Working Capital Management-Hal

Working Capital Management
ACKNOWLEDGEMENT

The report entitled WORKING CAPITAL MANAGEMENT a study in
Hindustan Aeronautic Limited represents the guidance and co-operation of a
few individuals, to whom I would like to express my deep sense of gratitude.
I wish to express my sincere thanks to Mr. Suresh Jain (Chairman), Mr. Manish
Jain (Vice Chairman), Dr. A. K. Garg (Executive Director), M.P. Singh (HOD),
Dr. Sonia Gupta (Course coordinator & project in charge, MBA), and other
faculty members for their consistent advice, encouragement and inspiration
throughout the project. I would also like to thank Miss Kanika Jain (internal
guide) for helping me in completing this project report.
I also express my sense of gratitude to Mr. Arun Narula, Manager (Budget),
HAL, Accessories Division, Lucknow. I thank him for his constructive help &
valuable suggestions.
At last but not the least I would like to thank my family members and my
friends for their help in completing this project.

AKSHAY SRIVASTAVA

EXECUTIVES SUMMARY

Finance as a subject of study, has received wide-spread support from both
academic and business segment people.

The topic WORKING CAPITAL MANAGEMENT in HAL was selected as
to understand the financial need and importance with special reference to HAL,
Accessories Division, Lucknow.

As the working capital refers to the administration of all the analysis of working
capital, ratios and sources and application of funds and the company by
studying, interpreting various financial statements using various techniques
such as comparative statements analysis, funds flow statement analysis etc.

Even efforts have been made to collect the relevant information about the topic.
The present study about WORKING CAPITAL MANAGEMENT in HAL
Accessories Division, Lucknow it based on my six week project study in
FINANCE AND ACCOUNT DEPARTMENT in HAL.

This training gives me an opportunity to make a study and analysis the system
adopted by the organization. It enables me to build the practical knowledge
acquired during the class study with practical training received during my
project.

Table of Contents
a) Introduction of topic.
b) Objective of the study.
c) Scope & importance.
d) Company profile.
e) Literature review.
f) Research Methodology.
g) Data Analysis & Interpretation.
h) Findings.
i) Suggestions.
j) Limitations.
k) Conclusions.
l) Bibliography.
m) Annexure.

Introduction of topic

This project has given me the opportunity to get aware with the HAL, its
environment and functioning of the Finance & Accounts Department. This
project report is divided into three different parts.
First part of the includes information about the organization like vision and
mission of HAL, its values, financial position, achievements, product line etc is
given.
The second part of the report focused on the whole Finance & Accounts
Department. This includes objectives & functioning of the various sections of
Finance & Accounts Department of the Accessories Division of HAL
Last part of the report focuses on the budgetary system. This includes detailed
analysis of working capital, ratios and sources and application of funds and the
company by studying, interpreting various financial statements using various
techniques such as comparative statements analysis, funds flow statement
analysis etc.

OBJECTIVE OF THE STUDY

This training as per scheduled under syllabi has been emphasis on getting aware
with the practical environment of an organization and specifically with the
concerned department related to the specialization. There are certain objectives
stated as under:
1. To get aware with the procedure of financial department.
2. To know how the functions passes through other departments in relation to
financial departments.
3. To become familiar with the formats of different documents and their
meaning.
4. To know each departments decision effect on finance department and vice-
versa.
5. To know organizational structure and specifically financial department.

SCOPE & IMPORTANCE

Keeping the magnitude of the work in mind the scope of the study has
been determined. It covers the outset, a description of the role played by the
corporation in improving financial strength of organization. The study has
emphasized working capital and its application in different enterprises.
To study the components, determinants of working capital.
To study how to keep the capital that is tied up in the working capital
cycle at a minimum and maximizing profit.
To study how HAL finances working capital requirements of the firms.
Interpreting, analyzing based on the various ratios, the liquidity position
of HAL.
To ascertain the amount of working capital.



2.1 GENERAL PROFILE
Hindustan Aeronautics Limited (HAL) based in Bangalore, India, is one of
Asia's largest aerospace companies. Under the management of the Indian
Ministry of Defence, this public sector company is mainly involved in
aerospace industry, which includes manufacturing and assembling aircraft,
navigation and related communication equipment, as well as operating airports.
HAL built the first military aircraft in South Asia and is currently involved in
the design, fabrication and assembly of aircraft, jet engines, helicopters and
their components and spares. It has several facilities throughout India including
Nasik, Korwa, Kanpur, Koraput, Lucknow, and Hyderabad. The German
engineer Kurt Tank designed the HF-24 Marut fighter-bomber, the first fighter
aircraft made in India.
2.2 HISTORY OF THE COMPANY
Hindustan Aeronautics has a long history of collaboration with several other
international and domestic aerospace agencies such as the Airbus Industries,
Boeing, Sukhoi Aviation Corporation, Israel Aircraft Industries, RSK MiG,
BAE Systems, Rolls-Royce plc, Dassault Aviation, Dornier Flugzeugwerke,
Aeronautical Development Agency and Indian Space Research Organization.
HAL was established as Hindustan Aircraft in Bangalore in
1940 by Walchand Hirachand to produce military aircraft for
the Royal Indian Air Force. The initiative was actively
encouraged by the Kingdom of Mysore, especially by the
Diwan, Sir Mirza Ismail. The British Government bought a
one-third stake in the company by April 1941 as it believed
this to be a strategic imperative. Later in April 1942, it
bought out the stakes of Walchand Hirachand himself and
other promoters so that it can act freely. The decision by
United Kingdom was primarily motivated to boost British
military hardware supplies in Asia to counter the increasing threat posed by
Imperial Japan during Second World War. However, the Mysore Kingdom
refused to sell its stake in the company but yielded the management control over
to the British Government. Thus, within 2 years of establishment, it was
nationalized.

Hindustan Aeronautics Limited (HAL) came into existence on 1st October
1964. HAL was set up as a amalgamation of Hindustan Aircraft Limited along
with Aeronautics India Limited and Aircraft Manufacturing Depot located in
Kanpur, India. Hindustan Aeronautics Limited has it
headquarter located at Bangalore, India. HAL is one of
the largest aerospace company which is run by the
Ministry of Defense. The principal activities of HAL
involve manufacturing aircraft, aerospace, navigation,
and instruments for communication purposes. Apart
from these, few other activities performed by HAL are
designing, manufacturing, and collecting aircraft, jet engines, helicopters, along
with their elements and spares. Hindustan Aircraft Limited which located at
Bangalore was incorporated by the industrialist the late Seth Walchand
Hirachand in December 1940. The Government of India became a stakeholder
of the company in 1941 and seized the management department in 1942. HAL
has 19 Production Units and 9 Research and Design Centers in 7 locations in
India. The Company has an impressive product track record - 12 types of
aircraft manufactured with in-house R & D and 14 types produced under
license. HAL has manufactured over 3550 aircraft, 3600 engines and
overhauled over 8150 aircraft and 27300 engines. HAL has been successful in
numerous R & D programs developed for both Defense and Civil Aviation
sectors. HAL has made substantial progress in its current projects:
Dhruv, which is Advanced Light Helicopter (ALH)
Tejas - Light Combat Aircraft (LCA)
Intermediate Jet Trainer (IJT)
Various military and civil upgrades.
Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast Guard
in March 2002, in the very first year of its production, a unique achievement.

HAL has played a significant role for India's space programs by participating in
the manufacture of structures for Satellite Launch Vehicles like
PSLV (Polar Satellite Launch Vehicle)
GSLV (Geo-synchronous Satellite Launch Vehicle)
IRS (Indian Remote Satellite)I

NSAT (Indian National Satellite)
HAL has formed the following Joint Ventures (JVs) :
BAeHAL Software Limited
Indo-Russian Aviation Limited (IRAL)
Snecma HAL Aerospace Pvt. Ltd.
SAMTEL HAL Display System Limited
HALBIT Avionics Pvt. Ltd.
HAL-Edgewood Technologies Pvt. Ltd.
NFOTECH HAL Ltd
Apart from these seven, other major diversification projects are Industrial
Marine Gas Turbine and Airport Services. Several Co-production and Joint
Ventures with international participation are under consideration.
HAL's supplies / services are mainly to Indian Defence Services, Coast Guards
and Border Security Forces. Transport Aircraft and Helicopters have also been
supplied to Airlines as well as State Governments of India. The Company has
also achieved a foothold in export in more than 30 countries, having
demonstrated its quality and price competitiveness.
HAL has won several International & National Awards for achievements
in R&D, Technology, Managerial Performance, Exports, Energy
Conservation, Quality and Fulfillment of Social Responsibilities.
HAL was awarded the INTERNATIONAL GOLD MEDAL AWARD
for Corporate Achievement in Quality and Efficiency at the International
Summit (Global Rating Leaders 2003), London, UK by M/s Global
Rating, UK in conjunction with the International Information and
Marketing Centre (IIMC).

HAL was presented the International - ARCH OF EUROPE Award in
Gold Category in recognition for its commitment to Quality, Leadership,
Technology and Innovation.

At the National level, HAL won the "GOLD TROPHY" for excellence in
Public Sector Management, instituted by the Standing Conference of
Public Enterprises (SCOPE).

2.3 PRODUCTS OF HAL

PRODUCTS IN CURRENT MANUFACTURING RANGE
Su 30 MKI

Twin-seater, Multi-role, Long range Fighter /
Bomber / Air Superiority Aircraft.

MiG-27 M
Single-seater Tactical Fighter / Bomber with
variable sweep wings.


MiG-21 VARIANTS
Single-seater Front line Tactical Interceptor/
Fighter Aircraft.

METALLIC DROP TANKS
The Division manufactures different types of
metallic drop (Jettisonable) tanks with capacity of
490 and 800 litres

UNDERCARRIAGE
The Division has facilities and expertise in the
manufacture and overhaul of Undercarriages of
both MiG-27M and MiG-21 variants. The landing
gears are of a conventional tricycle type and
consist of one steerable Nose wheel leg and two
Main wheel legs to roll the aircraft in motion, on
the ground, during take-off run and landing run. The Landing Gear legs have
Pneumatic shock absorbers.
EJECTION-SEAT
The Ejection Seat is installed to provide safe
escape to the Pilot from the Aircraft while
catapuling is effected with the help of a
combined Ejection Gun. The Division has the
facilities and expertise in the manufacture and
overhaul of ejection seats for both MiG-27M and
MiG-21 variants.
FLEXIBLE RUBBER FUEL TANKS
The Division manufactures and supplies all types
of Rubber Fuel Tanks required for MiG-21
Variants. The Rubber Fuel Tanks are provided
with special protection coating against
Ozone/heat and adverse climatic conditions. The
Division has exported a large number of Rubber
Fuel Tanks.


CANOPY
The Division manufactures and overhauls
canopies of MiG-21 variants and MiG-27M
Aircraft.

AEROSPACE FASTENERS
The Division has a separate complex for manufacturing of Aerospace Fasteners,
approximately 7000 types under 400 different standards. Some of the typical
items are nuts, bolts, screws, washers, and rivets of various configurations,
studs, dowels, pins, plugs, JO Bolts, pipe connections and springs.
AIRCRAFT WESTERN ORIGIN
JAGUAR INTERNATIONAL
HAL commenced production of Jaguar
International - deep penetration strike and
battlefield tactical Support Aircraft in 1979 under
license from British Aerospace, including the
engine, accessories and avionics. Jaguar aircraft is
designed with 7 hard points ( 4 under wing, 2 over
wing and 1 under fuselage) capable of carrying a huge load of various of
weapons in different combinations to meet the Customers needs.
DHRUV (ADVANCED LIGHT HELICOPTER)
With a proven track record and established
technology for manufacture of helicopters and its
components, the Helicopter Division commenced
series production of Dhruv (Advanced Light
Helicopter) in 2000 - 2001. The ALH is a multi-role,
multi-mission helicopter in 5.5 ton class, fully
designed and developed by HAL. Built to FAR 29 specifications, Dhruv is
designed to meet the requirement of both military and civil operators.


CHETAK

The Helicopter Division manufactures the versatile
and multi-purpose Chetek Helicopters for Civil and
Military applications both for Domestic and
International customers.

CHEETAH
The Helicopter Division manufactures the versatile
and multi-purpose Cheetah Helicopters for Civil and
Military applications both for Domestic and
International customers.
LANCER
The Lancer Helicopter is a light attack helicopter
developed by Hindustan Aeronautics Limited as a
cost-effective airmobile area weapon system. The
basic structure of the Lancer is derived from the
reliable and proven Cheetah Helicopter.

2.4 OBJECTIVES OF HAL
To ensure availability of Total Quality People to meet the
Organizational Goals and Objectives

To have a continuous improvement in Knowledge, Skill and
Competence (Managerial, Behavioral and Technical)

To promote a Culture of Achievement and Excellence with emphasis
on Integrity, Credibility and Quality

To maintain a motivated workforce through empowerment of
Individual and Team- building

To enhance Organizational Learning

To play a pivotal role directly and significantly to enhance
Productivity, Profitability and improve the Quality of Work Life
2.5 STRATEGY OF HAL
To be in total alignment with Corporate Strategy.
Maintain Human Resource at optimum level to meet the objectives
and goals of the Company.
Be competent in Mapping, Analysis and Upgradation of Knowledge
and Skills including Training, Re-training, Multi-skilling etc.
Cultivate Leadership with Shared Vision at various levels in the
Organization.
Focus on Development of Core Competence in High-Tech areas.
Build Cross-functional Teams.
Create awareness of Mission, Values and Organizational Goals
through out the Company.
Introduce / Implement personnel policies based on performance that
would ensure growth, Rewards, Recognition and Motivation.
2.6 VISION
"To make HAL a dynamic, vibrant, value-based learning organisation
with human resources exceptionally skilled, highly motivated and
committed to meet the current and future challenges. This will be driven
by core values of the Company fully embedded in the culture of the
Organization".
2.6.1 MISSION
Enable all those working for HAL to give their best to ensure their all-
round growth as well as that of the organization. To become a globally
competitive aerospace industry while working as an instrument for
achieving self-reliance in design, manufacture and maintenance of
aerospace defense equipment and diversifying to related areas, managing

the business on commercial lines in a climate of growing professional
competence.
"To become a globally competitive aerospace industry while working as
an instrument for achieving self-reliance in design, manufacture and
maintenance of aerospace defense equipment and diversifying to related
areas, managing the business on commercial lines in a climate of growing
professional competence."

2.6.2 VALUES
CUSTOMER SATISFACTION
We are dedicated to building a relationship with our customers where we
become partners in fulfilling their mission. We strive to understand our
customers ' needs and to deliver products and services that fulfill and
exceed all their requirements.
COMMITMENT TO TOTAL QUALITY
We are committed to continuous improvement of all our activities. We
will supply products and services that conform to highest standards of
design, manufacture, reliability, maintainability and fitness for use as
desired by our customers.
COST AND TIME CONSCIOUSNESS
We believe that our success depends on our ability to continually reduce
the cost and shorten the delivery period of our products and services. We
will achieve this by eliminating waste in all activities and continuously
improving all processes in every area of our work.
INNOVATION AND CREATIVITY
We believe in striving for improvement in every activity involved in our
business by pursuing and encouraging risk-taking, experimentation and

learning at all levels within the company with a view to achieving
excellence and competitiveness.

TRUST AND TEAM SPIRIT
We believe in achieving harmony in work life through mutual trust,
transparency, co-operation, and a sense of belonging. We will strive for
building empowered teams to work towards achieving organisational
goals.
RESPECT FOR THE INDIVIDUAL
We value our people. We will treat each other with dignity and respect
and strive for individual growth and realization of everyone's full
potential.
INTEGRITY
We believe in a commitment to be honest, trustworthy, and fair in all our
dealings. We commit to be loyal and devoted to our organization. We will
practice self discipline and own responsibility for our actions. We will
comply with all requirements so as to ensure that our organization is
always worthy of trust.

2.7 INTERNATIONAL AND DOMESTIC DEALS

(I) INTERNATIONAL DEALS
The US$10 billion fifth-generation fighter jet program with the Sukhoi
Corporation of Russia.
US$1 billion contract to manufacture aircraft parts for Boeing.

Multi-role transport aircraft project with Ilyushin of Russia worth
US$600 million.
120 RD-33MK turbofan engines to be manufactured for MiG-29K by
HAL for US$250 million.
Contract to manufacture 1,000 TPE331 aircraft engines for Honeywell
worth US$200,000 each (estimates put total value of deal at US$200
million).
US$120 million deal to manufacture Dornier 228 for RUAG of
Switzerland.
Manufacture of aircraft parts for Airbus Industries worth US$150
million.
US$100 million contract to export composite materials to Israel
Aircraft Industries.
US$65 million joint-research facility with Honeywell and planned
production of Garrett TPE331 engines.
US$50.7 million contract to supply Advanced Light Helicopter to
Ecuadorian Air Force.
[11]
HAL will also open a maintenance base in
the country.
US$30 million contract to supply avionics for Malaysian Su-30MKM.
US$20 million contract to supply ambulance version of HAL Dhruv to
Peru.
Contract of 3 HAL Dhruv helicopters to Turkey in a deal worth
US$20 million.
Supply of HAL Dhruv helicopters to Mauritius' National Police in a
deal worth US$7 million.
Unmanned helicopter development project with Israel Aircraft
Industries.


(II) DOMESTIC DEALS
180 Sukhoi Su-30MKI being manufactured at HAL's facilities in
Nasik and Bangalore. The total contract, which also involves Russia's
Sukhoi Aerospace, is worth US$3.2 billion.
200 HAL Light Combat Helicopters for Indian Air Force and 500
HAL Dhruv helicopters worth US$5.83 billion.
US$900 million aerospace hub in Andhra Pradesh.
US$57 million upgrade of SEPECAT Jaguar fleet of the Indian Air
Force.
US$55 million fighter training school in Bangalore in collaboration
with Canada's CAE.
64 MiG-29s to be upgraded by HAL and Russia's MiG Corporation in
a program worth US$960 million. Licensed production of 82 BAe
Hawk 132.


2.8 CUSTOMERS

International Customers Domestic Customers
Airbus Industrie, France
APPH Bolton, UK
BAE Systems, UK
Chelton, UK
Coast Guard, Mauritius
Corporate Air, Philippines
Cosmic Air, Nepal
Dassault Aviation, France
Dowty Aerospace Hydraulics, UK
EADS, France
ELTA, Israel
Gorkha Airlines, Nepal
Hampson, UK
Honeywell International, USA
Island Aviation Services,
Maldives
Israel Aircraft Industries, Israel
Messier Dowty Ltd., UK
Mistubishi Heavy Industries,
Japan
MOOG, USA
Namibian Air Force, Namibia
Peruvian Air Force , Peru
Rolls Royce Plc, UK
Royal Air Force, Oman
Royal Malaysian Air Force,
Air India
Air Sahara
Airports Authority of India
Bharat Electronics
Border Security Force
Coal India
Defence Research & Development
Organisation
Govt. of Andhra Pradesh
Govt. of Jammu & Kashmir
Govt. of Karnataka
Govt. of Maharashtra
Govt. of Rajasthan
Govt. of Uttar Pradesh
Govt. of West Bengal
Indian Airforce
Indian Airlines
Indian Army
Indian Coast Guard
Indian Navy
Indian Space Research Organisation
Jet Airways
Kudremukh Iron ore Company ltd.
NALCO
Oil & Natural Gas Corporation Ltd.
Ordnance Factories


2.9 OTHER HINDUSTAN AERONAUTICS LIMITED PROGRAMS
Apart from the aforementioned upgrades, DRDO has also assisted Hindustan
Aeronautics with its programs. These include the HAL Dhruv helicopter and the
HAL HJT-36. Over a hundred LRU (Line Replaceable Unit)'s in the HJT-36
have come directly from the LCA program. Other duties have included assisting
the Indian Air Force with indigenization of spares and equipment. These include
both mandatory as well as other items.
2.10 EVOLUTION AND GROWTH OF THE COMPANY
Malaysia
Royal Nepal Army, Nepal
Royal Thai Air Force, Thailand
Smiths Industries, UK
Snecma, France
Strongfield Technologies, UK
The Boeing Aircraft Company,
USA
Transworld Aviation, UAE
Vietnam Air Force, Vietnam
Reliance Industries
United Breweries

The Company's steady organisational growth over the years with consolidation
and enlargement of its operational base by creating sophisticated facilities for
manufacture of aircraft / helicopters, aeroengines, accessories and avionics is
illustrated below.

2.11 SERVICES


2.12 DIVISIONS OF HAL


2.13 EXPORTS OF HAL

2.14 FINANCIAL HIGHLIGHTS OF HINDUSTAN AERONAUTICS
LTD.
Hindustan Aeronautics Limited (HAL) has achieved sales turnover of Rs.11,457
crores during the Financial Year 2009-10. The profit of the Company (Profit
Before Tax) soared to Rs.2,688 crores.
The highlights are given below: Rupees in Crores

Particulars 2008-09 2009-10
Growth over
Previous Year
Sales 10373 11457 10.45%
VOP 11811 13490 14.22%
Profit before tax 2335 2688 15.12%
Profit after tax 1740 1967 13.05%
Gross Block 2638 2934 11.22%

ACCESSORIES DIVISION LUCKNOW

Accessories Division of HAL was established in
1970 with the primary objective of manufacturing
systems and accessories for various aircraft and
engines and attains self sufficiency in this area. Its
facilities are spread over 94,000 sqm of built area set
in sylvan surroundings. At present it is turning out
over 1100 different types of accessories. The
Division started with manufacturing various Systems
and Accessories viz, Hydraulics, Engine Fuel System, Air-conditioning and Pressurization, Gyro &
Barometric Instruments, Electrical System items, Undercarriages, Electronic items all under one roof
to meet the requirements of the aircraft, helicopters and engines being produced by HAL. This was
followed up with manufacturing the same range of accessories for MiG series of aircraft, International
Jaguar and repair / overhaul of Mirage-2000 & Sea-Harrier accessories. In addition the Division
manufactures systems for Civil Aircraft i.e. Avro, Dornier and AN-32 & cheetah, chetak & Advanced
Light Helicopters.

The Division, right from the beginning, laid a lot of emphasis on developing indigenous capability for
Design and Development of various System and Accessories. This capability has culminated in
indigenous design and development of a variety of systems and accessories for the Light Combat
Aircraft (LCA) and Advanced Light Helicopter (all versions i.e. Army, Airforce, Navy & Civil) - two
prestigious aircraft programs in the country and IJT (Intermediate Jet Trainer). The Division has also
developed and has made successful strides into the area of Microprocessor based control systems for
the LCA Engine as well as other systems.

The Division diversified not only in other defense
applications like tanks and armored vehicles for Army, it l
oks commercial applications of hydraulic items. Gyroscopic
Equipment, Special Purpose Test Equipment & Group
Support Equipment and successfully supplied in the market.
The Division has been in the forefront of accessories
development and supply not only to Indian Force but to
Army, Navy and various Defense Laboratories as well as for
Space applications.

PRODUCTS
PRODUCTS IN MANUFACTURING RANGE

INSTRUMENTS, SENSORS, GYROS
Flight instruments, Electrical Indicators, Fuel Gauging Probes, Gyros, Sensors and
Switches

ELECTRICAL POWER GENERATION AND CONTROL
AC/DC Generator, Control and Protection Units, Inverters, Transformer Rectifier
Unit, AC/DC Electrical Systems, Actuators

LAND NAVIGATION SYSTEM
MICROPROCESSOR CONTROLLER
UNDERCARRIAGE, WHEELS AND BRAKES
HYDRAULIC SYSTEM AND POWER CONTROL
Pumps, Accumulators, Actuators, Electro-selectors, Bootstrap Reservoirs and various
types of valves
ENVIRONMENTAL CONTROL SYSTEM
Pneumatics and Oxygen System, Cold Air Unit, Water Extractors, Valve - various
types
EJECTION SYSTEM
Ejection Seats, Release Units etc.
ENGINE FUEL CONTROL SYSTEM
Booster Pumps, Main and Reheat Fuel Systems, Nozzle Actuators
GROUND SUPPORT EQUIPMENT AND TEST RIGS
Ground Power Unit, Hydraulic Trolley and {Power Packs, Dedicated Test Rigs,
custom-built Fuel/Hydraulic Test Rigs

EXPORT PRODUCTS
Supply of Rotables and Spares of Jaguar International and Cheetah (Lama) / Chetak
(Alouette) Helicopters

Repair / Overhaul of aircraft accessories of MiG series Aircraft, Jaguar International Aircraft,
Cheetah (Lama) / Chetak (Alouette) Helicopters and Dornier Multi-role Aircraft
Supply of Ground Support Equipment for Aircraft such as MiG-23 / 27 / 29, Mirage-2000,
Jaguar, Light Combat Aircraft (LCA) Su-30 MKI, Sea Harrier, Dornier DO-228, Avro HS-
748 (Specific Version), Cheetah (Lama) / Chetak (Alouette lll), Ml - 17, Advanced Light
Helicopter (ALH).

SERVICES

REPAIRS, MAJOR SERVICING AND SUPPLY OF SPARES
The Division carries out Repair and Overhaul of Accessories, with minimum turn-around-time.
Site Repair facilities are offered by the Division by deputing team of expert Engineers /
Technicians.
Services provided for
Military Aircraft
MiG Series
Jaguar
Mirage-2000
Sea - Harrier
AN-32
Kiran MK- I / MK- II
HPT - 32
SU-30 MKI

Civil Aircraft

Dornier-22B
AVRO HS-748

Helicopters

Chetak (Alouette)
Cheetah (Lama)
ALH (IAF / NAVY / COAST GUARD / CIVIL)

Sub-contract Capabilities

The Division has comprehensive manufacturing capabilities for various Hi-tech components,
Equipment and Systems to customer's specifications and ensures
high quality, reliability and cost effectiveness.

The Division has over 25 years of experience in producing aeronautical accessories making it
an ideal partner for the International Aero Engineering Industry.

The Division also manufactures and supplies complete range of components of Cheetah (Lama) &
Chetak (Alouette) Helicopters, Jaguar and MiG series Aircraft to Domestic and International
Customers to support their fleet.

FUTURE PLANS
HAL have perspective plan to have minimum growth of 400% (in respect of
turnover , PBT, value added and other financial parameters) up to 2016-2017
over current year and minimum turnover from non-defense customers is to
be 40%of total turnover(currently 4.43%) by 2016-2017.
In addition to the participation is almost all the aircraft manufacturing /
servicing programs at sister divisions ADL is also providing after sales
service for supporting the maintenance activities of IAF, Army, Navy, Coast
Guard by supplying various accessories against RMSOs and undertaking
repair and overhaul of rotables against R/OH task directly for these
customers. The quantum of such work is of the order of Rs. 100 crore / year
of repair / overhaul and Rs. 32 crore / year for spare supplies, which is likely
to grow to twice this level by the end of the plan period i.e. 2016-2017.

HAL FINANCIAL PERSPECTIVE
HAL is manufacturing organization and its main customer is Indian Air Force,
which HAL various orders for manufacturing, repairs and overhauls, design and
development etc and provides 90% amount of ordering in advance and rest 10%
after receiving the complete order. So in this way HAL realizes 90% ordering
amount before start of the order and only 10% of the amount is blocked.
Therefore need of working capital in case of HAL is not much high in respect to
the other manufacturing organization. The organization has its corporate office
in Bangalore; all the financial activities are controlled from the head office.
Since it is a major manufacturing company of the government therefore no
investment policy is being followed by its Lucknow Division. The head office
controls all the financial policies of different divisions.


FINANCE
&
ACCOUNTS
DEPARTMENT

FINANCE AND ACCOUNT DEPARTMENT
The finance and accounts department occupies a very important position in any organization
as it has a role to play in almost the activities right from conceptualization of a project till its
successful implementation for smooth running and thereafter.

FUNCTIONS & RESPONSIBILITIES:-
The Department is entrusted with the following functions and responsibilities:

To ensure financial discipline as per guidelines of company.
To advise management for all matters having financial implications including
financial co-ordination before commitments are made.
Regulation of Payments for supply and services including Salaries, Wages and other
payments required for furthering legitimate objectives of the company.
Compilation of Accounts and getting the same audited by statutory and Govt.
Auditors.
Compilation and co-ordination of Fixed Price Quotation for sale of companys
product and services as per the norms of the company.
Collecting dues on behalf of the company from the customers as well as other
agencies.
Financial Appraisal of the projects.
To prepare Budgets and to exercise budgetary control for the utilization of available
resources in the best possible manner.
Interaction with various operating levels in the Division.
Co-ordination and interaction with the Managing Director and Corporate office.
To have an effective M.I.S. for prompt reporting to the higher management for
decision making.

SECTIONS IN THE DEPARTMENT

Bills Payable
- Inland Bills
- Foreign Bills
- Services And Civil Works
Finance
Payroll
Cash Office
Bills Receivable
Cost Accounts
Material Accounts
Book Keeping
Budget & M.I.S.
Time Office
Provident Fund

BILLS PAYABLE

OBJECTIVES

To regulate the payments to suppliers and service providers as per the terms and
conditions of the Purchase order/Agreement.
To ensure that he payment to different parties are made promptly so that supplies and
services to the divisions maintained uninterruptedly in furthering the objects of the
Organization.
To ensure that proper accounting is done as per the requirement of statute/standing
instructions from the H .O.
To ensure that all statutory deductions e.g. T.D.S. etc, are made from the Bills of
suppliers / services providers and Deposited timely with the appropriate authority.

BILLS PAYABLE (INLAND)

FUNCTIONS
The following are the functions of Bills Payable (Inland) sections:
Payment of Advance to suppliers as stipulated in the Purchase order.
Payment of Final Bills.
Bank dealings with relation to suppliers e.g. Opening of Letter of Credit, Bank
Guarantee and payment to bank on the due dates.
Accounting and pricing of R.D.R.(Receiving cum discrepancy report).
Maintenance of Commitment Register for Budgetary purpose.
Payment of Misc. Advances / imprest approved by the competent authority.

FLOW OF WORK
1. All the purchase received is first entered in P.O. register before putting the same in
separate file.
2. If the P.O. stipulate for payment of Advance to vendor , an Advance payment is given
3. .After receipt of the goods, suppliers invoice duly linked with relevant R.D.R. are
received from the Purchase Department which are scrutinized with reference to
relevant Purchase order and then passed for payment after making adjustments for
Advance Payments already made. Remittance vouchers are prepared based on the
passed invoices and are forwarded to cash section for issuance of cheque.
4. In respect of P.O. where payment is stipulated as Through Bank the BPI section,
after intimation from the bank through Purchase Department, makes entry in the
purchase department, makes entry in the Register and after checking the documents
with the P.O. passes the invoice and sends the remittance voucher to the cash section
to arrange payment and collection of document from the bank by the Purchase
Department.

5. In respect of local purchases made on cheque against delivery basis the performs
invoice is linked with the relevant Purchase Order and the payment is authorized and
Remittance voucher is sent to the cash section for making payment.
6. Pending the receipt of R.D.R. from the transit in respect of material received but not
taken on charge due to delay in inspection / commissioning / rejections the payment
made to suppliers as advance on receipt of goods through Bank Documents / cheque
against delivery basis are put in G.I.T. i.e. goods in Transit Account at the year end.
7. In respect to that P.O. where material has been received but the payment has not been
released, the appropriate liability is provided for at the year end so as to account for
all expenses.
8. Follow up with I.M.M. department for release of R.D.R. in respect of those P.Os.
where advance payment has been made so as to clear advances.
9. In respect of rejected materials, follow-up is to be made with I.M.M. department to
get those rejected materials replaced from the vendor so as to clear G.I.T.

BILLS PAYABLE (FOREIGN)

FUNCTIONS
Payment and accounting of:
- Advances to suppliers as per the terms & conditions of purchase order.
- License fees, Royalty etc as per the License agreement with the foreign
collaborators.
- Customs duty, Freight bills
- Final bills
Opening of Letter of Credit on the advice of I.M.M. department and liaisoning with
Bank for Foreign Exchange release and payment on maturity date.
Maintenance of commitment registers for budgetary purpose.
Maintenance of Deferred liabilities accounts.
Pricing of R.D.R. with P.O. rates and loading of customs duty, Freight and insurance
charges.
Priced R.D.R. is sent to Material Accounts Section / E.D.P. for punching in batch
mode for processing of Material Ledger.

FLOW OF WORK
1. All Purchase orders / contracts received are entered in the registers before opening of
separate file for each P.O.
2. All the L.C. opened in favour of Foreign Suppliers as per the terms of Purchase Order
are entered in Register to record the particulars about their extension, revalidation and
utilization. On maturity of L.C. the Bank advice and sent to cash section for
adjustment. Particulars of payments are also noted in the relevant P.O.
3. Where purchase terms provide for documents through Bank the Bills Payable
section after checking the documents with the purchase order passes the invoice and
issues Letter Authority to the Bank for arranging payment.

4. All the Contractual payments in respect of royalty, license fee and technical assistance
fees area made as per the license / collaboration agreement after obtaining Foreign
Exchange release from the Ministry, R.B.I. and producing N.O.C. from the Income
Tax Department.
5. Bills of entry received from the I.M.M. department are entered in the register to
record value of goods assessed, amount duly paid to ensure that the duty levied is
correct and the amount of duty paid is loaded to the inventory accounts correctly. A
copy of B/B is sent to the bank for forwarding the same to R.B.I.
6. After receipt of goods the Stores Department sends the RDR to the Foreign Bills
pricing and making necessary accounting.
7. Pending the pricing of RDR, the payments made to the foreign vendors through L.C. /
sight drafts are put temporarily in Goods in Transit Accounts.
8. In respect to Material dispatched by the vendor against P.O. raised by us, the liability
is provided in our books of accounts if payments have not been made for such
supplies.
9. Follow-up with I.M.M. Department for timely release of RDR so as to clear the G.I.T.
10. Co-ordination with the I.M.M. for the replacement of rejected materials so as to clear
G.I.T.

BILLS PAYABLE (SERVICES)
FUNCTIONS
Payment and accounting of advances.
Payment and accounting of running bills of the contractors.
Payment and accounting of final bills.
Adjustment and recovery of advances.
Accounting and adjustment of earnest money and security deposits.
Capitalization of buildings.
Payment of all services bills e.g. Telephone, Electricity, Water, Canteen,
Transportation and sanitation etc.
Payment of all consultants e.g. Architects, Advocates, Part Time Doctors etc.
Payment of Misc. Advances / Imprest approved by the competent financial authority
and their adjustments.
Payment of all casual employees.

FLOW OF WORK

1. Advances to contractors are given as per the acceptance letter given to the contractors
which are recovered with the interest by way of deduction from on account payment
bills in suitable percentage in relation to the progress of work so as to recover all sums
advanced by the time 80% of the contract is completed.
2. Material advances to the extent of 75% of the value of materials bought by the
contractors and lying at the site are given on certification of the Engineer in charge
and are recovered from running / final bills.
3. in respect of running bills the works accounts section links the bill, submitted by
contractor duly certified by Engineers-In-charge, with the contract / acceptance letter /
work order etc. and arranges payment after deducting Income Tax., balance security
deposit and other advances if any and retaining the prescribed percentage of the bill

towards the retention money. However, where the contractor has given bank
guarantee towards retention money no deduction is to be made on this account.
4. Similarly, the final bill submitted by the contractor is checked with the measurement
book and the gross amount payable is determined. The amount settled against running
bills, advances if any, penalty for delay in completion of work, recovery towards
consumption of material, T.D.S. etc is deducted from the gross amount payable. One
half of the security deposit refundable to he contractor is retained as Defect liability
deposit.
5. Capitalization the building and other capital works done on receipt of the completion
certificate and final bills and the classification of the building is done in accordance
with the rules in force.
6. Payment of bills for services e.g. Electricity, Telephone, Water etc. received from the
plant maintenance department/ concerned users duly verified by them and approved
by the competent authority are made.
7. Payment in respect of other services received by the company is made after it is duly
approved by the competent authority.

FINANCE SECTION
OBJECTIVES
To ensure that the financial discipline is maintained in the division.
To ensure that all expenditure is incurred with due regard to principles of financial
propriety.
To ensure that financial proposals are routed to the competent authority as per
delegation / sub-delegation of powers so as to ensure compliance of the provisions of
the Companies Act, the Memorandum and Articles of Association of the company
and the relevant rules and regulations of the company and the guidelines issued by the
company.
To ensure that the funds are available in the approved Capital & Performance Budget
so as to cover the relevant proposals.
To submit MIS reports to Corporate Office monthly.

FUNCTIONS
To scrutinize and give financial concurrence as per delegation of power for each
proposal involving :
- Capital expenditure
- Revenue expenditure
- Purchase of materials/ stores / tools and other services
- Manpower requirement
- Waiver of dues / write off of losses
- Cases involving relaxation of rules etc.as per delegation of powers.
- Sale, lease, alienation or disposal of companys asset.
- Contracts entered into with suppliers / collaborators / sub-contractors.
- Award of contract in respect of civil / electrical works / other works / plant
orders.
- Project Reports.

Certification for availability of funds with reference to Capital & Performance
Budgets and appropriation of funds.
PAYROLL SECTION
OBJECTIVES
To regulate salaries and wages of all employees as per terms of employment.
To regulate payment of welfare facilities extended by the management e.g. Medical,
Interest subsidy, school fee etc.
Payment and recovery of various natures of advances such as Travel advances, LTC
advance, conveyance advance and timely adjustment thereof.
To ensure timely remittance of amounts recovered from employees to various
agencies like LIC, UPICA, HDFC, etc.
To ensure that all-statutory deductions e.g., PF etc are made from the salaries of the
employees and deposited timely with the appropriate authority.
To ensure proper accounting is done as per the requirement of the statue and
corporate office guidelines.
To adhere to the provisions laid down in the Personnel Manual relevant to the above
functions.

FUNCTIONS
Based on the appointment / transfer notification from Personnel department,
individual files are opened in the payroll section to record the particulars of the
employees such as grade / group date of appointment / transfer, department code, P.B.
No. , scale of pay, quarter details.
The payroll record is updated from time to time entering therein increment drawn,
promotion, transfers etc.
The master data in regard to all officers / employee is sent to the computer department
in respect of basic pay, DA, HRA, CCA etc. and this data is updated every month
depending upon the changes.

The deductions to be made are fed to the computer department by means of deduction
statement. Computer department in turn prints out the deduction statement in the form
of check list by the 25
th
of every month. Payroll section corrects the same with
reference to the various documents and recovery register and sends it back to the
computer department for the final adoption by 26
th
/27
th
of the month.
The computer department prints the payroll in the duplication in which one copy is
maintained in the payroll section for the record purpose and the original is distributed
to the employee concerned.
Disbursement of salary & wages
Payment of salary of officers is made through Bank based on the payroll received
from the computer department. In case of non-supervisory personnel the payment is
made by cash by various groups except few cases where the payment is made through
P.N.B. H.A.L. Branch. Cash is drawn two days in advance i.e. last day of the month
and filled in the employee and these employees are kept in the safe custody in cash
office for disbursement on 1
st
of next month.
Remittance of Recoveries
Various recoveries made from employees in respect of LIC premium, HDFC loan,
Income Tax etc are remitted to the various agencies within the stipulated date by
means of cheque.
Payment of advances and adjustment thereof and reimbursement of expenses
Various types of advances such as Car / Scooter advance, contingency advance,
TA/DA etc are paid and adjusted/ recovered as per the rules of the company. Also
reimbursement of expenses like medical, school fee, conveyance, etc is made as per
the rules of the company.
Accounting procedures
Monthly payroll journal entry is made both for supervisory and non-supervisory
personnel and sent to the book keeping section for adoption.
For payment made to persons from other divisions, proper accounting is done to
ensure that necessary advice is raised to the concerned division.


CASH SECTION
OBJECTIVES
To ensure timely and accurate receipts and payments of cash and cheques.
To ensure accounting of cash/ bank transactions is done as per the statute/ corporate
office guidelines.
To ensure safe custody of cash, cheque books, bank guarantees, deposit receipts etc.
To ensure timely drawls of cash from bank to cater to the daily needs of the payments
of cash vouchers.

FUNCTIONS
All amounts collected by different sections either from employees or from external
agencies is sent to the Cash Office through Cash Credit Vouchers.
Cash received in excess of the requirement, cheques, bank drafts, postal orders are
deposited into the companys Bank account the same day for realization
.Payment to the employees such as medical reimbursement, TA / DA advance, Misc.
advance etc. are made through payment vouchers which are punched into the
computer through online system. The cash office in turn after proper identification
makes the payment through cash teller.
For payment to outside parties cheques are made on the basis of remittance voucher
sent by different section. These cheques are handed over to the Purchase department
for taking necessary action / sent to central registry for dispatch to the concerned
party.
Entries are made every day on the basis of Cash Credit vouchers and remittance
voucher and the cash balance is arrived at which is certified by the In-charge of cash
office.

Based on the analysis of the payment and receipt transactions computerized monthly
Journal Voucher is prepared and send to the Book Keeping section for the adoption.
Preparation of the monthly Bank Reconciliation statements and the liaisoning with the
bank authorities to check any discrepancy.
Periodical physical verification of cash is done by systems audit representatives and
by the internal auditors on the last day of the financial year.

BILLS RECEIVABLE SECTION
OBJECTIVES
To ensure that dues from the customers in respect of Goods supplied and services
rendered are recovered timely as per the Fixed Price Quotation / Price Catalogue
approved by the Ministry in accordance with the Government letter issued by the
Ministry of defense dated 24
th
Aug., 1995.
To ensure that invoices in respect of advances, stage payment, final deliveries are
raised timely in order to have smooth cash flow position.
To ensure that proper accounting is done as per the requirement of statute and
accounting instructions laid down by the corporate office.
To ensure that all statutory payments e.g. Sales Tax, Excise Duty, Custom duty is
received from the customer and is deposited timely with the appropriate authority.

FUNCTIONS
The following are the functions of the Bills Receivable section;
Preparation and rendering of the invoices to I.A.F. in respect of the following
activities in accordance with the guidelines laid down in the Government letter dated
30
th
Sept., 1997.
-Manufacturing activities
- Repair and overhaul

-Supply of the spares against R.M.S.
-Deferred revenue expenditure
The following documents shall be produced in support of the invoices rendered:
* Initial advances are recovered on the basis of Customer order:
i. Firm / forecast task given by the Air Force ;
ii. C.R.I. coordinated I.D.T.O. for the divisional task;
iii. R.M.S. order
*Subsequent stages / final payment are claimed on the basis of the milestones
achieved, dispatch advices, acknowledgement received from the Air Force in the
form Q423, Inspection Note certified by the C.R.I. about the progress of the work
done in respect of the repairs and overhaul work the payment is strictly regulated
based on the nature of work carried out e.g. Functional Test, Defect Investigation,
and Zero Hour Servicing, Repaired, Overhauled.
To prepare and render invoices to Non-IAF customers in respect of the following
activities :
- Sales for Customer Financed Projected
- Development Supplies and services rendered to civil customers
- Supplies against R.M.S. orders from the Army, Navy.
To raise the debit on the other divisions as S.I.T. in respect of parts/ accessories
supplied for the fulfillment in Engines/ Aircraft/ Helicopters manufactured by them
for supply to customers.
To claim payment from AO (DAD) on the basis of fitment details received from the
user divisions.
To submit invoices for reimbursement of royalty from Air Force and setup Sales for
these claims and create claims receivable.
To follow up with AO (DAD) and other customers for collecting the payment against
the invoice raised.
To provide details to the budget section for compliance of sales budget on the basis of
the sales order, firm / forecast task, I.D.T.O. for the Budget estimates, Revised
estimates, F.C.

To collect Sales Tax from the customers and deposit the same.
To compile Sales Tax returns and submit the same to the IMM department for
onwards submission to Sales tax authorities for Assessment.

COST ACCOUNTS SECTION
OBJECTIVES
To establish a costing system in line with the activities and product range of the
division.
To determine the price releasable from the customer for the products manufactured /
repaired / overhauled / serviced / supplied by the division.

FUNCTIONS
To determine the rate of absorption / recovery of the labour and other overheads for
recovering labour cost on the different jobs undertaken i.e. Man-Hour rate
computation.
To accumulate the labour and overheads content of each activity Project-wise based
on the evaluated L.T.B. generated by E.D.P. from the Work Orders / Time Dockets.
To keep track of different jobs completed and jobs lying incompetent in different
stages over a reasonable period of time and to co-ordinate with the concerned
Production Controllers for justification for jobs lying unfinished beyond a reasonable
period of time and to ensure their early disposition
To review work orders on which no material / labour cost has been recorded and
finding out the reasons for the same.
To get the W.I.P. statement as on 31
st
March from E.D.P. for all manufacturing
components , sub-assembly W.I.P., assembly W.I.P. for physical verification by the
concerned production shops.
To ensure that the valuation of W.I.P. has been done correctly keeping in view the
percentage of completion of the job.
To keep track of S.I.T. transactions with the different divisions.

To keep record of all I.D.T.O. received and issued.
To send debit advices to other divisions for the items dispatched against I.D.T.O.
received from them.
To accept the debit raised by other divisions for items received by division in respect
of requirement raised by H.A.L. through I.D.T.O.
To evaluate P.C. Memo for S.I.T. Issues, Russian consumption for overhaul and
amortization of D.R.E.
To work out the cost of sales and to reconcile the same with the Design Department
for various Customer Financed Projects.
To work out the royalty payable to different Licensors as per the License Agreement.
The Liaise with AO (DAD) for verification of claims in respect of lobour booking on
production and D.R.E. items and other issues like wage arrears, idle hours atc.
To prepare Fixed Price Quotation / Price Catalogue for the different items
manufactured / repaired / overhauled / serviced / supplied by the division and to get
the same approved by the AHQ.
To submit quotation in respect of enquiries received from Non-IAF and Civil
customers.

MATERIAL ACCOUNTS SECTION
OBJECTIVES
To ensure that all the receipts and issues of materials from stores are recorded and
accounted for properly.
To ensure that all non-moving / slow moving materials are identified as surplus by
the I.M.M. and a suitable redundancy provision is made against them and are disposed
off.
To ensure that Bin Card balances are reconciled with the Material Ledger balances in
co-ordination with I.M.M. and the balances of material ledger tallies with the General
Ledger.

FUNCTIONS
To send the priced R.D.R. received from the Bills Payable section to E.D.P. for
punching in the Batch Mode and thus all the receipts are recorded and control is
exercised over all the purchase value-wise.
To generate exception list the missing R.D.R. and getting it resolved with Bills
Payable section.
All the materials drawn excess when returned are credited to stores through Stores
Returned voucher.
The E.D.P. after processing of all M.R. / Issue Voucher prints the material Issue
analysis statements monthly indicated :-
- The cost of material drawn against various job Orders, Expense accounts;
- The cost of material issued to contractors and others;
- The cost of tools issued to various tool cribs from Main Tool Stores;
Based on the above statements accounting for issue of materials is done by debit
to Work-in-progress / expense / contractors account and credit to relevant
inventory account.

On the basis of list of materials / transfers reclassification indicating the material code
NO. / Quantity and value, necessary Journal entries are passed by debit / credit to
relevant inventory account.
On the basis of stock verification sheet indicating stock verification no. material code
no. , shortages / overages , necessary Journal entries are passed after obtaining
clarification from stores department by debit / credit to stock adjustment account and
credit / debit to relevant inventory account after taking approval of C.F.A. wherever
required for adjustment / write-off of stores.
A list of material not moved for over 5 years is given by E.D.P. which is received by
stores / concerned programming department materials not required for production or
for other purposes are identified and suitable section is taken by I.M.M. for finding
their usage in other divisions or is auctioned.
Redundancy provisions is made in he books of accounts at the rate of 100% for non
moving inventory and for closed projects as special provisions on th basis of list given
by E.D.P. Further a normal provision at 1.5% is made on the balance inventory.

BOOK KEEPING SECTION
OBJECTIVES
To compile the accounts of the company are prepared as per the requirement of the
statute / corporate office guidelines.
To assess the performance of the company in the financial terms such as sales,
debtors, profit, value of production, value-added etc.
To furnish data/ information in respect of Income Tax Assessment done at corporate
office.
To get the accounts of the company audited by the internal, statutory and government
auditors as prescribed by law.

FUNCTIONS
Journal entries originated by the various sections of the Finance and Account
Department are sent to the book keeping section. These entries are serially numbered
and punched into the computer and thereby posted to the general ledger.
Preparation of the trial Balance, Profit & Loss account and Balance Sheet. Accounts
are computerized and are drawn for every quarter as on 30
th
June, 30
th
Sept, 31
st

December, and final accounts as on 31
st
March of each financial year.
Maintenance of Fixed Asset register and depreciation schedule.
i. For all capital items purchases, RDR are furnished by the bills payable section like
details of assets like building etc capitalized are also furnished by civil works
section to the book keeping section. The maintenance of Asset Ledger is
computerized in which the details like date of purchase, nature of items, P.O. no.
location of asset etc are recorded.
ii. Depreciation on capital asset in calculated as per the policy of the company and is
reckoned accordingly as an operating expense of the division.
Inter Divisional Transaction are accounted through control account adjustment
advices which are reconciled twice in a year at the clearing house.

Physical verification of fixed asset is done as per the guidelines of the corporate
office.
To provide support to other sections of accounts in their reconciliation and control
function.

BUDGET SECTION
OBJECTIVES
To layout a comprehensive plan of action expressed in financial and physical terms
and to achieve the targets of the company against the available resources.
It is a tool in the hands of the management to establish goals, objectives, and targets
of the company and measures the performance against the above targets.
To ensure the overall control over expenditure, it is necessary that all expenditures
(except that of contingent nature) are authorized.

FUNCTION
To ensure that capital facility is made available in time to meet the production
requirement. The proposal are classified under three categories i.e. plant and
machinery, civil works and others.
Presenting estimates and expenditure in terms of function, programs activities and
project with their financial and physical aspects closely interwoven.
The targets set are critically reviewed from the point of view of availability of
resources and their optimal utilization and to achieve cost reduction.
Analysis of variance and to find out the reasons of such variances and take suitable
remedial measures.
All the important budgets like production, sales, profit and loss, working capital etc
after the approval of the Board are broken into the monthly budgets to ensure uniform
production from month to month.


TIME OFFICE SECTION
OBJECTIVES
Maintenance of leave records and feeding of attendance records to computer
department.
Maintenance of attendance record of Casual Mails, Project Engineer and Contract
Diploma Technicians.
Receipt of approved leave application.
To provide data for the vacation leave provisions to be made in the books of Account.

FUNCTIONS
To issue the leave cards for the Calendar Year to all the employees / officers of the
division.
To maintain the leave ledger PB No. wise for all the personnel. Credit is given to each
account according to his entitlement as per the guidelines laid down by the corporate
office and the posting is done simultaneously from the attendance reports received
from the concerned department.
To verify the applications of V.L. encashment and advice accordingly to payroll
section.
To make calculations for payment of attendance bonus to Group A to Group D
employees.
To make the calculations for provisions of vacation leave to be accounted for in final
accounts.
To verify the applications for advanced vacation leave approved through P/A
Department and making adjustment thereof in subsequent time period.
To maintain night duty roaster of officers deputed on night duty and to ensure that
time off claimed in lieu of such duty is not availed beyond 90 days.

To verify the time off claimed in the lieu of extra work done/ Sunday / sports duty /
scout duty etc.
To advice the payroll section for payment of ex-gratia in accident cases.
To provide data to payroll section for payment of single wages in lieu of work done
on general holidays and double wages in lieu of work done on National holidays.
To provide data for gratuity payment in case of final settlement.
To provide data to payroll section for deduction of time losson the basis of late arrival
report received from security department.

PROVIDENT FUND SECTION
OBJECTIVES
To ensure timely collection of Provident fund money recovered from members every
month by the employer.
To invest the provident fund accumulations improved securities as stipulated by
statute.
To make payment of loans to members as per the rules/ guidelines/ bye-laws.
To prepare Income and Expenditure account and Balance Sheet of the Fund and
getting the same duly audited and approved by Trustees.
To file the returns of Provident fund to RPFC.

FUNCTIONS
The PF subscription of members is deducted monthly from salary. The amount so
deducted (which is 12% of Basic pay and DA) along with Companys contribution is
collected from the Payroll section before 10
th
of each month and credited to Funds
account.
Payment of loans (Refundable and Non-Refundable) to members as per the rules of
the company, subject to availability of funds.
The investment of Provident Find money is made in the approved securities and
details of investment is approved by the Board of trustees.
To watch timely recovery of interest ad keep watch on securities.
Interest is credited to the account of each member at such rate as may be determined
by the Board of Trustees, taking into account the income of the Trust during ach
Financial Year.
To maintain Family Pension Account of each member and remittance to RPFC at the
stipulated dates and file monthly and yearly returns.
To remit the amount of PF deductions for contractual / casual workers by cheque to
RPFC and file the return in respect of the same.

To distribute the annual statement of Pf to all the members in the format prescribed by
RPFC.
To make final payment of Pf due to a member on his retirement/resignation or to the
nominee in the case of death of a member as per rules.
To maintain accounts of Provident Fund Transactions and get audited by the statutory
auditors of the company and approved by the Board of Trustees.
To file the monthly returns in the prescribed formats and submit to RPFC by 25
th
of
each month in respect of Provident Fund and Family Pension Fund.
To forward insurance claims to LIC Bangalore in respect of deceased member.

FLOW OF WORK IN
FINANCE & ACCOUNTS DEPARTMENT
Functioning of the Finance & Account Department is divided into two parts:-
1. Personal Section
2. Official Section

PERSONAL

TIME SECTION

PAYROLL SECTION

CASH OFFICE

In Personal Section there are three departments Time Office, Payroll Section, Cash Office.
Functioning of Personal Section starts with the Time Office. This section is responsible for
calculating the attendance of employee and maintains records of it. Payroll section is
concerned with salary, wages, and incentives correspondence with the Time Office. In Cash
Office LTC reimbursement, encashment of leaves, medical payment is done by cash and
cheque. During the service period certain amount is deducted from the salary of the employee
for the future security of employee known as Provident Fund and Pension Fund.

OFFICIAL
FINANCE & BUDGET
(File Approval)

IMM
(Commercial Deptt.)

PURCHASE DEPTT.
(Purchase Order)

BILLS PAYABLE
(Payment)

COSTING & MATERIAL A/C
(Accounting Process)

BOOK KEEPING
(Book Entry)

BILLS RECEIVABLE
(Sales)

In Official section there are eight departments. First of all in Budget Department budget is
made for different Projects according to the order received. After that in Finance Section
scrutinizing function is performed this has a major role to play in capital and revenue
expenditure decision in regard to purchase of material / stores / tools and other services. Then
IMM gives the final approval and issues the purchase order. On the basis of this purchase
order Bills Payment department do the payment to the suppliers of raw material, machinery
and tools etc. when the raw material is transformed into the finished goods then the Costing
& Material account do the costing of it to find the final cost of the finished product. This data
is stored in the Book Keeping Section to know the financial position of the organization.
When these finished products are sold to the customers Bills Receivable section receive the
amount from customers. At last on the basis of outflows and inflows financial position of the
organization, profit and Loss of the organization is counted.


3.1 INTRODUCTION

Cash is the lifeline of a company. If this lifeline deteriorates, so does the
company's ability to fund operations, reinvest and meet capital requirements and
payments. Understanding a company's cash flow health is essential to making
investment decisions. A good way to judge a company's cash flow prospects is
to look at its working capital management (WCM).
Working capital, also known as net working capital, is a financial metric which
represents operating liquidity available to a business. Along with fixed assets
such as plant and equipment, working capital is considered a part of operating
capital. It is calculated as current assets minus current liabilities. If current
assets are less than current liabilities, an entity has a working capital deficiency,
also called a working capital deficit.
A managerial accounting strategy focusing on maintaining efficient levels of
both components of working capital, current assets and current liabilities, in
respect to each other. Working capital management ensures a company has
sufficient cash flow in order to meet its short-term debt obligations and
operating expenses.
A company can be endowed with assets and profitability but short of liquidity if
its assets cannot readily be converted into cash. Positive working capital is
required to ensure that a firm is able to continue its operations and that it has
sufficient funds to satisfy both maturing short-term debt and upcoming
operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable and cash.
3.2NATURE AND TYPES OF WORKING CAPITAL
The term working capital refers to current assets which may be defined as (i)
those which are convertible into cash or equivalents within a period of one year
and (ii) those which are required to meet day to day operations. The fixed asset
as well as the current assets, both requires investment of funds. The very
basics of fixed assets decision process (i.e. the capital budgeting) & the working
capital decision processes are different. The fixed assets involve long period
perspective & therefore, the concept of time value of money is applied in order
to discount the future cash flows: whereas in working capital considered. The
fixed assets affect the long-term profitability of the firm while the current assets
affect the short-term liquidity position. So in the working capital management
there are some decisions to be taken, as

1. What should be the total investments in working capital of the firm?
2. What should be the level of individual current assets?
3. What should be the relative proportion of different sources to finance the
working capital requirements?
Thus, the working capital management may be defined as the management of
firms sources and uses of working capital in order to maximize the wealth of
the shareholders. The proper working capital requires both the medium term
planning and also the immediate adaptations to changes arising due to
fluctuations in operating levels of the firm. The term working capital may be
used in two different ways,

Gross working capital (or Total working capital):

The gross working capital refers to the firms investment in all the current
assets taken together. The total of investments in all the individual current assets
is the gross working capital.
Net working capital:

The term net working capital may be defined as the excess of
current assets over total current liabilities. It may be noted that to those
liabilities which are payable within a period of one year. The extent, to which

the payments to these current liabilities are delayed, the firm gets the
availability of funds for that period. So a part of the funds required to maintain
current assets is provided by the current liabilities & the firm will be required to
invest the funds in only those current assets which are not financed by the
current liabilities. In the broad sense, the term working capital refers to the
gross working capital and represents the amount of funds invested in current
assets. In narrow sense the term working capital refers to the net working
capital. Net working capital is the excess of current assets over current liabilities
i.e.;
NET WORKING CAPITAL = CURRENT ASSETS CURRENT
LIABILITIES.
Net working capital may be positive or negative, when the current assets
exceed the current liabilities the working capital is positive or the negative
working capital results when the current liabilities are more than current assets.
Current liabilities are those liabilities, which are intended to be paid in the
ordinary course of business within a short period of normally one accounting
year out of the current assets or the income of the business.
CURRENT ASSETS
1) Cash in hand and bank balance

2) Bills receivable
3) Sundry debtors
4) Short term loans and advances
5) Inventories of stocks as:
Raw material
Work-in-progress
Stores and spares
Finished good
6) Temporary investment of surplus
funds.
7) Prepaid Expenses
8) Accrued incomes

CURRENT LIABILITIES
1) Bills payable
2) Sundry creditors or Account payable
3) Accrued or Outstanding Expenses
4) Short term loans, advances and
deposits 5) Dividends payable
6) Bank Overdraft
7) Provision for taxation if it does not
amount to appropriation of profits.

Thus both concepts of working capital i.e. the gross working capital &
the net working capital have their own relevance & a Financial Manager

should give due attention to both of these. The cash inflows & outflows for
any firm are seldom synchronized and so, some working capital is necessary.
The cash outflows occurring from the existence of the current liabilities are
more easily & correctly predictable but the cash flows from current assets are
difficult to be accurately predicted. The more predictable, these cash flows
are, the less the net working capital required by the firm. The firm with more
& more uncertain cash inflows must maintain higher &higher level of current
assets adequate to cover the current liabilities.
Before analyzing working capital management, one needs to know what
working capital is.
Working capital is simply the difference between current assets and current
liabilities.
For example, if current assets = $1,000 and if current liabilities = $400, then
working capital is equal to $600.
Working capital is an indicator of a firm's ability to take advantage of
opportunities.

TYPES OF WORKING CAPITAL
Working capital Can be divided into two categories on the basis of time: -

PERMANENT WORKING CAPITAL:-

This refers to that minimum amount of investment in all current assets which
is required at all times to carry out minimum level of business activities. It
represents the current assets required on a continuing basis over the entire
year.
Permanent working capital is permanently needed for the business and
therefore it should be financed out of long-term funds.
This is the reason why the current ratio has to be substantially more than 1

TEMPORARY OR VARIABLE WORKING CAPITAL:-
The amount of such working capital keeps on fluctuating from time to
time on the basis of business activities.
In other words, it represents additional current assets required at different
times during the operating year.
Amount of working
Temporary
Capital (Rs.)
permanent
Time
(D#2 Source: Dr. S N Maheshwari, Financial Management.)

Temporary

Amount of working permanent
Capital (Rs.)
Time
(D#3 Source: Dr. S N Maheshwari, Financial Management.)
3.3 MANAGEMENT OF WORKING CAPITAL

Guided by the above criteria, management will use a combination of policies
and techniques for the management of working capital. These policies aim at
managing the current assets (generally cash and cash equivalents, inventories
and debtors) and the short term financing, such that cash flows and returns are
acceptable.
Cash management. Identify the cash balance which allows for the
business to meet day to day expenses, but reduces cash holding costs.
Inventory management. Identify the level of inventory which allows
for uninterrupted production but reduces the investment in raw materials
- and minimizes reordering costs - and hence increases cash flow; see
Supply chain management; Just In Time (JIT); Economic order quantity
(EOQ); Economic production quantity
Debtors management. Identify the appropriate credit policy, i.e. credit
terms which will attract customers, such that any impact on cash flows
and the cash conversion cycle will be offset by increased revenue and
hence Return on Capital (or vice versa); see Discounts and allowances.
Short term financing. Identify the appropriate source of financing,
given the cash conversion cycle: the inventory is ideally financed by
credit granted by the supplier; however, it may be necessary to utilize a
bank loan (or overdraft), or to "convert debtors to cash" through
"factoring".
3.3.1 ESTIMATING WORKING CAPITAL REQUIREMENTS

In order to determine the amount of working capital needed by a firm, a
number of factors viz. production policies, nature of business, length of
manufacturing process, rapidity of turnover, seasonal fluctuations, etc. are to
be considered by the finance manager.
3.3.2 TECHNIQUES FOR ASSESSMENT OF WORKING CAPITAL
REQUIREMENTS

ESTIMATION OF COMPONENTS OF WORKING CAPITAL
METHOD
Since working capital is the excess of current assets over current
liabilities, an assessment of the working capital requirements can be made by
estimating the amounts of different constituents of working capital e.g.,
inventories, accounts receivable, cash, accounts payable, etc.
PERCENT OF SALES APPROACH

This is a traditional and simple method of estimating working capital
requirements.
According to this method, on the basis of past experience between sales and
working capital requirements, a ratio can be determined for estimating the
working capital requirements in future.
WORKING CAPITAL CYCLE
Cash flows in a cycle into, around and out of a business. It is the business's life
blood and every manager's primary task is to help keep it flowing and to use
the cash flow to generate profits. If a business is operating profitably, then it
should, in theory, generate cash surpluses. If it doesn't generate surpluses, the
business will eventually run out of cash and expire. The faster a business
expands the more cash it will need for working capital and investment. The
cheapest and best sources of cash exist as working capital right within
business. Good management of working capital will generate cash will help
improve profits and reduce risks. Bear in mind that the cost of providing credit
to customers and holding stocks can represent a substantial proportion of a
firm's total profits.
There are two elements in the business cycle that absorb cash - Inventory
(stocks and work-in-progress) and Receivables (debtors owing you money).
The main sources of cash are Payables (your creditors) and Equity and
Loans.

Each component of working capital (namely inventory, receivables and
payables) has two dimensions ........TIME ......... and MONEY. When it comes
to managing working capital - TIME IS MONEY. If you can get money to
move faster around the cycle (e.g. collect monies due from debtors more
quickly) or reduce the amount of money tied up (e.g. reduce inventory levels
relative to sales), the business will generate more cash or it will need to

borrow less money to fund working capital. As a consequence, you could
reduce the cost of bank interest or you'll have additional free money available
to support additional sales growth or investment. Similarly, if you can
negotiate improved terms with suppliers e.g. get longer credit or an increased
credit limit; you effectively create free finance to help fund future sales.
Symbolically the duration of the working capital cycle can be put as follows:
O =R +W +F +D C
Where,
O=Duration of operating cycle;
R=Raw materials and stores storage period;
W=Work-in-progress period;
F=Finished stock storage period;
D=Debtors collection period;
C=Creditors payment period.
Each of the components of the operating cycle can be calculated as
follows:-
Average stock of raw materials and stores
Average raw materials and stores consumptions per day

Average work-in-progress inventory
Average cost of production per day

Average book debts
Average credit sales per day

Average trade creditors
Average credit purchases per day

R=
=+
W=
=+
D=
=+
C=
=+

After computing the period of one operating cycle, the total number of
operating cycles that can be computed during a year can be computed by
dividing 365 days with number of operating days in a cycle. The total
expenditure in the year when year when divided by the number of operating
cycles in a year will give the average amount of the working capital
requirement.
3.4 REASONS FOR ADEQUATE WORKING CAPITAL
A firm must have adequate working capital, i.e., as much as needed by the
firm. It should neither have excessive nor inadequate. Both situations are
dangerous. Excessive working capital means the firm has idle funds, which
earn no profit for the firm. Inadequate working capital means the firm does not
have sufficient funds for running its operations, which ultimately results in
production interruptions, and lowering down the profitability.
It will be interesting to understand the relation between working capital, risk
and return. In a manufacturing concern, it is generally accepted that higher
levels of working capital decrease the risk and decrease the profitability too.
While lower levels of working capital increase the risk but have the
potentiality of increasing the profitability also.
This principle is based on the following assumptions: -
There is direct relationship between risk and profitability --- higher is
the risk, higher is the profitability, while lower is the risk, lower is the
profitability.
Current assets are less profitable than fixed assets.
Short-term funds are less expensive than long-term funds.
3.5 OBJECTS OF WORKING CAPITAL MANAGEMENT
The need for working capital cannot be over emphasized. Every
business needs some amount of working capital. So management of working
capital is necessary. Working capital is needed for the following purpose:
For the purchase of raw materials, components and spares
To pay wages and salaries
To inure day-to-day expenses and overhead costs such as fuel power
and office expenses etc.

To meet the selling costs as packing, advertising etc.
To provide credit facilities to the customers
To maintain the inventories of raw materials, work-in-progress, spares
and finished stock.
A finance manager should therefore, chalk out appropriate working capital
management policies in respect of each of the components of working capital
so as to ensure higher profitability, proper liquidity and sound structural health
of the organization.
In order to achieve this objective the finance manager has to perform basically
following two functions: -
Estimating the amount of working capital.
Sources from which these funds have to be raised.

3.6 SOURCES OF WORKING CAPITAL
The working capital requirements should be met both from short-term as well
long-term sources of funds. It will be appropriate to meet at least 2/3
rd
(if not
the whole) of the permanent working capital requirements from long-term
sources and only for the period needed.
The financing of working capital through short-term sources of funds has
the benefits of lower cost and establishing close relationship with the banks.
Financing of working capital from long-term resources provides the
following benefits:
It reduces risk, since the need to repay loans at frequent intervals is
eliminated.
It increases liquidity since the firm has not to worry about the
payment of these funds in the near future.


RESEARCH METHODOLOGY

The purpose of methodology is to describe the process involved is the research
work. This includes the overall research design, the data collection method
sampling procedure, and the field survey method & analysis procedures.

Meaning of Research:-
According to Redman & Mory:
Research as a systematized effort to gains new knowledge.

PLACE OF THE RESERCH:-
The research was conducted in Finance departments in HAL Accessories
Division Lucknow.

RESEARCH DESIGN:-
Research Design is a conceptual structure with research conducted.
There is no unique method, which can entirely eliminate the elements of under
taking. But Research methodology more than any other procedure can minimize
the degree of uncertainty, Thus it reduces the profit ability of making a wrong
choice amongst alternative causes of actions.
This is particularly significant in the light of increasing competitions & growing
size, which makes the task of choosing the best course of action difficult for any
business enterprise. It is imperative that any type of organization in the present
information coupled with tools of analysis for making sound decisions which
involved minimum risk.


The present study is based upon primary and secondary data. The
sources of primary data are the official records and discussion with the officers
in the finance dept. of the organization. The secondary sources of the data
include various publications of the organization and annual reports and audited
financial statements. The data, which are presented in this report, have been
taken from secondary sources. The data of Hindustan Aeronautics Limited,
Accessories Division, Lucknow, for the year 2008-09 and 2009-10 used in these
report have been taken from financial statements i.e., the Profit & Loss
Account, Balance Sheet for the relevant years.

TECHNIQUES OF DATA COLLECTION
Working capital management policy has a great effect on firms profitability,
liquidity and its structural health.
For analyzing the performance of working capital management, simple
mathematical tools like Percentages, Averages, and Ratios have been used in
this project work. To know the financial performances of this division,
calculation of Operation Cycle, Earning before Interest & Taxes have been
calculated.
Primary data: Was collected through the discussion with the concerned
executives.
Secondary data: Was collected through the official records, various
publications of the organization, annual report and audited financial
statements.


DATA ANALYSIS AND INTERPRETETION
TABLE- 1
CALCULATION OF PERCENTAGE OF CASH AND BANK BALANCE
TO THE CURRENT ASSETS (IN LAKHS)
PARTICULAR 2008-2009 2009-2010
A. Cash and bank balance
(Rs)
19.98 11.95
B. Current Assets (Rs) 152518.97 260862.93
C. % of Cash and Bank
Balance to Current Assets
(A/B*100)
0.013 0.004

CASH AND BANK BALANCE TO THE CURRENT ASSETS

INTERPRETATION
By analyzing the statements, it is observed that 0.013, 0.004 of current
assets were held as cash in hand and cash at bank during the years 2008-2009
2009-2010 respectively. The cash management in HAL is centralized and
managed by the corporate office.
0.013
0.004
0
0.005
0.01
0.015
2008-09 2009-10
PERCENTAGES

On the basis of yearly budgets and performance of the division, the
corporate office has fixed certain measures for smooth running of the
business. They are:
Fixing the drawl limits: After analysis of budget and forecast given by the
division, the corporate office has fixed drawl limit not exceeding 12 crores
per month. This ceiling does not include drawing the salaries and wage of
the staff
Fixing the letter of credit: the limit for opening the fore cast irrevocable
letter of credit is up to Rs 12 crores. If any urgency arises prior approval of
the corporate office it may go beyond the limit.
By fixing these types of limits, the corporate office is in position to
monitor its divisions, fund requirements and collections. By this process
divisions are not in a position to withhold/block cash at their disposal because
the net balance has to be transferred to the central account at the corporate
office at daily basis. Even though we extract the information that will not
signify the real norms.
ACCOUNTS RECEIVABLE:
Account Receivable of HAL, Koraput Division consists of sales to India air
force (IAF) and very minor amount of foreign parties in real sense there is no
such credit sales to Indian air force.
The debts are pending for collecting due to want of clarification/
documentation or some other reason. The arrangement between India Air
Force and HAL regarding payment based on the Fixed Price Quotation (FPQ).
Initially the IAF & HAL have entered into an agreement for payment like
Advance Payment depending on progress of the work & balance amount is to
be paid after completion of work.

TABLE 2
CALCULATION OF PERCENTAGE OF ACCOUNTS RECEIVABLE TO
THE CURRENT ASSETS (IN LAKHS)

PARTICULARS 2008-09 2009-10
A. Account receivable 5883.47 14655.86

B. Current assets 152518.97 260862.93
C.% of accounts receivable
to current assets (A/B*100)
3.85 5.61

ACCOUNTS RECEIVABLE TO THE CURRENT ASSETS

INTERPRETATION
The above comparison shares that: The investment in Accounts receivables
is more during 2009-2010. By increasing more credit the sales have
increased proportion. If more & more block of working capital. The
increase in ratio indicates that the management wants to push off the
accumulated stocks & go for fresh production. However the resultant credit
period extended to the customer is to be received.
It had a sudden decrease in 2008-09 due to a sudden increase in current
assets.
The percentages of accounts receivable to current assets has been 3.85%
and 5.61% respectively.
TABLE 3
CALCULATION OF AVERAGE COLLECTION PERIOD (IN LAKHS)
PARTICULAR 2008-09 2009-10
A. Debtors 5883.47 14655.86
B. Sales 140816.78 140991.83
C. Average collection
period (A/B*360 days)
16 days 38 days
3.85
5.61
0
1
2
3
4
5
6
2008-09 2009-10
PERCENTAGES


AVERAGE COLLECTION PERIOD

INTERPRETATION
From the above table we can analyze that:
The Average Collection Period (ACP) for the year 2008-09 & 2009-10 are
16 days and 38 days.
Normally 50-60 days is the lead-time for realizing the debtors for the
enterprise like HAL.
The Average Collection Period for these years is much than required.
The Average Collection Period shows the extent of time period & the
efficiency in the Collection of debtors.
Thus to improve the efficiency of HAL unit at Lucknow has to shorten the
Average Collection Period. Thus reduce the liberal term to the debtors.
Average Collection Period below would be better for HAL. As more than
95% of Collections are from Government there is no risk of bad debts.

INVENTORY MANAGEMENT IN HAL
There is a centralized stores department functioning in this division in co-
ordination with stores department, purchase department & material control
department. The responsibilities of each department have been laid down
clearly by the management.

16
38
0
10
20
30
40
2008-09 2009-10
days


TABLE 4
CALCULATION OF PERCENTAGE OF INVENTORY TO CURRENT
ASSETS (IN LAKHS)
A. Inventories 94998.36 153860.31
B. Current Assets 152518.97 260862.93
C. Percentage of Inventory
to Current Assets
(A/B*100)
62.28 58.98

PERCENTAGE OF INVENTORY TO CURRENT ASSETS

INTERPRETATION
The holding of inventory is 13-62% of current assets. This percentage has
been substantially increased from 2008-09 onwards but decreased in 2009-
10. The main cause for the accumulation of inventory is to maintain
sufficient space/raw materials to meet the emergency like war. Maximum
material of HAL, Lucknow Division is imported from Russia, there for it is
possible to decrease cost of transportation & also large-scale order will
enable HAL to bargain for cost. The main cause for the accumulation of
inventory is to maintain sufficient space/raw materials to meet the
emergency like war to safeguard the system & depositing/utilizing the non-
moving/slow moving items.
62.28
58.98
56
58
60
62
64
2008-09 2009-10
percentage

The percentages of inventory to the current assets are 62.28 and 58.98 in
the year 2008-09 and 2009-10 respectively.
In 2008-09 the percentages of 62.28% of current assets were occupied by
inventory where as the percentage has gone down.
The present system of procurement by HAL in just-in time & no
enterprise is willing to block its funds in terms of inventory as it is a
sleeping investment.
At present the inventory held is huge as compared to the standard norms.

INVENTORY ANALYSIS & SELECTIVE CONTROLS:
If inventory analysis HAL, Lucknow Division follows ABC,VED,ADF &
HMI Analysis then the inventory management of the organization functioning
smoothly. Among all the analysis, ABC analysis is widely used in this
Division. The procedures & categorization of this analysis followed by this
Division are as follows:
The annual usage in units is to be calculated for each item based on
forecast estimates.
The annual usage in units is to be multiplied with the unit cost to get the
annual usage in rupees of each item.
The items are to be ranked from the highest annual rupee usage in the
descending order to the lowest annual rupee usage an assign category.
CATAGORISATION OF ITEMS IN THE HAL, LUCKNOW DIVISION
ITEM OF VALUE % OF ITEMS % OF AGE OF USAGE

A 05-10 70-80
B 15-20 15-20
C 70-80 05-10


TABLE 5
CALCULATION OF RAW MATERIAL CONVERSION PERIOD (IN
LAKHS)

A. Closing Raw Material 46818.85 77615.98
B. Raw material consumed 64227 123733.45
C. Raw material
conversion period
(A/B*360 Days)
263 days 226 days
RAW MATERIAL CONVERSION PERIOD

INTERPRETATION:
There is significance increases in raw material conversion period. The reason
is most of the raw materials are produced from Russia. They are ordered in
bulk and hence at the closing of the period stock of raw material more. As
bulk orders will reduce the most of procuring division orders large amounts at
a time. Increase in raw materials does not affect the raw material conversion
period seriously.

Raw material conversion period is263 days in 2008-09, 226 days in 2009-
10.
The raw material conversion period is very high during 2008-09 as
compared to 2009-10.
Therefore, from the above discussion it is cleared that the raw material
level does not affect the raw material conversion period.
263
226
200
220
240
260
280
2008-09 2009-10
days

The raw material conversion period for the year 2008-09 is 263 days. This
was so high because of manufacturing of a new product the Engine SU
30.

TABLE 6

CALCULATION OF WORK IN PROGRESS CONVERSION PERIOD (IN
LAKHS)

A. Closing WIP (Rs.) 35794.14 72537.85
B. Cost of production (Rs.) 145324.85 177735.54
C. WIP Conversion period
(A/B*360)
89 days 147 days

WORK IN PROGRESS CONVERSION PERIOD

NOTE: Cost of production = Sales +Closing balance of WIPOpening balance
of WIP +Closing balance of SITOpening balance of SIT.
Where,
WIP - Work in Progress
SIT - Stock in Trade

INTERPRETATION
WIP conversion period are 89 days and 147 days in 2008-09 and 2009-10
respectively.

The company has shown an efficient management labour force & efficient
utilization of materials by maintaining a less work in progress conversion
period in year 2008-09 as compared to2009-10.
Further to improve , it has to reduce the work in progress conversion period
though aviation industry requires much time in work in progress, still
constant vigil over reducing work in progress is appreciable.
89
147
0
50
100
150
200
2008-09 2009-10
days

Due to manufacturing of the new product SU 30 the work in progress
conversion has consumed more time in the 2009-10 i.e.147 days as
compared to 2008-09.
TABLE 7

CALCULATION OF FINISHED GOODS CONVERSION PERIOD (IN
LAKHS)
A. Closing Finished
Goods.
108719 116322.85
B. Cost of Goods Sold. 127809 128945.87
C. Finished Goods
Conversion period
(A/B*360 Days)
307 days 325days
FINISHED GOODS CONVERSION PERIOD

NOTE: Cost of Goods Sold = Sales Profit
INTERPRETATION:
Finished goods conversion period is 307 days and 325 days in 2008-09 and
2009-10 respectively.
The time period consumed by the company to the convert the finished in
goods in to sales is very long.

307
325
295
300
305
310
315
320
325
330
2008-09 2009-10
days


TABLE 8
CALCULATION PAYABLE DEFERRAL PERIOD (IN LAKHS)

A. Creditors 23474.48
25846.90
B. Credit Purchase 132207.91

207532.20
C. Payable Deferral
period (A/B*360 Days)
64 days 45 days

PAYABLE DEFERRAL PERIOD

INTERPRETATION
From the above table it is seen that:
The payable deferral period i.e. the credit period allowed by the creditors
during the years 2008-09 and 2009-10 is 64 days and 45 days respectively.
This means that the amount payable to creditors was paid after a long
period of credit purchase.
Where as in 2009-10, the payable deferral period was the shortest i.e. only
45 days, which means that creditors were paid within a very short span of
time as compare to 2008-09.
The payable procedure in HAL is though banks or the letter of Credit.
But in some cases, the payment was made after receipt & acceptance of
goods.

64
45
0
50
100
2008-09 2009-10
days


TABLE 9
SUMMARY OF OPERATING CYCLE CALCULATION (IN LAKHS)
A. Inventory conversion
period
i. Raw Material
Conversion
period
ii. WIP
Conversion
Period
iii. Finished
goods
Conversion
period

263 days

89 days

307 days

226 days

147 days

325 days
Total
659 days 698 days
B. Debtors Conversion
Period
16 days 38 days
C. Gross operating Cycle
(A+B)
675 days 736 days
D. Payment Deferral Period
64 days 45 days
E. Net Operating Cycle (C-
D)
611 days 691 days
INTERPRETATION
During last two years the Gross operating cycle varies from 675 days to
736 days.
There is no specific rule or formula to know the optimum period of
operating cycle.
Usually the period is of one year.

It depends upon the time gap between two consecutive procurements.
Due to the manufacturing of the new product the Engine SU 30, the gross
operating cycle in the year 2008-09 onwards it is going higher.

TABLE 10
CALCULATION OF AMOUNT OF WORKING CAPITAL (IN LAKHS)

A. Current Assets (Gross) 152518.97 260862.93
B. Fixed Assets
(Less :Depreciation)
26612.87 36578.15
C. Total Assets (A+B) 179131.84 297441.08
D. Current Liabilities 405550.85 433890.42
E. Sales 140816.78 140991.83
F. EBIT 12630.29 12045.96
G. Rate of return (F/C*100) 7.05 4.04
H. Net working capital (A-D) -253031.88 -173027.49
I. Current Ratio (A/D) 0.37 0.60

WORKING CAPITAL

INTERPRETATION
From the above table it is observed that:
0.37
0.6
0
0.2
0.4
0.6
0.8
2008-09 2009-10
RATIO

There was gradually increase in current assets from 2008-09 to 2009-10.
The net working capital, shows the liquidity position of the company, the
position is negative in all the years.
The negative amount of net working capital i.e. if the current liabilities are
more than current assets, it does not means that the bad profitability
position of the company it happens sometimes that the net working capital
may be negative.
The EBIT shows the profitability position of the year 2008-09 and 2009-
10. The profitability position had a gradual decrease from 12630.29 lakhs
to 12045.96 lakhs.


FINDINGS

The sales of HAL Accessories Division, Lucknow are increasing year by
year, which is a positive indication of growth of the organization.
Working capital is always shows negative, because the duration of the
project of developing any aircraft engine at least for 15 years. In this
period company only take advance from customers (i.e 40% of total
amount) which are debited to share capital, so company cannot make
profit as well as the current assets are always less than the current
liabilities during this time.
HAL should indigenously get the raw material and develop spare parts
without depending on Russian to avoid unnecessary delays.
Company is very strict to their customers.
It is founded that 40% to 50% of the current asset is occupied by industry.
Company got advance from the Government of India, which resulted in
an increase in cash/bank balance.
Company annual sales turnover of Rs.11,457 crores during the Financial
Year 2009-10 and to see it reach enviable heights in the future.
This is a defense related organization, so production is made on contract
basis.


SUGGESTIONS

Organization must take necessary steps to raise the interest on loans and
advances in order to increase the revenue sources of HAL.
To maintain a good current ratio, it must try to increase the amount of
current assets.
As the analysis reveals, the division is facing a problem of liquidity due
to the reason that the payment to be received from the debtors is not
realized in the time.
That is the collection period is more than the required.
So, the HAL Accessories Division, Lucknow has to be strict to its debtors
by reducing the credit period allowed, so as to improve its efficiency in
managing work.


LIMITATION
The study of the solely depends upon reliability of the data and information
collected from the secondary sources, it is not possible to collect information on
all activities taken over the years, thus the study incorporates on limitation that
are inherent in the available publish information.

As usual Most of the information is collected from the secondary sources.
There is a gap between the theoretical analysis & its practical and real life
application. The data available is limited to the Accessories Division,
Lucknow. The overall data of HAL is not available.
Even if all the factors are taken in consideration, factors like motivation
are not considered.
As HAL comes under Defense sector of central govt. there are some
limitations upon getting the data.
The analysis is purely mathematical in nature and ignores management
factors like motivation.
The overall performance is taken into consideration without taking into
account the individual values.
The study is purely based on the data in the form of annual reports and
appraisal reports.


CONCLUSION
Cash is the life-blood of any business, no matter how large or small. If a
business has no cash and no way of getting any cash, it will have to close
down.
Cash flows in a cycle into, around and out of a business. It is the
business's life blood and every manager's primary task is to help keep it
flowing and to use the cash flow to generate profits. If a business is
operating profitably, then it should, in theory, generate cash surpluses. If it
doesn't generate surpluses, the business will eventually run out of cash and
expire.
Cash is king, especially at a time when fund raising is harder than ever.
Letting it slip away is an oversight that investors should not forgive.
Analyzing a company's working capital can provide excellent insight into
how well a company handles its cash, and whether it is likely to have any
on hand to fund growth and contribute to shareholder value.
Working capital of a business reflects the short-term use of funds these are
cash short-term securities, amount receivable and inventories of raw
materials, work in progress and finished goods.
It is also referred as to the funds required for operations of the business. It
follows a cycle process of conversion of cash into inventory, inventory to
receivable and receivable into cash.
The determination of working capital are nature of business
manufacturing cycles, credit policies, availability of raw materials,
availability of credits, growth and expansion activities and other factors.
The working in an organization mainly depends on the analysis of the
management of receivable, cash and inventories and finally the
organization profit and loss account, balance sheet highlights the working
capital status whether it is healthy or not.


BIBILOGRAPHY

REFERENCE BOOKS

MANAGEMENT ACCOUNTING S.P.JAIN & K.L.NARANG
FINANCIAL MANAGEMENT- R.P.RUSTAGI
FINANCIAL MANAGEMENT - DR. S N MAHESHWARI

REPORTS

BALANCE SHEET OF HAL
PROFIT AND LOSS ACCOUNT OF HAL
ANNUAL BOOK REPORT OF HAL

WEBSITES

www.google.com
www.hal-india.com


HINDUSTAN AERONAUTICS LIMITED

DIVISION:

PROFIT AND LOSS ACCOUNT

For the year ended 31st March 2009 (Rs. in Lakhs)

INCOME

Gross Sales 140991.83

Less Excise Duty

Net Sales 140991.83

Transfer to inter divisional units 754.03

Changes in WIP/SIT/Scrap 36766.73

Other Income 4748.82

Chances received on iter divisional transfers 75.4

Transfer from R&D reserves

183336.81
EXPENDITURE

Consumption of Raw Material, Components, etc 123733.45

Amortization &Other charges 15214.51

Salaries and Wages 21104.93

Other Expenses 8412.15

Charges paid on its divisional Transfer 3.3

Interest 1.41

Depreciation 3659.52

Provisions 9218.99

Inter services/common services 1585.9

Transfer of IDT

182934.16
Deduct :Expenditure relating to

11643.31
Capital & Other Accounts

Net Expenditure

171290.85
Profit for the Year

12045.96

Less :

Provision For Taxation (Net)

Provision For Fringe Benefit Tax

Provision For Deferred Taxation (Net)

Profit After Tax

12045.96
Profit Available For Appropriations

APPROPRIATIONS

Interim Dividend

Proposed Final Dividend

Debenture redemption reserve

General Reserve

Balance carried to balance sheet

Total of Appropriations

12045.96


DIVISION:KORAPUT

BALANCE SHEET (Rs in Lakhs)

As at 31st March 2009 31st March 2009

SOURCES OF FUNDS

Shareholders' Funds

Head office control account 4712.43

Reserves and Surplus 12045.96

16758.39
Loan Funds

Secured Loans 259.75

Unsecured Loans 0

259.75
Deferred Liabilities (Net)

0.44
Deferred Tax Liabilities (Net)

17018.58
APPLICATION OF FUNDS

Fixed Assets

Gross block 60053.35

Less : Depreciation 23475.2

Less :impairment loss

Net Block 36578.15

Capital Work-in-progress 7522.95

44101.1
Special Tools and Equipments

113380.82
Investments

Deffered tax assets

CURRENT ASSETS, LOANS & ADVANCES

Inventories 153860.31

Sundry debtors 14655.86

Cash & Bank balance 11.95

Loans & advances 92334.81

260862.93
Less: current liabilities & provisions

Liabilities 411352.28

Provisions 22538.14

433890.42
Net current assets

-173027.49
INTANGIBLE ASSETS

Gross carrying amount 44467.53

Less: cumulative amortization & impairment loss 11903.38

NET CARRYING AMOUNT

32564.15

17018.58

BALANCE SHEET (Rs in Lakhs)
DIVISION:LUCKNOW


As at 31st March 2008
31st March
2008

SOURCES OF FUNDS

Shareholders' Funds

Head office control account -89880.19

Reserves and Surplus 12630.29

-77249.9
Loan Funds

Secured Loans 468.56

Unsecured Loans

468.56
Deferred Liabilities (Net)

0.74
Deferred Tax Liabilities (Net)

-76780.6
APPLICATION OF FUNDS

Fixed Assets

Gross block 46430.09

Less : Depreciation 19817.22

Less :impairment loss

Net Block 26612.87

Capital Work-in-progress
9145.97

35758.84
Special Tools and Equipments

110774.82
Investments

Deffered tax assets

Current Assets, Loans & Advances

Inventories 94998.36

Sundry debtors 5883.47

Cash & Bank balance 19.98

Loans & advances 51617.16

152518.97
Less: current liabilities & provisions

Liabilities 387792.34

Provisions 17758.51

405550.85
Net current assets

-253031.88
Intangible assets

Gross carrying amount 38257.78

Less: cumulative amortization & impairment loss 8540.16

Net carrying amount

29717.62

-76780.6



DIVISION:LUCKNOW

PROFIT AND LOSS ACCOUNT

For the year ended 31st March 2008 (Rs. in Lakhs)

INCOME

Gross Sales 140816.78

Less Excise Duty

Net Sales 140816.78

Transfer to inter divisional units 312.82

Changes in WIP/SIT/Scrap -9121.13

Other Income 2406.65

Chances received on iter divisional transfers 31.28

Transfer from R&D reserves

134446.4
EXPENDITURE

Consumption of Raw Material, Components, etc 64227.08

Amortization &Other charges 11164.18

Salaries and Wages 7697.32

Other Expenses 8412.15

Charges paid on its divisional Transfer 2.04

Interest 4.06

Depreciation 2369.55

Provisions 1116.81

Inter services/common services
16110.35

Transfer of IDT

128246.37
Deduct :Expenditure relating to

6430.26
Capital & Other Accounts

Net Expenditure

121816.11
Profit for the Year

12630.29

Less :

Provision For Taxation (Net)

Provision For Fringe Benefit Tax

Provision For Deferred Taxation (Net)

Profit After Tax

12630.29
Profit Available For Appropriations

APPROPRIATIONS

Interim Dividend

Proposed Final Dividend

Debenture redemption reserve

General Reserve

Balance carried to balance sheet

Total of Appropriations

12630.29

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