project working capital management at bhel jhansi unit from anuj ( bu jhansi )
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SUMMER TRAINING PROJECT REPORT
On
“WORKING CAPITAL MANAGEMENT”
At BHEL, JHANSI
In partial fulfilment for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
(Financial Management)
Batch 2015-17
Under the Guidance Of:- Submitted by:-
Dr. M. S. Ansari Anuj Singh
(Assistant Professor) Roll No.: 151145095010
Signature:___________
Submitted to:
INSTITUTE OF ECONOMIC AND FINANCE
BUNDELKHAND UNIVERSITY JHANSI
2
Certification
TO WHOM SO EVER IT MAY CONCERN
This is to certify that the summer Training Project Report “Working Capital
Management In BHEL, Jhansi’’ submitted in partial fulfillment for the award of the degree
of Master of Business Administration in Financial Management from Bundelkhand
University, Jhansi was carried out by Anuj Singh under my guidance. This has not been
submitted to any other University for the award of any degree/diploma/certificate.
Signature of Guide
Date……./......./......... Dr. M.S. Ansari
Place........................ Assistant Professor
Academic Coordinator
3
DECLARATION
It is hereby declared that the Summer Training Project Report entitled “Topic,
Working Capital Management at BHEL, JHANSI.” has been prepared as the part for the
completion of the degree of Masters of Business Administration from Bundelkhand
University, Jhansi, and it is based on the original research work and will be used only for the
academic purpose.
I hereby declare that this Summer Training Project Report is a bona fide work undertaken by
me and it is not submitted to any other University or Institution for the award of any degree
diploma / certificate or published any time before.
------------------------------
Signature of Student’s
Date: ---/----/------ Student’s Name: Anuj Singh
Place: Jhansi Course: MBA (Full Time)
Roll No : 151145095010
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ACKNOWLEDGEMENT
I hereby certify that the work, which is being presented in the summer project report,
entitled “Working capital management in BHEL, Jhansi” in partial fulfillment of the
requirement for the award of the degree of Master of Business Administration and submitted
to the institution is an authentic record of my own work carried out during the period of June
to July 2016 under the supervision of
I would also like to express my gratitude and regards to my guide Dr. M. S. Ansari ( Asst. Prof. I.E.F., BU Jhansi ) for her exemplary guidance, monitoring and constant encouragement throughout the course of the study. The blessing, help and guidance given by him time to time shall carry me a long way in the journey of life on which I am about to embark.
I greatly acknowledge Ms. MK Nayak, Account officer in Bharat Heavy
Electricals Limited, Jhansi. For giving me the opportunity to work in his prestigious
place.
ANUJ SINGH
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PREFACE
The conceptual knowledge acquired by management students is best manifested in the
projects and training they undergo. As a part of curriculum of MBA, I have got a chance to
undergo practical training in BHEL, Jhansi. The present project gives a perfect vent to my
understanding of the financial management specially.
The project entitled “Working Capital Management” is based on them of BHEL Jhansi
performance on the basis of economic value addition made by the BHEL in the last 5 years.
The project will provide all the information regarding Ratio Analysis and their importance in
BHARAT HEAVY ELECTRICAL LIMITED, JHANSI.
I also hope that this report will be beneficial for my next batches and for those who are
related to this topic.
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Table of contents
1. Industry profile…………………………………………………………………......7-12
An overview of BHEL………………………………………………………7
BHEL Existence……………………………………………………………..9
Units in India……………………………………………………………….10
BHEL Performance (Corporate Level)…………………………………….11
Vision, Mission and Values of BHEL……………………………………..12
2. Objectives of BHEL………………………………………………………………….13
3. BHEL Business Areas………………………………………………………………..15
4. Statement Showing Shareholding Pattern of BHEL (31-3-2016) ………………..17-18
Shareholding………………………………………………………………..18
Public Shareholding………………………………………………………..18
5. Depart mentation in BHEL Jhansi Unit……………………………………………...19
6. Finance Department BHEL, Jhansi…………………………………………………..23
7. Introduction of Working Capital………………………………………………….29-38
Working Capital Policy…………………………………………………….30
Receivable Policy…………………………………………………………..32
Inventory …………………………………………………………………..34
8. Analysis of Working Capital……………………………………………………...39-53
9. Limitation…………………………………………………………………………….54
10. Conclusion & Comments…………………………………………………………….55
11. Bibliography………………………………………………………………………….56
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1. AN OVERVIEW OF BHEL
BHEL has been the flag bearer of Indian engineering enterprises across the globe for
over four decades. Continuing its focus on globalization, BHEL has achieved consistent
growth in its exports. Its references encompass almost the entire range of BHEL products and
services, covering thermal, hydro and gas-based turnkey power projects, substation projects,
rehabilitation projects, besides a wide variety of products like Transformers, Compressors,
Motors, Valves and Oil field equipment, Electrostatic Precipitators, Photovoltaic equipment,
Insulators, Heat Exchangers, Switchgears, Castings and Forgings, etc.
The cumulative overseas installed capacity of BHEL manufactured power plants
stands at close to 10 GW. The first large turnkey project export by an Indian company was
done by BHEL in Libya (1977) and since the past few decades, BHEL has been expanding its
operations in the field of exports. Currently, BHEL has established references in 78 countries
across the globe with major contributions in the power sector of various countries and has
contracted power plant equipment of around 17,000 MW outside India. With the growing
impetus on the renewables sector worldwide, BHEL has reinforced its presence in this
segment with orders from Turkey and Nigeria. In 2015-16, BHEL secured export orders from
17 countries with maiden orders from Belgium and Mozambique.
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Some of the major successes achieved by BHEL have been in gas-based power
projects in Oman, Libya, Malaysia, UAE, Saudi Arabia, Iraq, Bangladesh, Sri Lanka, China,
Kazakhstan, Belarus, Yemen; thermal power projects in Cyprus, Malta, Libya, Egypt,
Indonesia, Thailand, Malaysia, Sudan, Syria, Ethiopia, Senegal, New Caledonia, Ukraine;
hydro power plants in New Zealand, Malaysia, Azerbaijan, Bhutan, Nepal, Taiwan,
Tajikistan, Vietnam, Rwanda, Thailand, Afghanistan, Democratic Republic of Congo,
Burundi; and substation projects & equipment in various countries. Execution of these
overseas projects has also provided BHEL the experience of working with world renowned
consulting organizations and inspection agencies. The company has been successful in
meeting demanding requirements of international markets, in terms of complexity of work as
well as technological, quality and other requirements viz. HSE requirements, financing
packages and associated O&M services, to name a few. BHEL has proved its capability to
undertake projects on fast-track basis. BHEL has also established its versatility to
successfully meet the other varying needs of various sectors, be it captive power, utility
power generation or for the oil sector. Besides undertaking turnkey projects on its own,
BHEL also possesses the requisite flexibility to interface and complement other international
companies for large projects, and has also exhibited adaptability by manufacturing and
supplying intermediate products.
The company is taking a number of strategic business initiatives to fuel further growth
in overseas business. This includes firmly establishing itself in target export markets,
positioning BHEL as a regular EPC contractor in the global market both in utility and IPP
segments and exploring various opportunities for setting up overseas joint ventures, etc.
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BHEL Existence
10
UNITS in India
FIRST GENERATION
Bhopal : Heavy Electrical plant.
Haridwar : Heavy Electrical Equipment plant.
Hyderabad : Heavy Electrical Power Equipment plant.
SECOND GENERATION
Tiruchy : High Pressure Boiler plant (Tamil Nadu)
Jhansi : Transformer and Locomotive Plant.
Haridwar : Central foundry and forge Plant.
Tiruchy : Seamless Steel Tube Plant.
UNITS THROUGH ACQUISTION & MERGER
Bangalore : Electronics Division
: Electro Porcelain Division
NEW MANUFACTURING UNITS
Ranipet : Boiler Auxiliaries Plant
Jagdishpur : Insulator plant.
Govindwal : Industrial Valves Plant
Rudrapur : Component and fabrication plant.
Bangalore : Energy Systems Division
BHEL is growing concern to meet the changing needs of the nation has taken it
beyond power into the total gamut of energy, industry and transportation BHEL is able to
offer a service in each of this fields. Its manufacturing capability is supported by a corporate
R&D division at Hyderabad works closely with the research and development cells at various
units and Welding Research Institute at Tiruchinapalli.
11
BHEL PERFORMANCE (CORPORATE LEVEL)
PARAMETER 2014-15 2015-16
Turnover (Rs. /Cr.) 30,947 9,792
Order inflow (Rs. /Cr.) 22,096 31,528
Net Profit (Rs. /Cr.) 3,461 2,140
Net Worth (Rs. /Cr.) 33,047 34,085
Megawatts Commissioned 9,270 10,340
R & D Investment (Rs. /Cr.) 1,199 1,248
Patents / Copyrights Filled (Nos.) 351 385
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VISION, MISSION AND VALUES OF BHEL
VISION
A global engineering enterprise providing solutions for a better tomorrow.
MISSION
Providing sustainable business solution in the fields of Energy, Industry &
Infrastructure.
VALUES
GOVERNANCE: We are stewards of our shareholders investments and we take
that responsibility very seriously. We are accountable and responsible for delivering
superior results that make a difference in the lives of the people we touch.
RESPECT: We value the unique contribution of each individual. We believe in
respect for human dignity and we respect the need to preserve the environment around
us.
EXCELLENCE: We are committed to deliver and demonstrate excellence in
whatever we do.
LOYALTY: We are loyal to our customers, to our company and to each other.
ENTEGRITY: We work with highest ethical standards and demonstrate a behavior
that is honest, decent and fair. We are dedicated to the highest levels of personal and
institutional integrity.
COMMITMENT: We set high performance standards for ourselves as individuals
and our teams. We honour our commitments in a timely manner.
INNOVATION: We constantly support development of newer technologies,
products, improved processes, better services and management practices.
TEAM WORK: We work together as a team to provide best solutions & services to
our customers. Through quality relationships with all stakeholders we deliver value
to our customers.
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2. OBJECTIVES of bhel
A dynamic is one which keeps its aim high adopts itself quickly to changing environment.
So here we are in BHEL. The objectives of the company have been redefined in the corporate
plan for the 90’s.
1. BUSINESS MISSION
To be a leading engineering enterprises providing quality product system and
services in the field of conversion, transmission, utilization and conversion of energy
for application in the areas of electric power, transportation, oil & gas explorations
and industries. Utilize company’s capabilities and resources to extend business into
allied areas and other priority sector of the economy like defence, communication and
electronics.
2. GROWTH
To ensure a steady growth by enhancing the competitive edge of BHEL in
existing business new areas and international market so as to fulfil national
expectation from BHEL.
3. PROFITABILITY
To provide a reasonable and adequate return on capital employed, primarily
through improvement in operational, efficiency, capacity utilization and productivity
and generate adequate internal resources to finance the company’s growth.
4. FOCUS
To build a high degree of customers confidence by providing increased value
for his money though International standards of product quality performance and
superior customer service.
5. PEOPLE ORIENTATION
To enable each employees to achieve his potential, improve his capabilities perceive
his role and responsibilities and participate and contribute to the growth and success
of the company.
To invest in human resources continuously and be alive to their needs.
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6. TECHNOLOGY
To achieve technological excellence in operation by development of
indigenous technologies and efficient absorption and adoption of imparted
technologies to suit business and priorities and provide competitive advantage to the
company.
7. IMAGE
To fulfil the expectation this stakes holders like government as owner.
Employees, customers and the country at large have from BHEL.
Products of BHEL
1. Indian Railways WCAM 3 Manufactured By BHEL
2. Boiler (steam generator) under collaboration with Combustion Engineering, USA
3. Gas generator
4. Hydro generator
5. Steam turbine - under collaboration with Siemens, Germany
6. Gas turbine - under collaboration with GE, USA
7. Hydro turbine
8. Transportation equipment
9. Traction machines
10. AC Motors
11. Transformer
12. Switchgear
13. Oil field equipment (OFE)-under collaboration with National Oil well Varco.
14. Boiler drum
15. Water wall panel, Coils, Super Heaters, Re heaters, SOFA panels, Burner panels,
Piping & Headers
16. Wind mill
17. Valves
18. Electrostatic precipitators
19. R & D products
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3. BHEL Business Areas
POWER GENERATION
Power generation sector comprises thermal, gas, hydro, and nuclear power
plant business.
TELECOMMUNICATION
BHEL also caters to Telecommunication Sector by way of small, medium and
large switching systems.
TRANSMISSION AND DISTRIBUTION (T&D)
BHEL offers wide-ranging products and systems for T&D applications.
Products manufactured include: power transformers, instrument transformers, dry
type transformers, series &shunt reactors, capacitor banks, vacuum &SF6 circuit
breakers, gas-insulated switchgears and insulators.
INDUSTRIES
BHEL is a major contributor of equipment and systems to industries, cement,
sugar, fertilizer, refineries, petrochemicals, paper, oil and gas, metallurgical and other
process industries. The range of systems & equipment supplied includes: captive
power plants, co-generation plants, DG power plants, industrial steam turbines,
industrial boilers and auxiliaries, waste heat recovery boilers, gas turbines, heat
exchangers and pressure vessels, centrifugal compressors, electrical machines, pumps,
valves, seamless steel tubes, electrostatic precipitators, fabric filters, reactors,
fluidized bed combustion boilers, chemical recovery boilers and process controls.
TRANSPORTATION
BHEL is involved in the development, design, engineering, marketing,
production, installation, and maintenance and after-sales service of rolling stock and
traction propulsions systems. BHEL manufactures electric locomotives up to 5000
HP, diesel electric locomotives from 350 HP to 3100 HP, both for mainline and
shunting duty applications. It also produces rolling stock for special applications viz.
overhead equipment cars, special well wagons, and Rail-cum road vehicle.
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RENEWABLE ENERGY
Technologies that can be offered by BHEL for exploiting non-conventional
and renewable sources of energy include: wind electric generators, solar photovoltaic
systems, solar heating systems, solar lanterns and battery-powered road vehicles.
OIL AND GAS
BHEL’s products range includes Deep Drilling Oil Rigs, Mobile Rigs, Work
Over Rigs, Well Heads and X-Mas Trees, Choke and Kill Manifolds, Full Bore Gate
Valves, Mudline Suspension System, Casing Support system Sub-Sea Well Heads,
Block valves
, Seamless pipes, Motors, Compressor, Heat Exchangers etc.
INTERNATIONAL OPERATIONS
BHEL is one of the largest exporters of engineering products & services from
India, ranking among the major power plant equipment suppliers in the world.
17
4. Statement showing Shareholding
pattern of BHEL (31-3-2016)
Category of Shareholders No. of
Shareholders
Total No. of
Shares
Central Government/ State Government 1 1543452000
Total (A) 1 1543452000
Public Shareholdings
A. Institution
1. Mutual funds/ UTI 90 66355008
2. Financial Institution/ Banks 69 1228617301
3. Insurance Companies 8 255393216
4. Foreign Institutional Investors - -
5. Qualified Foreign Investors 427 341291372
Sub-Total (P) 594 791656897
B. Non-Institution
1. Bodies corporate - -
2. Individuals
a) Individuals holding nominal share capital upto
Rs 1 lakh
- -
b) Individuals holding nominal share capital in
excess of Rs 1 lakh
393424 77945610
c) Others 10610 34545493
Sub-Total (Q) 404034 112491103
Total B= (P+Q) 404628 904148000
Grand Total (A+B) 404629 2447600000
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Shareholding Pattern shown by Graph
Public Shareholding
This above pie-chart shows the public shareholding shareholders institution and non-
institution both separately.
Shareholding Pattern
Central Government/ StateGovernment
Public Shareholding(Institution)
Public Shareholding (Non-Institution)
Public Shareholding Mutual funds/UTI
Financial Institutions / Banks
Insurance companies
Foreign Institutional Investors
Qualified Foreign Investor
Individual holding nominal sharecapital upto Rs 1 lakhIndividual holding nominal sharecapital in excess of Rs 1 lakhother
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5. DEPARTMENTATION IN JHANSI UNIT
1. Commercial
The function of this department involve tendering, issue of the work order, co-
ordination with various agencies inside as well as outside BHEL such as design
production, planning, quality control, purchase, stores, finance, CDC, etc. The outside
agencies involved are the business sector, other units of BHEL and customers. The
other functions are dispatch monitoring, collection of receivable, organisation of
erection activities and services after sales.
2. Engineering
The main functions of this department are:
Technical offer and cost estimation
Design and drafting
Specification of component
Resolving technical problem of manufacturing, sites and warranties
Analysis of sites complaints.
3. Production planning and control
The main functions are;
Preparation of annual budget and product wise monthly production scheduled
Preparation of the monthly production plan for feeder and assembly shops
Get engineering information released from design department so as to meet
production scheduled
After release of manufacturing information, PPC decides whether to make
component inside the plant or off loaded them off ancillaries
Preparation of actual output at the end of every month
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4. Personnel department
BHEL has been a pioneer in public in many fields including the areas of
human resource management. It is being increasingly acknowledge, that fair and
uniform application of personnel policies and function have a great impact on morale
and its major roles are:
Personnel Role
o Advisory management on effective use of human resources
o Manpower planning recruitment, selection, promotion
o Training and development of lineman
o Measurement of assessment of individual and group behaviour
welfare Role
o research in personnel and organisation problems
o managing services like canteen, crèches, etc
o group dynamics like group counselling, motivation, leadership, etc
Clerical Role
o Salary and wages administration
o Maintenance of records
Legal role:
o Grievance handling, settlement of disputes
o Handling disciplinary actions
o Collective bargaining
o Joint consultation
Planning and development (P&D)
The function of P&D may be broadly listed as follow:-
Preparation of budget and budgeted control:- each year the department
prepares the revenue and capital budget. These budgets as benchmarks against
which actual performance is assessed.
Data compilation and report generation:- numerous reports are required to be
sent to various internal and external agencies throughout the year. All these
reports are prepared and sent by P&D department.
21
Strategic Planning:- this department is also actively involved in identification
of new business areas, assessment of project viability, obtaining approval for
project and their subsequent execution.
5. Works Engineering and Services
It is concert with maintenance. The function of this department is to seek
break down occurrence in the machine and to get it rectified. Every type of problem
relating to township, electricity, overwork, plant machinery is looked after by the
department.
6. Electronic Data Processing (EDP) Department
EDP involved in computerization of work under the various departments:
Financial Department:- to prepare
o Pay rolls of employees
o Sales accounts of the company
o Financial accounts
o Report related to supply bills
o Material accounts
Production Management:- to prepare
o Production docket system
o Operation card
o Material issue voucher
o Yellow factory receipt
Engineering Management:- to prepare
o Shipping list
Material Management:- to prepare
o Indent generation
o Monitoring of indents
o Issue of tender notice
o Issue of purchase cards
o Bin card monitoring
Personnel Management
o To keep records of all employees
o To make MIS possible for timely control measures
22
Design Department: - their main objects are-
o To generate feasible economic design and engineering information of
products
o To assist in solving day-to-day manufacturing problems
o To assist the testing the groom in replying technical doubts
o To assist QC (Quality Control) department in preparing quality plant
and check point
o To assist production department in preparing a different process
specification
7. Publicity and Public Relation
It helps the commercial department to remain indirect contact with customers.
This department acts as a spoke man of the company. Publicity is generated through
the following:
Meetings
Arranging seminars
Arranging press conference- news papers
Visit to the factories, etc.
23
6. FINANCE DEPARTMENT IN BHEL
A sound financial management is the crux of the efficient management of a business
enterprise and financial management on scientific and sound lines in a prime consideration of
BHEL. The Finance/Accounts Department of the company controls all the financial
operations. That is directed at improving profitability and internal resources generation
through optional utilization of man, material, machines, tools and money. According to its
various functions the Finance/ Account Department is divided into following sections:
1. Cash
2. Price Store Ledger (PSL)
3. Cost Section
4. Sales section
5. Supply Bill
6. Pay
7. Books Budget and MIS
8. Miscellaneous and Revenue
9. Internal Audit
10. Provident Fund
11. Works
12. Travelling Allowance
13. Export Incentives, Sales Tax and Income Tax
1. Price Store Ledger(PSL)
PSL section is entrusted with the job of material pricing and determination of
material consumption. PSL are used for the material accounting as well as their
financial accounting. The documents involved are: -
SRV – Store Receipt Voucher
MIV – Material Issue Voucher
SRN – Store Return Note
MTV – Material Transformer Note
RCDV – Receipt cum Dispatch Voucher
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Passing of Bills
The Bills Passing process starts after the account section gets the purchase order,
SRV’s and bills from suppliers. The accountant’s section then makes payment.
Terms of Payment are of three kinds:
a. 10% in advance payment
b. 100% after receipt and acceptance
c. Partial advance and the remaining after the receipt and
acceptance
Foreign Purchase
There are certain items, which are to be imported. A license is required for
such items. The license can reacquired from DGTD. There is also a provision for
forward cover.
2. Cash, & P.F
This section is responsible of banking of all the money worth received by the
company from the costumers and disbursement of all authorized payment on behalf of
the company to suppliers, contractors in form cheques, cash, drafts, postal orders etc.
It is also concerned with payment of salaries, wages and other personal payments of
employees.
Cash section prepares these statements for management information: -
Daily – cash flow > Direction collection of sales.
Weekly – Cash inflow > outflow – during week
Statement of pending bills of cash section status of margin money.
Monthly – cash flow forecast for 3 months.
Operating result statement.
Statement of outstanding letter of credit & bank guarantee.
Daily bank transfer statement.
Bank reconciliation statement is also prepared
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BHEL has centralized cash credit system.
P.F stands for provident fund that was started from 1952 the rate of interest
decided by time to time rate of reduction is 8.33% to 12% that whole amount get by
employee at the time of retirement. P.F includes same contribution of employees as
well as company.
3. Cost Section
This section is responsible for accounting and reporting of costs. It determines
direct labor rates and Engineers rates and overheads recovery factors of
manufacturing, engineering, commercial and administration for cost estimation. The
cost accounting is done to record and collect cost for work orders and product level
information. It prepares material/ labor overheads consumption statements. It
furnishes cost reports to management about: –
a. Profitability –Product wise/ Order wise.
b. Variance _Estimated and Actual Cost
c. Performance –Efficiency and operating results
4. Books, Budget and MIS
General ledger is the consolidated list of general entries. As soon as the general
voucher is received, the general ledger is prepared.
In the general ledger, receipt and expenditure both are recorded. This section prepares
section wise and monthly Trial Balance.
After the preparation of general ledger and trial balance, P&L Account and the
Balance Sheet are prepared yearly. The Balance sheet is prepared in accordance with
the company’s act.
Two types of Audits are done by the BHEL:
a. Internal Audit
b. Government Audit
26
Budget
Budget is a target setting for operations. There are two types of Budget prepared by
BHEL: –
Revenue Budget:
It consists of consolidated production programmed &related expenses to carry out
that program.
Capital Budget:
It includes the fixed assets. Preparation of budget is done at three levels
a. Internal Level: – Each department is sent information about the budgeted
expenses provided to the department. It is necessary for control
b. Corporate Level: – Budget of BHEL unit is sent to the corporate office
c. Government Level: – Budget of BHEL is also sent to Government level.
5. Management Information System
Three types of information system are generated in the BHEL.
a. Internal for the Unit
b. For the Corporate Office
c. For Government
Every month’s information is generated regarding allocation of funds on various
aspects for each department and is sent to every department. Information is generated
mainly for control purpose. Other information generated is:-
a. Cash Flow
b. Inventory Level (non-moving and slow moving items)
c. Inventory of finished goods
27
6. Pay Section
It is assigned the job of payment of salaries and other personal payments to
employees it looks after provident fund, gratuity and bonuses insurance facilities
extend to employees.
Employees leave encashment, official travelling reimbursement and this
section deals other welfare expenses. It is also entrusted with clearance of medical
claims.
7. Sales Section
The accounting of sales is done in this section. The activity of this section starts when
the commercial department issues a work order. Work order part II(Financial)
summarizes the financial terms of the contract. It contains the information like the
name of customer &consignee, description of goods to be produced and sold,
quantity, sales value, terms of delivery and payment, price variation clause, sales tax,
excise duty, liquidates damages, Bank guarantee, fight etc. with the part II W.O.
details. Apart from that the terms and conditions embodied in W.O. part II as regard
adjustment of advances, deferred debts and calculation of PVC, Excise duty and Sales
tax must also be complies with. Sales section submits the bills to the customers as
desired by Commercial either direct or through Financial such as Banks.
This Section does the necessary accounting for the bills raised; money collected from
customers in form of advance or sale proceeds.
8. Miscellaneous and Revenue
Miscellaneous wing of this section deals with the payment of advances to employees
going on official tours, LTC etc. Payment to transporters, welfare activities, security
services, repairs and maintenance, daily wages, furniture, departmental and other
petty expenses. The revenue wing of this section with recovery of rent, electricity and
water charges for other facilities from the salary of the employees
28
9. Internal Audit
BHEL is having its own team of internal auditors, who to unearth the
discrepancies in accounting, check periodically the books of accounts as well as
schedules forming part of accounts.
10. Export Incentives, Sales Tax and Income Tax
This section deals with all the procedural work during export of goods and import
of raw material and components. It is responsible for the assessment of sales tax claim
for export incentive and duty drawback and matters relating to custom duty and sales
tax. To promote export and makes indigenous good compete in the international
market the government is providing a number of incentives in form of duty exemption
scheme and duty drawback scheme.
Duty Exemption
Under this scheme an Advance License is granted for the import of raw materials
intermediaries, component accessories and packing material used as an input for the
manufacture of goods to be exported without payment of customs duty. Advance
license provide is of two types-
a) Value Based Advance License
b) Quality Based Advance License
All advance license issued subject fulfilment of time bound export obligation and
value addition as per specified at the time of issue of license.
Duty drawback scheme
Duty drawback is the provision made for the exporter for the refund of customs
and central excise duty charged on the input used for the manufacture of the export
product. Physical and deemed are fully exempted from sales tax and excise duty.
BHEL is provided concession in sales tax subject to the insurance of CST press from
prescribed by the statute.
29
7. INTRODUCTION OF WORKING CAPITAL
A measure of both a company’s efficiency and its short term financial health. If
company current assets do not exceed its current liabilities, then it may run into trouble
paying back creditors in the short term. The worst case scenario is bankruptcy. A declining
working capital ratio over a longer time period could also be a red Flag that warrants further
analysis.
For example: - It could be that the company’s sales volumes are decreasing and as a result its
accounts receivables number continues to get smaller. The working capital is calculated as:
Working Capital = Current Assets – Current Liabilities
Meaning OF Working Capital
“Working capital refers to a firm’s investment in short term assets-cash, short term
securities, accounts receivable and inventories.”
Weston &Brigham
Working capital refers to the part of the firm’s capital which is required for financing
short-term or current assets such as cash, marketable securities, debtors and inventories.
Funds, thus invested in current assets keep revolving fast and are being constantly converted
into 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 can be classified regularly on its requirement. There are two concepts of
working capital
a) Gross working capital
b) Net working capital
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Gross Working Capital
Gross working capital is the total cash, and cash equivalents, that a business has on-
hand. Cash equivalents may include inventory, accounts receivable, and investments, such as
marketable securities, which may be liquidated within the year.
The gross working capital concept work over two aspects of current assets management.
a) Optimum investment in current assets
b) Financing of current assets
Net working capital
Net working capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders, which are expected to mature for
payment within an accounting year and include bills payable and outstanding expenses. Net
working capacity indicates the liquidity position of the firm. Generally net working capacity
is referred to as working capital.
Net working capital may be referring to:
1) Conversion of cash into raw material
2) Conversion of raw material into work-in-progress
3) Conversion of work-in-progress into finished goods
4) Conversion of finished goods into accounts receivable, and
5) Conversion of accounts receivable into cash
31
Objective of working capital management
The basic objective of working capital management is to provide adequate support of the
functioning of normal business operation of a company. The term adequate working capital is
subjective depending on management’s attitude towards uncertainty /risk.
a) Maintenance of working capital
b) Availability of sample fund at the time of need
EXCESS
CASH
CREDIT MGMT
MINIMIZE TIME
BANK MGMT
MINIMIZE TIME
A/C RECEIVABLE MGMT
MINIMIZE TIME
A/C PAYABLE MGMT
OPTIMIZE TIME
SAFETY LIQUIDITY PROFITABILITY
MEDIA
32
Receivable Policy
The customers from whom receivable or book debts have to be collected in the future
are called trade debtors. Trade credit always creates trade debtors or account receivables. The
trade credit arises when a firm sells its product or services on credit and does not receive cash
immediately.
Business firms generally sell goods on credit top facilities sales. When a firm makes an
ordinary sale of goods and services and does not receive payments. The firm grants trade
credit and create accounts receivable that would be collected in the future.
The characteristics of credit sales are;
It involves an element of risk
It is based on economic value
It implies for future
Credit policy is prepared in the receivable management, it is the
combination of three decision variables:
Credit standard
Credit terms
Collection effort
33
Receivable Policy in BHEL Jhansi
1. The main products of BHEL are heavy industrial goods with long operating cycle.
BHEL grant liberal term regarding trade credit to lure the potential customers to by its
products at favourable selling prices.
2. To utilize its capacity, BHEL is granting liberal trade credit to its main customers like
railways, power industries and other private parties.
3. All the BHEL units are having their commercial departments and Regional
Operational Divisions (RODs).
4. Carry out the job of recovery from customers, the sales section also takes a part in
receivable management by preparing and sending invoices and reminders to
customers at appropriate time. They keep track records of money received from
customers as advances, as against dispatch of finished goods and money recoverable
on account of price variation claims and conversion of deferred department into
debtors. Monitoring is done on basis of work orders and schedule is prepared
regarding outstanding balances. The terms and condition with the customers are
finalized according to the credit policy laid down by corporate office BHEL.
34
INVENTORY MANAGEMENT
Inventories are the most significant part of current assets of a large majority of
companies in India. The large size of inventory maintained by the firms as a considerable
amount of fund’s which is required to be committed to them. A firm neglecting the
management of inventories will be jeopardizing its long run profitability and may fail
ultimately.
In a manufacturing firm the level of inventory depends on the operation cycle, and a
long operating cycle bearing firm needs to maintain high levels of inventory.
Nature of Inventories
Inventory is stocks of the product a company is manufacturing for sale and components
that constitutes the product. They are of following types;
a) Raw material
b) Work in progress
c) Finished goods
d) Supplies or stores and spares
Need of Inventory
It has also same needs as receivable management, viz;
a) Transaction motive
b) Precautionary motive
c) Speculative motive
Techniques of Inventory management
1) EOQ (Economic Order Quantity)
2) Ordering cost: order placing, transportation cost
3) Carrying cost: warehousing, handling
4) Reorder point
5) Safety stock
35
a) cost of running out of goods
b) material cost
c) order cost
d) carrying cost
e) cost of funds tied up in inventories
Inventory Control Systems
1) ABC inventory control system: - This analytical approach tends to measure the
significance of each item of Inventories in terms of its value.
2) JIT system: - Japanese firm popularize that system which eliminates the necessity of
carrying large inventories and thus, saves carrying and other expenses.
3) Computerized Inventory Control System:- It is an automatic system of counting
inventories.
36
Inventory Management Policy in BHEL
Jhansi
The investment in inventory in proportion to total is a dominant determinant of
working capital management. It holds much importance in context in BHEL as it is having a
long production cycle where a good amount of capital is tied up in form of raw material,
work in progress and conversion cost.
Production planning and control department plays a pivotal role in inventory management.
The engineering department plays a supporting role and provides the requisition regarding
technology to be applied and material required to PPC department.
In BHEL the inventory control is perform with following steps;-
1. Planning:- This is done by PPC department is consultation with purchase,
commercial, design and manufacturing department prepares the planning schedule.
The schedule along with information provided by engineering and design department
help in material planning and inventory control.
2. Procurement:-The procurement is done by purchase department. It is done with the
assistance of PPC and commercial department for maintaining a trade off between
carrying cost and ordering cost.
A single purchase order is placed for the entire quantity of a specific item and its
scattered delivery over a period of time is received. The method helps in obtaining
cash and quantity discount and saving carrying cost. In case of foreign purchase also
one order in placed for the full requirement of an item and scattered delivery is
obtained because variation caused in material cost due to fluctuation in exchange rate
is much less than the carrying cost of the material which is approximately 25% of the
total price.
3. Receipt & custody:-For the proper inventory control on receipt of material in store,
quality control department checks the material as per specification. The cost section
fills details of all the purchase by issuing store receipt voucher and material issue
voucher.
37
4. Issue:-After receiving the material and storing, the management keeps the
information whether these material are being issued to desired destination. Full record
of every issuing of material is kept for the proper inventory control.
5. Accounting:-The record of every transaction regarding the use of material in every
department is kept. These records give the overall view of how and where inventories
have been used.
Methods use for Inventory Control:-In BHEL, planning and control of Inventory is
done by using two methods-
a) ABC analysis
b) Slow moving and non-moving goods analysis
c) Budgeting material requirement
d) Fixation of raw material levels
e) Variety reduction
38
Inventory valuation
1) Inventory is valued at actual/ estimated cost or net realizable value, whichever is
lower.
2) Finished goods in plants and work in progress involving hydro and thermal sets
including gas based power plants, boilers auxiliaries, compressors and industrial turbo
sets are valued at actual / estimated factory cost or at 97.5% of the realizable value
whichever is lower.
3) In respect of valuation of finished goods in plant and work-in-progress, cost means
factory cost, actual/estimated factory cost include excise duty payable on
manufactured goods.
4) The components and other materials purchased/ manufactured against production
order but declared surplus are charged off to revenue retaining residual value based on
technical estimates.
5) In respect of raw material, components, loose tools, stores and spares cost means
weighted average cost.
39
8. ANALYSIS OF WORKING CAPITAL
MANAGEMENT
The analysis working capital is primarily a test of short term solvency. There are
dangers in having too little or too much working capital. Therefore the managers have to be
very vigilant all throughout about the trends in the items that make up working capital.
The question to be studied and answered in connection with the analysis of working capital
1) Is the management utilising working capital effectively?
2) Is the amount of working capital is adequate, excessive or insufficient?
3) Does the firm have favourable credit rating?
4) Is the current financial position improving?
Tools of Working Capital Analysis
Working capital ratio analysis
Movement of working capital analysis
Fund flow analysis
Cash flow analysis
Working capital budget
Working capital report
We are using the technique of ratio analysis as a means of checking upon the
efficiency with which working capital is being used in the company. These ratios
would increase or decrease that measures the working capital of management of
BHEL. These are as follows
40
Balance Sheet
Cash 506 41 9 15 7
Sale/Turnover 130033 137146 111703 70689 63087.50
W. capital 47265 65992 72435 81146 76116 .88
1. Current Ratio
2. Quick Ratio
3. Cash Ratio
4. Turnover Ratio
5. Inventory Turnover Ratio
6. Total Assets Turnover Ratio
7. Return on Capital Employed
8. Debtors Turnover Ratio
9. Creditors Turnover Ratio
Resources 2011-12 2012-13 2013-14 2014-15 2015-16
Current Assets 101217 121726 113634 118952 111881.95
Fixed Assets 30441 32955 31098 29499 28183.53
Total Assets 131658 154681 144732 148451 140065.48
Current
Liabilities
53952 55734 41198 37806 35765.07
Fixed
Liabilities
77706 98947 103532 110644 104300.41
Total
Liabilities
131658 154681 144730 148450 140065.48
Inventories 36733 45581 39726 42411 47593.57
41
Trends of working capital in BHEL Jhansi
(in lakhs)
Working capital = Current assets-current liabilities
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Working Capital 47265 65992 72435 81146 76116.88
Working capital difference between current assets and current labilities.
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
2011-12 2012-13 2013-14 2014-15 2015-16
Trends of Working Capital
Trends of Working Capital
42
1. Current ratio
Current ratio represent the margin of safety for creditors, higher the current ratio
greater the margin of safety, larger the amount of current assets in relation to current
liabilities, the more the firm’s liability to meet its current obligations. This ratio is calculated
as follows:
Current Ratio = Current Assets / Current Liabilities
Satisfactory Current Ratio is 2:1
Current ratio measure the short term solvency of the firm, it ability to meet short term
obligation which indicates the rupees of current assets available for each rupee of current
liability the current ratio of 2:1 is been considered satisfactory.
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Current ratio 1.87 2.18 2.76 3.15 3.12
0
0.5
1
1.5
2
2.5
3
3.5
2011-12 2012-13 2013-14 2014-15 2015-16
Current Ratio
Current Ratio
43
Analysis: From the above ratios it can be seen that Current Ratio for year 20114-15 has
growth by approx. 3 % from the previous year which indicates that short term solvency of
the firm has gone grow. But the current ratios of last three years are less than
one and on an average it is 1.2616:1. This means for every one Re. of current
liabilities there is 1.2616 of current assets available to meet the short term obligation. So this
indicates that the short-term liquidity position of the company is very good and short-term
conditions are safe as far as payment is concerned, although, as a conventional rule, a current ratio of 2 to 1 is
considered far better.
2. Quick Ratio
The quick ratio is a measure of how well a company can meet its short-term financial
liabilities. Also known as the acid-test ratio, it can be calculated as follows:
Quick Ratio = Current Assets - Stock
Current Liabilities
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Quick ratio 1.195 1.366 1.793 2.024 1.797
Analysis: The liquid ratio of 1:1 is considered to be satisfactory in case of any
organization whereas in case of BHEL Jhansi Liquidity Ratio is not even approaching one,
hence there is liquidity problem in payment in time. Here payments to creditors are not made in time due to
lack of cash / liquid fund.
0
0.5
1
1.5
2
2.5
2011-12 2012-13 2013-14 2014-15 2015-16
Quick Ratio
Quick Ratio
44
3. CASH RATIO
Cash is the most liquid assets and it should be minimum in the firm as the excess of
cash in hand or bank implies loss of interest i.e. the wrong utilization of funds, which could
have been utilized/invested elsewhere. There is nothing to be worried about lack of cash if the
company has the reserve borrowing power.
Cash Ratio = _____Cash_______
Current Liabilities
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Cash Ratio 0.0937 0.000735 0.000218 0.000396 0.000195
Analysis: This cash ratio graph shows that the cash ratio 2012-13 decrease because cash
flow decrease in past financial year but current liabilities is increase so this ratio 0.092 down
and 2012-13 to 2015-16 not more variable.
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.1
2011-12 2012-13 2013-14 2014-15 2015-16
Cash Ratio
Cash Ratio
45
4. Turnover Ratio
A company uses working capital to fund operations and purchase inventory. These
operation and inventory are then converted into sales revenue for the company. The working
capital turnover ratio is used to analyze the relationship between the money used to fund
operations and the sales generated from these operations. In a general sense, the higher the
working capital turnover, the better because it means that the company is generating a lot of
sales compared to the money it uses to fund the sales.
Turnover Ratio = Turnover /Working capital
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Working Capital
Turnover Ratio
2.75
2.08
1.54
0.87
0.82
Analysis: Turnover ratio show this manufacturing BHEL, Jhansi unit financial position in
not good because sales is decrease constantly year by year.
0
0.5
1
1.5
2
2.5
3
2011-12 2012-13 2013-14 2014-15 2015-16
Working Capital Turnover Ratio
Working Capital TurnoverRatio
46
5. Inventory Turnover Ratio
It shows how rapidly the inventory is turning into receivable through sales. High ratio
is indicates of good inventory management. A low ITR implies excessive inventory levels.
Ratio should not be too high and should not be low.
Inventory Turnover Ratio = Sales______
Avg. Inventory
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Current ratio 3.88 3.33 2.62 1.77 1.40
Analysis: Inventory turnover ratio indicates that how quick inventories are uncontrolled
into sales. It gives the position of the inventory management of the company. The average of
this ratio for past five years comes out to be 2.6 which show that for every ratio 2.6 of net
sales. The efficiency of BHEL, Jhansi in turning its inventory for year 2015-16 has dropped
from last five years which indicates that in the plant.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2011-12 2012-13 2013-14 2014-15 2015-16
Inventory Turnover Ratio
Inventory Turnover Ratio
47
6. Total Assets Turnover ratio
Total assets turnover computation is for just to get an idea for net assets turnover the
ratio shows organization ability in generating sales from all financial resources committed to
total assets. The total assets of turnover of BHEL show.
Total Assets Turnover Ratio = Sales_____
Total Assets
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Total Assets
Turnover Ratio
0.987
0.886
0.771
0.476
0.450
Analysis: This graph shows the relation between total turnover and total assets. In 2011-12
to 2015-16 sales is constantly down so the ratio is also decrease, Total Assets Turnover Ratio
was 0.987 and an decrease to last five year 2016 to 0.450
0
0.2
0.4
0.6
0.8
1
1.2
2011-12 2012-13 2013-14 2014-15 2015-16
Total Assets Turnover Ratio
Total Assets Turnover Ratio
48
7. Return on capital employed
Return on capital employed of financial year
PBIT
Return on Capital employee = Capital Employed
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Return on
capital
employed
0.226 0.133 0.00828 -0.118 0.267
In this graph the return on capital employed in 2011-12 was 0.226 and decreased to
three year 2014-15,0.118 but in 2015-16 was 0.267 and from this point it start falling down
and reached at 2015-16 was 0.267
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
0.3
2011-12 2012-13 2013-14 2014-15 2015-16
Return on Capital Employed
Return on Capital Employed
49
8. Debtors’ turnover Ratio
This ratio expresses the amount of unrealized debts out of credit sales. Thus, debtor’s
turnover ratio is calculated to obtain the information regarding success or failure of
organization in collection of debts. This ratio is also known as Receivable Turnover Ratio.
Debtors Turnover Ratio = ___Credit Sales___
Avg. Receivables
Avg. Collection Period (Days) = ____365_________
Debtors Turnover Ratio
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Sales avg.
Debtors Ratio
2.120 2.114 1.609 1.022 0.982
Analysis: This ratio was indicates that how quick debtors are collected and higher
ratio show better position of the company. Here from the graph it is clear that in 2011-12
debtors were collected normally but from 2012-13 to 2015-16 is condition has worsened as
ratio has decrease it mean debts are not being collected rapidly.
0
0.5
1
1.5
2
2.5
2011-12 2012-13 2013-14 2014-15 2015-16
Debtors Turnover Ratio
Debtors Turnover Ratio
50
9. Creditors Turnover Ratio
This ratio is also known as Payable Turnover ratio. It depicts the relation between
Credit Purchase and Creditors. This ratio indicates the condition of an organization with
regard to payment of creditors. Higher ratio indicates quicker payment and vice-versa.
Creditors
Turnover Ratio = ___Net Credit Purchase/Consumption___
Creditors
Credit Payment Period (Days) = _________365__________
Creditors Turnover Ratio
Year 2010-11 2011-12 2012-13 2013-14 2015-16
Credit Payment
Ratio
-- 2.51 2.63 2.27 2.34
2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2011-12 2012-13 2013-14 2014-15
Creditors Turnover Ratio
Creditors Turnover Ratio
51
Analysis: This ratio was indicates that how quick creditors are collected and higher
ratio show better position of the company. Here from the graph it is clear that in 2011-12 to
2012-13 creditors were collected quickly but from 2012-13 to 2015-16 is condition has
worsened as ratio has decrease it mean creditors are not being collected rapidly.
Standard credit period for industry like BHEL Jhansi is 90days. As against that actual
period is very high. This is basically because the time involved in procurement and
acceptance of material is very long due to technical reason.
52
Comparative graph of Turnover and PBIT
Through this graph we understand easily that turnover increases year by year in
20115-16 it was 130032.72 lakhs and reached to 137146 lakhs in 2012-13 in 2013-14 the rate
of turnover decrease is more. And the profit of BHEL in 2015-16 was 13001 lakh and it
decreases to 10260 in 2012-13 but fall down in 2012-13 to 10260. This shows that last 4
years profit of company decreased and last two year sufferer loss.
Year 2011-12 2012-13 2013-14 2014-15 2015-16
Total Turnover 130032.72 137145.84 111703 70689 63087.50
PBIT 13001 10260 709 -11328 -23817.67
53
54
9. Limitation
Since time available is only six weeks for the project work, a detailed analysis was not
possible.
The researcher was not able to focus on qualification factors, which influences the
financial position of the organisation.
The study was limited to BHEL, so the result could not be generalized to macro level.
Ratio analysis is only tools used for the financial statement analysis.
Since the finance and accounting is an organisation being a very sensitive area,
analysis is based on the assumed data of BHEL.
As the study is only for one particular company, inter firm comparison is not possible.
55
10. Conclusion & comments
At the end of this project I’m feel that I have gained a lot of knowledge about this
Jhansi unit and “Working Capital Management” procedure followed in BHEL Jhansi unit.
In rotation work I learned about its working routine and collecting a lot of information related
to stream like Engineering and physics and employees mutual relations.
So, through this project I have learned:
Object of finance
Analysis of finance
Analysis of estimation of working capital
Analysis of receivable management
Inventory management of BHEL Jhansi
The firm BHEL liquidity position in terms of short term and long term are good.
The efficiency of the company is also good but last some years not batter.
The above analysis enables the company to understand the financial position and
financial soundness of BHEL Jhansi unit.
So, at last I am highly obliged of BHEL Jhansi unit for providing me the knowledge about
their unit and we are thankful to all member of BHEL Jhansi unit.
56
11. BIBLIOGRAPHY
Annual reports of BHEL
Collected the Data from BHEL Jhansi
S.N Maheshwari Management Accounting
Management Accounting by I.M Pandey
WEBSITES VISITED
www.bhel.com
www.bheljhs.co.in
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