PROJECT REPORT

(Submitted for the Degree of [Link]. Honours in Accounting & Finance under
the University of Calcutta)

WORKING CAPITAL
MANAGEMENT OF BHEL

SUBMITTED BY
NAME OF THE CANDIDATE : SAURABH YADAV

REGISTRATION NO. : 235-1121-0925-16

ROLL NO. : 1235-61-0205

NAME OF THE COLLEGE TARADEVI HARAKH

CHAND KANKARIA
JAIN COLLEGE

SUPERVISED BY
NAME OF THE SUPERVISOR : SUSANTA GHOSH

NAME OF THE COLLEGE : TARADEVI HARAKH

CHAND KANKARIA
JAIN COLLEGE

MONTH AND YEAR OF

SUBMISSION : FEBRUARY – 2019

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 Supervisor’s Certificate

This is to certify that Mr SAURABH YADAV, a student of [Link] Honours in

Accounting & Finance of college under the University of Calcutta has worked
under my supervision and guidance for his Project Work and prepared a Project
Report with the title Working Capital Management.

This project report, which he is submitting in his genuine and original work to
the best of my knowledge.

Signature :

Name : Mr SUSANTA GHOSH

Designation :

Name of the College : TARADEVI HARAKH CHAND KANKARIA

JAIN COLLEGE

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 Student’s Certificate
I hereby declare that the Project Work with the title WORKING CAPITAL
MANAGEMENT submitted by me for the partial fulfilment of the degree of
[Link] Honours in Accounting & Finance under the University of Calcutta is
my original work and has not been submitted earlier to any other University /
Institution for the fulfilment of the requirement for any other course of study.

I also declare that no chapter of this manuscript in whole or in part has been
incorporated in this report from any earlier work done by others or by me.
However, extracts of any literature which has been used for this report has been
duly acknowledged providing details of such literature in this references.

Signature :

Name : Mr SAURABH YADAV

Address : 13 VIVEKANANDA ROAD, KOKATA 700007

Name of the college: TARADEVI HARAKH CHAND KANKARIA JAIN

COLLEGE
Place : Kolkata

Date : FEBRUARY, 2019

Registration No. : 235-1121-0925-16

Roll No. : 1235-61-0205

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 ACKNOWLEDGEMENT
I SAURABH YADAV express my heartfelt gratitude and respectful regards to
my Professor SUSANTA GHOSH for his incessant co-operation, constant
encouragement, invaluable advice and guidance throughout the course of my
research work. I shall ever remain grateful to him for his care, concern and
sincere interest in my welfare.

I am thankful to DR. MAUSUMI SINGH SENGUPTA, the Principal of The

TARADEVI HARAKH CHAND KANKARIA JAIN COLLEGE, for all the
facilities provided during the course.

I am grateful to the other professors of the College. I am also expressing my

sincere thanks to all of my friends for the valuable advices, co-operation and
moral supports throughout the period.

Last but not the least, my thanks to my family members and relatives.
Especially my parents MRS. RASHMI YADAV and MR. ANIL KUMAR
YADAV for the constant encouragement, inspiration, support and sacrifice
during the period of my research work.

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TABLE OF CONTENTS
SR. NO PARTICULARS PAGE NO.
CHAPTER-1
1 INTRODUCTION 6
1.1 BACKGROUND OF THE TOPIC 7-8
1.2 LITARATURE REVIEW 8-9
1.3 OBJECTIVE OF THE STUDY 10
1.4 RESEARCH METHODOLOGY 10-11
1.5 NEED OF THE STUDY 11-12
1.6 LIMITATION OF THE STUDY 12-13
1.7 CHAPTER PLANNING 13

CHAPTER-2
2 CONCEPTIONAL FRAMEWORK AND NATIONAL AND 14
INTERNATIONAL SCENEARIO
2.1 MEANING OF WORKING CAPITAL 15-16
2.2 ADVANTAGES OF WORKING CAPITAL 16
2.3 DISADVANTAGES OF WORKING CAPITAL 17-18
2.4 FACTORS AFFECTING WORKING CAPITAL 18
REQUIREMENT
2.5 IMPORTANCE OF WORKING CAPITAL 18
MANAGEMENT
2.6 NATIONAL SCENEARIO 19-20
2.7 INTERNATIONAL SCENEARIO 20-21
CHAPTER-3
3 DATA FINDINGS AND ANALYSIS OF DATA 22
3.1 COMPANY PROFILE, VISSION AND MISSION 23-26
3.2 STATEMENT OF PROFIT AND LOSS (5 YEARS) 27-28
3.3 BALANCE SHEET (5 YEARS) 28-29
3.4 DATA ANALYSIS AND INTERPRETATION 30-31
3.5 RATIO ANALYSIS 32-41
CHAPTER-4
4 CONCLUSIONS AND RECOMENDATION 42
4.1 CONCLUSION 43
4.2 RECOMMENDATION 43

BIBLIOGRAPHY 44-45

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 CHAPTER-1

INTRODUCTION

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1.1 BACKGROUND OF THE TOPIC

WHAT IS WORKING CAPITAL?

Working capital is basically the amount of money required for the day to day functioning of
the business. Along with fixed assets such as plant and equipment, working capital is
considered a part of operating capital. Gross working capital equals to current assets. Net
working capital (NWC) is calculated as current assets minus current liabilities. It is a
derivation of working capital, which is commonly used in valuation techniques such as DCFs
(Discounted cash flows). If current assets are less than current liabilities, an entity has
a working capital deficiency, also called a working capital deficit.

A company can be endowed with assets and profitability but short of liquidity if its assets

cannot readily be converted into cash. Positive working capital is required to ensure that a
firm is able to continue its operations and that it has sufficient funds to satisfy both
maturing short-term debt and upcoming operational expenses. The management of working
capital involves managing inventories, accounts receivable and payable, and cash.

INVENTORY
STOCK PLUS WORK IN PLUS RAW PLUS FINISHED
PROGRESS MATERIAL GOODS
PLUS

MONEY OWED TO YOU BY CUSTOMERS (RECEIVABLES)

MINUS
MONEY YOU OWE TO SUPPLIERS AND OTHER PEOPLE
(PAYABLES)
EQUAL TO
WORKING CAPITAL
Working Capital Management policies of a firm has a great impact on its profitability,
liquidity and structural health of the organization. So working capital management is three
dimensional in nature as

1. It is concerned with risk.

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 2. It is concerned with the decision about the composition and level of current assets.

3. It is concerned with the decision about the composition and level of current
liabilities.

1.3 LITERATURE REVIEW

The purpose of this chapter is to present a review of literature relating to the working capital
management. The following are the literature review by different authors and different
research scholars.

1 Pike R.H (1984), studied that over the past 40 years major theoretical developments
have occurred in the areas of longer-term investment and financial decision making. Many of
these new concepts and the related techniques are now being employed successfully in
industrial practice. By contrast, far less attention has been paid to the area of short-term
finance, in particular that of working capital management. Such neglect might be acceptable
were working capital considerations of relatively little importance to the firm, but effective
working capital management has a crucial role to play in enhancing the profitability and
growth of the firm. Indeed, experience shows that inadequate planning and control of
working capital is one of the more common causes of business failure.

2 Herzfeld (1990), studied that “Cash is king”--so say the money managers who share the
responsibility of running this country’s businesses. And with banks demanding more from
their prospective borrowers, greater emphasis has been placed on those accountable for so-
called working capital management. Working capital management refers to the management
of current or short-term assets and short-term liabilities. In essence, the purpose of that
function is to make certain that the company has enough assets to operate its business. Here
are things you should know about working capital management.

3 Ranjith Appuhami(2008), studied impact of firm’s capital expenditure on their

working capital management. The author used the data collected from listed companies in the
Thailand Stock Exchange. The study used Schulman and Cox’s (1985) Net Liquidity Balance
and Working Capital Requirement as a proxy for working capital measurement and
developed multiple regression models. The empirical research found that firm’s capital

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expenditure has a significant impact on working capital management. The study also found
that the firms operating cash flow, which was recognized as a control variable, has a
significant relationship with working capital management.

4 J Hardcastle (2009), studied that Working capital, sometimes called gross working
capital, simply refers to the firms total current assets (the short-term ones), cash, marketable
securities, accounts receivable, and inventory. While long-term financial analysis primarily
concerns strategic planning, working capital management deals with day-to-day operations.
By making sure that production lines do not stop due to lack of raw materials, inventories do
not build up because production continues unchanged when sales dip, that customers pay on
time and that enough cash is on hand to make payments when they are due. Obviously
without good working capital management, no firm can be efficient and profitable.

5 Chakroborthy (1974) tries to distinguish cash working capital V/S balance sheet working
capital. The analysis is based on the following dimensions:

a) Working capital in common parlance

b) Operating cycle concept

6 Bhatt (1972) widely touches upon a method of appraising working capital finance
applications of large manufacturing concerns. It states that similar methods need to be revised
for other sectors as agriculture, trade etc. The author is of the view that banks while providing
short term finance, concentrate their attention on adequacy of security and repayment
capacity. On being satisfied with these two criteria they do not generally carry out any detail
appraisal of the working of the concerns.

1.4 OBJECTIVE OF THE STUDY

The study of working capital management is important because unless the working capital is
managed effectively, the company maximise its profits. The study is conducted with
reference to BHEL (EDN). The main objective of the study is to have an idea of the practical

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application of the working capital management whose theoretical aspect is known. With this
secondary objective of study, the following further objectives are required:

 To study the working capital management of the company.

 To study the optimum level of current assets and current liabilities of the company.

 To study the liquidity position through various related working capital ratios.

 To understand the short term solvency as well as the effectiveness of working capital
in the operation of the business.

 To study the way of working capital finance of the company.

 To suggest on the basis of the findings, improvements in the management of working

capital at BHEL (EDN).

 To interpret the financial position of the company.

 To provide information about the economic resources.

 Optimization of the amount of sales and investments receivables.

 To determine policy regarding profitability, liquidity risk of the company.

1.5 RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying. It is important for researcher to know not only the
research method but also the methodology. The procedures by which researchers go about
their work of describing, explaining and predicting phenomenon are called methodology.
Method comprises of the procedures used for generating, collecting, and evaluating data.

Data collection is an important step in any project and success of any project will be largely
depending upon how accurately the data is collected and how much time and money is
required to collect the data.

SECONDARY DATA COLLECTION:

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The data which is collected from records, annual reports of the company books, journals,
web-sites is known as secondary data. The entire project is based on secondary data
resources.

The secondary data was collected from the following sources:

 Annual Report.

 Journal and books.

 Research articles.

 Websites.

 Public relations Department.

1.6 NEED OF THE STUDY

1. STRENGTHEN THE SOLVENCY:

Working capital helps to operate the business smoothly without any financial problem for
making the payment of short term liabilities, purchase of raw materials and payment of
salary, wages and overhead can be made without any delay. Adequate working capital helps
in maintaining solvency of the business by providing uninterrupted flow production.

2. ENHANCE GOODWILL:

Sufficient working capital enables a business concern to make prompt payments and hence
helps in creating and maintaining goodwill. Goodwill is enhanced because all current
liabilities and operating expenses are paid on time.

3. EASY OBTAINING LOAN:

A firm having adequate working capital, high solvency and good credit rating can arrange
loans from banks and financial institutions in easy and favourable terms.

4. SMOOTH BUSINESS OPERATION:

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Working capital is really a life blood of any business organisation which maintains the firm
in well condition. Any day to day financial requirement can be met without any shortage of
fund. All expenses and current liabilities are paid on time.

5. REGULAR SUPPLY OF RAW MATERIAL:

Quick payments of credit purchase of raw materials ensures the regular supply of raw
materials for suppliers. Suppliers are satisfied by the payment on time. It ensures regular
supply of raw material and continuous production.

6. ABILITY TO FACE CRICES:

Adequate working capital enables a firm to face business crises in emergencies such as
depression.

1.7 LIMITATION OF THE STUDY

The scope of the study is during and after the study is conducted. The study of working
capital is based on trend analysis and ratio analysis, operating cycle etc.

Limitations of the study are as follows:

1) Limited data are available. There were limitations for primary data collection because
of confidentiality.

2) The project is based on the last five years annual reports. The trend of last five years
may or may not reflect the real working capital position of the company.

3) It was difficult to collect the data regarding the competition and their financial
information.

4) This study is based on historical data and information provided in the annual reports,
therefore it may not be a future indicator.

5) There may be some fractional differences in the calculated ratios

6) Due to lack of time other areas could not be focussed upon.

7) Lack of co-operation from the senior executives of the company.

1.8 CHAPTER PLANNING

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Chapter 1:

The purpose of introduction is to provide a basic description of the topic of the project
Working Capital Management. The background of the subjects builds a platform for the next
coming topics to be discussed. The literature review indicates some related theories to the
topic already highlighted which gives importance to the project. Objective of the study is also
defined in here. The methodology shows the steps which has been taken for the completion
and development of the project.

Chapter 2:

Here, the national and international scenario of employees is shown through this, analysis can
be done about how aware the global world is regarding the subject. The impact and effect of
the topic is also shown.

Chapter 3:

Data of BHEL from various sources has been gathered, reviewed and then analyzed. There
are various ratios used in order to find the activity, solvency and liquidity position of the
company.

Chapter 4:

Conclusion and recommendations usually form an important part of the project. In

recommendation, how to improve the working capital management of the company and in
conclusion is working capital important for the company is given.

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 CHAPTER-2

CONCEPTIONAL FRAMEWORK & NATIONAL

AND INTERNATIONAL SCENERIO

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2.1 MEANING OF WORKING CAPITAL
Working Capital means the funds available & used for day to day operation of an enterprise.
It consists broadly of that portion of assets of a business which are used in or related to its
current operations. It refers to funds which are used during an accounting period to generate a
current income of a type which is consistent with major purposes of a firm existence.

TYPES OF WORKING CAPITAL:

The classification of working capital can be done broadly in two ways:

CONCEPT
From the concept point of view, working capital can be defined as Gross Working Capital or
Net Working Capital.

GROSS WORKING CAPITAL: It refers to the firm’s investment in current assets. Current
assets are those assets which can be converted to cash within an accounting year. Current
assets include stock of raw materials, work in progress, finished goods, trade debtors,
prepayments, cash balances etc.

NET WORKING CAPITAL: it 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. Current liabilities include trade creditors, accruals, tax
payable, bills payable, outstanding expenses, and short term loans.

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A positive working capital means that the firm is able to pay off its short term liabilities
where as a negative working capital means that the company is currently unable to meet its
short term requirements.

TIME
From the point of view of time, the working capital can be divided into two categories:
PERMANENT AND TEMPORARY.

PERMANENT WORKING CAPITAL: it refers to the hard-core working capital. It is that

minimum level of investment in the current assets that is carried by the business at all times
to carry out minimum level of its activities.

TEMPORARY WORKING CAPITAL: it refers to that part of total working capital, which
is required by a business over and above permanent working capital. It is also called variable
working capital. Since the volume of temporary working capital keeps on fluctuating from
time to time according to business activities, it may be financed from short term sources.

2.2 ADVANTAGES OF WORKING CAPITAL

1. It helps in business concern to maintain its goodwill.

2. It can arrange loans from banks and other lenders on easy and favourable
terms.

3. It enables a concern to face business crisis in emergencies such as depression.

4. It creates an environment of security, confidence, and overall efficiency in a

business.

5. It helps in maintaining solvency in a business.

6. Adequate working capital also enables a concern to avail cash discounts on the
purchases and hence reduces cost.

7. It leads to regular payment of wages, salaries and other day to day

commitments. This leads to satisfaction of the employees and raises the morale of its
employees, increases their efficiency, reduces wastage and costs and enhances
production and profits.

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 8. If a firm is having adequate working capital then it can exploit the favourable
market conditions such as purchasing its requirements in bulk when the prices are
lower and holdings its inventories for higher prices.

2.3 DISADVANTAGES OF WORKING CAPITAL.

EXCESS OR INADEQUATE WORKING CAPITA

Every business concern should have adequate amount of working capital to run its business
operations. It should have neither redundant or excess working capital nor inadequate nor
shortages of working capital. Both excess as well as short working capital positions are bad
for any business. However, it is the inadequate working capital which is more dangerous
from the point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING

CAPITAL

1. Excessive working capital means ideal funds which earn no profit for the firm and
business cannot earn the required rate of return on its investments.

2. Redundant working capital leads to unnecessary purchasing and accumulation of

inventories.

3. Excessive working capital implies excessive debtors and defective credit policy which
causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with banks and other
financial institution may not be maintained.

6. Due to lower rate of return on investments, the values of shares may also fall.

7. The redundant working capital gives rise to speculative transactions

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

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The amount of working capital should be sufficient. Inadequate amount of working capital
may create a lot of financial problems in business. Sometimes, inadequate working capital
may be the major causes for closing down the business organization. Due to shortage of
working capital, raw materials cannot be purchased on time and payment of labour and other
expenses cannot be made on time. The disadvantages suffered by a firm with insufficient
working capital are as follows

1. The firm is unable to take advantages of new opportunities or adapt to change.

2. Trade discounts are lost. A firm with sufficient working capital is able to finance
larger stocks and can therefore place large orders.

3. Cash Discounts are lost. Some firms will try to persuade their debtors to pay early by
offering cash discounts.

4. The advantages of being able to offer a credit line to customers are forgone.

5. Financial reputation is lost due to non-payment of trade creditors on time.

6. Creditors may apply to the court for winding up if the firm fails to pay their
obligations on time.

2.4 FACTORS AFFECTING WORKING CAPITAL REQUIREMENTS:

1. Nature of the business. 

2. Size of the business.

3. Production Policy.

4. Length of Production Cycle.

5. Seasonal Variations.

6. Working Capital Cycle.

7. Rate of Stock Turnover.

8. Credit Policy.

9. Business Cycle

10. Rate of growth.

11. Earning policy of the business.

12. Price change levels.

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2.5 IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

1. To maximise the profit of the firm.

2. To help in the timely payment of bills.

3. To maintain sufficient current assets.

4. To ensure adequate liquidity of the firm

5. It protects the solvency of the firm.

6. To discharge current liabilities.

7. To increase the value of the firm.

2.6 NATIONAL SCENARIO:

Indian Electrical Equipment Manufacturing industry has been growing over the years. India
was ranked among top 10 manufacturing industry by US. The Indian market this year has
experienced a fall of 11 % revenue this is due to the Mirroring problems in the power sector.
The industry saw a 10.5% fall during the quarter ending December 2012 compared to the
corresponding period of FY12. Though almost all sub-sectors decelerated during the third
quarter, only transformers and capacitors were able to arrest their declining trend to some
extent. Power cable and energy meter sectors were hit the most during Q3 FY13. The
situation of the T&D sector is turning extremely grim and the Government needs to tackle the
situation on a war-footing, failing which it will become difficult for many players to survive
in the business. The industry is reeling under the twin onslaught of the slowdown in the
country’s power sector, which has depressed domestic demand, and the rapidly escalating
imports of electrical equipment. Both of which have resulted in gross under-utilisation of the
manufacturing capacity for electrical equipment in the country. The delays in project and
order finalisation due to precarious financial health of state distribution utilities, coupled with
uncertainty and credit crunch and high borrowing costs for private sector buyers, has led to
this grim situation. The cash flow position of equipment manufacturers is under tremendous
pressure as it is facing underutilization of capacities. Indian electrical equipment
manufacturing industry is facing a huge threat from the new entrants in the market. These
competitors are basically emerged in Middle East and had occupied all over Asia and global
markets. These competitors are giving the cut throat competition to the Indian manufacturers.

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They are technologically advanced and are successful in grabbing the orders from different
countries. Indian government itself is one among such customers to the Competitors. The
Government of India usually gives orders to Indian PSU’s for equipment used in Defence,
Shipping, Nuclear power plants and other core sector of the country i.e. transmission and
renewable energy . Nowadays Government is ignoring the Indian Electrical Equipment
Manufacturers, the main reason could be the lack of funds and the new entrants can
manufacture the same equipment for much cheaper costs in less time. The country may face a
huge set back because of one such mistake by the Government. Due to the Sluggish demand
and higher imports it has resulted in the electrical equipment industry registering a negative
growth of 8 per cent in FY13. The negative growth of this magnitude has been witnessed for
the first time in the last 10 years. In FY12, the industry registered a growth of 6.6 per cent
and was facing massive project execution delays, mostly by the state-run transmission and
distribution companies and an unprecedented credit squeeze due to economic slowdown. The
electrical equipment manufacturing industry requires the focused attention of the government
to protect our interests by providing us a level playing field that would equip the industry to
fight imports. Slackening demand in the power sector, continuous rise in imports of electrical
equipment, especially in China and South Korea and an absence of a level playing field is
threatening the existence of the Indian players.

2.7 INTERNATIONAL SCENARIO:

The global competition in this sector is very tough and India is currently a marginal player in
the global context. India’s exports do not even constitute 1% of global exports of electrical
equipment. Most Indian manufacturers have not focussed on developing a long term strategy
for exporting their products. The domestic industry has doubled, or even tripled in some
cases, its capacities over last 7-8 years in anticipation of the huge demand arising out of
government’s plan for adding substantial capacities in electricity generation, transmission and
distribution sectors. The industry now has a diversified, mature and strong manufacturing
base, with robust supply chain, fully equipped to meet domestic demand / capacity addition;
but in absence of the anticipated demand the industry is suffering from over capacity leading
to cut-throat competition in domestic market. Therefore, exports should be looked at
seriously by Indian companies as a significant opportunity for growth. Indian products have a
rugged performance design to meet the nation’s tough network demand. Technology wise
also, Indian products can compete globally. But, where we lose out in the global market
broadly is on the price front, especially vis-à-vis China. Chinese products in many segments

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of this sector enjoy significant price advantage because of the export subsidies extended by
their government to their manufacturers. Additionally, the Chinese Government also provides
very soft long term loans and aid to many countries to buy Chinese products. Also, China has
entered into several free trade agreements with different countries across the globe on
account of which Chinese products enjoy duty free or preferential access in these countries.
But, the Indian electrical equipment industry is also witnessing an emerging global reputation
for sourcing of base products and components and is slowly but surely establishing a global
footprint by building Brand India. The global electrical equipment market includes the global
electrical components and equipment market, and the global heavy electrical equipment
market. The global electrical components and equipment market is deemed to be the revenues
accruing to companies from the sale of electric power cables and wires and electrical
switchgear. The market does not include electronic components or equipment classified in the
heavy electrical equipment sub-industry. The global heavy electrical equipment market is
deemed to be the revenues accrued by manufacturers from the production of power-
generating equipment and other heavy electrical equipment, including power turbines, heavy
electrical machinery intended for fixed-use and large electrical systems. Any currency
conversions used in this report are at constant 2011 annual average exchange rate. The global
electrical equipment market grew by 4.4% in 2011 to reach a value of $202.0 billion,
representing a compound annual growth rate of 1.1% for the period spanning 2007-
[Link] Cables sales proved the most lucrative for the global electrical equipment market
in 2011, with total revenues of $62.6 billion, equivalent to 31% of the market's overall value.
The performance of the market is forecast to accelerate, with an anticipated CAGR of 4.7%
for the five-year period 2011 - 2016, which is expected to drive the market to a value of
$254.7 billion by the end of 2016.

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 CHAPTER-3

DATA FINDINGS AND ANALYSIS OF DATA OF

BHEL.

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3.1 BACKGROUND OF THE COMPANY

BHARAT HEAVY ELECTRICALS LIMITED

COMPANY OVERVIEW:

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Bharat Heavy Electricals Limited (BHEL) is an Indian state-owned integrated
power plant equipment manufacturer and operates as engineering and manufacturing
company based in New Delhi, India. BHEL was established in 1964, ushering in the
indigenous Heavy Electrical Equipment industry in India. The company has been earning
profits continuously since 1971-72 and paying dividends since [Link] is one of the only 7
mega Public Sector Undertakings (PSUs) of India clubbed under the esteemed 'Maharatna'
status. On 1 February 2013, the Government of India granted Maharatna status to Bharat
Heavy Electricals Limited.

VISION

B.H.E.L. vision is to become a World-class innovation and competitive and profitable

engineering enterprise providing total business solutions.

MISSION
To be a multinational Engineering Enterprise providing total business solutions through
quality products, systems and services in the fields of Energy, Transportation , Industry,
Infrastructure and other potential areas.

VALUES
 Meeting communications made to external and internal customers.

 Faster learning, creativity and speed of response.

 Respect for dignity and potential of individuals.

 Loyalty and pride of the company.

 Zeal to excel and zest for change.

MAJOR ACHIEVEMENTS

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  ACQUIRED CERTIFICATIONS FOR Quality management Systems (ISO 9001),
Environmental Management Systems (ISO 4001)

 BHEL becomes the first PSU to win the CII-Exim Business Excellence Prize.

 Installed equipment for over 90,000 MW of power generation

 Supplied over 2,25,000 MVA transformer capacity and other equipment operating in
Transmission & Distribution network up to 400kV (AC & DC).

 Supplied over 25,000 Motor with Drive Control System to Power Projects,
Petrochemicals, Refineries, Steel, Aluminium, Fertilizers, Cement Plants etc.

 Supplied over 1 million Valves to power plants and other industries.

 Supply of defence products.

 Space panels supplied for ISRO.

PRODUCTS

 Steam turbine

 Gas turbine

 Steam generators

 HRSG- Heat recovery system generator locomotives.

 Circuit Breakers.

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  Pumps.

 Motor generators.

 ESP- Electrostatic precipitator Pulverisers.

 Oil field equipment

 Valves

 Boiler drums.

 Headers

 Economisers

 Water wall panel

 Super heater

 Re-heaters

 Heat exchangers

 Pressure vessels

 Armed recovery vehicle

 Wind mill fan (mechanical)

 Solar hydro turbine

MAIN MANUFACTURING FACILITIES

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  Bhopal (Madhya Pradesh) Ranipur

 Haridwar (Uttarakhand)

 Hyderabad (Andhra Pradesh)

 Jhansi (Uttar Pradesh)

 Ranipet (Tamil Nadu)

 Goindwal (Punjab)

The Research and Development arm of BHEL is situated in Hyderabad and two repair shops
are at Varanasi and Mumbai

3.1 STATEMENT OF PROFIT & LOSS OF LAST FIVE YEARS

(RS IN CRORE)

PARTICULARS March 14 March 15 March 16 March 17 March 18

  12Months 12Months 12Months 12Months 12Month

INCOME:

Sales Turnover 39108.83 31103.40 27597.00 29699.82 29060.98

Excise Duty 0.00 920.42 958.63 1252.78 135.27

NET SALES 39108.83 30182.98 26638.37 28447.04 28925.71

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Other Income 1616.03 1220.45 1497.72 765.92 693.05

Stock Adjustments -1057.40 338.04 -210.49 -994.48 -736.13

TOTAL INCOME 39667.46 31741.47 27925.60 28218.48 28882.63

EXPENDITURE:

Raw Material Consumed 17706.70 14176.53 13424.10 13528.41 12504.08

Power and Fuel Cost 603.52 554.57 499.06 451.19 463.31

Employee Cost 5933.78 5450.00 5379.75 5394.59 6026.47

Other Manufacturing Expenses 4392.38 3581.79 2953.03 5598.15 5087.23

Miscellaneous Expenses 4895.22 4659.49 5538.61 1418.86 2175.60

TOTAL EXPENDITURE 33531.60 28422.38 27794.55 26391.20 26256.69

Operating Profit 4519.83 2098.64 -1366.67 1061.36 1932.89

PBDIT 6135.86 3319.09 131.05 1827.28 2625.94

Interest 132.63 91.65 359.48 350.61 254.55

PBDT 6003.23 3227.44 -228.43 1476.67 2371.39

Depreciation 982.92 1077.32 935.74 848.84 786.40

PBT 5020.31 2150.12 -1164.17 627.83 1584.99

Extra Ordinary Items -6.01 -10.11 0.00 0.00 0.00

PBT (post extra ordinary items) 5014.30 2140.01 -1164.17 627.83 1584.99

TAX 1553.52 720.72 -454.57 131.97 778.39

REPORTED PAT 3460.78 1419.29 -709.60 495.86 806.60

TABLE: 1

3.2 BALANCE SHEET OF LAST FIVE YEARS

(Rs. In crore)

PARTICULARS March 14 March15 March 16 March 17 March 18

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 12 Months 12 Months 12 Months 12 Months 12 Months

Share Capital 489.52 489.52 489.52 489.52 734.28

Reserves & Surplus 32557.53 33595.08 31691.56 31804.92 31866.80

Net Worth 33047.05 34084.60 32181.08 32294.44 32601.08

Secured Loan 2550.00 0.00 0.00 0.00 0.00

Unsecured Loan 104.77 61.00 126.29 89.55 57.18

Total Debts 2654.77 61.00 126.29 89.55 57.18

TOTAL LIABILITIES 35701.82 34145.60 32307.37 32383.99 32658.26

Gross Block 11812.47 12304.80 4848.27 5279.20 5495.58

(-) Acc. Depreciation 7119.53 8164.28 885.79 1683.32 2426.74

Net Block 4692.94 4140.52 3962.48 3595.88 3068.84

Capital Work in Progress 642.12 517.80 317.88 168.34 202.76

Investments 420.17 417.67 664.16 661.42 690.74

Inventories 9797.55 10101.66 9602.15 7372.38 6258.76

Sundry Debtors 28071.92 26223.50 22430.12 22075.56 22771.49

Cash and Bank 11872.93 9812.70 10085.99 10491.79 11291.18

Total current assets 49742.40 46137.86 42118.26 39939.73 40321.43

Loans and Advances 17293.54 17253.28 18100.16 16864.83 19505.38

Current Liabilities 26763.33 23281.09 21895.17 19653.30 22425.01

Provisions 10326.02 11040.44 10960.40 9192.91 8705.88

Total Current Liabilities 37089.35 34321.53 32855.57 28846.21 31130.89

NET CURRENT ASSETS 29946.59 29069.61 27362.85 27958.35 28695.92

TOTAL ASSETS 35701.82 34145.60 32307.37 32383.99 32658.26

TABLE: 2

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 3.3 DATA ANALYSIS AND INTERPRETATION

CHANGES IN WORKING CAPITAL STATEMENT FOR THE

PERIOD 2014-2018

(Amount in CRORES)

Current Assets 2014 2015 2016 2017 2018

Inventories 9797.55 10101.66 9602.15 7372.38 6258.76

Sundry Debtors 28071.92 26223.50 22430.12 22075.56 22771.49

Cash and Bank 11872.93 9812.70 10085.99 10491.79 11291.18

Loans and Advances 17293.54 17253.28 18100.16 16864.83 19505.38

Total current assets (A) 67035.94 63391.14 60218.42 56804.56 59826.81

Current Liabilities

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Current Liabilities 26763.33 23281.09 21895.17 19653.30 22425.01

Provisions 10326.02 11040.44 10960.40 9192.91 8705.88

Total Current Liabilities (B) 37089.35 34321.53 32855.57 28846.21 31130.89

NET WORKING CAPITAL (A-B) 29946.59 29069.61 27362.85 27958.35 28695.92

TABLE: 3

WORKING CAPITAL
29946.59

29069.61
28695.92

27958.35

27362.85

YEAR

2014 2015 2016 2017 2018

GRAPH: 1

INTERPRETATION
I. It can be clearly seen from the above chart that the working capital of BHEL has been
increasing since the past 3 (2016-2018) years.

II. The total current assets have fall from Rs.67035.94crores to Rs.59826.81crores.

III. The total current liability has grown from Rs.37089.35crores to Rs.31130.89crores.

IV. The sundry debtors fall by Rs.5300.43crores from 2014 to 2018.

V. The cash and bank balance of the business has seen a steady decrease from 2014 to
2018. The cash fell by Rs.581.75crores from 2015 to 2018.

VI. The decrease of cash and bank was more than compensated by a three-fold increase in
the loans and advances

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 3.4 RATIO ANALYSIS
1. CURRENT RATIO:

The current ratio is a financial ratio that measures whether or not a firm has enough
resources to pay back its debts over the next 12 months. It compares a firm’s current assets
to its current liabilities. It is expressed as follows:

2014 2015 2016 2017 2018

PARTICULARS

Total current assets 67035.94 63391.14 60218.42 56804.56 59826.81

Total Current Liabilities 37089.35 34321.53 32855.57 28846.21 31130.89

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Current Ratio 1.80742 1.84697 1.83282 1.96922 1.92178
TABLE: 4 shows the current ratio for the year 2014-2018

CURRENT RATIO
2

1.95

1.9

1.85

1.8

1.75

1.7
YEAR

2014 2015 2016 2017 2018

GRAPH: 2
INTERPRETATION: The standard current ratio is 2:1. The company’s current ratio has
been increasing steadily through the years. It means that the solvency of the business is
increasing. This is a good sign for the company and shows that the company is heading in the
right direction.

2. QUICK RATIO, ACID TEST RATIO, LIQUID RATIO :

Quick ratio is an indicator of a company’s short term liquidity position, and measures a
company’s ability to meet its short term obligations with its most liquid assets. Since it
indicates the company’s financial position to instantly use its near cash assets (that is, liquid
assets) to get rid of its current liabilities, it is also called as the acid test ratio. As a rule of
thumb, a quick ratio of 1:1 is considered satisfactory.

QUICK ASSETS / CURRENT LIABILITIES

WHERE, QUICK ASSET = CURRENT ASSET - INVENTORIES

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Particulars 2014 2015 2016 2017 2018
Quick Assets 57238.39 53289.48 50616.27 49432.18 53568.05
Current Liabilities 37089.35 34321.53 32855.57 28846.21 31130.89
Acid Test Ratio 1.5433 1.5527 1.5406 1.7136 1.72074
TABLE: 5

ACID TEST RATIO

1.75

1.7 1.71 1.72

1.65

1.6

1.55
1.54 1.55
1.54
1.5

1.45
YEAR

2014 2015 2016 2017 2018

GRAPH: 3
INTERPRETATION:

The company has been able to maintain its quick ratio for the last 5 years and the
company is financially secure. It is so that the companies having a quick ratio of greater
than ‘1’ are sufficiently able to meet their short term liabilities and a decreasing quick
ratio suggests that the company is over leveraged. On the other hand it is clear that the
company is having increasing quick ratio for the year 2018, indicating that a company is
experiencing solid top line growth, quickly converting receivables into cash and is being
easily able to cover its financial obligations.

3. DEBT TO EQUITY RATIO = TOTAL DEBTS/ TOTAL EQUITY

The debt to equity ratio is a financial ratio indicating the relative proportion of shareholder’s
equity and debt used to finance a company’s assets. Closely related to leveraging, the ratio is
also known as risk, gearing or leverage. Debt to equity ratio can be calculated as follows:

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 Debt
Debt to equity = Equity

Here, debt= long term debt and

Equity= Owners fund+ reserve and surplus- accumulated loss

PARTICULAR 2014 2015 2016 2017 2018

Secured Loan 2550.00 0.00 0.00 0.00 0.00

Unsecured Loan 104.77 61.00 126.29 89.55 57.18

Total Current Liabilities 37089.35 34321.53 32855.57 28846.21 31130.89

Total Debts 39744.12 34382.53 32981.86 28935.76 31188.07

Shareholder’s Funds 33047.05 34084.60 32181.08 32294.44 32601.08

DEBT EQUITY RATIO 1.2027 1.0087 1.0249 0.8960 0.9567

TABLE: 6

2014 2015 2016 2017 2018

1.4

1.2
1.2

1 1.02
1.01
0.96
0.9
0.8

0.6

0.4

0.2

0
YEARS

GRAPH: 3
INTERPRETATION: The debt-equity ratio should ideally be 1:1. It implies that for every
rupee of outside liability there is one rupee of shareholder’s fund. From the above table we
see that initially the debt equity ratio is very high but it is constantly decreasing. It shows that
the debt capital decreases. This position is better for the company.

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 4. WORKING CAPITAL TURNOVER RATIO:

This is the ratio between turnover (sales) and working capital (current assets less current
liabilities). This ratio shows the extent to which a business is using its working capital to
generate sales.

PARTICULARS 2018 2017 2016 2015 2014

NET SALES 39108.83 30182.98 26638.37 28447.04 28925.71

NET WORKING CAPITAL 29946.59 29069.61 27362.85 27958.35 28695.92

Working Capital Turnover ratio 1.3059 1.3830 0.9735 1.0174 1.008

TABLE: 7

WORKING CAPITAL TURNOVER RATIO

1.38
1.31

0.97 1.02 1.01

YEAR

2014 2015 2016 2017 2018

GRAPH: 4
INTERPRETATION: A high working capital turnover ratio indicates efficiency in
utilisation of the resource. There is a downward trend since the year 2015, the company
should try and increase its net sales in tune with the working capital to have a better ratio.

5. NET PROFIT RATIO/ NET PROFIT MARGIN:

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 This is the ratio between net profit and net sales. Net profit is the excess of total sales of a
given accounting period over total expenses. This ratio seeks to assess the profitability of
sales.

PARTICULARS 2014 2015 2016 2017 2018

Net Profit 3460.78 1419.29 -709.60 495.86 806.60

Sales Turnover 39108.83 31103.40 27597.00 29699.82 29060.98

NET PROFIT RATIO 8.8491 4.5631 -2.5712 1.6695 2.7755

TABLE: 8

NET PROFIT RATIO

10

0
YEARS

-2

-4

2014 2015 2016 2017 2018

Graph: 5
INTERPRETATION: Generally the net profit ratio should be anywhere between 5 – 10%.
But here we can see that the company has a decreasing trend of net profit after the year 2014
till 2017 and increased in the decreasing trend with 2.7755% i.e. a poor net profit [Link] is
not good sign for the company.

6. TOTAL ASSET TURNOVER RATIO:

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It is the ratio of sales to total assets. It is intended to reflect the intensity with which assets are
employed. This ratio focuses on the use of assets made by a company and it is considered to
be a prime determinant of the level of future income inflows.

PARTICULARS 2014 2015 2016 2017 2018

NET SALES 39108.83 30182.98 26638.37 28447.04 28925.71

TOTAL ASSETS 35701.82 34145.60 32307.37 32383.99 32658.26

Asset turnover Ratio 1.0954 0.8839 0.8245 0.8784 0.8857

TABLE:9

ASSET TURNOVER RATIO

20142 20152 2016 2017 2018
1.2

0.8

0.6

0.4

0.2

0
YEARS

GRAPH: 6

INTERPRETATION: The asset turnover ratio should be as high as possible but in 2015, the
ATR has dropped. This is mainly due to increase in total assets. This increase has not yet
shown any significant improvement in the net sales. The company should try and increase its
sales in coming years to improve its ATR.

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 7. OPERATING PROFIT RATIO:

operating profit
Operating profit ratio = ×100
net sales

2014 2015 2016 2017 2018

PARTICULARS

Operating Profit 4519.83 2098.64 -1366.67 1061.36 1932.89

NET SALES 39108.83 30182.98 26638.37 28447.04 28925.71

Operating Profit Ratio 11.557 6.95305 -5.13045 3.731 6.68225

TABLE: 10

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 OPERATING PROFIT RATIO
14
12
10
8
6
4
2
0
YEAR
-2
-4
-6

2014 2015 2016 2017 2018

GRAPH: 7

INTERPRETATION: The operating profit ratio should ideally be as high as possible. The
company shows and increasing trend in the operating profit before falling in 2013. However
an operating profit of 19.39% is good enough.

8. PROPRIETARY RATIO

2018 2017 2016 2015 2014

PARTICULARS

Net Worth 33047.05 34084.60 32181.08 32294.44 32601.08

TOTAL ASSETS 35701.82 34145.60 32307.37 32383.99 32658.26

Proprietary Ratio 0.9256 0.9983 0.996 0.99723 0.9142

TABLE: 10

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 PROPRIETARY RATIO
1.02

0.98

0.96

0.94

0.92

0.9

0.88

0.86
YEAR

2014 2015 2016 2017 2018

GRAPH: 8

INTERPRETATION: The standard proprietary ratio is 1:1. The company has had a near
perfect ratio. This means that for every rupee of total assets, the company has shareholder’s
fund near about a rupee. This is a good sign for the business.

9. CURRENT ASSETS TURNOVER RATIO

2018 2017 2016 2015 2014

PARTICULARS

NET SALES 39108.83 30182.98 26638.37 28447.04 28925.71

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Total current assets 67035.94 63391.14 60218.42 56804.56 59826.81

CA Turnover Ratio 0.5834 0.4761 0.4423 0.5007 0.4834

TABLE: 11

CURRENT ASSET TURNOVER RATIO

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
YEAR

2014 2015 2016 2017 2018

INTERPRETATION: The CATR should ideally be 1. The company has a 0.58 in 2014. It
should increase net sales to improve this ratio.

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 CHAPTER-4

CONCLUSIONS AND RECOMMENDATIONS

4.1 CONCLUSIONS:
 The sales of the company have not grown significantly since the last year.

 The acid test ratio of the company has increased steadily over the 5 year. It is also
more than the steady ratio of 1:1.

 The debt equity ratio of the company is more than the ideal ratio of 1:1, but it has
been decreasing gradually. This means that the debt of the company is decreasing
with respect to equity. This position is better for the company.

 The Current Ratio of the company is near the standard of 2:1.

 The Current Assets Turnover Ratio of the company is below the ideal of 1:1.

This is because the current assets has increased without much increase in sales.

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  The net profit ratio of the company has consistently been below 5%, which is not a
good sign.

4.2 RECOMMENDATIONS:
 The company should try and increase its sales.

 The working capital of the company has been increasing consistently from 2016 to
2018, but the company should be careful that there is no redundant working capital
available.

 The company can develop an alternate source of supply of materials, which will in
turn help in reducing the cost of inventory.

 The company should outsource some of its non-core activities and focus more on the
core activities so that the turnover increases.

BIBLIOGRAPHY
Reference for the project was taken from the following Websites and newspapers:

Books/Journals:

1. Amarjit Gill, Nahum Biger and Neil Mathur. (2010). "The Relationship Between
Working Capital Management And Profitability: Evidence From The United States",
Business and Economics Journal, Volume 2010, BEJ-10.

2. Eljelly A. (2004). “Liquidity-Profitability Trade off: An empirical Investigation in an

Emerging Market”, International Journal of Commerce & Management, Vol 14 No 2 pp.
48 – 61.
WEBSITES

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 Working Capital Management - Formulas, Applicability, Analysis & [Link]

[Link]

[Link] /profit-loss/SAI

[Link]

[Link]

[Link]

NAME OF THE NEWSPAPER

The Economic Times
The Times of India

NAME OF THE ARTICLE WRITTER PUBLISHING YEAR

ANALYSIS OF FINANCIAL T.S. GREWALS 2015
STATEMENTS
WORKING CAPITAL in India —
Abijit Mitra 2013
Review

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