CHAPTER I

INTRODUCTION :

Working capital may be regarded as the lifeblood of a business. Its effective provisions can do much to ensure the success of business, which its inefficient management can lead not only to loss of projects but also the ultimate downfall of what otherwise, might be considered as promising concern. Thus, its management is considered as one of the most important aspects of firm's Financial Management.The term working capital stands for that part of the capital which is required for the financial working of the company in simple words, we can say that working capital is the investment needed for carrying out day to day operations of the business smoothly.Working capital refers to a firm's investment in short term assets, viz. cash short term securities, Accounts receivable (debtors) and inventories of raw materials, work in progress and finished goods.It can be regarded as that portion of the firm's total capital, which is, employed in short-term operations. Funds thus invested in current assets keep revolving false and are being constantly concerted in to cash and this cash flow out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital. According to genestenberg, "circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another, as for example from cash to inventories, inventories to receivable, receivables into cash".These are invariably a time lag between the sale of gods and the receipt of cash. There is there fore need for working capital in the form of current assets to deal with the problem arising out of lack of immediate realization of cash against goods sold. Therefore sufficient working capital is necessary to sustain sales activity.

CLASSIFICATION OF WORKING CAPITAL Working capital can be classified into two ways. 1) On the basis of concept 2) On the basis of time.

CONCEPT OF WORKING CAPITAL 1) Gross working capital 2) Net working capital GROSS WORKING CAPITAL The gross working capital refers to the firms' investment in the total current assets of the enterprise. The current assets are those assets with in the ordinary course of business can converted into cash with in the short period of normally one accounting year. NET WORKING CAPITAL The net working capital can be defined into two ways the most common definition of working capital is difference between current assets and current liabilities. Net working capital can also be define as that portion of firm's current assets. Which are financed with long-term funds. NEED FOR WORKING CAPITAL The need for working capital to run the day to day activities cannot be over emphasized we will hardly find a business firm, which does not require any amount of working capital. Indeed, every firm differs in these requirements of the working capital.The main objective of financial decision making is to maximize shareholders wealth and to endeavor this firm should earn sufficient returns requires a successful sales activity. For a successful sales activity the firm has to invest sufficient funds in current assets. Current assets are needed because sales do not concert into cash instantaneously. There, is always an "operating cycle" involved in the conversion of sales into cash.

OPERATING CYCLE Operating cycle is the time duration required to convert sales after the conversion of resources into inventories into cash. In other words, an operating cycles refers to length of time necessary to complete. The following cycle of events: 1) Conversion of cash into raw materials 2) Conversion of raw materials into work in progress. 3) Conversion of work-in-progress into finished goods. 4) Conversion of finished goods into accounts receivables. 5) Conversion of accounts receivable into cash

Raw material Working progress

Cash Finished goods

Accounts receivables ON THE BASIS OF TIME

Sales

1) Permanent or fixed working capital 2) Temporary or variable working capital PERMANENT WORKING CAPITAL: Permanent working capital is the minimum amount or minimum level of current assets. Which is continuously required by the enterprise to carry out its normal business operation. For e.g., every enterprise has to maintain a minimum level of raw materials. Work-

in-progress, finished goods and cash balance for paying Wages, Salaries, Rent et. during the year. This minimum level of current assets is called permanent or fixed working capital as this part of capital is permanently blocked in current assets.Regular working capital is the amount of working capital needed for the continuous operations of the business of the company without any breakage. TEMPORARY OR VARIABLE WORKING CAPITAL: Temporary working capital is the amount of working capital, which is required to meet the seasonal and special needs of the business. 1) Seasonal working capital refers to that financial requirement that crop up during a particular season behind the regular working capital most business require at stated intervals large amount of current assets to fill the demands of the seasonal busy periods. 2) Special working capital refers to that part of the working capital, which is required to meet special extengencies such as launching of extensive marketing campaigns or conducting research etc., COMPOSITION OF WORKING CAPITAL The individual composite items of working capital consist of current asset and current liabilities. CURRENT ASSETS Current assets are those, which can be converted into cash within one year without effecting the operations of the firm. List of current assets: 1) Cash in hand & bank balance 2) Bills receivables 3) Sundry debtors 4) Short term loans and advances 5) Investment

a) Government other trustee securiti9es b) Fixed deposits with the banks 6) Inventories of stock a) Raw materials b) Work in Progress c) Stores and spares d) Accrued income CURRENT LIABILITIES Current liabilities are those, which are intended to be paid in the ordinary course of business within a short period of normally one year out of the current assets or the income of the business. LIST OF CURRENT LIABILITIES: 1) Bills payable 2) Sundry creditors or accounts payable 3) Short term borrowings a) Banks b) Others a. Unsecured loans b. Public deposits maturing one year c. Deposits from dealers, selling again. 4) Dividends payable 5) Bank overdraft 6) Accrued or outstanding expenses 7) Provision for taxation 8) Sales tax and excise tax.

THEME OF WORKING CAPITAL Working capital management is considered as one of the most important aspects of firm's financial management. The goal of working capital management is to manage the firm's current assets and current liabilities in such a way that the satisfactory level of working capital is maintained. Each of the current assets should be managed efficiently in order to maintain the liquidity the firm while not keeping too high a level of any one of them.The success of business concerns among other depends upon the manner in which its working capital is managed. The interaction between the current assets and current liabilities is there fore the main theme of the theory of working capital. It is a task of financial manager to maintain an appropriate level of working capital i.e. enough current assets to pay-off current liabilities, either excess nor less because in either cases the result could be the failure of the business. Excessive working capital impairs firm's profitability, as ideal investment earns nothing. On the other hand, inadequate amount of working capital can threaten the solvency of the firm because of its inability to meet its current obligations. OPTIMUM WORKING CAPITAL POSITION: The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from the firm's point of view.Excessive working capital means idle funds, which earn no profits for the firm. Paucity of working capital not only impairs the firm's profitability but also results in production interruption and inefficiencies. The Danger of excessive working capital are as follow: 1. It results of unnecessary accumulation of inventories. Thus, chance of inventories handling, wastage, theft and losses increase. 2. It is an indication of defective credit policy and slag credit collection period. Consequently higher incidence of bad debts results, which adversely affects profits. 3. It makes management complacent, which degenerates into managerial inefficiency. 4. Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make dividend policy liberal and difficult to cope with when firm is unable to make speculative profits.

Inadequate working capital is also bad causes following: It stagnates growth. It becomes difficult for the firm to undertake profitable projects due to inadequate of funds. It becomes difficult to implement operating plans and achieve firms profit targets. Operating inefficiencies creep in and it becomes difficult even to meet day - to - day commitments. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus the firm's profit would deteriorate. Paucity of working capital fund renders the firm unable to avail attractive credit opportunities. The firms losses its reputations when it is not in a position to honor its short-term obligations. As a result, the firm tight credits terms. LIQUID RATIOS The purpose of liquidity ratio is to measure the ability of the firm to meet its current obligations and to provide a quick measure of liquidity by current ratio and quick ratio. Infact, analysis of liquidity needs the preparation of cash budget, cash flow and funds flow statements, but liquidity ratios by establishing relationship between cash and other current assets to current obligations, provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity and also that it does not excess liquidity. The most common ratios, which indicate the extent of liquidity or lack of it, are: 1. Current ratios 2. Quick ratios 3. Net working capital ratios etc. Overall Working Capital

FINANCING OF WORKING CAPITAL There are different types of financing policies in vague for financing working capital requirements. The requirements of working capital may be for fixed working capital and variable working capital requirements.The fixed proportion of working capital should be

generally financed from the fixed capital sources while the variable working requirements of a concern may be met the short - term sources of capital. The various sources of financing of working capital are as follows:

Sources of working capital

Long - term financing Finance Institutions Debenture Public Deposits Shares

Short term Financing

Spontaneous Financing Trade Creditors Outstanding Expenses

Short - term Credits Loan from Banks Commercial papers Factoring

WORKING CAPITAL POLICIES: The financial manager should determine the optimum level of current assets, so that the wealth of shareholders is maximized. A firm needs fixed current assets to support a particular level of output. However, to support the same level of output, the firm can have different levels of current assets to fixed assets. Dividing current assets by fixed assets give CA/FA ratio. CONSERVATIVE WORKING CAPITAL POLICY: If firm's maintains higher investment on current assets to a constant investment on fixed assets, i.e. assuming a constant level of fixed assets, a higher CA/FA ratio indicates conservative current assets policy it implies greater liquidity and lower risks. AGGRESSIVE WORKING CAPITAL POLICIES: If a business firm maintains the lower level of current asses to a constant fixed assets that is a lower CA/FA ratio means an aggressive current policy. Assuming other factors constant. It indicates higher risks and poor liquidity.

AVERAGE WORKING CAPITAL POLICIES: If a business firms maintains moderated level of current assets to constant fixed assets. That is the current assets policy of the most of the firm may fall between in conservative and aggressive working capital policy, which is called average working capital policy. It indicates moderate liquidity and risks. Working capital can be done in the following main methods: 1. Cash Management 2. Receivable Management 3. Inventory Management CASH MANAGEMENT Cash, the most liquid asset, is of vital importance to the daily operations of business firms. While the proportion of corporate assets held in the form of cash is very small, often between 1&3 percent its efficient management is crucial to the solvency of business in very important sense cash is the focal point of fund flows in business. In view of its importance, it is generally referred to as the 'Life blood of a business enterprise'. NEED FOR HOLDING THE CASH: John May nard Keynes put forth, there are possible motives for holding cash. Transaction Motive: Firms need cash to meet their transactions needs. The collection of cash (from sale of goods and services, sale of assets and additional financing) is not perfectly synchronized with the disbursement of cash (for purchase of goods and services acquisition of capital assets and meeting other obligation). Hence, some cash balance is required as a buffer. Precautionary Motive: There may be some uncertainty about magnitude and timing of cash inflows from sale of goods and services, sale of assets and issuance of securities. Like wise there may be uncertainty about cash out flows on account of purchases and other obligation. To protect it against such uncertainities, a firm may require some cash balance. Speculation Motive: Firm would like to tap profit making opportunities arising form

fluctuations is commodity prices, security prices, interest rates and foreign exchange rates. Cash rich firm is better prepared to exploit such bargains. Hence firms, which have such speculative earnings, may require additional liquidity. However, for the most firms there reserve borrowing capacity and marketable securities would sufficient to meet their speculative needs. GOALS OF CASH MANAGEMENT: Precisely speaking, the primary goal of cash management in firm is to trade off between liquidity and profitability in order to maximize long-term profit. This is possible only when the firm aims at optimizing the use of funds in he working capital pool. This overall objective can be translated in to the following operation goals. To satisfy day business requirements To provide for schedule major Payments To face un expected cash drains To seize Potential opportunities for profitable long term investments To meet requirements of bank relationships To build image of credit worthiness To earn on cash balances To build reservoir for net cash in flows till the availability of better uses of funds by conscious planning To minimize the operating cost of cash management

IMPORTANCE OF CASH MANAGEMENT: Cash management is one of the critical areas of working capital management and assumes greater significance because it is most liquid asset used to satisfy the firm's obligations but it is a sterile asset, as it does not yield anything. Therefore finance manager has to manage cash that the firm maintains its liquidity position without jeopardizing the profitability.Problem of prognosticating cash flows accurately and absence of perfect to incidence between the in flows and out flows of cash added to the significance of cash management. In view of above, at one time affirm may experience dearth of cash because payment of taxes, dividends, seasonal inventory etc., build up while at othe times, it may have surfeit of cash stemming out of large sales and quick collections of receivables.It is interesting to observe that in real life management spends his considerable time in managing cash, which constitutes relatively small portion of firm's current assets. This is why in recent years a

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number of new techniques have been evolved to manage to cash holding of the firm. RECEIVABLE MANAGEMENT The term "receivable" refer to the debt owned by the customers for goods purchase from the firm or services rendered by the ordinary course of business.The firm is said to have granted trade credit to customers when it sells its products or services and does not receive cash for it immediately. Trade credit is an essential marketing tool acting as a bridge for the movement of goods from production and distribution stage to customers finally. Receivables are also known as accounts receivables, trade receivables or book debts.The purpose of maintaining or investing in receivables is to meet competition and to increase the sales and projects. BASIC FEATURES OF RECEIVABLES ARSING OUT OF CREDIT 1. They involve an element of risk as cash payment has yet to be received. 2. They are based on economic value, which is passed to the buyer immediately at the time of sale of goods, services while the seller expects an equivalent value to be received later on. 3. The imply futurity as payment for goods or services received by the buyer will be made by him at future date. 4. Granting credit and creating debtors amount to the blocking of firms funds, thus, there is a need for careful analysis and proper management of receivables as substantial amounts are tied up in trade debtors. OBJECTIVES OF RECEIVABLES MANAGEMENT The purpose of credit management is not to max sales (if so, firms would sell on credit to all); nor to min risk (if so, firms would not sell on credit to anyone). The objective of the firm is to manage its credit a way that sale are expanded to such an extend to which risk remain with is an acceptable limit. Main Objectives are: Obtain optimum values of sales Control the cost of credit and keep it at minimum.

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INVENTORY MANAGEMENT INVENTORY AND ITS PERIMETTER: The term "inventory" is used to designate aggregate of those items of tangible assets, which are 1) Held for sale in the ordinary course of business. 2) In the process of production for such sale, or 3) To be currently consumed in the production of goods or services to be available for sale. Thus, inventory means and includes any one of the following: Finished goods (saleable) Working progress (convertible) Materials and suppliers (consumable) The above definition is called operational definition of inventory. In financial parlance, inventory is defined as the sum of the value of raw materials and suppliers includes spares, semi processed materials or working progressed and finished goods. The inventory is largely depending on the carried on. INVENTORY: SOME SPECIAL FEATURES A comparison of inventory with other positive components of working capital would revels that it has some special features of its own. Firstly, on an average, it accounts for lions share of firms investment in working capital. Secondly, the risk factor in holdings inventory generally is higher than of holding other items of current assets. Thirdly, although holding of a more and more inventory may be desirable from the point of view of functional managers, it affects adversely short-term liquidity. Fourthly, it involves many types of costs associated with it viz: acquit ion cost, carrying

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cost, short cost, etc. Fifthly, it is the only item of current assets, which has direct influence on the process, and income of firm. Finally, it involves almost all the functional areas of management, viz, purchasing, production, marketing and finance. OBJECTIVES OF INVENTORY MANAGEMENT There should be optimum level of investment for any asset, whether it is plant, cash or inventories. Again, in adequate inventories will disrupt production and lose sales. All this calls far an effective inventory program the main objectives are: 1. To ensure that materials are available for use in production and production services, as and when required. 2. To ensure that finished goods are available for delivery to customers to fulfill orders. 3. To minimize investment in inventories. 4. To protect the inventory against deterioration, obsolescence and un authorized use.

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Transformer Industry profile

Overview The power sector value chain comprises generation, transmission and distribution (T&D). Electricity generated at a power plant is transmitted to the nearest grid via step-up transformers and then to the state grid (via step-up or step-down transformers). Then it is transmitted to a power substation via stepdown transformers. Finally, distribution transformers are used to transmit power from the sub-transmission point to end consumers.The massive program of generation, transmission and distribution outlined in 11th & 12th plan envisages huge demand of transformersand generators. Going forward, transformer segment is going to witness a turnaround, as a Capex of approximately Rs.640,000 crore in T&D sector over the next 5-6 years will ensure the optimum capacity utilization for major players. Growing Indian economy, growth in electricity consumption, growing industrial demand, expanding export market, large scale generation capacity addition, setting up of national grid, rapid expansion of urban and rural distribution infrastructure have been key drivers of the transformer market in India. Thrust and policy of GoI to electrify all villages by 2020 and publicly funded programmes like the Rajiv Gandhi Gramin Vidyutikaran Yojana a is one of the factor which will provide opportunities to transformer manufacturer and propel growth in the transformer industry.at 6.28x 20011-12E and 5.69x 2012-13E earnings. Based on Forward Earnings Estimates, the expected value of Voltamp Transformers Ltd is in range of Rs.9501000. Hence we recommend a BUY call for Voltamp Transformers Ltd for long-term (2 year) perspective.

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Power transformers account for 70-75% of the total installed capacity while distribution transformer accounts for the remaining 20-25%. In the power transformer segment, stepdown transformers account for 75-80% of the total installed capacity while step-up transformers account for the rest.India has set for itself ambitious targets of investments in the power sector, in view of the significant power deficit and sustaining the economic growth momentum. The momentum of capacity addition is expected to improve in the later half of the Eleventh Plan and continue at a higher rate during the Twelfth Plan, with large capacity additions lined up by the private sector.Investments of INR3.5 trillion and INR4.7 trillion are expected in the power sector during the eleventh and twelfth five-year plan periods, respectively. Capacity addition of 54,000MW is expected during the eleventh plan and ~1,00,000MW is planned for the twelfth plan periods. With huge power plants coming up, the need for transmission will drive demand for transformers. Industry is going to witness a turnaround in FY12. Going forward; transformer segment is going to witness a turnaround,even in face of intensifying competition, as a Capex of approximatelyRs.640,000 crore in T&D sector over the next 5-6 years will ensure the optimum capacity utilization for major players. Key demand drivers will be PGCIL capex for 12th five year plancapex by the SEBs and revival in industrial capex cycle. As for import threat from China and Korea, there is a clear policy shift towards preference to local manufactures, evident by PGCIL making it mandatory to have 50% local manufacturing content, a qualification to bid for 765 KV transformers.

Export and Import Status of The Transformer Industry

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In The Global market, performance of Indian product is acknowledged as technically at par with the leading international companies Since the transformer industry has matured enough as a reliable supplier, it is exporting transformer in various parts of the world including countries like USA, Europe, South Africa, Cyprus, Syria, Iraq and other Middle East countries and Far East countries. Exports of Transformers grew by 63.97% for FY 2008-09 to Rs 18163 million, whereas import increased by 41.13% to Rs 2705 million. Statistic Related to exportimport is provided below:

EXPORT AND IMPORT OF TRANSFORMERS

IMPORT RS.MILLION TRANSFORMERS-UPTO KVA TRANSFORMERS-ABOVE KVA TOTAL EXPORT GROWTH 2008-09 650 1028 2009-10 416 2010-11 791 EXPORT 2008-09 637 2009-10 1993 2010-11 2788

650 888

2289

7143

10417

16170

15192

1916

2705 41.13%

7934 193.29%

11054

18163 63.79%

17980 -1.01%

For the financial year 2009-10, Overall Exports growth was slightly negative (-1.01%) with improvement in export of Transformer upto 650 KVA. For Year 2009-10, import increased at staggering rate of 193.29%. Considerable imports of industrial transformers, mainly from Korea and China was reported. Technological Trend in the Industry India has technology and capacity to manufacture a wide range of power transformers, distribution transformers and other type of special transformers for welding, traction, furnace etc. Indian Companies are capable of manufacturing energy efficient transformers with low losses and low noise levels. Towards introduction of next voltage level in High Voltage Direct Current (HVDC), implementation of +/-800KV, 6000 MW HVDC Bi-pole line From north eastern region to northern region have commenced.

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The Link shall pass through chicken neck area of north eastern region and shall be transmitting power over an distance of more than 2000 kms. With regards to alternative current (AC), establishment of 1200 KV Ultra High Voltage(UHV)AC test station at Bina in Western region is under process as a collaborative effort with manufacturers, who would be able to field test their indigenously developed 1200 Kv equipment on long term basis Indian Companies are capable of Producing 420 KV Class transformers, as HDVC/UHV system is being developed due to capacity addition requirementduring 11th and 12th Plan period. Growth in 765 Kv Transmission during 11th plan period is expected to be from 1704 circuit Kilo meter (ckm) at the end of 10th plan to about 7132 ckm by year end of 11th Plan. 765kv substation transformation capacity would increase from 2000 MVA at the end of 10th plan to 53000 MVA by end of 11th plan. Power grid is developing 1200Kv Transmission to transfer Huge power as required by 11th and 12th plan. The Transformer at UHV Level will assume priority due to operation of national grid, currently having capacity of 20000 MW, which will be augmented to 38000 MW by 2012 and linking the trunk lines for inter-transfer of bulk power from surplus to deficit states The Bureau of Energy Efficiency (BEE) is actively working to ensure that quality products are procured by the electricity boards and has accordingly stipulated mandatory star rating for distribution transformers. It has issued an mandate on 9th January 2010, that all distribution transformers to be purchased shall be minimum of 3-star ratings. Most manufacturers have upgraded pr are planning to upgrade to meet these requirements Players in Transformer industry have updated their manufacturing facilities to cope with technical requirement at national and international levels. They have established in house R&D Labs and are regularly updating their technical capabilities to develop transformers of latest technology and design. Few big players are also considering setting up manufacturing unit to cater new 765 KV and higher category. This technical competency provides them competitive advantage in global market place. Demand Analysis of Industry These are the key drivers of demand for the transformer industry:

1. Demand generated from capacity additions:

Large scale capacity additions with matching transmission & distribution infrastructure and reduction of Technical & Commercial (AT&T) losses will create huge demand for transformer industry. A target of capacity additions of 78,700 MW was set in 11th five year plan. The working group of power has recommended capacity additions of 82,200 MW for 12th plan. At 60% target achievement, estimated generation capacity works out to be:

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Estimated Generation Capacity Additions

For 11th & 12th Plan period CAPACITY IN MW 11 TH PLAN (2007-12) Capacity in MW 11th plan 12th plan Installed capacity at the end of 10th plan( Installed capacity as on 31 march 2010 Capacity additions till march, 2010 (for first 3 years of 11th plan) 27,069 Capacity addition targets for plan period Target capacity addition (For remaining 2 years of 11th plan) 51,631 % Target achievement (assumed) Estimated Capacity Additions 60% 30,979 60% 49,320 78,700 82,200 1,32,329 1,59,398 12 TH PLAN (2012-17)

2.

Replacement Demand

Approximately 97,456 MVA of transformer capacity was added during 1983-887 & 238,150 MVA during 1987-91. As average life of a transformer is 25 years, these transformers are expected to be replaced during the 11th and 12th plan period. Thus demand from replacement for the remaining 1 year of 11th plan and 5 years of 12th plan work out to be:

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Estimated Replacement Demand

MVA

1983-87

1987-91

A 19mmmm83-87 1987-91 Transformer Capacity Added 97,456 2,38,150

11th plan

12th plan

Average yearly Demand

19491

47630

Years

Average Total Demand for the period

19,491

2,38,150

According to Annual report 2009-10 of Transformers & Rectifiers (India) Ltd., about 10 MVA transformer demand per MW of generation capacity added has been observed. MVA demand per MW of generation capacity has improved due to more emphasis on curtailing AT&C losses. On this basis future demand from generation capacity addition works out to be as under:

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Estimated Transformer Requirement (in MVA)

Total Years by end of 12th Plan Period

A. Demand from added generation

Expected Capacity Addition for 11th and 12th plan period Transformer Capacity requirement /MW 10 A. Demand from added generation

80,299

802986

B. Replacement Demand For remaining year of 11th plan 19491

For 12th five year plan

238150

B. Total Replacement Demand

257641

Total Transformer Demand (A+B)

1060627

Average Yearly Demand For the period 2011-2017

176771

3. Transmission lines expansion Besides capacity addition, a strong inter-state and inter-regional transmission system has also been planned not only to evacuate the planned generation capacity but also to provide open access for transfer of power from surplus to deficit areas. Programme of expansion of inter-

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regional transmission capacity from 14,100 MW at the end of 10th plan to 37,700 MW at the end of 11th plan has been given. 4. Industrial Sector demand Industrial sector demand is the largest consumer of electric energy in India. Industrial segment demand has been from various power consuming industries viz. steel, aluminum, cement, oil & gas, automobiles, engineering, mining & minerals, paper, chemical and petrochemicals etc. With the growth of Indian economy in last decade, industries have increased their manufacturing capabilities by many folds and this has increased their power usage. Industries are now increasingly relying on captive power plant as it is much more economical and reliable as compared to power supply from the grid. Revival in the economy will increase the Capital Expenditure incurred by the industries. Industries are expected to incur part of this amount on captive power plant, which in turn will generate demand for transformers.The installed capacity of captive power plants was 24,680 MW in march 2007. it is envisaged that during the 11th plan period about 12,000 MW capacity power plants would be added to the system which will take care of the demand of the industry and also power to the grid. The GoI has reserved coal block with reserves of 3.2 billion tones of coal for allotment by Screening Committee of Ministry of Coal for merchant and captive plants. About 10,000 MW capacity is expected to be developed through this imitative. 5. Export Demand Indian export of transformers for the year 2009-10 plummeted by1.01% and grew by 63.79% for previous year 2008-09. Export demand declined for the year 2009-10 as worldwide economies were affected by economic slowdown. Though there exists significant export opportunity for Indian companies to grab, with the expected economic revival. Indian players have built considerable presence in accordance with global standards. Indian players are expected to tap markets like Australia, Oman, Eygpt, Srilanka, Bangladesh, Thailand, Indonesia and middle East.

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Company Profile

BRG Energy Limited is one of the fastest and youngest growing organizations in the manufacturing business of Distribution and Power Transformers. BRG was formed in the year 2003 and within just 3 years of inception BRG has posted sales revenue of 140 cr (30 million USD). BRG believes in deploying the latest state-of-the-art Technology, Processes and Equipments to give the best of products to the customers. BRG also has a highly efficient and effective after sales service team in place, supporting all its installations across India. BRG Energy Ltd. is one undoubtedly of the leading, bulk manufacturers - supplier of high quality Distribution and Power Transformers up to 31.5 MVA, 66KV Class in India. The manufacturing base of BRG is located at Pashamylaram from where the Distribution and power Transformers with Silicon Steel Cores are rolled out.

Values @ BRG

Transparency in Management & Corporate Governance Trust, Openness, Integrity, Mutual Respect, Result orientation Create, Maintain & Retain Talent Vertical Integration to attain Quality & Cost Leadership Customer Centric Approach Customer Satisfaction & Beyond Manufacturing Process Automation Benchmarking Best Practices in Xmer Industry Technological innovation Investments to improve Quality Adaptable & flexible to new trends & challenges Safety, Health & Hygiene for all employees Attention to environment

Associations
BRG has tied up with METGLAS USA for a supply agreement of Amorphous Metal Alloy ribbons for its production of the transformers with Amorphous Metal Alloy Cores. Amorphous Transformers possess non crystalline structure. This structure allows amorphous core metal to

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align itself under very less magnetization current when the core is excited thereby reducing the hysterisis component in the No load losses. Amorphous Metal Cores have been extensively used for energy efficiency programs around the world and find rich use in Asia and Americas. Field testing of these transformers has also proved that they yield better performance under current and voltage Harmonics.BRG has world class manufacturing facility for Amorphous Metal Core Transformers at Jadcherla (around 65 kms from Hyderabad). BRG actively seeks and nurtures effective partnerships with like minded organizations that can provide a complete solution in the power sector. Currently BRG is on the verge of looking out to partner with leaders in manufacturing of Extra High Voltage Class Power Transformers. BRG also welcomes to enhance its operational and technical know how through strategic partnerships and collaborations in the area of EHV Power Transformers.

Road Ahead Future Insight

Export market will be very soon thrust area for BRG Energy Limited. BRG has made its very first stride in this direction by receiving an order for 10 MVA. BRG plans to penetrate in manufacturing of Large Power EHV Transformers. The organisation also plans to establish an ERP based manufacturing for reduction on lead times for the deliveries and purchases. In an effort to optimize the cost input BRG also plans to have a complete backward integration in Transformers manufacturing.

Achievements

BRG has achieved sales revenue which surpassed the 150 Cr mark within 3 years of its establishment. BRG has added 15 new customers to its clientele in the FY 2009-10. BRG has started the process of establishing a state of the art automated fabrication facility which houses all the modern day machineries such as Robotic Welding, Plasma cutting and high speed Turret punching machine. BRG has initiated the process of setting up a state of the art facility for manufacturing of low loss, highly energy efficient Amorphous Core Transformers in collaboration with METGLAS USA which would help reducing the T&D losses in the Country. Copper Conductor plant for Wires and Strips is being established. Fully Automatic Core Processing Plant for Cutting and Slitting is underway. The manufacturing capacity of BRG has witnessed astronomical growth of 100%.

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Directors Profile

BRG Energy Ltd. was formed in the year 2005, by Mrs. G V Mary and Mr. G Bala Reddy. The company was created to serve the Power sector which has witnessed a rapid growth with astronomical demand for Power and Distribution Transformers in India.

Mrs. Gopu Velangini Mary is the Managing Director of the organisation. She is a Science graduate with rich experience in business management andgeneral administration. Mrs. Mary also takes care of the day to day operations at the state of the art plants located at Pashamylaram and Jadcherla. Mr.Gopu Bala Reddy is the executive Director of BRG Energy Limited. He is a postgraduate in Social Sciences. A techno-savvy first generation entrepreneur with a great vision, he was instrumental in turning around a sick entity to a profitable corporate. Mr. Reddy has immense expertise in the use of technology in the sectors such as Oil, Gas, Mining, Irrigation, Transport and Water Utilities. Under his dynamic vision and leadership, BRG has initiated various strategic collaborations which helped the organisation to diversify its product offering in highly competitive market. BRG surpassed many milestones since its formation and continues to tread a growth path astronomically.
Mr. Y V Ramana Reddy is the Director, has got more than a decade of rich experience in handling of industrial units. He was associated with Process Industry for a long time and has worked with most of the manufacturing majors in this segment. He brings with him rich expertise in project product and contract management verticals.

Management Team
BRG Energy Ltd was formed in 2005, by Mrs. G V Mary and Mr. G Bala Reddy. The company was created to serve the Power sector which has witnessed a rapid growth with astronomical demand for Power and Distribution Transformers in India. BRG is spearheaded in its daily operations by Mr. Y V Ramana Reddy who has got more than a decade of rich experience in handling of industrial units and is supported by highly qualified and experienced team in Design, Quality, Materials, Planning, Testing and Marketing.

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Quality Policy

To commit ourselves to continually improve our quality management systems to offer product and services which meet the requirements of our customers as a manufacturer of Power and distribution Transformers and aim to even exceed their expectations by building quality in every aspect of our operations. To upgrade our knowledge and skill levels through continuous training. To comply with applicable statutory and regulatory acts and International manufacturing and quality standards. To implement and practice the quality management system in all our operations in its true spirit. To ensure continual improvement in all our processes, practices and operations. To provide safe and healthy working environment.

Vision and Mission

Vision
To be one of the top five, most admired transformer manufacturing organizations in India by 2016, and have a Global presence.

Mission
To Design, Manufacture, Test & Supply Power & Distribution Transformers fully complying to the relevant National & International Standards & Customer Specification, by adopting the most efficient Design, optimum usage of Raw Materials, Manufacturing Processes & Technologies, thereby offering Cost Effective & Quality product to the customer and provide effective and efficient After Sales Service To attain leadership position in the industry, establish BRG Brand in the market place & be A great place to work for, creating value for all its stakeholders.

25

Technology
BRG has a complete and full-fledged design team comprising of more than 20 engineers using fully automatic design software providing the optimum design based on the then prevailing cost of the raw materials. The entire tender and the manufacturing drawings are linked to this most optimal design and generated by using the latest 2D/3D modeling software. These latest design practices help in obtaining optimum electrical and mechanical design and produce the best quality of transformers at the most economical prices. BRG is capable of designing transformers confirming to different standards (viz.) BIS, DIN, ANSI, SABS, BS and IEC etc. Its team of qualified and well trained engineers constantly works on product development and develops more and more efficient Designs.

Production
The factory is situated in the industrial area of Andhra Pradesh which is around 35 kms from Hyderabad. Over an area of more than 25000 sq mts. this unit has a complete line of operations such as

Core Assembly and forming built cores. Winding Core Coil Assembly Tanking

The total manpower of the organization is around 300 persons who are tirelessly working on product manufacturing and continuous development. The annual installed manufacturing capacity of BRG stands at a staggering 5500 MVA for this Unit. To further strengthen its manufacturing capabilities, BRG is currently implementing a fully automated and highly mechanized in house tank fabrication line, which is expected to be operational within a time frame of 3 months. This facility will produce around 400 tanks of average capacity 63 kVA per day. Sophisticated facilities for shot blasting, powder coating, Robotic welding, Plasma arc cutting, Turret Punching etc are also being installed in this automated line.

Amorphous Core Transformers Manufacturing Facility

Did you know that the Power Sector contributes 51% of the Climate Change? In its effort to work for a greener tomorrow, BRG has launched its GEN nXt Transformer which reduces carbon foot print in the power sector.

The Amorphous Metal Core Transformers

The no load losses in these transformers are reduced by 70% as compared to the conventional type and they fair much better under non linear loading conditions (Voltage and Current Harmonics). BRG boasts of one of the very best manufacturing bases for AMDTs in India. This unit has a keen focus on quality with a mix of quantity

26

but not quantity driven alone. Amorphous Ribbons are procured from METGLAS, USA which is a subsidiary of HITACHI Metals. Over 45000 sq m of area has been earmarked for manufacturing AMDT. This facility also boosts of in-house conductor processing plant with fully automated fabrication unit.The plant contains latest state of the art cutting machines for Amorphous from Korea which is the heart of the manufacturing process. 'BRG' make Amorphous Core Transformers is made with high quality METGLAS Amorphous Ribbons. METGLAS is pioneers in manufacturing Amorphous Metal Alloy and has invested heavily in the R&D of this product. BRG has also type tested Amorphous Core Transformers successfully at CPRI which complies with Star 3 efficiency and loss values of BEE Star and Labeling program and now in the process of getting Star 4 and Star 5 Transformers type tested at CPRI.

Power Transformers

CRGO Silicon Steel Transformers

Availability of latest manufacturing process helps BRG to ensure quality of the transformer. Liquid filled Transformers in order to be built comprises of the following stages

MAGNETIC CIRCUIT-CORE
The magnetic circuit is of the three-column type with mitred joints and with step lap design. It is manufactured with grain oriented magnetic, cold-rolled silicon steel laminations. Silicon Steel Lamination is cut on high precision cutting machines, as per the designs. It is ensured that CRGO laminations are produced with minimum burr and subsequent annealing (if required) provides minimum magnetic flux distortion. Cut Laminations of stipulated designs are then assembled carefully on a customized platform to build the Limbs and yokes following which the built core is clamped down in order to reduce vibrations and minimize noise levels. These customized platforms yield in lower building factors which also minimize the human handling. The construction of this core is generally a "Step lap process" which reduces the No load losses and the sound level in a Transformer.

winding copper/aluminum
Windings comprises of Conduction and Insulation material which is generally kraft paper or enamel. The conductors used are a high grade electrolytic copper or aluminum. LV windings are made layer by layer on the winding machines using covered conductors. These winding

27

machines have been indigenously built by BRGs Research and Development Wing. Highly skilled workers then wind these wires over a specific mandrel which has prefixed diameters as per the specification from the engineering department. The HV windings are wound either with round, double enamel insulated, or rectangular, paper insulated wire over the LV windings for Distribution Transformers. This process of HV winding over LV winding provides better short-circuit withstand ability and generally has been found to be very productive. For the power transformers, both LV and HV Windings are usually 'continuously DISC wound' using rectangular paper covered conductors.

Core coil assembly

The built core assembly with the top yoke removed is placed on a work station with the limbs of the core tightly wrapped with cotton tape and then varnished. Press board Cylinders made out of insulating press board is wrapped on all the three limbs and then Low Voltage Coil is placed on the insulated core limbs. Insulating block of specified thickness and number are placed both at the top and bottom of the LV Coils Cylinder made out of corrugated paper or plain cylinder with oil ducts are provided over LV Coils. HV Coils are placed over the cylinder and the Gaps between each section of H.V. Coils including top & bottom clearances is maintained with the help of oil ducts, as per the design/drawings. The Top Yoke is refilled and bolts and tie rods then fixed in position. Primary and secondary windings are connected as per the requirements.The winding leads are then carefully brought out on the top or side as per the wiring diagram. The tap changers and necessary accessories such as lugs are then attached to the winding leads. On the LV side copper bars are then brazed to the winding leads. The CCA is then ratio tested to check the uniformity of the number of turns in the winding. These core coil assemblies are then sent to the tanking department for further pro.

Tanking and oil filling

Tanks are brought out from sub vendors who are carefully evaluated after a strict quality check in the fabrication units for any leaks or dimensional deviations. BRG is very soon going to kick start a semi automatic fabrication plant to manufacture the tanks using latest state of the art technologies such as Plasma cutting, Robotic Welding and Unmanned Shot Blasting. The core coil assembly from the CCA stage is then brought on for tanking. Before the tanking takes place, the CCAs are sent in an oven for removal of any moisture content from the windings. They are then compressed using hydraulic jacks to arrive at the designed dimensions such as the axial height. The CCA is then housed inside the MS tank and oil is filled under vacuum by an oil pump. The sub assembled transformer is then fitted with all the relevant accessories and fittings as per the customers requirement and then sent for final testing. After final testing and clearance from the quality department, the transformers are lined up for dispatches from where they are shipped to different project sites based on the requirements in trucks. Online testing is done continuously as to avoid maximum backlogs during any production stage which reduces the costing of the product.

28

Distribution Transformers

Amorphous Core Alloy Distribution Transformers (AMDT)

The manufacturing of Amorphous Core Distribution Transformers is similar to the conventional ones except for the core manufacturing. The AMDT uses a rectangular winding instead of a round one since the core is progressively wound in a rectangular shape from several ply of amorphous ribbons over a specially built mandrel
About Amorphous Metal

Amorphous Metal is an Alloy of Ferrous - 78 Boron - 13 and Silicon - 9 and rest of the composition constitutes of other compounds. Amorphous has a highly non crystalline structure at the granular level and they do not have any fixed magnetic domains. Thus, every domain is nothing but a closed magnetic circuit as shown in the figure above. Now consider what happens when an alternating current of 50 cycles is applied. The domains "switch" to and fro 50 times in a second. Therefore the domain looks like this as the current alternates 50 times and the diagrams below represent the direction of the domain as the current alternates. And so on ... ..50 times every second The horizontal switches require more energy to be completed and also "lag" behind the vertical switches, and this result in heat, which results in the hysterisis loss within the steel. The sum total of the energy required for the horizontal switches to occur is the total hysterisis losses of the steel. Thus the larger the grains, the lower the losses as there are less total number of grains in the steel and therefore less number of "switches" and low hysterisis losses.But there are no fixed magnetic domains in Amorphous and since a random arrangement is predominant at the granular level, the magnetization current required to excite the core at the initial level is very less.

29

Clients:

30

CHAPTER 2 2.RESEARCH METHODOLOGY

OBJECTIVE OF THE STUDY The present study in my home industries ltd is under taken to palmate the working capital strategy in the organization by establishing the following objections. To study on financial performance turnover growth last of last years. To calculate working capital company of the study period. To evaluate current ration, Quick Ratio , Debtors Turnover Ratio of bgr eneg. To judge the cash management ability of the company. To give flexible solution to improve the Liquidity performance of the company. and compare the operating cycle duration of the

NEED OF THE STUDY: There is more number of methodologies used in financial analysis present study stage extended to ratio analysis of the companies' audited financial reports.The scope of the study is defined below in terms of concepts adopted and period under focus. First a study on management of working capital is unfired only to the BRG Energy Limited. Secondly the laniary concepts of working capital gross and Net is used in marketing profitability and Liquidity respectively and also to arrive at varying objectives of the study. Thirdly the study is based on the annual reports of the company for the period of 7 years. Thus on the whole the purpose of the work/study is to analyze the past and present Liquidity performance of the company on varying financial areas life Cash management Inventory management Receivable management

31

STATEMENT OF THE PROBLEM: In order to maintain forms of revenue from operating every firm needs to maintain certain amount of current assets. For example cash required to pay expenses or to met current obligations for services received or goods purchased etc., by a firm on the identical plan inventories area required to provide the link between production and sale, similarly accounts receivable generates when goods are sold on credit.Economics like mead, backer and field are of the optimum that the whole of these current assets the working capital of a firm. But optimum working capital management must be the objective of any manufacturing concern. Optimum many there shall not be of employment and under employment of the working capital. Therefore, the present study focus or in the BRG Energy Limited. is working capital to improve Liquidity and Profitability. TOOLS OF ANALYSIS: Ratio Analysis Percentage Method Regression Analysis Operating cycle Method. METHODOLOGY In view of the objectives of the study an expletory research is one. Which cargely interprets the already available information, and it lays particularly explains on analysis and interpretation of the existing and available information. It makes use of secondary dated. SOURCES OF DATA: The study is based on secondary data and discussing with the officials of the company the secondary data consists of the annual reports of BRGR Energy Systems ' ranging for the last 4 years. Yarning other reports are collected from the company's magazines, published book and from web sites.

32

LIMITATIONS OF THE STUDY: The information used is primary from historical annual reports available to the public and the same does not indicate the current situation of the firm. Detailed analysis could not be carried for the project work because of the limited time gone. Since financial matters are sensitive in nature the same would not be acquired easily.

33

CHAPTER III

DATA ANALSIS & INTERPRETATION

34

BRG Energy Limited. Financial performance on the last year Table No.1 Production Year 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 Production 4.54 50.79 10.64 12.47 13.76 16.27 17.19 Sales Year 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 Sales 4.50 5.77 10.71 12.42 13.73 16.13 16.99

Production Sales Fig. No.1

60
2004 05

50
2005 06

40 30 20 10 0 Production

2006 07 2007 08 2008 09 2009 10 2010 11

35

18 16 14 12 10 8 6 4 2 0 Sales
2009 10 2010 11 2004 05 2005 06 2006 07 2007 08 2008 09

36

TURNOVER Table No.2 Turnover Turnover Year Crores 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 99 123 201 235 278 351 562

Fig. No.2

600
2004 05

500
2005 06

400 300 200 100 0 Turnover

2006 07 2007 08 2008 09 2009 10 2010 11

37

Net Profit (Before tall) Table No.3

Turnover Net Profit Year Crores 2004 05 2005 06 2006 07 2007 08 2008 09 2009 10 2010 11 7.06 14.74 13.41 25.17 42.44 24.72 140.32

160 140 120 100 80 60 40 20 0 Net Profit Crores

2008 09 2009 10 2010 11 2004 05 2005 06 2006 07 2007 08

Fig. No.3

38

CONCLUSIONS

The production of sales performance of BRG Energy Limited., has increased from Rs.4.54 (P&L) lakhs is in 2004-05 to Rs.17.19 & Rs.16.99 lakhs in 2010-2011. This is a good performance by the support all Director all level managers and all workers of the company. The Net Profit (Before back) performance of BRG Energy Limited., has been increased from Rs.7.06 crores in 2004-05 to Rs.140.32 crores in 2010-2011. It has got good position in market by the well performance of company. With in 6 years it increase Net Profit above 100% completed. In the previous year in last year (2008-09) estimated however the Net Profit performance excellent in 2010-2011. The turnover of BRG Energy Limited including has been increased from Rs.99 crores in 20102011 to Rs.562 crores in 2006-07. It is a good performance increasing with other carrying the company turnover growth rate is appreciated.

39

Statement of changes in working capital for the year 2007 08 and 2008 09

Table No.4 Changes in working capital Particulars 2007-08 (Lakhs) Inventories Sundry Debtors Cash & Bank Balance Loans & Advances Total (A) Current Liabilities Liabilities Provisions Total (B) Working Capital (A B) Net Increase in Working Capital Net Working Capital 332.39 318.12 650.51 4267.58 932.63 5200.16 5200.16 1317.12 493.87 541.13 1034.90 5200.16 932.63 1317.12 161.48 223.01 384.49 1255.79 1759.76 125.74 1676.75 4918.04 2008 09 (Lakhs) 1831.26 1256.97 190.63 2956.30 6235.16 575.47 502.79 35.79 279.11 1317.12 Increase Decrease

40

Interpretation:

The above table reveals the following information.

Generator has been increased Rs.5750.47 Lakhs so this make availability of working capital. Sundry Debtors have been increased by Rs. 502.79 lakhs due to high credit sales. This increase the working capital. Cash & Bank balances have been increased by Rs.35.11 lakhs. It indicates the working capital availability. Loans & Advances have been increased Rs.279.11 lakhs. It indicates the working capital availability. The current liabilities have been decreased by Rs.161.49 lakhs. Which effects the positive sign on working capital. Provisions have been decreased by Rs.230.01 lakhs. Which effects the positive sign on working capital by decreasing Liquidity requirements for provisions.

41

Statement of changes in working capital for the year 2008 09 and 2009 10

Table No.5 2008 09 2009 10 Change in Working Capital Particulars (Lakhs) (Lakhs) Increase 562.94 491.39 158.42 Decrease

Inventories Sundry Debtors Cash & Bank Balance Loans & Advances Total (A) Current Liabilities Liabilities Provisions Total (B) Working Capital (A B) Net Increase in Working Capital Net Working Capital

1831.26 1256.97 190.63 2956.30 6235.16

2394.20 765.58 349.05 3816.49 7325.32

860.19

493.87 541.13 1034.90 5200.16

1724.14 903.39 2627.53 4697.79 502.37 502.37 2083.92

1230.27 362.26

5200.16

5200.16

2083.92

42

Interpretation:

The above table reveals the following information.

Inventory has been increased Rs.562.94 Lakhs. It indicates the working capital availability. Sundry Debtors have been decreased by Rs. 491.39 lakhs. it shows the negative effect will decrease the working capital. Cash & Bank balances have been increased by Rs.156.42 lakhs. It indicates the working capital availability. Loans & Advances have been increased by Rs860.19 lakhs. So this effect the increase the working capital. The current liabilities are reduced by Rs.1230.27 lakhs. So this increase the working capital. It means the requirement of Liquidity for payments of short term. Provisions have been decreased by Rs.362.46 lakhs. Which effects the positive sign on working capital by decreasing Liquidity requirements for provisions.

43

Statement of changes in working capital for the year 2009 10 and 2010 11

Table No.5 2009 10 Particulars (Lakhs) Inventories Sundry Debtors Cash & Bank Balance Loans & Advances Total (A) Current Liabilities: Liabilities Provisions Proposed dividend Total (B) Working Capital (A B) Net Increase in Working Capital Net Working Capital 1724.14 322.20 581.19 2627.53 4697.79 4336.79 9034.58.16 9034.58 10187.96 3952.60 3822.85 703.55 8479.00 9034.58 4336.79 10187.96 2228.46 3500.65 122.36 2394.20 765.58 349.05 3816.49 7325.32 2010 11 Change in Working Capital (Lakhs) Increase 1107.03 376.65 233.19 8471.09 491.39 Decrease

3501.23 1142.23 582.24 12287.58 17513.58

44

Interpretation:

The above table reveals the following information.

Inventory has been increased by Rs.1107.03 Lakhs. So this make availability working capital. Sundry Debtors have been decreased by Rs. 376.65 lakhs. Due to big credit sales. This increase the working capital. Cash & Bank balances have been increased by Rs.233.19 lakhs. It indicates the working capital availability. Loans & Advances have been increased by Rs.847.09 lakhs. So this effect the increase the working capital. The liabilities have been decreased by Rs.1228.46 lakhs. Which efforts the positive sign on working capital. Provisions have been decreased by Rs.350.65 lakhs. Which effects the positive sign on working capital by decreasing Liquidity requirements for provisions. Here in this year proposed dividend also there and it has been decreased by Rs. 122.36 lakhs. Efforts in working capital.

45

Current Ratio:

Source: Annual Reports of brg energy pvt Ltd. Table No.7 Year 2007 08 2008 09 2009 10 2010 11 Current Ratio 0.13 0.16 0.35 0.48

Fig. No.4 The actual ratio provided in the above table is then the standard ratio. In other words, in none of the year, the actual current ratio is greater than the standard ratio. However there is an improvement in the ratio during the study period. Current Ratio has increased from 0.13 in 2007 08to 0.48 in 2010 11. There may two reasons for the poor current ratio. Due to high stock turnover the amount of current assets diluted from time to time. Poor investment in current assets, which will lead to poor sales and profitability.

46

Quick Ratio: This Ratio establishes a relation ship between of liquid assets and current liabilities. It is an absolute measure of liquidity management of the concern. As asset is liquid if it can be converted in to cash immediately or reasonably soon with out a loss of value, it ignores totally the stocks. Because inventories normally require some time for realizing into cash. Their value also has a tendency to fluctuate. Table No.8 Year 2007 08 2008 09 2009 10 2010 11 Quick Ratio 0.17 0.23 0.54 0.61

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Quick Ratio

2007 08 2008 09 2009 10 2010 11

Fig. No.5

Quick Ratio is also including the same performance on per with the current ratio. Quick Ratio has increased from 0.17 in 2007 08to 0.61 in 2010 11. A greater that actual quick ratio than the standard is recorded only in the latest two years. Therefore it may be conclude that the liquidity performance of the company has been improved in the latest years of the study period.

47

Absolute Quick Ratio: Since cash is the most liquid assets necessary to examine the ratio of cash and its equivalent to current liabilities, Trade investment or Marketable Securities are equivalent of cash. Therefore they may be included in the consumption of Absolute Quick Ratio. Table No.9 Year 2007 08 2008 09 2009 10 2010 11 Quick Ratio 0.17 0.23 0.54 0.61

0.7 0.6 0.5 0.4 0.3 0.2

2010 11 2007 08 2008 09 2009 10

0.1 0 Quick Ratio

Fig. No.6 The statistical data in the above table reveals that the actual Absolute Quick Ratio is greater than the standard ratio. Absolute Quick Ratio has increased from 0.17 in 2007 08 to 0.61 in 2010 11. Therefore it can be concluded that through actual current ratio is lesser than the standard ratio, the firm's absolute liquid position can be viewed as satisfactory.

48

Stock Turn Over Ratio: It is computed by dividing the cost of goods sold by the average inventory thus.

Inventory Turnover Ratio = Cost of goods sold / average inventory

The cost of goods sold means sales minus gross profit. The average inventory refers to the simple average of the opening stock and closing stock. The ratio indicates how fast inventory is sold. A high ratio in the viewpoint of liquidity and vice versa. A low ratio would dignify that inventory does not sell fast and stays on the self or in the warehouse for a long time. Table No.10

Cost of Goods Year Sold 2007 08 2008 09 2009 10 2010 11 23551.43 27776.67 35121.73 50250.15

Avg. STR Inventory 10136.51 11570.86 13980.86 15190.43 2.32 2.40 2.51 3.30

60000 50000 40000 30000 20000 10000 0 2007 08 2008 09 2009 10 2010 11
Cost of Goods Sold Avg. Inventory STR

Fig. No.7

49

Data pertaining to stock turnover ratio provided in the table inclivaty a wineel performance during the study period. Stock turnover ratio has been recorded at 2.32 time in 2007 08 further it has increased to 3.30 times in 2010 11. There for the terminal capacity of the company can be vieweel as satisfactory during the latest years of the study period. Debtors Turnover Ratio It is determined by dividing the net credit sales by average debtors outstanding during the year. Debtors Turnover Ratio = Net sales / Average Debtors. Net credit sales consist of gross credit sales minus returns if any from customers. Average debtors we the simple average of debtors at the beginning and at the end of year. The analysis of the Debtors Turnover Ratio supplements the information regarding the liquidity of one item of current assets of the firm. The ratio rapidly debits we controlled. A high ratio is indicative of short time between credit sales and cash collection. A low ratio shows that debts are not being collected rapidly. Table No.11 Year 2007 08 2008 09 2009 10 2010 11 Debtors Turnover (Times) 13.38 22.09 45.87 43.99

50 40
2007 08

30
2008 09

20 10 0 Debtors Turnover (Times)

2009 10 2010 11

Fig. No.8

50

Debtors velocity indicates the number of times the debtors are turned over during year. The higher the value of debtors turnover the more efficient is the management if debtors / sales as more liquid are the debtors. Debtors turnover ratio provided in the above table is witnessing a very good performance in the year 2003-04 it is 13.38 time and the same has been increased to 45.87 time in 2009 10 and further it has been fallen to 43.99 times in 2010 11 . On the whole the debtors turnover capacity of the company can be viewed as satisfactory.

51

Working Capital Turnover Ratio

Working Capital turnover ratio : Net Sales / Net Working Capital

Table No.12 Net Sales Year (in Lakhs) 2007 08 2008 09 2009 10 2010 11 23551.43 27776.67 35121.73 50250.15 (in Lakhs) 4267.58 5200.16 4697.79 9034.58 5.57 5.34 7.47 5.56 Networking Capital Ratio

Fig. No. 9

60000 50000 40000 30000 20000

Ratio Net Sales (in Lakhs)

Networking Capital (in Lakhs)

10000 0 2007 08 2008 09 2009 10 2010 11

52

Net Working Capital Working capital turnover ratio measures the efficiency with which the working capital is being used by a firm. The company working capital turnover ratio is fluctuations. It is low during the period 2007 08 the next year 2009 10the next year 2008 09it was increased and it was low during the next year period (2008 09). Their ratio that the company was not maintained proper standard utilization of funds. The higher working capital turnover ratio indicate efficient funds. Table No.13 Current Assets Year (in Lakhs) 2007 08 2008 09 2009 10 2010 11 4918.04 6235.16 7325.32 17513.58 (in Lakhs) 650.51 1035.00 4697.79 9034.58 (in Lakhs) 4267.53 5200.16 2627.53 8479.00 Current Liabilities Net working Capital

20000 15000 10000 5000 0 2007 08 2009 10

Current Assets (in Lakhs)

Current Liabilities (in Lakhs)

Net working Capital (in Lakhs)

Fig. No.10

During the last four years the company Net working capital fluctuating. But the current Assets were always greater than the current Liability. This indicates that the company is in better position.

53

CHAPTER IV

FINDINGS & SUGGESTIONS

In the present chapter some of the important conclusions drawn from the study of short-term financial management of BRG Energy Limited., are summed up. Further some variable and appropriate measures, which can be adopted by the company, are also suggested for bettering its performance.

There is low current ratio when compared to the standard ratios; this is due to higher stock turnover of the company. A study on the absolute quick ratio reveals a poor cash base of the company but, the further study witness a low recovery from debtors and early payments creditors is causing for poor cash balance in the company. There is a poor raw material stock turnover and a high finished goods stock turnover of the company. Therefore, companies inventory management position may be viewed as dissatisfactory. Most of the current assets are in the form of debtors, followed by inventory. That is the amount of investment in debtors is highs in the whole investment of the working capital. This is because of the new system of loaning to former. The recent performance of the debtor's turnover indicates a speedy recovery of debtors and it may be viewed as a positive working capital performance of the company. The company has its largest share of the working capital blocked in receivables. The utilization of investment in receivables points satisfactory.

The study of the composing of receivables points out that company invested much of amount of receivables in debts. Debt collection period is showing a fluctuating trend. But on the whole it may be viewed as satisfactory.

54

APPENDIX

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2011

2010-11 Particulars Rs. In Lakhs

2009 10 Rs. Lakhs In

Income Sales Less: Excise Duty & Education Fees Net Sales Other Income Total (A) EXPENDITURE Manufacturing Expenses Salaries, Wages and Amenities Administrative & Other Exp. Selling & Distribution Exp. Finance Charges Depreciation Increase / Decrease in Stocks Total (B) PROFIT FOR THE YEAR (A-B) 15190.46 1161.77 774.59 9700.88 1066.42 1212.23 (110.37) 28995.98 14032.61 13980.86 709.02 589.29 8559.12 996.56 1157.70 69.07 26061.62 2471.82 50250.15 7372.62 42877.53 151.06 43028.59 35121.73 6629.36 28492.37 41.07 28533.44

55

Less: Prior Year adjustments (Net) Profit Before Tax Less: Provision for Tax Current Provision for Tax Deferred Fringe Benefit Tax PROFIT AFTER TAX Add: Profit b/f from Previous Yr. Profit available for appropriation Appropriations: 1. General Reserve 2. Dividend on Equity Shares - Interim (Paid) - Final (Proposed) 3. Dividend Tax Profit Carried forward to Balance Sheet Earnings per share (Rs.) 764.56 509.70 193.85 7650.00 3500.99 1420.40 13.87

0.66 14032.61 320.00 281.30 4935.26 9096.69 67.47 9164.16 16.06

---2471.82

617.36 1854.46 794.20 2648.66

2000.00

---509.70 9118.11 46.05 17.85 71.49 2581.19 67.47 3.19

56

Balance Sheet as at 31st March 2011

Particulars

Rs. Lakhs

As at In 31.03.2011 Rs. Lakhs Rs. In Lakhs

As at In 31.03.2010 Rs. In Lakhs

SOURCES OF FUNDS 1. Share Holders Funds a. Share Capital b. Reserves & Surplus 2. Loan Funds a. Secured Loans b. Unsecured Loans 3. Deferred tax Liability Total APPLICATION OF FUNDS 1. Fixed Assets a. Gross Block b. Less. Depreciation c. Net Block d.Capital Workin- progress 2. Investments 3. C. Assets, Loans & Adv. a) Inventories 3501.23 1142.23 55743.02 7451.28 48291.74 740.25 49031.99 991.65 2394.20 765.58 28414.50 6054.60 22359.90 3047.89 25407.79 1467.10 24659.30 11604.45 36263.75 4716.42 59293.26 10563.23 7173.69 17736.92 3296.02 31717.45 5097.04 13216.05 18313.09 5097.04 5587.47 10684.51

57

b) Sundry Debtors c) Cash and Bank balances d) Loans and Advances

582.24 12287.88 17513.58

349.05 3816.49 7325.32

Less: Current Provisions a. Current Liabilities b. Provisions

Liabilities

& 3952.60

1724.14

3822.85 703.55 8479.00 9034.58

322.20 581.19 2627.53 4697.79 144.77 31717.45

c. Proposed Dividend (Incl.Tax)

Net Current Assets 4. Miscellaneous Expenditure Total

235.04 59293.26

58

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2010 2009 10 Particulars Rs. In Lakhs Income Sales Less: Excise Duty & Education Fees Net Sales Other Income Total (A) EXPENDITURE
Manufacturing Expenses Salaries, Wages and Amenities Administrative & Other Exp. Selling & Distribution Exp. Finance Charges Depreciation Increase / Decrease in Stocks Total (B) PROFIT FOR THE YEAR (A-B) Less: Prior Year adjustments (Net) Profit Before Tax Less: Provision for Tax Current Provision for Tax Deferred Fringe Benefit Tax PROFIT AFTER TAX Add: Profit b/f from Previous Yr. 320.00 281.30 16.06 617.36 1854.46 794.20 13980.86 709.02 589.29 8559.12 996.56 1157.70 69.07 26061.62 2471.82 ---2471.82 335.82 1500.00 --1835.82 2408.29 409.70 11570.86 521.50 484.71 3352.43 1102.75 1094.84 14.13 18141.22 4258.76 14.65 4244.11

2008 09 Rs. In Lakhs

35121.73 6629.36 28492.37 41.07 28533.44

27776.67 5657.49 22119.18 280.80 22399.98

59

2648.66 Appropriations:
Less: 1. Proposed Dividend on Equity Share

2817.99

509.70 ---71.49 2000.00 2581.19 67.47

---21.09 2.70 2000.00 2023.79 794.20

2. Dividend on Preference Shares 3. Tax on Distributed Profits 4. Transferred to Gen. Reserve Profit Carried forward to Balance Sheet

60

Balance Sheet as at 31st March 2010

Particulars

Rs. In Lakhs

As at 31.03.2010 Rs. In Lakhs Rs. Lakhs

As at 31.03.2009 in Rs. In Lakhs

SOURCES OF FUNDS 1. Share Holders Funds a. Share Capital b. Reserves & Surplus 2. Loan Funds a. Secured Loans b. Unsecured Loans 3. Deferred tax Liability Total APPLICATION OF FUNDS 1. Fixed Assets a. Gross Block b. Less. Depreciation c. Net Block d.Capital Workin- progress 2. Investments 3. C. Assets, Loans & Adv. a) Inventories b) Sundry Debtors c) Cash and Bank balances d) Loans and Advances 2394.20 765.58 349.05 3816.49 7325.32 28414.50 6054.60 22359.90 3047.89 25407.79 1467.10 1831.26 1256.97 190.63 2956.30 6235.16 23484.36 4896.90 18587.46 86.10 18673.56 1543.63 10563.23 7173.69 17736.92 3296.02 31717.45 7604.62 3858.40 11463.02 3014.72 25587.98 5097.04 5587.47 10684.51 6796.04 4314.20 11110.24

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Less: Current Liabilities & Provisions a. Current Liabilities b. Provisions

1724.14 903.99 2627.53 4697.79

493.87 541.13 1035.00 5200.16 170.63 25587.98

Net Current Assets 4. Miscellaneous Expenditure Total

144.77 31717.45

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2009

2008 09 Particulars Rs. In Lakhs Income Sales Less: Excise Duty & Education Fees Net Sales Other Income Total (A) EXPENDITURE Manufacturing Expenses Salaries, Wages and Amenities Administrative & Other Exp. Selling & Distribution Exp. Finance Charges 11570.86 521.50 484.71 3352.43 1102.75 27776.67 5657.49 22119.18 280.80 22399.98

2007 08 Rs. In Lakhs

23551.43 4972.38 18579.05 13.65 18592.70

10136.51 449.61 419.48 2101.67 1764.21

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Depreciation Increase / Decrease in Stocks Total (B) PROFIT FOR THE YEAR (A-B) Less: Prior Year adjustments (Net) Profit Before Tax Less: Provision for Tax Current Provision for Tax Deferred PROFIT AFTER TAX Add: Profit b/f from Previous Yr. 335.82 1500.00

1094.84 14.13 18141.22 4258.76 14.65 4244.11 205.31 1835.82 2408.29 409.70 2817.99 915.86

1062.80 120.41 16054.69 2538.01 21.30 2516.71

1121.17 1395.54 626.97 2022.51

Appropriations:
Less: 1. Proposed Dividend on Equity Share

---21.09 2.70 2000.00 2023.79 794.20

---100.00 12.81 1500.00 1612.81 409.70

2. Dividend on Preference Shares 3. Tax on Distributed Profits 4. Transferred to Gen. Reserve Profit Carried forward to Balance Sheet

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Balance Sheet as at 31st March 2009

Particulars

Rs. Lakhs

in As at Rs. In Lakhs 31.03.2009 Rs. In Lakhs

As at 31.03.2008 Rs. In Lakhs

SOURCES OF FUNDS 1. Share Holders Funds a. Share Capital b. Reserves & Surplus 2. Loan Funds a. Secured Loans b. Unsecured Loans 3. Deferred tax Liability Total APPLICATION OF FUNDS 1. Fixed Assets a. Gross Block b. Less. Depreciation c. Net Block d.Capital Workin- progress 2. Investments 23484.36 4896.90 18587.46 86.10 18673.56 22264.55 3805.32 18459.23 33.77 18493.00 7604.62 3858.40 11463.02 3014.72 25587.98 9951.61 3552.43 13504.04 1514.72 24744.50 6796.04 4314.20 11110.24 7796.04 1929.70 9725.74

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3. C. Assets, Loans & Adv. a) Inventories b) Sundry Debtors c) Cash and Bank balances d) Loans and Advances

1831.26 1256.97 190.63 2956.30 6235.16

1543.63

1255.79 1759.76 225.74 1676.75 4918.04

1889.16

Less: Current Liabilities & Provisions a. Current Liabilities b. Provisions

493.87 541.13 1035.00 5200.16

332.39 318.12 650.51 4267.53 94.81 24744.50

Net Current Assets 4. Miscellaneous Expenditure Total

170.63 25587.98

65

BIBLIOGRAPHY

Book Name Financial Management

Author Tata MC Graw Hill

Publisher Tata MC Graw Hill

Theory and Practice

Financial Management

Khan & Jain

Khan & Jani

And

Published Annual Reports of BRG industries.

www.brgEnergypvtltd.com www.indianpower.com www.google.com

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