INTRODUCTION

Working Capital
Working Capital is the life blood of an organization, like the blood circulates in hu an bod! and keeps the hu an ali"e, the #orking capital also helps the organization to co plete its operations$ The anage ent of #orking capital refers to the anage ent of current assets and assets$

current liabilities$ %fficient

anage ent of #orking capital is prere&uisite for the successful

operation of business enterprise and i pro"ing its return on in"ested in the short'ter

( fir )s #orking capital consists of its in"est ent in current assets #hich include short ter assets such as cash and bank balance, in"entories, recei"ables *including debtors and arketable securities$ Working Capital ,anage ent refers to the anage ent of bills+, and

the le"el of all these indi"idual current assets$

The need for #orking capital

anage ent arises fro

t#o considerations-

1$ %.istence of #orking capital is i perati"e in an! fir $ The fi.ed assets #hich usuall! Re&uires a large chunk of total funds can be used at an opti u b! sufficient #orking capital$ /$ The #orking capital in"ol"es in"est ent of funds of the fir $ If the #orking le"el is not properl! aintained and anaged , then it a! result in unnecessar! blocking of 0carce resources of the fir $ The insufficient #orking capital on the other hand, put Different hindrances in s ooth #orking of the fir $ le"el onl! if supported

Working Capital ,anage ent is the functional area of finance that co"ers all the current accounts of the fir $ It is concerned #ith current assets as #ell as anage ent of the le"el of indi"idual anage ent of total #orking capital$

Importance of Working Capital Management

Working Capital represents the funds a"ailable #ith the co pan! for da! to da! Operations$ Working Capital finances the cash con"ersation c!cle$ Ti e should be de"oted to #orking capital decisions such as control of current (ssets, anage ent of li&uidit! etc$ balance of cash for In"est ent in Current (ssets$ loans ,aintenance of opti u fro

0 all co panies ha"e to depend hea"il! on trade credit and short ter 1anks, both of #hich affect the net #orking capital$ Relationship bet#een sales gro#th and current assets is to be financed$ It helps in deter ining the financial position of the concern$ 2udging the operational efficienc! of the business$ 2udging the li&uidit! position of the undertaking$

Significance of Working Capital Management

(de&uate #orking capital helps in It helps in creating and

aintaining sol"enc! of the business$

aintaining good#ill$

(de&uate #orking capital helps in reducing cash$ Regular suppl! of ra# aterial and continuous production$

4uick and regular return on in"est ents$ 0i plified, s!ste atic and intelligible presentation of facts$ Regular pa! ent of salaries and da! to da! co It also enables a fir cost$ it ents is possible$

to a"ail cash discounts on the purchases and hence reduces

Problem Definition

Increasing co petition b! bearing

anufacturers due to conte plated large scale

e.pansion in the nor al range of bearings, #hich is li ited ,and inade&uate plant capacit! due to obsolete technolog! in the 6,T 1earings 7td$ is not fa"orable for an! 8ublic 0ector Co pan!$ 0o, this report is a stud! on the #orking capital anage ent of the 6,T 1earings

7td$ 1! anal!zing the current #orking capital position through the past financial reports$

OBJECTIVES

To anal!ze the #orking capital position in 6,T 1earings 7td$ To identif! the cash anage ent policies : practices of the co pan!$ anage ent$

To e.a ine the policies and procedures of the #orking capital re&uire ent of #orking capital in 6,T 1earings 7td$,

To anal!ze the efficient utilization of #orking capital and deter ine the To pro;ect the future perfor ance on the basis of past trend of the co pan!$ To dra# conclusion and to suggest suitable and to i pro"e its perfor ance$ easures to o"erco e the proble s

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SCOPE OF THE ST D!
The stud! focuses on assessing the efficienc! of Working Capital ,anage ent in 6,T 1earings 7td through anal!zing the data$ The "arious data are anal!zed to kno# about the 0hort'ter financial re&uire ents of the co pan!$ 8ast fi"e !ears infor ation /==9'=< to /==>'1= is taken for the stud!$

"e#earc$ Met$o%olog&

Primar& Data So'rce#(

@irst hand infor ation incorporated in the stud! is through the discussion #ith "arious e plo!ees *06O8 @7OOR TO TO8 7%A%7+ in the Organization$ The infor ation pertains to the future plans of the co pan! #hich ha"e been undertaken to i pro"e its &ualit! and sales$

Secon%ar& Data So'rce#(

Data utilized in the stud! is ainl! an e.tract fro the financial state ents and

its detailed schedules gi"en in the annual reports of the co pan!$

)IMIT*TIO+S
0o e aspects of financial infor ation are not a"ailable due to confidentialit!$ The stud! is ade onl! through secondar! source of data$ the annual reports and

The reliabilit! of the stud! depends on the data collected fro anuals of 6,T 1earings 7i ited$

The stud! is li ited to a period of fi"e !ears onl! for anal!zing the data$ The stud! is confined onl! to a &uantitati"e anal!sis of 6,T 1earings 7td$ This stud! e"olution is based on #orking capital and #orking capital ratios,

>

O"er"ie# of Working Capital ,anage ent in 80U)s$

1=

Working Capital ,anage ent in 80U)s

Meaning of Working Capital
The ter C#orking capitalD refers to the funds in"ested in current achine cannot be used #ithout

assets i$e$ in"est ent in stocks, sundr! debtors, cash and other current assets$ Current assets are essential to use fi.ed assets profitabl!$ @or e.a ple, a ra# aterial$ The in"est ent on the purchase of ra# aterial is identified as #orking capital$

It is ob"ious that a certain a ount of funds is al#a!s tied up in ra#' aterial in"entories E, #ork'in'progress, finished goods, consu able stores, sundr! debtors and da! to da! re&uire ents$ 6o#e"er, the business an also en;o!s credit facilities fro a! suppl! ra#' aterial on credit$ 0i ilarl!, a business an current assets re&uire ents$ his suppliers #ho ediatel! for a! not pa! i

"arious e.penses$ Therefore, certain a ount of funds is auto aticall! a"ailable to finance the

P'blic Sector n%ertaking#

In India, public sector undertaking *80U+ is a ter go"ern ent'o#ned corporation *co pan! in the public sector+$ The ter go"ern ents, or both+ o#ned a a;orit! *91 percent or used for a

is used to refer to

co panies in #hich the go"ern ent *either the Union Fo"ern ent or the 0tate or Territorial ore+ of the co pan! e&uit!$ There are about /<= 80U)s all o"er India$ 8ublic sectors #as assigned the role of ushering in rapid industrialization, capturing the co anding heights of the econo !, establish ent of basic and ke! industries, reducing i balances in regional industrial de"elop ent, pro"iding infrastructural facilities, generating surpluses for public e.che&uer, pro oting e.ports and bring about i port substitution and offering co petition to the pri"ate sector so as to discourage their onopolistic tendencies$

11

Working Capital Management

,anage ent of #orking capital has co e to be recognized as one of the basic functions of finance for successful running of the business$ It not onl! influences profit earning capacit! of business, but also deter ines largel! the scope and contents of operation$ The anage ent of #orking capital refers to the anage ent of current assets and

current liabilities$ %fficient assets$

anage ent of #orking capital is prere&uisite for the successful

operation of business enterprise and i pro"ing its return on capital in"ested in the short'ter

%"er! business organization needs #orking capital to Obligations$ (t the sa e ti e, e"er! fir ti e lag bet#een con"ersions of ra#

eet its short'ter

needs #orking capital due to the fact that its

production, sales, cash pa! ents are not instantaneous and s!nchronized$ There is a certain aterials into finished 8roducts, finished products into sales and finall! realization of sales proceeds$ Therefore funds are re&uired to support abo"e said acti"ities$ ( fir )s 8rofitabilit! and li&uidit! are "er! highl! influenced b! the #a!G in #hich #orking Capital is being anaged$ The ain ob;ecti"e of #orking capital anage ent is to arrange ti el! funds, so as to achie"e a trade off bet#een li&uidit! and 8rofitabilit!$

Thus, the #orking capital proper #orking capital !ears+ and also i le"els of the fir ,

anage ent can be defined as the ediu ter

anage ent of fir )s

sources and uses of #orking capital in order to

a.i ize the #ealth of the shareholders$ The planning *sa! up to three

anage ent re&uires both the

ediate adaptations to changes arising due to fluctuations in operating

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T&pe# of Working Capital

Working capital can be classified into t#o t!pes-, On t$e ba#i# of concept ., On t$e ba#i# of time,

On t$e ba#i# of Concept

13

@ro #a!s-

the point of "ie# of concept, the ter

#orking capital can be used in t#o different

-, /ro## Working Capital 0or Total Working Capital1 ., +et Working Capital

-, /ro## Working Capital

Fross Working capital refers to the fir )s in"est ent in all the current assets taken together$ The total of in"est ents in all the current assets is kno#n as Fross #orking capital$ Fross #orking capital denotes total #orking or the total in"est ent in the total in"est ent in current assets$ ( fir should aintain an opti u le"el of gross #orking capital$

., +et Working Capital

The ter liabilities$ It

net #orking capital refers to e.cess of total current assets o"er Total current a! be noted that the current liabilities refers to those liabilities #hich are a! either be positi"e or ore than the total current liabilities, then the easures the 7i&uidit!$ Freater the

pa!able #ithin a period of one !ear$ The net Working capital negati"e$ If the total current assets are

difference is kno#n as positi"e net #orking capital, other#ise the difference is kno#n as negati"e net #orking capital$ The net #orking capital argin b! #hich the fir )s current assets co"er the Current liabilities, the better #ill it be$

On t$e ba#i# of Time

@ro the point of "ie# of ti e, the #orking capital can be di"ided into t#o categories15

-, Permanent Working Capital ., Temporar& Working Capital

-, Permanent Working Capital 8er anent Working Capital also called as 6ard Core Working Capital is that ini u le"el of in"est ent in the current assets that is Carried b! the business at ini u le"el of its acti"ities, all ti es to carr! out

., Temporar& Working Capital It refers to that part of total #orking capital #hich is re&uired b! a business o"er and abo"e per anent #orking capital$ It is also called as "ariable #orking capital$ 0ince the "olu e of te porar! #orking capital keeps on fluctuating according to the business acti"ities it a! be financed fro short ter fro ti e to ti e sources$

19

Permanent and temporary working capital

+ee% for Working Capital

The #orking capital re&uire ent of a fir operating c!cle of the fir $ The operating c!cle starting fro the procure ent of goods or ra# dependsG to a great e.tend upon the a! be defined as the ti e duration aterials and ending #ith the sales a! differ fro one fir to

realization$ The length and nature of the operating c!cle another depending upon the size and nature of the fir $

Operating c!cles *#orking capital c!cle+ consists of the follo#ing e"ents #hich are continuous throughout the life of the business$ Con"ersion of cash into ra# aterial$ 1<

Con"ersion of ra#

aterial into #ork'in'progress$

Con"ersion of #ork'in'progress into finished goods$ Con"ersion of finished goods into sales$ Con"ersion of 0ales into debtors *(ccounts Recei"ables+$ Con"ersion of (ccount recei"ables into cash$

WO"2I+/ C*PIT*) C!C)E, Ca#$ Operating C&cle

Operating c!cle and cash c!cle are t#o i portant co ponents of #orking capital #orking capital anage ent$ Together the! deter ine the efficienc! of a fir anage ent$ regarding

-1

Operating C!cle refers to the dela! bet#een the bu!ing of ra# receipt of cash fro

aterials and the

sales proceeds$ In other #ords, operating c!cle refers to the

nu ber of da!s taken for the con"ersion of cash to in"entor! through the con"ersion 1?

of accounts recei"able to cash$ It indicates to#ards the ti e period for #hich cash is engaged in in"entor! and accounts recei"able$ If an operating c!cle is long, then there is lo#er accessibilit! to cash for satisf!ing liabilities for the short ter $ Operating c!cle takes into consideration the follo#ing ele ents- accounts pa!able, cash , accounts recei"able , and in"entor! replace ent$ T$e follo3ing form'la i# '#e% for calc'lating operating c&cle(

Operating C&cle 4 *ge of In5entor& 6 Collection Perio%

Operating cycle of a manufacturing firm

.1

Cash C!cle is also ter ed as net operating c!cle, asset con"ersion c!cle, Working capital c!cle or cash con"ersion c!cle$ Cash c!cle is i ple ented in the financial assess ent of a co co ercial enterprise$ The ore the figure is increased, the ercial entit! is engaged in higher is the period for #hich the cash of a co

ercial acti"ities and is inaccessible for other functions , for instance in"est ents$ odities anufactured fro that input$

The cash c!cle is interpreted as the nu ber of da!s bet#een the pa! ent for inputs and getting cash b! sales of co

T$e f'n%amental form'la t$at i# applie% for t$e calc'lation of ca#$ con5er#ion c&cle i# a# follo3#(

Ca#$ c&cle 4 0*5erage Stock$ol%ing Perio%1 6 0*5erage "ecei5able#

1B

Proce##ing Perio%1 7 0*5erage Pa&able# Proce##ing Perio%1

Here8

*5erage

"ecei5able#

Proce##ing

Perio%

0in

%a&#1

*cco'nt#

"ecei5able9*5erage Dail& Cre%it Sale#, *5erage Stock$ol%ing Perio% 0in %a&#1 4 Clo#ing Stock9*5erage Dail& P'rc$a#e#, *5erage Pa&able Proce##ing Perio% 0in %a&#1 4 *cco'nt# Pa&able9*5erage Dail& Cre%it P'rc$a#e#,

Ob:ecti5e# of Working Capital

Working Capital anage ent is concerned #ith all decisions acts that

influence the size and effecti"eness of #orking capital$ (ccording to Fit an, Cthe goal of #orking capital acceptable le"el of net #orking capital is aintainedD$ i. for raising the resources$ anage ent is to

anage each of the fir )s current assets and current liabilities in such a #a! that an It is concerned #ith the deter ination of appropriate le"els of current assets and their efficient use as #ell as the choice of the financing The aspects of anage ent of #orking capital are-

Deter ining the re&uire ent of #orking capital G 1>

 @inancing the re&uire entsG and %fficient utilization of #orking capital$ The t#o i portant ob;ecti"es of #orking capital are ;profitabilit&< an% ;li='i%it&<, @inancial anage ent cannot afford to stick to onl! one of these ob;ecti"es$

Importance of Working Capital

Working Capital significant because the should be of stock'outs$ The anage ent is one of ke! areas of financial decision' aking$ It is anage ent ust see that an e.cessi"e in"est ent in current assets the proble s aintaining proper

ini ized and at the sa e ti e it should protect the co pan! fro anage ent of fi.ed assets #ill be i possible #ithout

le"el of current assets$ Current (ssets #ill also deter ine the li&uidit! position of the co pan!$ The follo#ing are so e of the factors, #hich e.plain the i portance of #orking capital$

-, Time %e5ote% to 3orking capital %eci#ion#(

The financial anagers #ill de"ote their largest ti e for #orking capital financing, anage ent or li&uidit! etc$, in "ie# of this, it can be said that anage ent of the

control of current assets, co pan!)s affairs$

%ffecti"e #orking capital decisions are also significant for successful

., In5e#tment in C'rrent *##et#(

Characteristicall!, current assets present ore than <= percent of the total assets of

an! fir s, because the! represent a large in"est ent in "arious co ponents of current

/=

assets$ @urther, the in"est ent trends tend to be relati"el! "olatile$ 6ence, the financial anager has to sho# special attention for the $

>, Importance of Small firm#(

The for a s all fir anage ent of #orking capital is particularl! i portant to s all fir s, because it a! be possible to ini ize its in"est ent in fi.ed assets but it cannot anagers of s all fir s$ 0 all co panies ha"e to loans fro banks, both of #hich affect the net

a"oid an in"est ent in cash, recei"ables and in"entories$ Therefore, current assets are particularl! significant for the financial #orking capital$ depend hea"il! on trade credit and short'ter

?, "elation#$ip bet3een #ale# gro3t$ an% c'rrent a##et#(

The relationship bet#een gro#th in sales and increase in current assets in"est ent are "er! close and direct$ (n increase in sales #ill acco pan! a si ilar rate of i increase in additional in"entories and cash balance$ (ll such needs ust be financed$ ediate

*pproac$e# for Financing Working Capital

T$ere are t$ree approac$e# to financing t$e 3orking capital(

-, Matc$ing *pproac$
When the fir ter ter follo#s atching approach *also kno#n as hedging approach+, 7ong financing #ill be used to finance @i.ed (ssets and 8er anent Current (ssets and 0hort' financing to finance Te porar! or Aariable Current (ssets$ The ;ustification for the e.act atching is that, since the purpose of financing is to pa! atching is not

for assets, the source of financing and the assets should be relin&uished si ultaneousl! so that financing beco es less e.pensi"e and incon"enient$ 6o#e"er, e.act possible because of the uncertaint! about the e.pected li"es of assets$ /1

Financing under matching plan

., Con#er5ati5e *pproac$
The financing polic! of the fir long'ter is said to be a conser"ati"e #hen it depends ore on

funds for financing needs$ Under a conser"ati"e plan, the fir

finances its

per anent assets and also a part of te porar! Current (ssets #ith long ter //

financing$ In the

periods #hen the fir shortage of funds$

has no need for te porar! Current (ssets, the idle long'ter

funds can

be in"ested in the tradable securities to conser"e li&uidit!$ Thus, the fir

has less risk of

Conservative financing

>, *ggre##i5e *pproac$

(n (ggressi"e approach is said to be follo#ed b! the fir uses ore short ter financing than #arranted b! the (ggressi"e (pproach , the fir

#hen it

atching approach$ Under an

finances a part of its per anent current assets #ith short ter /3

financing$ 0o e fir s e"en finance a part of their fi.ed assets #ith short ter #hich akes the fir ore risk!$

financing

Aggressive financing

Principle# of Working Capital

There are four principles of #orking capital as belo# anage ent$ The! are being depicted

-, Principle of "i#k Variation

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The goal of WC

anage ent is to establish a suitable trade bet#een profitabilit!

and risk$ Risk here refers to a fir )s abilit! to honor its obligation as and #hen the! beco e due for pa! ents$ 7arger in"est ent in current assets #ill lead to dependence$ 0hort ter borro#ings increases li&uidit!, reduces risk and thereb! decreases the opportunit! for gain or loss$ On the other hand the reser"e situation #ill increase risk and profitabilit! and reduce li&uidit!$ Thus there is direct relationship bet#een risk and profitabilit! and in"erse relationship bet#een li&uidit! and risk$

., Principle of Co#t Capital

The "arious sources of raising WC finance ha"e different cost of capital and the degree of risk in"ol"ed$ Fenerall! higher the cost, lo#er the risk$ ( sound WC should al#a!s tr! to achie"e the balance bet#een these t#o$ anage ent

>, Principle of E='it& Po#ition

This principle is considered #ith planning the total in"est ent in current assets$ (s per this principle the a ount of WC in"ested in each co ponent should be ade&uatel! ;ustified b! a fir )s e&uit! position$ %"er! rupee contributed to contribute to the net #orth of the fir $ The le"el of current assets help of t#o ratios$ The! are Current assets as a percentage of total assets$ Current assets as a percentage of total sales$ current assets should a! be easured #ith the

?, Principle of Mat'rit& Pa&ment

This principle is concerned #ith planning the source of finance for WC$(s per this principle a fir should ake e"er! effort to relate aturities of its flo# of Internall!

/9

generated funds, in other #ords, it should plan its cash inflo# in such a #a! that could easil! co"er its cash out flo#s or else it #ill fail to eet its obligation in ti e$

Determinant# of Working Capital

There are no set rules or for ula to deter ine #orking capital re&uire ents of the fir $ ( large nu ber of factors influence #orking capital needs of fir s$ (ll factors are of different i portance$ (lso, the i portance of factors changes for a fir an anal!sis of rele"ant factors should be #orking capital re&uire ents of a fir $ o"er ti e$ Therefore ade in order to deter ine total in"est ent in

#orking capital$ The follo#ing is the description of factors, #hich generall! influence the

-, +at're an% Si@e of B'#ine##(

The #orking capital re&uire ents of a fir are basicall! influenced b! the nature anufacturing

of its business$ Trading and @inancial concerns usuall! ha"e a "er! less in"est ent in fi.ed assets, but re&uire large a ount to be in"ested in #orking capital$ In case of concerns, there is a re&uire ent of substantial #orking capital$

., Pro%'ction C&cle(
The production c!cle is the ti e span for the con"ersion of ra# re&uire ents$ The finance aterials into

finished goods$ 7onger the production c!cle , larger #ill be the fir )s #orking capital anager selects the shortest production c!cle$ These needs proper planning and co'ordination at all le"els of acti"it!$

>, B'#ine## Fl'ct'ation#(

,ost fir s e.perience seasonal and c!clical fluctuations in the de and for their products and ser"ices$ These affect the #orking capital re&uire ents$ If the de and of a /<

product is certainl! higher during a season, #ill not be affected b! seasonal factors$

ore #orking capital is re&uired$ On the other

hand, if the operations are s ooth and e"en, #orking capital re&uire ent #ill be constant and

?, Firm# Cre%it Polic&(

The credit polic! sold and purchased$ ( fir eans the totalit! of ter s and conditions on #hich goods are aterials, goods, etc$, and t#o, the credit polic! relating #hile deciding arket$

has to interact #ith t#o t!pes of credit policies at a ti e$One, the

credit polic! of the supplier of ra#

to credit #hich e.tends to its custo ers$ In both the cases, ho#e"er, the fir its credit polic! has to take care of the credit polic! of the

A, Profit Margin(
The profit argin eans net profit earned b! a business fro the ost i portant aintaining the

ele ent of #orking capital structure$ The

anage ent should tr! its best of

structure in a health! start of earning satisfactor! profits$

B, /ro3t$ an% ECpan#ion *cti5itie#(

The #orking capital needs of the fir gro#ing fir increase as it gro#s in ter s of sale$ It is

difficult to deter ine the relationship bet#een "olu e of sales and #orking capital needs$ ( a! need to in"est funds in fi.ed assets in order to sustain its gro#th of production and sales$ This #ill increase in"est ent in current assets to support enlarged scale of operations in such a #a! the fir s #orking capital need changes$

D, Operating Efficienc&(
The operating efficienc! of the fir ini u relates to the opti u utilization of resource at

costs$ The use of #orking capital is i pro"ed and pace of thecash c!cle is /?

accelerated #ith operating efficienc!$ 1etter utilization of resources i pro"es profitabilit! and helps in releasing the pressure on #orking capital$

E, Market Competiti5ene##(
The arket co petiti"eness has an i portant bearing on the #orking Capital needs of a arket, the fir a! ha"e to a! go to

fir $ In "ie# of the co petiti"e conditions pre"ailing in the a! be

offer liberal credit ter s to the custo ers resulting in higher debtors$ %"en larger in"entories aintained to ser"e an order as and #hen recei"ed, other#ise the custo er so e other supplier$ Thus, the #orking capital tends to be high as a result of greater in"est ent in in"entories and recei"ables$

F, *5ailabilit& of Cre%it(
The #orking capital re&uire ents of a fir granted b! the creditors$ ( fir capital needs of the fir $ a"ailable to it$ 0i ilarl!, the a"ailabilit! of credit fro are also effected b! credit ter s banks also influences the #orking

#ill need less #orking capital in liberal credit ter s as

-G, Price )e5el C$ange#(

The shift in the price le"els Rising price le"el re&uires akes the functions of financial anager difficult$6e

should anticipate the effect of price le"el changes in #orking capital re&uire ent of the fir $ ore #orking capital to aintain the sa e le"el of current assets$

*%e='ac& of Working Capital

( business fir ust aintain an ade&uate le"el of #orking capital in order to

run its business s oothl!$ It is #orth! to note that both e.cessi"e and inade&uate #orking /B

capital positions are har ful$ Inade&uac! of #orking capital is

ore dangerous for a fir $

%.cessi"e #orking capital results in idle funds on #hich no profits are earned$ 0i ilarl! insufficienc! of #orking capital results in interruptions of production$ This #ill lead to inefficiencies, increase in costs and reduction in profits$ Working Capital is ;ust like the lifeblood of business$ If it beco es #eak, the business can hardl! prosper and sur"i"e$ No business can run successfull! #ithout an ade&uate a ount of #orking capital$

Problem# of Ina%e='ate Working Capital

It a! not be able to take ad"antage of profitable business opportunities$

8roduction facilities cannot be utilized full!$ 0hort'ter It liabilities cannot be paid because of lack of #orking capital$

a! fail to pa! its di"idend because of non'a"ailabilit! of funds$ a! lead to lo# profitabilit!$ In the sa e #a!, lo# profitabilit! a! not be able to take ad"antages of cash discounts$ a! be da aged because of lack of li&uidit!$ a! not be able to get credit

Its lo# li&uidit!

Results in lo# li&uidit!$ It Credit #orthiness of the fir Thus, it facilities$

a! lose its reputation and thereafter

Danger of ECce##i5e Working Capital

It results in necessar! accu ulation of in"entories$ Thus, chances of in"entor! ishandling #aste , theft, and losses increase$

It is an indication of defecti"e credit polic! and slack collection period$ Conse&uentl! , higher incidence of bad debts results, #hich degenerates into anagerial inefficienc!$

%.cessi"e #orking capital into

akes

anage ent co placent, #hich degenerates

anagerial inefficienc!$ ake speculati"e profits gro#$

Tendencies of accu ulating in"entories to This a! tend to future #hen the fir is unable to

ake di"idend polic! liberal and difficult to cope #ith in ake speculati"e profits$ />

Con#e='ence# of Ina%e='ate Working Capital Management -, O5er Capitali@ation(

O"er Capitalization in respect of #orking capital ( lo#er return on capital$ (n opportunit! cost of inco e lost as a result of funds unnecessar! tied up$ eans e.cessi"e stocks, debtors

and cash and "er! fe# creditors$ The conse&uences of this can be

., O5ertra%ing(
O"ertrading is the situation that occurs #hen the business tries to do too &uickl! #ith too little long'ter uch

capital$ In other #ords it is tr!ing to support too large a

"olu e of trade for the s all capital a"ailable$ O"ertrading business is often profitable but still fails because the! si pl! run out of cash$ Creditors beco e concerned , the co pan! has insufficient capital to pro"ide the cash re&uired and this, leads to insol"enc!,

Management of Working Capital

Decisions relating to #orking capital and short ter #orking capital short'ter ensure that the fir satisf! both anage ent$ These in"ol"e assets and its short'ter aturing short'ter financing are referred to as anage ent is to

anaging the relationship bet#een a fir )s

liabilities $The goal of #orking capital

is able to continue its operations and that it has sufficient cash flo# to debt and upco ing operational e.penses$

Fuided b! the abo"e criteria, techni&ues for the ter

anage ent #ill use a co bination of policies and at anaging the

anage ent of #orking capital$ These policies ai

current assets *generall! cash and cash e&ui"alents, in"entories and debtors+ and the short financing, such that cash flo#s and returns are acceptable$

3=

The procedure of

anage ent of #orking capital can be categorized into the follo#ing t!pes-

-, Ca#$ Management
Cash is one of the current assets of a business$ It is needed at al ti es to keep the business going on$ ( business concern should al#a!s keep sufficient cash for #ill be unproducti"e and cash is Cash is the ost unproducti"e of all current assets$ eeting its obligations$ (n! shortage of cash #ill ha per the operations of concern and an! e.cess of it

ost li&uid asset, is of "ital i portance to the dail! operations of the achiner!, plant etc$, and current assets such as in"entor! anage ent has assu ed uch i portance$ The

business$ While fi.ed assets like

#ill be helpful to the business in increasing its capacit! , cash in hand #ill not add an!thing to the concern$ It is in this content that cash ter cherubs, bank drafts held b! a fir #ith bank$ There are t#o To ain reasons for a fir to hold cashHcash) is used in t#o senses$ In a narro#er sense, it includes coins, currenc! note, #ith it and the de and deposits held b! it in banks$In a arketable securities and ti e deposits

broader sense it also includes near cash assets such as

eet the needs of da!'to'da! transactions against uncertainties characterizing its cash flo#s$

To protect the fir

While cash ser"es these functions it is an idle resource #hich has an opportunit! cost$ The li&uidit! pro"ided b! cash holding is at the e.pense of profits sacrificed b! foregoing alternati"e opportunities$ 6ence, the finance anager should carefull! plan and control cash$

Ob:ecti5e# of Ca#$ Management

There are t#o basic ob;ecti"es of cash anage ent-

31

a1 To

eet cash disburse ent need as per the pa! ent schedule i$e$ the first basic anage ent is to eet the pa! ents schedule$ In other #ords the fir at different period of eet the "arious re&uire ents of the fir

ob;ecti"e of cash ti e$

should ha"e sufficient cash to

b1 The second basic ob;ecti"e of cash anage ent is to ini ize the a ount locked up as
cash balances$ In the process of ini izing the cash balances, the finance anager is confronted #ith t#o conflicting aspects$ ( higher cash balance ensures proper pa! ent #ith all its ad"antages$ 1ut this #ill result in a large balance of cash re aining idle$ ( lo# le"el of cash balance a! result in failure of the fir to eet the pa! ent schedule$

Ca#$ Management Ba#ic Problem#

The proble s associated #ith the cash 1$ Controlling H=) 7e"el of cash $ /$ Controlling inflo# of cash$ 3$ Controlling of outflo# of cash$ 5$ In"est ent of 0urplus cash$ anage ent are-

., In5entor& Management
In"entories constitute the co panies in India$ The ter ost significant part of current assets of a large a;orit! of

Cin"entor!D refers to the stockpile of the product$ The in"entor! anufacturingG ho#e"er, it decreases the aterials+ and lo#ers reordering e.penses$ Therefore, it

le"el is distinguished that enables continuous a ount of in"est ent in inputs *ra# enhances cash flo#s$

In"entories can be classified into three categories Ra# aterial 3/

Work'in'8rogress @inished Foods$

Ob:ecti5e# of In5entor& Management

The ob;ecti"e of In"entor! ,anage ent should be to deter ine and opti u not desirable$ The opti u aintain the

le"el of in"entor! in"est ent since both e.cessi"e and inade&uate in"entories are le"el of in"entor! #ill lie bet#een the t#o danger points, le"el of in"entor! should be deter ined

e.cessi"e and inade&uate in"entories$ The opti u

on the basis of trade off bet#een costs and benefits associated #ith the le"els of in"entor!$

Tec$ni='e# of In5entor& Management

,an! sophisticated athe atical techni&ues are a"ailable to handle in"entor! a;or proble areas that co prise

anage ent proble s$ 6ere attention is gi"en to the basic concepts redefines to the anage ent and control of in"entor! and techni&ues$ The Deter ination of the t!pe of control re&uired$ The basic econo ic order &uantit!$ The re'order point$ 0afet! stock$ atter of fact the in"entor! anage ent techni&ues are a part of production is of great help to the financial anager in planning the chart of in"entor! control aspects are (s a

anage ent$ 1ut a fa iliarit! #ith the and budgeting in"entor!$

>, "ecei5able# Management

Recei"able represent a ounts o#ed to the fir as a result of sale of goods or ser"ices

in the ordinar! course of business$ Recei"ables are also kno#n as accounts recei"able, trade 33

recei"ables, custo

recei"ables or book debts$ The recei"ables are carried for custo ers$ The

period of credit and e.tent of recei"ables depend upon the credit polic! follo#ed b! the fir $ Recei"ables constitute a significant portion of the total current assets of the business$The! are direct conse&uences of Ctrade creditD$ This has beco e an essential arketing tool in odern business$ It a! be defined as the process of aking decision relating to in"est ent of fund on this aspect, #hich #ill result in return on the in"est ent of the fir $ a.i izing the o"erall

Ob:ecti5e# of "ecei5able Management

To take a sound decision regarding in"est ent in debtors$ To eet co petition to increase sales and profits$

"ecei5able Management Problem#

The proble of anage ent of recei"ables is basicall! a proble of balancing

profitable and li&uidit!$ 0oft credit ter s are attraction for higher sales and hence longer the ti e a co pan! allo#s its custo ers to pa!, resulting in greater sales as higher profits$ 6o#e"er on the other hand the longer the period of credit, the greater the le"el of debt and greater the strain on the li&uidit! of co pan!$

35

COMP*+! P"OFI)E

COMP*+! P"OFI)E
HMT Bearing# )imite% (
39

Intro%'ction(
Incorporated in the !ear 1>?=, 6,T 1earings 7td$, *@or erl! Indo'Nippo precision bearings 7td$,+ located in 6!derabad is thr onl! co pan! of its kind in the public sector, setup to anufacture 1all and Roller 1earings$ The co pan! #ent on strea in (ugust 1>?=, in technical collaboration #ith ,Is$ Jo!o Ceiko Co$, 7td$, 2apan, an internationall! reputed anufacturer of 1earings$ In the !ear 1>B1, the co pan! beca e a #holl! o#ned subsidiar! of 6,T$

Compan& Hi#tor& (
The Idea of starting a bearing pro;ect in the 0tate of (ndhra 8radesh #as felt #a! in 1><1 b! the (ndhra 8radesh Industrial De"elop ent Corporation *(8IDC+$ Thus, a ;oint stock co pan! #as incorporated on /1st Dec, 1><5 under the na e Indo Nippon precision 1earings 7td$, in 6!derabad, the capital cit! of ($8$ The ;oint "enture #as bet#een the (8IDC 7td$, and a fe# pri"ate entrepreneurs fro pro;ect #as Rs$33< lakes$ The little #as so fra ed due to the collaboration agree ent #ith ,Is$ Jo!o 0eiko Co pan! 7td$, 2apan and ,arubeni Corporation 7td$ The agree ent include participations and suppl! of Technical kno# ho# b! the 2apanese$ The @unction stone #as land on 1/ th Dec, 1><B b! the 7abor ,inister ,r$1$A$Furu urth! garu and then #as later inaugurated b! the 8resident 7ate 0ri$A$A$Firi on /=th (ugust, 1>?=$ Co ercial production started in (ugust 1>?=$ 11 %ngineers #ere deputed b! Jo!o 0eiko ence the pro;ect for a period of about B onths$ During 1>?B, the co pan! loaded group$ The total la!out for the

Co pan! to co #as in crisis$

3<

The cu ulati"e losses touched Rs$ 1/1 lakhs b! the end of 1>?>$The state go"t$ o#ing to the dis al perfor ance ,#anted to sell it to pri"ate enterprise, but o#ing to #orkers opposition , #as later handed o"er to the #ith effect fro 1st Dec, 1>B1$ anage ent of 6,T 7td$ Thus Indo'Nippon precision bearings 7td$, beca e a subsidiar! of 6,T under the na e 6,T 1earings 7td

(fter the takeo"er b! 6,T, stress #as on 4ualit! Technolog! De"elop ent, Reconditioning of ,achines, (u.iliar! 0ection, Introduction of 0uggestion sche e, Introduction of 4ualit! Circles, Introduction of Incenti"e 0che e, Co %ffecti"eness, 8articipation ,anage ent concept$ unication

)ocation of Organi@ation an% Factor&

The 6,T 1earings 7td$, has its Corporate office at 1angalore and its Registered office and @actor! at ,oula'(li, 6!derabad$ I t has regional sales offices at Ne# Delhi , Jolkata , ,u bai , 8une and Chennai$

S$ift# an% Working Ho'r#

The co pan! has follo#ing H3) shifts in the factor! -' @irst shift bet#een <-== a to /-== p$ called H() shift$ called the H1) shift$

0econd shift bet#een /-== p$ Third shift is fro called the HD) shift$ 1=-== p$

to 1=-== p$ to <-== a$

called the HC) shift$ to 5-3= p$ #hich is

There is a general shift for the ad inistrati"e staff bet#een B-3= a$

H'alit&IWork C'lt're

3?

6,T 1earings ha"e adopted an operating philosoph! to establish and products and i pro"es the business fro %ach bearing undergoes as planning to field ser"ice$

aintain an

en"iron ent #hich #ill result in ne"er'ending i pro"e ent in the &ualit! and producti"it! of an! as 19= checks before it is supplied to the anufacture

custo ers $Aigorous inspection and &ualit! checks at each stage of precision onl! are ade a"ailable to the custo er$

and through checks e"en after asse bl! ensure that the bearings of re&uired accuracies and

In%'#trial "elation#
0afet! co ittee, 4ualit! Circles, 8roduction Co ittees, Canteen anage ent

in"ol"ing different le"els of e plo!ees both fro

#ork en and officers$ %"en the e bers$ 6,T 1earings 7td$, has

co pan!)s #ork en for ulated a registered Trade Union "iz$, 6,T 1earings CJar ika 0angha D #ith all the #ork en in the organization as its an e.cellent interpersonal relationship a ong different le"els #ithin the unit$

Infra#tr'ct're
6,T 1earings is #ell e&uipped #ith general and special purpose facilitate the achine and Tal!surf'Roughness tracks, auto atic clearance testing easuring achine, #a"i eter for achine tools to anufacturing

anufacture of all co ponents and tooling re&uired for bearing

easuring #a"iness of

achines ,noise tester and anal!zer etc$, capable of

easuring all the accuracies re&uired for bearings$ The co pan! also specializes in s all batch production and has e.cellent infrastructure for grinding of bigger bearings of s all batch production, through their latest generation hi'tech CNC "ersatile grinding line$

*ncillar& De5elopment

3B

6,T 1earings 7td$, has launched a uni&ue (ncillar! De"elop ent 8rogra encouraging its e plo!ees to set up (ncillar! units b! sparing are later sold to entrepreneur$ This has helped the unit in using unit$

b!

achines on lease basis #hich anpo#er efficientl! and also

set'up "iable, progressi"e and &ualit! conscious ancillaries #hich ha"e beco e an asset to the

Comp'teri@ation
The Co pan! has installed B?3= co puter s!ste s in the !ear 1>BB$ ,achine Utilization, 8a!roll, @inancial (ccounting , ,aterial (ccounting and Incenti"es are the areas under co puterization$ a;or

Tree Plantation
To aintain ecological balance and to pro"ide a green outlook of the surrounding to fro

ensure pollution free at osphere, the co pan! has undertaken tree plantation progra 1>9 on#ards$ (t present <== trees e.ist in the factor! pre ises$

BIF"
The co pan! being a sick co pan! under section 19*1+ of sick industrial co panies *special pro"isions+ (ct 1>B9 during the !ear /==?'=B, has filled a reference application to the 1I@R "ide order No $9=1I/==> dated /3$=5$/==>$ (ccordingl! declared the co pan! as sick uIs 3*1+ of 0IC( and appointed canara bank as the operating agenc!*O(+ UI01?*3+ of the act and directed the co pan! to sub it a full! tied up DR0*draft rehabilitation sche e+$

H'alit& #&#tem(

3>

Directors ha"e the pleasure in infor ing that the co pan! has been successfull! i ple enting 40 >=== &ualit! s!ste anage ent fro =1'=5'/==<$ for o"er 1= !ears and ,I0 J%,(, Netherlands through ,I0 NAT4C, 1angalore a#arded T6% T0 1<>5>'/==/:I0O>==1'/=== 4ualit!

Ob:ecti5e# (
-1 To e#tabli#$ an% maintain a market #$are a# #'pplier of $ig$ tec$nolog& preci#ion bearing#, .1 >1 To ac$ie5e a contin'o'# gro3t$ in t$e pro%'ction of bearing#, To generate a%e='ate internal re#o'rce#8 to facilitate financial gro3t$ of b'#ine##, ?1 To e#tabli#$ re#earc$8 %e#ign an% %e5elopment in t$e area# of a, +e3 pro%'ct an% proce##e#, b, Pro%'ction tec$nolog&, A1 To look o't for ne3 opport'nitie# 3it$in an% o't#i%e t$e pre#ent line# of b'#ine##, B1 To contin'o'#l& 'p%ate man'fact'ring facilitie# an% #&#tem# of

man'fact're to en#'re ='alit& o'tp't an% li#ting effecti5ene##, D1 To maintain $armonio'# per#onnel en5ironment t$at 3ill attract8%e5elop retain #kill# an% le5el# to meet re='irement# of t$e organi@ation, E1 F1 To get a #ati#factor& ret'rn on in5e#tment, To contin'o'#l& 'p%ate plant an% mac$iner& a# al#o tec$nolog&8pro%'cti5it& an% financial re#o'rce# to impro5e an% competiti5e a%5antage in tec$nologicall& 5=

'pgra%ing en5ironment, -G1 To contin'o'#l& #tri5e to impro5e pro%'cti5it& of man 8 mac$ine# an% material# contin'o'#l& a# bearing# in%'#tr& i# bot$ Material inten#i5e an% Capital inten#i5e, --1 To increa#e profit# b& a%opting co#t re%'ction met$o%#8 increa#ing market net3ork re%'ction in re:ection# an% 3a#tage# an% ot$er tec$ni='e#,

SWOT *nal&#i# of HMT Bearing# )t%, Strengt$#(

Food support fro 0killed ,anpo#er$ Food 1rand na e$ Wide Distribution Net#ork$ 40'>=== : I0O'>==1 Co pan!$ Food Industrial Relations$ 0urplus land a"ailable$ Food location ha"ing transport connecti"it!$ No po#er proble s$ 0urplus Fas po#er a"ailable$ O%,)s$

Weakne##(
51

7o#

arket share *5K+

7o# scale of operation Old achines$

No technical collaboration on Llike co petitors$ Inade&uate product de"elop ent capabilities : resources$ Inade&uate presence at the trade seg ent$ 6igh dependence on 9 O%,)s$ Inade&uate infusion of capital$ 7o# % plo!ee orale,

Opport'nitie#(
@ast gro#ing Do estic ,arket$ Under Le.ploited O%,)s Institution arket seg ents$

8ossibilit! to ac&uire conte porar! technolog! through collaborations$

T$reat#(
/ro3ing Competition from( Indigenous ,anufacturers$ Increasing price threat fro Increase in steel prices$ i ported bearings$

5/

INDU0TRM 8RO@I7%

53

I+D ST"! P"OFI)E Intro%'ction to Bearing# In%'#trie#(

1earings are de"ices to o"erco e disad"antages of frictional losses b! con"erting sliding otions into rolling otion$ achine is ini u but its i portance to the achine is "ital

The cost of bearing in a

therefore bearing technolog! pla!s a strategic role in industrial de"elop ents$

W$at i# a BearingJ
1earings are precision instru ents that are used in achine parts to eli inate or reduce

friction$ The! are therefore, "ital contributors to the de"elop ent and progress of al ost e"er! industr! like the (uto obile, Rail#a!s , 6ea"! %ngineering , %lectrical , 8o#er , (ero 0pace, Te.tile achines etc$

The t!pes of bearings are differentiated on the basis of the arrange ent and kind of rolling ele ents used$ India option but to i port$ The bearings anufactured in India can be classified into se"eral categories of these, ainl! b! t#o and three #heelers+ and taper roller bearings ost outstanding in ter s of &uantities produced$ anufactured in the countr! co prise c!lindrical roller anufactures <9= to ?== "arieties of bearings$ This is in sharp contrast to the countr!)s re&uire ent of 3=,=== "arieties, for #hich the countr! has no other

deep gro"e ball bearings *used *#hich are used in trucks+ are the

The other kinds of bearings categories L s all and large$

bearings, spherical roller bearings etc$ (ll bearings can be classified into t#o broad

55

Di5i#ion of bearing# con#'mption in In%ia,

(uto obile @an 8u ps %lectric ,otor Te.tile ,achiner! Diesel %ngines ,iscellaneous Tools ,iscellaneous (pplications ' ' ' ' ' ' ' ' 39K //K 1=K 1=K <K 3K /K 1/K

0 allest bore bearings is 1

$ 7argest bore bearing is 19,===*(pp$ 9= feet+$

(ppro.i atel! /,==,=== "ariants of bearings are a"ailable in the #orld$ India re&uires appro.i atel! /=,=== "ariants of bearings but onl! about 9== "ariants are produced$

Hi#tor& of Bearing In%'#trie#(

The first and the earliest bearing #ere can In odern ti es, the first i portant "ictor! o"er friction #as the in"ention and the use ade b! 7eonardo Da Ainci, to#ards the

beginning of the 1<th centur!$ 6is construction and design of rolls #hich rotate on fettle pins

of ball and roller bearings in bic!cles and other e&uip ent$ In 1B/=, the patent #as applied for the design of thrust bearing$ 59

The first plant for its

anufacture #as founded in %urope in 1BB3 and si ultaneousl! the

production of rolling bearing also started in the U$0$($ The ball bearing Industries reall! got i portance in %urope, ( erica, 2apan and other countries #ith the #orld #ar I $ 8ost #orld #ar '''''''''' #as an era of rapid technical research and gro#th and resulted in the introduction of toda! there are an! i pro"e ents and ne# friction bearings$ In "arious countries ore than 1,9=,=== different t!pes of rolling bearings produced b! the "arious

anufactures all o"er the #orld$

Bearing# man'fact're% are #'pplie% to (I

(shok 7e!land 7td$, Chennai and 6osur T(T( ,otors 7td$, 8une and 2a shedpur 6,T Tractors 7td$, 8in;ore Tata ,otors and Tractors 7td$, 8un;ab Tractors 7td$, International Tractors 7td$, Jerala (gro ,achiner! Corporation 7td$, 1harath 6ea"! %lectricals 7td$, Aehicles @actor! *A@I+, 2abalpur 6industan ,otors *6,+, Jolkatta Indian Rail#a!s 0tate Road Transports Ordinance @actor!, ,edak$ ,ahindra and ,ahindra *,:,+ 7td$, ,u bai %scort Tractors , @aridabad A0T Tilers, Coi batore$ The co pan! has a #ell'placed regional offices at arketing net#ork spread all o"er the countr! #ith

etropolitan cities to cater to the Indian Industrial needs$

5<

"a3 Material S'pplier#

Tisco 2inabakul @orgings Dual Rings Ra;a Ra;esh#ara @orgings Tolia 0teel 1alls : Rollers 6arsha %ngineers Aishal %ngineers Circlips * India+ 7td 2a shedpur 1elgiu 6!derabad 6!derabad Thane (h adabad Ra;kot ,u bai

BE*"I+/ I+D ST"! SCE+*"IO I+ I+DI*

Intro%'ction(
1all and roller bearing constitute "ital precision co ponents of auto obiles and a "ast range of other %ngineering products$ Conse&uentl!, the! ha"e considerable i port substitution potential and ha"e , therefore, naturall! attracted specific attention of the planners$ 0ince about <=K of the de and for ball and roller bearing is e.pected to be deri"ed fro the auto oti"e sector naturall! enough the protected e.plosi"e gro#th in the production of auto obiles could onl! be sustained b! a #ell established heart! and sound , indigenous , ball and roller bearing industr!$ 8lanners and Industr! circles see to think that #ith the protected a! #ell go up to /== assi"e gro#th of the illion nu ber and ediatel! to eet this

auto oti"e sector during the se"enth plan, the o"erall de and for ball and bearings in the countr! in the final !ear of the se"enth plan de and$ hence, the indigenous bearing industr! #orld ha"e to ''''''''itself i

5?

The perfor ance of the bearing industr! in India has to be "ie#ed &uaint its historical background and the industrial de"elop ental policies pursued b! the go"ern ent during successi"e fi"e !ear plans$ The Roller bearing Industr! in the countr! took shape about the ti e #hen the first fi"e !ear plan #as launched$ %"en though a fe# for the ore units #ere licensed anufacture of ball and rollers bearings during the subse&uent plans$ 1eing a high illion bearing could be achie"ed in 1>?='B=$

capital intensi"e industr! in"ol"ing technologies of high order$ The i ple entation #as slo# and a production of onl! about 3= ''''''''''8roduction of bearings in 1>B<'B?'''''''''N$$The range of bearings produced #as also progressi"el! di"ersified to enco pass ball, bass, thrust, c!lindrical , tapper, spherical, barrel , rail#a! o.il bo. bearing a #ide "ariet! of needle roller bearings bushed and cafes co"ering in oil about <== sites and t!pes besides steel balls and rollers$%"en though there are 3=== district t!pes and sites of bearings in use in the #orld indigenous production is largel! confined to the sites and t!pes in popular do estic de and$

/alloping Deman% for Bearing#(

With the increasing pace of industrialization, de and for bearing is also gro#ing$ The auto obile industr! is posed to take a long leap$ This is self #ill gi"e a big boost to the de and for bearing $(ccording to data supplied b! the (ssociation of (uto obiles ,anufacturers, the total consu ption of all t!pes of ball and roller bearings in the !ears 1>B5'B9, 1>B9'B< , 1>B<'B? #as 13 illion units, //$915 illion units and /B$3B illion units respecti"el! $ This figure sho#s that in the first !ear of the se"enth plan, there #as ?9K increase in de and and /<K in the subse&uent !ear$ %"en allo#ing the sa e /3K stead! annual increase for the re aining !ear of the se"enth plan the total de and for the auto obile sector at the end of the se"enth plan #ould ho#e"er be around 5< bearing$ 0ince (I(, esti ated figure include the replace ent perhaps be allo#ed so that the o"erall de and figure of <9 drasticall! fro order to <9 illion in 1>>= to 15= arket 5=K increases illion a!

illion bearing is going to pick up illion b! /===$ In ore but also to

illion in 1>>9 and to /==

eet the gro#ing de and it is essential that the industr! gears itself$ Therefore it is an! "ariet! as possible and to plug the official or unofficial cargo foreign

challenging for Indian entrepreneurs as the! ha"e not onl! to produce produce as e.change$

5B

(s bearings industr! has also to cater engineering industr! #hich account for about 5=K of the total de and including another /=K of this de and gap replace ent spares in this industr!$ We a! reasonabl! accept the de and for all the bearings$ 6ence fro the discussion it cheers that the de and for the bearing is "er! high and our countr! does not ha"e enough installed capacities to replenish this de and as a result of #hich the huge gap created is filled b! the legal or illegal in filtration of i ported bearings$

V*"IO S CO+ST"*I+TS "EST"*I+I+/ /"OWTH(

1earing Industr! in India is burdened #ith se"eral constraints and proble s$ In spite of their great interest in going for e.tende cost constraint and lakdicaial attitude of go"ern ent regarding the i port of foreign bearings co es into their #a!$ The "arious proble s our bearing industr! is facing in these areas are as follo#sa+ Introduction of ne# t!pes and sizes of bearing balls for substantial In"est ent and a suitable de and for each particular ball and roller 1earings of these t!pes #hich ha"e less de and and cannot therefore be indigenous and ha"e necessaril! to be i ported$ b+ (ll progra ing indigenous units ha"e relati"el! "er! s all installed capacities achines capable

co pared to foreign units and these depri"ed of the facilit! of econo ies of scale and hence deplo! ent of the highl! auto ated and sophisticated of large scale ass producti"e of bearing is a fall order$

c+ The ball and roller bearing industr! is highl! capital intensi"e and has a long gestation period #ith the pheno enal increase in the cost of i ported sophisticated and the high ad "alor u achine tools duties le"ied the scale of in"est ent has gone up steepl!

aking ne# units and capacit! e.pansion unco petiti"e$ The i perati"e need for selecti"e foreign collaboration further accounts the costs $

5>

d+ O#ing the high and increasing le"ies on ra#

aterials consu ables and

ost of

#hich are to be i ported$ The input cost is sho#ing an up#ard trend$ e+ In recent !ears, huge &uantities of ball and roller bearings ha"e been finding their #a! into the countr! b! spurious #here the! are eans through of recession in the foreign arket anufactured $(lso nu ber of instances of influ. of bearing fro

countries of the erst#hile eastern block at deliberatel! under in"oice cost$

,ost of the bearings so i ported are of restricted t!pes and sizes to ha"e an a ple indigenous capacit! such i ports depri"e the go"ern ent of huge re"enues and cause distress to indigenous products$ 6ence the go"ern ent should discount such i ports as the in"oiced rates are e.tre el! lo# and so eti es not e"en cares the bare ra#' aterial costs of the foreign supplier$ Therefore the go"ern ent should i pose a lu p su the ad "alor u $ rate of dut! on bearing in addition to anufacturers b! creating a ;uit in the arket in anifestation of such 5< lakhs can be seen in the poor utilized installed capacit! and greatl! depressed indigenous

9=

D(T( (N(7M0I0 (ND INT%R8R%T(TION

91

Working Capital Financing at HMT Bearing# )t%,

@unds a"ailable for a period of one !ear *or+ less are called short ter ter funds are used to finance #orking capital$ finance$ 0hort L

The sources #hich the co pan! is using for its #orking capital finance are Cash credit Trade credit @actoring 1ill discounting 7etter of credit Working capital loan

Ca#$ cre%it(

Under this facilit! the borro#er is allo#ed to #ith dra# funds in e.cess of the balance in his current account$

Tra%e cre%it(
This refers to the credit that a custo er gets fro course of business$ supplier of goods in the nor al

Factoring(
It is an agree ent in #hich recei"ables arising out of sale of goods Iser"ices are sold b! a fir to the factor as a result of #hich title to the goods Iser"ices represented b! the said recei"ables passes on to the factor$ 9/

The co pan! is taking this factoring ser"ices fro

can bank factors ltd$

Bill %i#co'nting( Under the purchase *or+ discounting of bills, a borro#er obtains credit fro against its bills$ a bank

)etter of cre%it(
This is an indirect for of credit fro of #orking capital financing and banks assu e onl! risk , the ake pa! ent to the supplier

credit being pro"ided b! the supplier hi self$ The purchaser of goods on credit obtains letter a bank $the bank undertakes the responsibilit! to eet his obligations$ odus of letter of credit is that the supplier sells the goods on credit in case the bu!er fails to Thus, the

Ie.tends credit *finance+to the purchaser ,the bank gi"es a guarantee and bears risk onl! in case of default b! the purchaser$*T6I0 T%C6NI4U% I0 CURR%NT7M NOT @O77OW%D 1M 6,T 1%(RINF0+

Working capital loan(

Under this arrange ent, the a ount is pro"ided to the co pan! based on select operational data pro"ided b! the co pan! to the bank$ The co pan! is under the obligation to send this selected operational data e"er! onth #ithin ? da!s fro the onth ending$ The a ount of #orking capital loan fluctuates based on this Hselect operational data) $

Content# of SOD(
%sti ate for the current accounting !ear Production estimates 93

 0ales esti ates

0ales During the onth onth

During the current !ear up to the end of the 8roduction During the onth

During the current !ear up to the end of the Recei"ables outstanding as at the end of the 0undr! creditors for the purchase of ra# 0hort ter borro#ings fro onth$

onth$

aterial outstanding as at the end of the

onth$

the banks including bills purchased and discounted$

95

Sc$e%'le of C$ange# in Working Capital for t$e !ear .GGAI.GGB

>-#t Marc$ 0"#1

Working Capital 0"#1

.GGA

.GGB

Increa#e

Decrea#e

C'rrent *##et#
In"entories 0undr! Debtors Cash and 1ank balances 7oans and (d"ances <,B?,1< ?,?>,?? /,51,/B ><,/> >,<=,9= >,/3,B3 ?,99,/3 BB,11 /,?3,35 1,55,=< 9,13,>9 ''

'' ''
'' B,1B

Total 0*1

-E8G?8AG .D8.D8BD
19,<1,<? >1,?= 1?,<=,>= 1,3/,==

C'rrent )iabilitie#
Current 7iabilities 8ro"isions

II II

1,>>,/3 5=,3=

Total 0B1
Working Capital *('1+ Increase in Working Capital

-B8A>8>D -E8F.8FG
1,91,13 <,B3,<5 E8>?8DD B,35,?? '' E8>?8DD II F8>-8>A <,B3,<5 F8>-8>A

99

Interpretation

In the !ear /==9'/==<, co pan!)s #orking capital has been increased co pared to last fe# !ears$ I t sho#s an increase in #orking capital of Rs$<,B3,<5,===$ The Working Capital for the !ear /==< is Rs$B,35,??,=== #hich is #orking capital in the !ear /==9$ (n increase in Working Capital represents the uses of funds$ Too the ratio bet#een Current (ssets and Current 7iabilities$ ore than the uch increase in ake

#orking capital sho#s idleness of fund, #here the efforts should be taken to

The In"entories, 0undr! Debtors and Cash and 1ank balances ha"e been increased co pared to the !ear /==9 #hich is good for the co pan!$

With the increase in Cash and 1ank balances, the co pan! has a sufficient a ount of funds for its s ooth running$ (t the sa e ti e, Current 7iabilities and 8ro"isions ha"e also been increased, co pared to the !ear /==9,#hich is not a good sign for the co pan!$

9<

Sc$e%'le of C$ange# in Working Capital for t$e !ear .GGBI.GGD

0"#, In T$o'#an%1

8articulars

31st ,arch *Rs1 /==< /==? B,3>,9= <,??,/1 /,3B,=3 /,1/,/5 -F8BB8FE

Working Capital*Rs+ Increase II II II 1,/5,13 Decrease 1,/1,== /,5<,</ 9,1?,/= ''

*, C'rrent *##et#
In"entories 0undr! Debtors Cash and 1ank balances 7oans and (d"ances

>,<=,9= >,/3,B3 ?,99,/3 BB,11 .D8.D8BD

Total 0*1 B, C'rrent )iabilitie#

Current 7iabilities 8ro"isions

1?,<=,>= 1,3/,== -E8F.8FG B,35,?? E8>?8DD

13,/>,5> 1,?3,// -A8G.8D5,<5,/? 3,?=,9= E8>?8DD

5,31,51 ''

II 51,//

Total 0B1 Working Capital0*IB1

Decrease in W$C

3,?=,9= F8.B8G?

II F8.B8G?

9?

Interpretation
The abo"e table of Changes in Working Capital for the !ear /==<'/==?, sho#s a decrease in Working Capital of Rs$3,?=,9=,===$

The Working Capital for the !ear /==? is Rs$ 5,<5,/?,=== #hich is less than the

Working Capital in the !ear /==<$

( decrease in Working Capital i plies that the Current (ssets are insufficient to eet the Current 7iabilities$

The In"entories and 0undr! Debtors ha"e been decreased co pared to the !ear /==<$ Cash and 1ank balance ha"e also been decreased #hich is not good for the co pan!$

7oans and (d"ances ha"e been increased graduall! co pared to the !ear /==<$

9B

Current 7iabilities ha"e been decreased and the 8ro"isions ha"e been increased co pared to the !ear /==<$

Sc$e%'le of C$ange# in Working Capital for t$e !ear .GGDI.GGE

0"#, In T$o'#an%1

8articulars

31st ,arch *Rs1 /==? /==B ?,5>,<> 9,/5,5> 3,=5,15 >3,B9 -B8D.8-D

Working Capital*Rs+ Increase '' '' <<,11 '' Decrease B>,B1 1,9/,?/ '' 1,1B,3>

*, C'rrent *##et#
In"entories 0undr! Debtors Cash and 1ank balances 7oans and (d"ances

B$3>,9= <,??,/1 /,3B,=3 /,1/,/5 -F8BB8FE

Total 0*1 B, C'rrent )iabilitie#

Current 7iabilities 8ro"isions

13,/>,5> 1,?3,// -A8G.8D5,<5,/? '' ?8B?8.D

1<,?=,<> 1,>9,9= -E8BB8-F *1,>5,=/+ <,9B,/> ?8B?8.D

'' ''

3,51,/= //,/B

Total 0B1 Working Capital0*IB1

Decrease in W$C

<,9B,/> D8.?8?G

II D8.?8?G

9>

Interpretation

The abo"e table of Changes in Working Capital for the !ear /==?'/==B, sho#s a decrease in Working Capital of Rs$<,9B,/>,===$

The Working Capital for the !ear /==B is in negati"e "alue of Rs$*1,>5,=/,===+ #hich eans that in the !ear /==B the Current (ssets are insufficient to eet the Current 7iabilities$ In the !ear /==B, Current 7iabilities are ore than the Current (ssets$

Current 7iabilities and 8ro"isions ha"e been increased graduall! in the !ear /==B$ In the !ear /==B, In"entories and 0undr! Debtors ha"e been decreased co pared to the !ear /==?, and the 7oans and (d"ances ha"e also been decreased$

<=

Sc$e%'le of C$ange# in Working Capital for t$e !ear .GGEI.GGF

0"#, In T$o'#an%1

8articulars

31st ,arch *Rs1 /==B /==> ?9/5B 9</1B /??</ 13B3B -D>GBB

Working Capital*Rs+ Increase /?> 3?<> ' 5593 Decrease '' '' /,<9/ ''

*, C'rrent *##et#
In"entories 0undr! Debtors Cash and 1ank balances 7oans and (d"ances

?,5>,<> 9,/5,5> 3=,515 >3B9 -BD.-D

Total 0*1 B, C'rrent )iabilitie#

Current 7iabilities 8ro"isions

1<?=<> 1>99= -EBB-F *1>5=/+ '' 0-F?G.1

//<B33 /1=<> .?DFG. *?5B3<+ 99535 0-F?G.1

'' ''

9>?<5 191>

Total 0B1 Working Capital0*IB1

Decrease in W$C

99535 B>F>A

II B>F>A

<1

Interpretation
The abo"e table of Changes in Working Capital for the !ear /==B'/==>, sho#s a decrease in Working Capital of Rs$?,5B,3<,===$

The Working Capital for the !ear /==> is in negati"e "alue of Rs$*?,5B,3<,===+ #hich eans that in the !ear /==> the Current (ssets are insufficient to eet the Current 7iabilities$ In the !ear /==>, Current 7iabilities are ore than the Current (ssets$

Current 7iabilities and 8ro"isions ha"e been increased graduall! in the !ear /==>$

</

Sc$e%'le of C$ange# in Working Capital for t$e !ear .GGFI.G-G

0"#, In T$o'#an%1

8articulars

31st ,arch *Rs1 /==> /=1= 3,/1,== /,</,13 9><33 />=?1 -?DG-D

Working Capital*Rs+ Increase '' '' 31B?1 '' Decrease 5315B 3===9 '' 19/33

*, C'rrent *##et#
In"entories 0undr! Debtors Cash and 1ank balances 7oans and (d"ances

?9/5B 9</1B /??</ 13B3B -D>GBB

Total 0*1 B, C'rrent )iabilitie#

Current 7iabilities 8ro"isions

//,<B,33 /,1=,<> .8?D8FG.

1B,/<,1? /=<,<B .8G>8.EA

55,/1< /=<<B

Total 0B1

Working Capital0*IB1
Decrease in W$C

*?5B3<+

*9</<B+

II

II

II

II

<3

Interpretation
The abo"e table of Changes in Working Capital for the !ear /==>'/=1=, sho#s a decrease in Working Capital for both the !ears Rs$?,5B,3<,=== and Rs$9,</,<B===$ It eans the current assets #ere insufficient to eet current liabilities$

The Current 7iabilities and 8ro"isions decreased in the !ear /=1=$ The Working Capital is negati"e for both the !ears ,#hich is lacking Working Capital @unds$ eans the co pan!

Working Capital T'rno5er "atio

<5

This ratio

easures the relationship bet#een #orking capital and sales$ It

indicates the "elocit! of the utilization of net #orking capital$ The ratio sho#s the nu ber of ti es the #orking capital is turned o"er in a course of !ear and it reflects the efficienc! in the utilization of #orking capital$

WCT" 4 Sale# 9 Working Capital Working Capital 4 C'rrent *##et# I C'rrent )iabilitie#

!ear

Sale#

Working Capital

WCT"

.G-G .GGF .GGE .GGD .GGB

<,/=,>5

*9,</,<B+ *?5B3<+ *1>5=/+ 5,<5,/? B,35,??

1$1= 1$=3 ?$BB <$5< 3$3<

?,?9,1< 19,/B,9> 3=,==,11

/B,3/,<?

Interpretation

<9

 The ratio ust be nor al$ %.cessi"e ratio sho#s o"ertrading and lo#er
ratio sho#s under trading$

The abo"e table sho#s us that there #as under trading during the
recent !ears /==> and /=1=$

C'rrent "atio
Current ratio is the ratio of current assets to current liabilities$ This indicates short ter financial soundness of the co pan!$ Current assets are assets #hich are con"erted into cash #ithin a !ear$ Current 7iabilities are those 7iabilities #hich are to be repaid #ithin a period <<

of one !ear$ (n! install ent of a long'ter current liabilit!$

liabilit! pa!able #ithin ne.t 1/

onths is also a

C'rrent "atio 4 C'rrent *##et# 9C'rrent )iabilitie#, C'rrent *##et# 4 In5entorie# 6 S'n%r& Debtor# 6 Ca#$ an% Bank Balance# 6 )oan# an% *%5ance#, C'rrent )iabilitie# 4 C'rrent )iabilitie# 6 Pro5i#ion#,
C'rrent )iabilitie#

!ear

C'rrent *##et#

C'rrent "atio

/=1= /==> /==B /==? /==<

-?DG-D

.G>.EA

,D. $<>

1?3=<< 1<?/1? 1><<>B /?/?<?

/5?>=/ 1B<<1> 19=/?1 1B>/>=

$B> 1$31 1$55

Interpretation
( current ratio of /-1 is usuall! considered to be the ideal ratio for a co pan!

<?

The current ratio is fluctuating bet#een the !ears /==<'/=1=$@ro li&uidit! position of the co pan! is not satisfactor!$

the past fi"e

!ears , the current ratio is not ideal$ It is less than the ideal ratio, #hich indicates the

The co pan! is not

aintaining the ideal ratio and its decreasing #hich sa!s that

the co pan!)s perfor ance is not in a good position$

)i='i% "atio
7i&uid Ratio is also kno#n as (cid Test Ratio or 4uick ratio$ It sho#s the li&uidit! of the business in real sense$I t establishes a relationship bet#een li&uid assets and current liabilities$ (n asset is li&uid if it can be con"erted into cash i reasonabl! soon #ithout loss of "alue$ Cash is <B ediatel! or ost li&uid assets #hich are considered

to be relati"el! li&uid$ Other li&uid assets included are debtors and bills recei"ables and arketable securities$ In"entories are considered to be less li&uid$ The! nor all! re&uire so e ti e realizing cash and their "alue also has a tendenc! to fluctuate$

)i='i% "atio 4 0C'rrent *##et# 7 In5entorie# 1 9 C'rrent )iabilitie# !ear )i='i% *##et# C'rrent )iabilitie# )i='i% "atio

/=1= /==> /==B /==? /==<

-8-?8F-D

.8G>8.EA

,AB

>,?B,1B >,//,5B 11,/?,5B 1?,<?,1?

/,5?,>=/ 1B,<<,1> 19,=/,?1 1B,>/,>=

$3> $5> $?9 $>3

Interpretation
The standard li&uid ratio is 1-1 i$e$, li&uid assets should be e&ual to current liabilities$

<>

The abo"e table re"eals that the 7i&uid ratio is lo#er than standard ratio$ This re"eals that the co pan! is not ha"ing sufficient li&uidit! to eet its de and$

During the past fi"e !ears , the ratio is not a desirable position #hich sho#s that the funds are not sufficient to eet the liabilities$

FiCe% *##et# T'rno5er "atio

@i.ed (ssets are used in the business for producing goods to be sold$The %ffecti"e utilization of @i.ed (ssets #ill result in increased production and reduces cost$ It also ensures #hether in"est ent in the assets ha"e been ;udicious or not$ This ratio is "er! significant for e plo!ed are anufacturing enterprises, #here fi.ed assets ore than #orking capital$ ?=

F*T" 4 Sale# 9 +et FiCe% *##et#,

+et FiCe% *##et# 4 FiCe% *##et# I Depreciation

!ear

Sale#

+et FiCe% *##et#

F*T"

/=1=

</=>5

/,9?,3=

/$51

/==> /==B /==? /==<

??91< 19,/B,9> 3=,==,11 /B,=<,<5

3,=9,9B 3,>9,?? 5,=?,>5 5,95,1<

/$93 3$B< ?$39 <$1B

Interpretation
( fi.ed assets turno"er ratio indicates better utilization of the fir )s fi.ed assets$ 6igher the ratio indicates better perfor ance$ ( ratio of around 9 is considered ideal for a co pan!$

?1

@ro

the abo"e table, in /==? the @(TR has e.ceedingl! increased to eans the co pan! #as utilizing its fi.ed assets to the e.tent$

?$39 #hich a.i u

In /=1=, the ratio is recorded as /$51 , #hich is considered as the lo#est "alue in the past fi"e !ears$

0ince the ratio has decreased, it sho#s that the co pan!)s fi.ed assets are not utilized in an efficient good$ anner and the perfor ance is also not

Total Capital T'rno5er "atio

This ratio ensures #hether the capital e plo!ed has been effecti"el! used or not$ The Capital Turno"er ratio sho#s ho# reflects the an! ti es capital is turned o"er into sales$ It loans+ or net anagerial efficienc! in the utilization of capital$ The capital e plo!ed is either

the total of capital *e&uit! and preference plus reser"e, profits and long ter

fi.ed assets plus #orking capital$ *In both the cases capital e plo!ed #ill be sa e+$ ?/

TCT" 4 Sale# 9 Capital Emplo&e%

Capital Emplo&e% 4 +et FiCe% *##et# 6 Working Capital 6 Capital WIP 6 Deferre% re5en'e eCpen%it're,

Mear

0ales

Capital % plo!ed

TCTR

/=1=

</=>5

1=93>9

$9B

/==> /==B /==? /==<

??91< 19,/B,9> 3=,==,11 /B,=<,<5

B1>>B 9,>B,B> 1B,B/,9/ /3,><,11

$>5 /$99 1$9> 1$1?

Interpretation
The total capital turno"er ratio is a test of anagerial efficienc! and

business perfor ance$ 6igher ratio is al#a!s in the interest of the co pan!$ There is no ideal capital turno"er ratio, because the ideal ratio a! be different for different enterprises$

?3

@ro

the abo"e data, e.cessi"e capital turno"er ratio #as recorded in

the !ear /==B #hich is /$99 #hich results in o"ertrading and #hich is not good for the co pan!$ The lo#est "alue #as recorded in /=1= #hen co pared to pre"ious !ears$

?5

@INDINF0 (ND 0UFF%0TION0

FI+DI+/S

The Co pan! is drasticall! taking steps to increase its profits b! follo#ing "arious financial and accounting policies$

?9

 Working Capital is decreasing !ear after !ear #hich is not a good sign for a co pan!$

The li&uidit! is not at desirable position #hich sho#s that the funds are not sufficient to eet the liabilities$

The current ratio is fluctuating and the co pan! is not

aintaining the ideal ratio

#hich sa!s that the co pan!)s perfor ance is not in a good position$

The @i.ed (ssets Turno"er ratio has decreased #hich sho#s that the co pan!)s fi.ed assets are not utilized in an efficient anner$

In case of Total Capital Turno"er ratio, an e.cessi"e ratio #as recorded in the !ear /==B, #hich results in o"ertrading and #hich is not good for the co pan!$

S //ESTIO+S

o The fir

needs to increase its sales as #ell as its re"enues fro

business

operations to use those funds in the production process$

?<

o %fforts should be

ade to

aintain stabilit! in net#orking capital$

o Co pan! should ha"e control o"er the current liabilities and better to increase current assets portion$

o The fir

has to decrease the ti e to con"ert ra#

aterial to finished goods$ The

anage ent has to gi"e high attention in such areas like sales and in"entor! anage ent$

o The co pan! has to concentrate different places #ith

ore in order to increase the sale point areas in

ore nu ber of dealers$

o The co pan! has to i pro"e its producti"it! in order to attain profits$

Concl'#ion
( stud! of CWorking Capital ,anage ent in 8ublic 0ector UndertakingsD of 6,T 1earings 7td$, has pro"ided the kno#ledge of #orking capital in an organization$ It has also gi"en an opportunit! to conduct a stud! on the co pan!)s accounting ratios sho#ing interrelationship #hich e.ist a ong "arious accounting data$ ??

The stud! #as also undertaken #ith a "ie# to e.plore the scope for i pro"e ent in the co pan!$

The anal!sis of the co pan!)s data re"eals that the co pan! is strategic and accounting policies to eet the organizational goals$

aintaining

The stud! finds out that the co pan! has got negati"e #orking capital in the !ear /==>'/=1=$

The co pan! should ha"e to concentrate in i pro"ing its sales "olu e$

?B

BIB)IO/"*PH!

Bibliograp$&
R$8$RU0T(FI, @inancial ,anage ent ,Falgotia 8ublishing Co pan!, Ne# Delhi$ I, 8(ND%M */=1=+, @inancial ,anage ent ,Aikas 8ublishing 6ouse 8ri"ate 7i ited, Ne# Delhi$

?>

,$M$J6(N : 8$J$2(IN */==<+, @inancial ,anage ent , Tata ,cFra#6ill 8ublishing Co pan! 7i ited, Ne# Delhi$

A$J$16(77( */==?+, @inancial ,anage ent and 8olic!, (na ol 8ublishing 8ri"ate 7i ited, Ne# Delhi, <th %dition$ (nnual Reports of 6,T 1earings 7td$

Web#ite#
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