc. Besides supply of non-conventional energy systems. It has also embarked into other areas including defence and civil aviation.
A dynamic 63000 strong team embodies the BHEL philosophy excellence through continuous striving for state of the art technology. With corporate headquarters in NEW DELHI, fourteen manufacturing units, a wide spread regional services network and projects sites all over India and even abroad, BHEL is India’s industrial ambassador to the world with export presence in more than 50 countries. BHEL’s range of services extent from project feasibility studies to after sales services, successfully meeting diverse needs through turnkey capability.
BHEL has had a consistent track record of growth, performance and profitability. The World Bank in its report on the Indian Public Sectors, has described BHEL as “one of the most efficient enterprises in the industrial sector, at par with international standards of efficiency”. BHEL has acquired ISO 9000 certificate for most of its operations and has taken up Total Quality Management (TQM). All the major units/divisions of BHEL have been upgraded to the latest ISO-9001: 2000 version quality standard certification for quality management.
All the major units/divisions of BHEL have been awarded ISO-14001 certification for environmental management systems and OHSAS-18001 certification for occupational health and safety management systems. BHEL occupies an all-important niche as evident by its ranking by CII amongst top eight PSUs based on financial performance. Recently in survey conducted by business India, BHEL has been rated as seventh Best Employer in India. VISION, MISSION AND VALUES MAJOR MILE STONES 1975Job Redesign concept launched for FIRST time in India. 1978well documented Suggestion Scheme launched. 982Launched Productivity Movement & Quality Circle. Concept 1993Accreditation of ISO 9001 quality System. 1995Adopted EFQM model of TQM for achieving Business Excellence. 1997 BHEL one of the 9 PSE’s declared “Navratna” by Govt. of India . 1997 National Productivity Award for HEEP by the President of India. 1998 Certificate of Merit by National Productivity Council for Outstandingperformance for 2nd consecutive year. 1998 Accreditation of U stamp. 1999 Accreditation of R Stamp from National Board of Boiler and Pressure Vessel Inspector, USA . 999 AD-Merkblatt HPO Recertification by RWTUV for Gas Turbine Combustion Chambers 1999 INSAAN Award for Excellence in Suggestion for 9th consecutive year 1999Launching of 5s concept 1999 PCRI recognized as Environmental Lab by Haryana State Board for Prevention and Control of Pollution 1999 Accreditation of ISO 14001-Enviornment management system 2000CII Site Visit for CII-EXIM Business Excellence Award-2000 2001 Top Management TQM Workshop at Rishikesh and HRDC 2001 INSAAN Award for excellence in Suggestion for 11th consecutive year 2001 Launching of QTM & RCA at HEEP Hardwar by CMD 002 Launching of delivery Index, Turnover Index and Manufacturing Index 2002 Accreditation of ISO 9000-2k 2002JBE Workshop of Apex TQM Group at Tehri to evolve Business policy and CSF TOTAL QUALITY FOCUS: To face the increased competition from MNCs (due to liberalization policy of Government) in early 90’s and to enter European market we moved towards ISO 9000 Certification. Concept of Business Excellence through EFQM Model was launched in entire BHEL on pilot scale in Oct. ”1995” In 1997 HEEP launched TQM in the entire Plant and since then Self-Assessment is done every year in September.
Based on feedback Report of Assessment, critical success factors are identified. and TQ action plans are drawn. The philosophy of ISO 9001, TQM and ISO 14001 has been integrated BHEL Hardwar for ultimately achieving “BUSINESS EXCELLENCE”. HEEP Hardwar plant is accredited for ISO 9001 and ISO 14001 and is now on March towards TQM. 5-S was launched in March 1999 in a big way and now it has become a way of life in the organisation. In 2000 HEEP applied for CII-EXIM Business excellence award and site visit was conducted Bu CII team in Seot. 2000. Cii feedback has gone a log way in carrying out further improvement plans and giving a structured thrust to TQM movement In July 2001, Unit’s TQ Council reviewed the TQ Action Plans 2001-02 for its effectiveness and impact on accelerating the pace of improvement and consequent TQ Score. Executive Director laid the challenge of achieving the TQ score of 650. With an objective to bring awareness about he CII-EXIM Business Excellence Model amongst the Sr. Executives, the first ‘Top Management TQM Workshop’s held at Rishikesh during oct. 001Executive Director who is TQ Assessor also, himself steered the Workshop with assistance from some experienced TQ Assessor of HEEP. It followed by second Top Management TQM Workshop steered again by Ed was held at HRDC on Oct’29,2001. Subsequantly the third Top Management TQM Workshop was held in Nov’2001,where-in Sr. Counselor, CII deliberate the detail onBest practices of TATA STEEL-the winner of ‘CII-EXIM Business Excellence Award 2000’. Simultaneously ,TQ Assessors training program for the select group of young managers(to be developed as Think Tanks)was organized in Nov’2001.
To give further boost Apex Group was formed. Apex Group developed “Roadmap to Business Excellence” based on Criteria Linkage of CII-EXIM Business Model and the initiatives taken at Hardwar was drawn by the group and it was widely circulated amongst the employees through special issue of Hardwar Current in April 2002. It followed by JBE workshop of Apex TQM Group held at Tehri on June 30 and July 1,02 where-in following business policy and critical factors was evolved. BHEL has acquired certifications to Quality Management System ( ISO 9001 ), Environmental Management System ( ISO 14001 and Occupational Health & SAFETY management System (OHSAS 18001 ) and is also well on its journey towards Total Quality Management. ? BHEL has • Installed equipment for over 90,000 MW of power generation – for Utilities , Captive and Industrial users. • Supplied over 225000 MV. A transformer capacity and other equipment operating in Transmission & Distribution network up to 400 Kv (AC&DC). • Supplied over 25000 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 12000 kms Railway network. • Supplied over one million Valves to Power Plant and other Industries. BHEL’s operations are organized around three business sectors, namely Power,Industry – including Transmission, Transportation, Telecommunication & Renewable Energy and Overseas Business. This enables BHEL to have a strong customer orientation, to be sensitive to his needs and respond quickly to the changes in the market. PRODUCT RANGE: This list is intended as a general guide and does not represent all of BHEL’s product and systems. ?THERMAL POWER PLANTS Steam turbines and generators of up to 500 MW capacity for utility and combined – cycle applications; up to 1000 MW unit size. •Steam turbines for CPP application; capability to manufacture condensing, extraction, back pressure, injection or any combination of these types. ? GAS BASED POWER PLANT •Gas turbine of up to 255MW ( ISO ) rating. •Gas turbine based co-generation and combined – cycle systems for industry and utility applications. ? HYDRO POWER PLANTS •Custom-built conventional hydro turbines of Kaplan, Francis and Pelton types with matching generators, pump turbines with matching motor-generators. Mini/micro hydro sets. •Spherical, butterfly and rotary valves and auxiliaries for hydro station. ? DG POWER PLANTS •USD, LDO, FO, LSUS. natural – gas/biogas based diesel power plants, unit rating up to 20MW and voltage up to 11Kv, for emergency, peaking as well as base load operations on turnkey basis. ? INDUSTERIAL SETS •Industrial turbo – sets of rating from 1. 5 to 120MW. •Gas turbines land matching generators ranging from 3 to 255MW (ISO) rating. •Industrial stream turbines and gas turbines for drive applications. ? BOILERS Combination of these fuels: capability to manufacture boilers with super critical parameters up to 1000 MW unit size. •Steam generators for industerial applications, ranging from 40 to 450 t/hour capacity using coal, natural gas, industrial gases, biomass, lignite, oil, bagasse or a combination of these fuels. •Pulverized fuel fired boilers. •Stoker boilers. •Atmosphereic fluidised bed combustion boilers. •Circulating fluidized bed combustion boilers. •Waste heat recovery boilers. •Chemical recovery boilers for paper industry, ranging from capacity of 100 to 1000 t/day of dry solids. Pressure vessels. ? BOILER AUXILIARIES •Fan •Air-Pre-heater •Gravimetric Feeders •Pulverizes •Pulse Jet and Reverse Air Type Fabric Filters ( Bag Filters ) •Electrostatic Precipitators •Mechanical Separators •Soot Blowers •Valves ? HEAT EXCHANGERS AND PRESSURE VESSELS •Air – cooled heat exchangers. •Surface condensers. •Reactors, drums. ? PUMPS •Pumps for various applications to suit utilities up to a capacity of 660MW. •Boiler feed pumps (motor or steam turbine driven ). •Boiler feed booster pumps. •Emergency oil pumps. •Lubricating oil pumps. ?POWER STATION CONTROL EQUIPMENT Microprocessor-based distributed digital control systems. • Data acquisition systems. • Man-machine interface. ?SWITCHGEARS • SF6 circuit breakers (132 kV –400 Kv ). • Vacum circuit breakers (3. 3 Kv – 33k V ). ?BUS DUCTS • Bus – ducts with associated equipment to suit generator power output of utilities of up to 500 MW capacity. ?TRANSFORMERS • Special transformers: earthing; furnace; rectifier; electrostatic precipitator; freight loco and ACEMU and traction transformers. ?INSULATORS • High- tension ceramic insulator . ?CAPACITORS •Coupling/CVT capcitors for voltages up to 400 Kv. Low Tension Thyristor Switched Capacitors ( LTTSC ) for dynamic power factor correction. ?ENERGY METERS •Single phase, Poly Phase and Special – purpose electro – mechanical and electrical meters. BUSINESS POLICY “In-line with Company’s Vision, Mission and values, we dedicate ourselves to sustained growth with increasing positive Economic Value Addition and Customer focussed business leadership in the Power and Industry Sector. CRITICAL SUCCESS FACTORS: •Increase Orders of Spares/Services to 230 Cr. •Decrease Capital employed by Rs. 120 Cr. •Saving in Material Cost by 16 Cr. . e. 5%- Rs. 4 Cr. •Decrease in indirect material +miscellaneous expenses by 5%- Rs. 4 Cr. •Effective implementation of QTM/RCA/CTQ •Strengthening Internal customer concept •Development of an Incentive Scheme •Reward Scheme including EXCEL Awards •Effective implementation of PMS •Effective Contract Management •Technology Upgradation ‘Excellence triangle’ for each Critical Success Factor is now being drawn comprising improvement projects. These projects will be Centrally registered under On-line Central Registration system to be developed for it.
While CSF Champion will take the total stock of position in the improvement projects undertaken in his respective CSF, progress of individual projects will be reviewed by Area TQ Council (ATQC) and Functional TQ Council (FTQC). One of the major strengths of HEEP Hardwar is its free, open and consistent work culture for making continuous improvement evident from the participation of employees in Suggestions and Quality Circles. To recognize their efforts various productivity drives and competition are organized through out the year and Executive director awards the winners in the special Award Distribution Functions.
National Award for Excellence in Suggestion Scheme for 11th consecutive year by INSSAN, National Award for excellence in Energy Conservation as an”Energy Efficient unit” by CII, CMD’s Rolling Trophy for 3rd consecutive year,’Well known Forge Shop “ by Central Boiler Board etc. are some Vir Award 2001” and 12 employees honoured with “Vishwakarma Rashtriya Puraskar”during 2001-02. The journey to excellence is unending . It is a continuous search with commitment and belongings. Sky indeed is not the limit for perfection.
The transition has strongly experienced a silent internalization with a blend of commitment of the existing human resource for creating benchmarks for excellence. The emergence of role models and clear-cut driving force at the top provide an anvil to unleash the potential, which remain unexplored in search of “Attitude to perform”. The surge has started and is being communicated down the. BHEL today through TQM is on March towards excellence. CHAPTER-2 REVIEW OF LITERATURE Miss. Mohanapriya, M. B. A, in her research on “Working capital management of Tanjore co-operative milk supply society Ltd. Which is the partial fulfillment of the requirements for the award of her degree submitted to Bharathidasan University, in the year November – 2003. Outlined the following objectives and findings. Her Objectives were: ?Know the project of Co-operative milk supply society. ?Analysis the short term liquidity position of the study unit during the period 96-97 to 2000-01. ?Analysis and evaluate working capital management. Her Findings were: ?The size of current assets has increased during the study period. ?During the study period the working capital turnover ratio were 210. 51; ? 194. 60; 45. 4 and 11. 86 times respectively the higher ratios in the 2 year 1997-98 and 98-99 indicates sufficient amount of working capital and effective utilizations of working capital. ?The cash turnover ratio is to be increasing times. Miss. Abiramisundhari, in her research on “Working capital management of TSRM Limited Trichy”. Which is the partial fulfillment of the requirements for the award of her M. Com degree submitted to Bharathidasan University, in the year November – 2003. Outlined the following objectives and findings. Her Objectives were: ?To study the importance of W/c management for a concern. To assess the proportion of the components of W/c of TSRM Ltd, Trichy. ?To suggest measures to increases the efficiency of W/c management of TSRM Ltd, Trichy. Her Findings were: ?The company has been taken for sufficient care for the maintenance of adequate accounting period. ?The proportion of net W/c to total assets showed on increasing trend through out the five years. ?The over all performance of receivables management showed a satisfactory position throughout the past 5 years. Mr. Kamaraj, M, Phil, in his research on “Working capital management of Dalmia Cement Limited Trichy”.
Which is the partial fulfillment of the requirements for the award of her degree submitted to Bharathidasan University, in the year November – 2003. Outlined the following objectives and findings. His Objectives were: ?To know the Financial Performance of Dalmia Cement. ?To examine the practice follow into Management of cash. ?To know the techniques of Inventory Management in D. C. B. C. His Findings were: ?Raw Material Consumption over the study period in terms of quantity and value has showed an incise trend. ?Operating ratio is considered to be yardstick of operating efficiently of the concern. The concern has show dormant and fast moving inventories during the 5 years a study period. ?Performance of the co should be judged on the basis of return on equity capital. It is satisfactory positive Mr. Kushagra Dabur, in his research on “Working capital management of Kotak Mahindra Life Insurance Company”. Which is the partial fulfillment of the requirements for the award of her degree submitted to Amity University, Uttar Pradesh, in the year February – 2006. Outlined the following objectives and findings: His Objectives were: ?To meet the cash disbursement needs (payment schedule); ?
To minimize funds committed to cash balances. ?The present study is limited to one Co. , i. e. Kotak Mahindra Life Insurance, and covers a period from 2003 and 2006 due to limitation of time and accessibility to data base. The authenticity of the suggestions and recommendations depend upon the rationality of the data provided to me. His Findings were: ?The relative growth rate of short term trade credit and value industrial production. ?The relative growth rates of short term trade credit & inventories with industry & trade. ?The diversion of short-term credit for fixed asset acquisition & for lower and Investments. The incidence or multiple financing, ?The elongation of credit period. CHAPTER-3 RESEARCH DESIGN General Methodology The study was carried on an explorative basis using accounting and financial data. The procedures followed in this study consist of following steps: 1) The research includes figurative and diagrammatic interpretation for the ease of comparison. 2) Understanding of aluminium industry in global and domestic scenario. 3) Determining the demand and supply in near future to understand the future prospect of the industry. ) Analysis of Government Policy toward aluminium industry. 5) Evaluating BHEL, HARIDWAR’S position in aluminium industry. Research Methodology •Research methodology that is used here was purely exploratory because we know it is used when one is seeking insight in to the general nature of the problem possible decision alternatives and relevant variables that need to be considered. •This resistance also help full / use full for establishing priorities among research questions and for learning about practical problems of carrying out the research. CHAPTER -4 Data source
Data collection was through literature survey and expert opinion. Literature survey includes the collection of data from various sources like bank agreement and statement, handbooks as well as study material. A part of data` s was collected from primary data and other was collected from the secondary data. Primary sources Information gathered by interview and discussions with the head and employees of various departments and my project guide. Secondary sources •Company annual report. •Published information on finance. •Internal circulation booklets. •Company Websites. DATA ANALYSIS AND INTERPRETATION
Ratio Analysis is a powerful tool o financial analysis. Alexander Hall first presented it in 1991 in Federal Reserve Bulletin. Ratio Analysis is a process of comparison of one figure against other, which makes a ratio and the appraisal of the ratios of the ratios to make proper analysis about the strengths and weakness of the firm’s operations. The term ratio refers to the numerical or quantitative relationship between two accounting figures. Ratio analysis of financial statements stands for the process of determining and presenting the relationship of items and group of items in the statements.
Ratio analysis can be used both in trend analysis and static analysis. A creditor would like to know the ability of the company, to meet its current obligation and therefore would think of current and liquidity ratio and trend of receivable. Major tool of financial are thus ratio analysis and Funds Flow analysis. Financial analysis is the process of identifying the financial strength and weakness of the firm by properly establishing relationship between the items of the balance sheet and the profit account The financial analyst may use ratio in two ways.
First he may compare a present ratio with the ratio of the past few years and project ratio of the next year or so. This will indicate the trend in relation that particular financial aspect of the enterprise. Another method of using ratios for financial analysis is to compare a financial ratio for the company with for industry as a whole, or for other, the firm’s ability to meet its current obligation. It measures the firm’s liquidity. The greater the ratio, the greater the firms liquidity and vice-versa. A ratio can be defined as a numerical relationship between two numbers expressed in terms of (a) proportion (b) rate (c) percentage.
It is also define as a financial tool to determine an interpret numerical relationship based on financial statement yardstick that provides a measure of relation ship between two variable or figures. Meaning and Importance: Ratio analysis is concerned to be one of the important financial tools for appraisal of financial condition, efficiency and profitability of business. Here ratio analysis id useful from following objects. 1. Short term and long term planning 2. Measurement and evaluation of financial performance 3. Stud of financial trends 4. Decision making for investment and operations 5.
Diagnosis of financial ills 6. providing valuable insight into firms financial position or picture ADVANTAGES& DISADVANTAGES OF RATIO ANALYSIS : Advantages: The following are the main advantages derived of ratio analysis, which are obtained from the financial statement via Profit & Loss Account and Balance Sheet. a) The analysis helps to grasp the relationship between various items in the financial statements. b) They are useful in pointing out the trends in important items and thus help the management to forecast c) With the help of ratios, inter firm comparison made to evolve future market strategies. ) Out of ratio analysis standard ratios are computed and comparison of actual with standards reveals the variances. This helps the management to take corrective action. e) The communication of that has happened between two accounting the dates are revealed effective action. f) Simple assessments of liquidity, solvency profitability efficiency of the firm are indicted by ratio analysis. Ratios meet comparisons much more valid. Disadvantages: Ratio analysis is to calculate and easy to understand and such statistical calculation stimulation thinking and develop understanding. But there are certain drawbacks and dangers they are. )There is a trendy to use to ratio analysis profusely. ii)Accumulation of mass data obscured rather than clarifies relationship. iii) Wrong relationship and calculation can lead to wrong conclusion. 1. In case of inter firm comparison no two firm are similar in size, age and product unit. (for example) one firm may purchase the asset at lower price with a higher return and another firm witch purchase the asset at asset at higher price will have a lower return) 2. Both the inter period and inter firm comparison are affected by price level changes. A change in price level can affect the validity of ratios calculated for different time period. . Unless varies terms like group profit, operating profit, net profit, current asset, current liability etc. , are properly define, comparison between two variables become meaningless. 4. Ratios are simple to understand and easy to calculate. The analyst should not take decision should not take decision on a single ratio. He has to take several ratios into consideration. STANDARDS OF COMPARISION: 1. Ratios calculated from the past financial statements of the same firm. 2. Ratio developed using the projected or perform financial statement of the same firm 3.
Ratios of some selected firm especially the most progressive and successful, at the same point of time. 4. Ratios of the industry to which the firm belongs. IMPORTANCE OF RATIO ANALYSIS In the preceding discussion in the form, we have illustrated the compulsion and implication of important ratios that can be calculated from the Balance Sheet and Profit & Loss account of a firm. As a tool of financial management, they are of crucial significance. The importance of ratio analysis lies in the fact and enables the drawing of inferences regarding the performance of a firm.
Ration analysis is a relevant in assessing the performance of a firm in respect of the following aspect. CAUTION IN USING RATIOS: 1. It is difficult to decide on the proper bases of comparison. 2. The comparison rendered difficult because of difference in situation of two companies or of one-company for different years. 3. The price level change make the interpretation of ratios invalid 4. The difference in the definition of items in the balance sheet and Profit & Loss statement make the interpretation of ratios difficult. 5. The ratios calculated at a point of time are less informative and defective as they suffer from sort term changes. . The ratios are generally calculated from the past financial statement and thus are no indicators of future. CURRENT RATIO : The relationship of current assets to current liabilities is known as current ratio. It is also known as banker’s ratio or working capital ratio. 1. CURRENT RATIO It is relationship between firm’s current assets and current liability. Current assets Current ratio = _______________________________ Current liability TABLE – 1 STATEMENT SHOWING CURRENT RATIO Rs in lakhs YEAR2005 -20062006-20072007-20082008-092009-10 CURRENT ASSETS16330782106400277040036901074293481
CURRENT LIABILITIES10320021442000200223028332903244172 CURRENT RATIO 1. 581. 461. 381. 301. 32 SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS INTERPRETATION The current ratio is a test of the short term solvency of the business enterprise since this ratio assumes current assets could be converted inti cash to meet current liabilities. It is often accepted that current assets should be 2times the current liabilities. Current ratio during the year 2005-2006 was 1. 58 and its come down in 1. 46 at 2006-2007 and its again decreased 2007–2008 and 2008-09 and its slightly increased in 1. 2 at 2009-10. The standard norm for this ratio is 2:1 required. BHEL should maintain sufficient amount of current assets in order to maintain the standard form of current ratio. CHART – 1 CURRENT RATIO QUICK RATIO: It establishes the relationship of a company’s current assets that can be quickly converted into cash and its current liabilities. 1. QUICK RATIO It is relationship between liquid assets and current liabilities. Liquid assets Quick ratio = _________________________ Liquid Liabilities TABLE –2 STATEMENT SHOWING QUICK RATIO Rs in lakhs
YEAR2005 -20062006-20072007-20082008-092009-10 LIQUID ASSETS12586401684600221697829064053369935 LIQUID LIABILITIES10320021442000200223028332903244172 LIQUID RATIO1. 221. 171. 101. 031. 04 SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS INTERPRETATION It is in fact the measure of the “Instant” debt paying ability of the business enterprise. The quick ratio in the year 2005-2006 was 1. 22 and its decreased 0. 04% at 2006 and 2007 (1. 17) and in 2007-2008 get decreased 0. 06% (1. 10) and 2008-2009 get decreased 0. 063% (1. 03) and its get increase in slightly on 2009-2010 at 0. 001%(1. 04).
The standard norm for this ratio is 1:1, means for every 1 rupee of current liability, company must have 1 rupee of quick assets. CHART –2 LIQUID RATIO CASH MANAGEMENT Introduction: Cash management is one of the key areas of working capital management. Cash is the liquid current asset. The main duty of the finance manager is to provide adequate cash to all segments of the organization. The important reason for maintaining cash balances is the transaction motive. A firm enters into variety of transactions to accomplish its objectives which have to be paid for in the form of cash. Meaning of cash:
The term “cash” with reference to cash management used in two senses. In a narrower sense it includes coins, currency notes, cheques, bank drafts held by a firm. n a broader sense it also includes “near-cash assets” such as marketable securities and time deposits with banks. Objectives of cash management: There are two basic objectives of cash management. They are- ?To meet the cash disbursement needs as per the payment schedule. ? To minimize the amount locked up as cash balances. Basic problems in Cash Management: Cash management involves the following four basic problems. ?Controlling level of cash Controlling inflows of cash ?Controlling outflows of cash and ?Optimum investment of surplus cash. ?Determining safety level for cash: The finance manager has to take into account the minimum cash balance that the firm must keep to avoid risk or cost of running out of funds. Such minimum level may be termed as “safety level of cash”. The finance manager determines the safety level of cash separately both for normal periods and peak periods. Under both cases he decides about two basic factors. They are- Desired days of cash: It means the number of days for which cash balance should be sufficient to cover payments.
Average daily cash flows: This means average amount of disbursements which will have to be made daily. Criteria for investment of surplus cash: In most of the companies there are usually no formal written instructions for investing the surplus cash. It is left to the discretion and judgment of the finance manager. While exercising such judgment, he usually takes into consideration the following factors- Security: This can be ensured by investing money in securities whose price remains more or less stable. Liquidity: This can be ensured by investing money in short term securities including short term fixed deposits with banks.
Yield: Most corporate managers give less emphasis to yield as compared to security and liquidity of investment. So they prefer short term government securities for investing surplus cash. Maturity: It will be advisable to select securities according to their maturities so the finance manager can maximize the yield as well as maintain the liquidity of investments. Cash Management in BHEL: The cash management is carried out in seaways by CTM (Corporate Treasury Management). CTM is a commonly followed procedure in most of the companies. Now we see the cash ration / quick ration in bhel . CASH RATIO It is relationship between cash and current liabilities. Cash Cash ratio = _______________________ Current liabilities STATEMENT SHOWING CASH RATIO TABLE – 3 Rs in lakhs YEAR2005 -20062006-20072007-20082008-20092009-2010 CASH4133985809008386001031467979008 CURRENT LIABILITIES10320021442000200223028332903244172 CASH RATIO0. 400. 400. 420. 360. 30 SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS INTERPRETATION The Cash ratio of BHEL in the 2005-2010 was fluctuation in 2009-2010 it was 0. 30 times and in 2005-2006 it was 0. 40 times and 2007-2008 it was reduced to 0. 42.
The standard norms of absolute quick ratio are 0. 5:1. From the above table the firms not maintain the sufficient level of quick assets because of the day-to-day expenses . It is fluctuating between the standard norms for this ratio is 1:2 means for every 2 rupees of current Liabilities, Company must have 1 rupee of cash and bank balance and marketable securities. CHART- 3 CASH RATIO RECEIVABLES MANAGEMENT Introduction: Receivables constitute a significant portion of the total assets of the business. When a firm seller goods or services on credit, the payments are postponed to future dates and receivables are created.
If they sell for cash no receivables created. Meaning: Receivable are asset accounts representing amounts owed to the firm as a result of sale of goods or services in the ordinary course of business. Purpose of receivables: Accounts receivables are created because of credit sales. The purpose of receivables is directly connected with the objectives of making credit sales. The objectives of credit sales are as follows- Achieving growth in sales. Increasing profits. Meeting competition. Factors affecting the size of Receivables: The main factors that affect the size of the receivables are- Level of sales.
Credit period. Cash discount. Costs of maintaining receivables: The costs with respect to maintenance of receivables are as follows- Capital costs: This is because there is a time lag between the sale of goods to customers and the payment by them. The firm has, therefore to arrange for additional funds to meet its obligations. Administrative costs: Firm incur this cost for manufacturing accounts receivables in the form of salaries to the staff kept for maintaining accounting records relating to customers. Collection costs: The firm has to incur costs for collecting the payments from its credit customers.
Defaulting costs: The firm may not able to recover the over dues because of the inability of customers. Such debts treated as bad debts. Receivables management: Receivables are direct result of credit sale. The main objective of receivables management is to promote sales and profits until that point is reached where the ROI in further funding of receivables is less than the cost of funds raised to finance that additional credit (i. e. ; cost of capital). Increase in receivables also increases chances of bad debts. Thus, creation of receivables is beneficial as well as dangerous.
Finally management of accounts receivable means as the process of making decisions relating to investment of funds in this asset which result in maximizing the over all return on the investment of the firm. Receivables management and Ratio Analysis: Ratio Analysis is one of the important techniques that can be used to check the efficiency with which receivables management is being managed by a firm. The most important ratios for receivables management are as follows- DEBTORS TURNOVER RATIO: – Debtors constitute an important constituent of current assets and therefore the quality of the debtors to a great extent determines a firm’s liquidity.
It shows how quickly receivables or debtors are converted into cash. In other words, the DTR is a test of the liquidity of the debtors of a firm. The liquidity of firm’s receivables can be examined in two ways they are DTR and Average Collection Period. It indicates the number time debtors turned over each year. Generally the higher value of debtor’s turnover shows high efficiency to manage the credit management. Total sales Debtors turnover ratio = ______________________________ Debtors TABLE –4 STATEMENT SHOWING DEBTORS TURNOVER RATIO Rs in lakhs YEAR2005 -20062006-20072007-20082008-20092009-2010
TOTAL SALES13374031723753193046426212333286144 DEBTORS716806969582119748715975502068875 DEBTOR TURNOVER RATIO 1. 871. 781. 611. 641. 59 SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS INTERPRETATION Debtors constitute an important constituent of current assets and therefore the quality of the debtors to a great extent determines a firm’s liquidity. It shows how quickly receivables or debtors are converted into cash. In other words, the DTR is a test of the liquidity of the debtors of a firm. The liquidity of firm’s receivables can be examined in two ways they are DTR and Average Collection Period. The higher the ratio, the better it is, since it would indicate that debts are being collected promptly. In the year 2009 – 2010 the debt is 1. 59 comparing to the previous year came downwards. CHART- 4 DEBTOR TURNOVER RATIO DEBT COLLECTION PERIOD Debtor’s collection period is nothing but the period required to collect the money from the customers after the credit sales. A speed collection reduces the length of operating cycle and vice versa. The more quickly the customers pay, the less risk from bad debts, the lower the expenses of collection and more liquid the nature of of this asset. It indicates the speed with which debts are collected.
Days/months in a year Debt collection period = _______________________________ Debtor’s turnover ratio TABLE – 5 Rs in lakhs YEAR2005 -20062006-20072007-20082008-20092009-2010 DAYS365365365365365 DEBT TURNOVER RATIO1. 871. 781. 611. 641. 59 DEBT COLLECTION PERIOD 195 205227223230 SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS INTERPRETATION The debt collection period of BHEL in the 2005-2006 was 195 days and in goes to 2009 – 2010 it was increased in (0. 18%) 230 days. Standard Debt Collection Period of a firm is less than 90 days. But, above tables consists of increased of DCP in rapidly.
CHART – 5 DEBT COLLECTION PERIOD CREDITORS TURNOVER RATIO The ratio shows on an average the number of times creditors turned over during the year. Credit purchase Creditors turnover ratio = ________________________ Average creditors TABLE – 6 Rs in lakhs YEAR2005 -20062006-20072007-20082008-20092009-2010 CREDIT PURCHASE7099401018186118208717620052067232 SUPPLIERS / CREDITORS280409353895442400585285757980 CREDITORS TURNOVER RATIO 2. 532. 882. 673. 012. 73 SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS INTERPRETATION The Creditors turnover ratio of BHEL was fluctuating during the year 2005 – 2010.
It was upward in (2008– 2009) was 3. 01 times and it was downward in 2009 – 2010 is 2. 73 times. Greater the CTR the more time firm has to pay to their creditors. CHART -6 CREDITORS TURNOVER RATIO TABLE –7 CASH TO CURRENT ASSETS RATIO Rs in lakhs YEAR2005 -20062006-20072007-20082008-20092009-2010 CASH4133985809008386001031467979008 CURRENT ASSETS16330782106400277040036901074293481 CAS TO CURRENT ASSETS RATIO0. 250. 270. 300. 280. 23 SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS INTERPRETATION The Cash to current assets turnover ratio of BHEL was fluctuating during the year 2005 – 2010.
It was upward in (2005– 2008) was 0. 25 times to 0. 30 times and it was downward in 2008 – 2010 is 0. 23 times. CHART -7 CASH TO CURRENT ASSETS RATIO TABLE –8 CASH TURNOVER RATIO Rs in lakhs YEAR2005 -20062006-20072007-20082008-20092009-2010 SALES13374031723753193046426212333286144 CASH4133985808918386021031467979008 CASH TURNOVER RATIO3. 242. 972. 312. 543. 36 SOURCE: SECONDARY DATA FROM BHEL ANNUAL REPORTS INTERPRETATION The cash turnover ratio in the years 2005-2010 it was on fluctuating ratios, in the year 2009-2010 it was increased (0. 037%) 3. 36. INVENTORY MANAGEMENT Introduction:
Inventories are stock of the product a company is manufacturing for sale and components. That makeup the products. The various forms in which inventories exist in a manufacturing company are: Raw-materials, work-in-process, finished goods. •Raw-Materials: – Are those basic inputs that are converted into finished products through the manufacturing process. Raw-materials inventories are those units, which have been purchased and stored for future production. •Work-In-Process inventories are semi-manufactured products. The represent products that need more work before they become finished products for sale. Finished Goods inventories are those completely manufactured products, which are ready for sale. Stocks of raw-materials and work-in-process facilitate production which stock of finished goods is required for smooth marketing operations. These inventories serve as a link between production and consumption of goods. •Stores and spares are also maintained by some firms. This includes office and plant cleaning materials like soaps, brooms, oil, fuel, light, bulbs etc. These materials do not directly enter in production. But are necessary for production process. Need to holding inventory
The question of managing inventories arises only when the company holds inventories. Maintaining inventories involves tying up of the company’s funds and incurrence of storage and handling cost. It is expensive to maintain inventories, why does company hold inventories? There are three general motives for holding inventories. 1. Transaction Motive: – Emphasizes the need to maintain inventories to facilitate smooth production and sales operations. 2. Precautionary motive: – Necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. . Speculative motive: – Influences the decision to increase or reduce inventory levels to take advantages of price influences. A company should maintain adequate stock of materials for a continuous supply to the factory for the uninterrupted production. It is not possible for a company to procure raw materials whenever it is needed. A time lag exists between demand for materials and its supply. Also there exists uncertainty in procuring raw materials in time on many occasions. The procurement of materials may be delayed because of such factors as strike, transport disruption or short supply.
Therefore, the firm should maintain sufficient stock of raw materials at a given time to stream line production. Objective of Inventory Management In the context of inventory management the firm is faced with the problem of meeting two conflicting needs ; •To maintain a large size of inventory for sufficient and smooth production and sales operations. •To maintain a minimum investment in inventories to maximize profitability. Both excessive and inadequate inventories are not desirable. These are two dangerous points within which the firm should operate.
The objective of inventory management should be to determine and maintain optimum level of inventory investment. The optimum level of inventory will lie between the two danger points of excessive and inadequate inventories. The firm should always avoid a situation of over investment or under investment in inventories. The major dangerous of over investment are, •Unnecessary tie-up of the firms funds losses of profit • Excessive carrying cost • Risk of quality The aim of inventory management thus should be to avoid excessive and inadequate levels of inventories and to maintain sufficient inventory for smooth production and sales operations.
Efforts should be made to place an order at the right time with the right source to acquire the right quantity at the right price and quality. An effective inventory management should •Ensure a continuous supply of raw materials to facilitate uninterrupted production. •Maintain sufficient stock of raw materials in periods of short supply and anticipate price changes. •Maintain sufficient finished goods inventory for smooth sales operations and efficient customer service. •Minimize the carrying cost and time. •Control investment in inventories and keep it at an optimum level. Inventory management techniques :
In managing inventories the firm objective should be in consonance with the shareholders’ wealth maximization principle. To achieve this firm should determine the optimum level of inventory. Efficiently controlled inventories make the firm flexible. Inefficient inventory control results in unbalanced inventory and inflexibility-the firm ma sometimes run out of stock and sometimes may pileup unnecessary stocks. This increases level of investment and makes the firm unprofitable. To manage inventories efficiency, answers should be sought to the following two questions. 1) How much should be ordered? ) When should it be ordered? The first question how much to order, relates to the problem of determining economic order quantity (EOQ), and is answered with an analysis of costs of manufacturing certain level of inventories. The second question when to order arise because of determining the reorder point. When the order is placed for raw material certain raw material is in transit, such raw material is called as raw material in transit. Example –Raw material on over seas. The raw material can be transfer from unit to another unit or from one department to another is called transfer-in –transit.
It is nothing but to the transfer of raw material among the inter firm units of BHEL. The raw material, which is production process, is called work-in process. The work in process becomes finished goods inventory. The finished should not be kept for a longer time. They should be sold off to clear off the entire inventory. However, finished goods inventory is not there for BHEL, since production is mainly done on customer order and specifications. The raw material is purchased and the whole process is repeated again which we call it as inventory cycle. Inventory turnover Ratio:-
Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products. It is calculated by dividing the cost of goods sold by the average inventory. The average inventory is the average of open and closing balance of inventory. TABLE –9 INVENTORY TURNOVER RATIO It indicates the inventories turning into receivables through sales. Sales Inventory turnover ratio =__________________________ Inventory Rs in lakhs YEAR2005 -20062006-20072007-20082008-20092009-2010 SALES 1337403 1723753193046426212333286144 INVENTORY374437421767573640783702923546 INVENTORYTURNOVER RATIO3. 74. 093. 373. 343