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A CASE STUDY ON

“ANALYSIS OF OPERATING CYCLE


WITH SPECIAL REFERENCE TO
BHARTI TELETECH LTD.”

SUMITTED IN PARTIAL FULFILLMENT OF


THE REQUIREMENT OF THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION

UTTARAKHAND TECHNICAL
UNIVERSITY, DEHRADUN

SUBMITTED BY: SUBMITTED TO:

Charu Kejriwal Dr. Pradeep Suri


IMS-Dehradun H.O.D- Management
Roll No.- MB06063 IMS Dehradun
CERTIFICATE

I have the pleasure in certifying that Ms Charu Kejriwal is a bonafide student of 4 th Semester
of Institute of management studies, Dehradun University Roll no………………

She has completed her project work entitled………………………………. Under my


supervision.

I certify that this is her original effort. It has not been copied from any other source. This
project has not been submitted in any other university for the purpose of award of any degree.

This project fulfills the requirement of the curriculum prescribed by UK. TECH. University,
for the said course. I recommend this project work for evaluation and consideration for the
award of degree to the student.
ACKNOWLEDGEMENT

Indebted to many people who helped throughout the project work and in the preparation of
this report. First of all I would like to offer my sincere gratitude to Mr. Sanjeev Sehgal,
project director and Deputy finance manager of BHARTI TELETECH LTD and IMS for
giving me the opportunity to undertake this project.

I would also wish to special thank my project guide Mr. Sandeep Jain, project guide in
BHARTI TELETECH LTD for his valuable guidance during the course of the project.

I owe special debt to Fellow professionals at BHARTI TELETECH LTD, Mr. Apoorv
Kumar, Mr. Amarender Jena and Mr. Rajeev Guha for having shared the knowledge for
providing me the constant support and valuable suggestions through the project.

My thanks are also to Dr. Pradeep Suri who has helped in organizing this project.

I am also thankful to all my friends for providing me the much needed the moral support
during the course of this project.

IMS Dehradun Charu Kejriwal


(MBA-IV Sem)
PREFACE

The present study was undertaken as a part of the organizational training (1) Component of
the MBA course of masters in business studies in financial management.

The object of this training was to develop information search skills into students. This enables
them to gather information on a given subject in a systematic and consciously planned
manner.

The study was done as the project for BEETEL Ltd, New Delhi. BEETEL is engaged in
production of range of basic and cordless phones and is also National distributor of Motorola
handsets in India.

The study was carried out during the months of February-March’07. The objective was to
study the concept of Working Capital Management in detail in BEETEL and make
suggestions about the study.
CONTENTS

Certificate
Acknowledgement
Preface

1. Executive summary
2. Introduction
3. Company Profile
- BHARTI
- BEETEL
4. Review of Literature
- Components of Working Capital
- Working Capital Cycle
- Financing Working Capital
- Financial Ratios
5. Objective of the study
6. Research Methodology
7. Findings & Analysis in BHARTI TELETECH LTD.
- Evaluation of various components of Working Capital
- Working Capital Ratios
- Turnover Ratios
- Working Capital and Capital Employed
- Profit After Sales as a % to sales

8. Case Analysis (Operating Cycle)


9. Suggestions and Recommendations for improving the operating cycle
10. Conclusion
11. Bibliography
EXECUTIVE
SUMMARY
EXECUTIVE SUMMARY

India in a large and growing economy with rapidly expanding financial service sector.
Managing working capital is a matter of balance. A company must have sufficient cash on
hand to meet its immediate needs while ensuring that idle cash is invested to the
organization’s best possible advantage. To avoid tipping the scale, it is necessary to have clear
and accurate reports on each of the components of working capital and awareness of the
potential impact of outside influences.

WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES

In the analysis for Bharti Teletech Limited, a Bharti Group Company it was found that the
working capital has increased which could be mainly due to increased sales. The Gross
Operating Cycle declined significantly but the reduction was nullified due to the reduction in
inventory conversion period. This is why we see that Net operating Cycle for last two years is
almost identical. The main areas of emphasis were work in progress conversion period and
creditors conversion period. Debtors conversion period reduced but work in progress and
creditors conversion period increased. Few suggestions that are recommended for better
management of working capital are reducing inter-corporate deposits and loans, reducing
finished goods inventory, increment in creditors payment period etc.

The company uses Operating Cycle Method to calculate its Working Capital method.

Thus, good management of working capital is part of good financial management. Effective
use of working capital will contribute to the operational efficiency of a company, optimum
use will help to generate maximum returns.
INTRODUCTION
WORKING CAPTAL MANAGEMENT

Every business needs investment to procure fixed assets, which remain in use for a long
period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed Capital’.
Business also needs funds for short-term purposes to finance current operations. Investment in
short term assets like cash, inventories, debtors etc., is called ‘Short-term Funds’ or ‘Working
Capital’.

The ‘Working Capital’ can be categorized, as funds needed for carrying out day-to-day
operations of the business smoothly.

The management of the working capital is equally important as the management of long-term
financial investment. The goal of Working capital management is to ensure that the firm is
able to continue its operations and that it has sufficient cash flow to satisfy both maturing
short-term debt and upcoming operational expenses.

Every running business needs working capital. Even a business which is fully equipped with
all types of fixed assets required, is bound to collapse without
(i) adequate supply of raw materials for processing;
(ii)cash to pay for wages, power and other costs;
(iii)creating a stock of finished goods to feed the market demand regularly; and,
(iv)the ability to grant credit to its customers.
All these require working capital. Working capital is thus like the lifeblood of a business. The
business will not be able to carry on day-to-day activities without the availability of adequate
working capital.
Company Profile
-
BHARTI
BHARTI ENTERPRISE

Bharti Enterprises has successfully focused its strategy on telecom while straddling diverse
fields of business. From the creation of 'Airtel', one of India's finest brands, to becoming the
largest manufacturer and exporter of world class telecom terminals under its 'Beetel' brand,
Bharti has created a significant position for itself in the global telecommunications
sector. Bharti Airtel Limited is today acknowledged as one of India's finest companies, and its
flagship brand 'Airtel', has over 40 million customers across the length and breadth of India.

While a joint venture with TeleTech Inc., USA marked Bharti’s successful foray into the
Customer Management Services business, Bharti Enterprises’ dynamic diversification has
continued with the company venturing into telecom software development. Recently, Bharti
has successfully launched an international venture with EL Rothschild Group owned ELRO
Holdings India Ltd., to export fresh Agri products exclusively to markets in Europe and USA.
Bharti also has a joint venture - ‘Bharti AXA Life Insurance Company Ltd.’ - with AXA,
world leader in financial protection and wealth management. Bharti has recently forayed into
retail business under a company called Bharti Retail Pvt. Ltd. It also has a MoU with Wal-
Mart for the cash & carry business.
Group Structure

Highlights

 Bharti Enterprises announced new Apex level Strategic Organization Structure.


 Bharti Announced Strategic Roadmap for its Retail Venture
 Bharti Group made an arrangement to buy 5.6% direct interest of Vodafone in Bharti
Airtel Limited for US$1.6 billion
 Sunil B. Mittal has been chosen for this year’s Padma Bhushan Awards
 Bharti Airtel received Letter of Offer to provide 2G and 3G mobile services in Sri
Lanka
Company profile
-
BEETEL
BHARTI TELETECH

PROFILE

In 1985, Bharti Teletech entered into a technical


collaboration with Siemens AG, the German
technological giant and set up a plant in
Ludhiana to manufacture telephones.

Come 2005 and Beetel has journeyed across


twenty years of creating history. In 1991, Beetel manufactured phones for
'Sprint', the American telecom mammoth. Shortly after, in 1993-94, came ISO
9001-2000 accreditations for the manufacturing units - by this time two in
numbers, at Gurgaon and Ludhiana. And in a short span of time, Beetel was
already the market leader. Cornering half of the Indian market, Beetel became
'India's Favorite Phone'.

Today Bharti Teletech has two ISO 9000 certified plants with an annual capacity
of 5 million units p.a.

Bharti became the first company to:

1) Manufacture cordless telephone and telephone answering machines in


India.
2) It is also the first to launch SMS phones on fixed line in the country
thereby heralding a revolution in fixed line SMS telephony.
3) In line with customer needs, Bharti was also the first to launch backlit
LED and GSM Interference free phones.

BEETEL’s products range includes the BASIC Phones, CALLER ID Phones,


CORDLESS Phones, 1.8 GHz DECT, 2.4 GHz phones, VOIP Phones, broadband
(ADSL) equipments like Modems, routers and set top boxes.

4 BTTL is the first Indian company to manufacture 20 million phones. Today, one out of
every three phones in India is a Beetel. With rapid growth over the years, Bharti Teletech
today is the largest manufacturer of phones in the Globe outside China. Bharti Teletech
commands a lion's share of over 90%, in the extremely competitive BSNL/ MTNL
segment.

5 Bharti became the first company to export phones to Sprint Inc. USA - recognition of
our world class quality. Today, BTTL is present in 30 countries across 5 continents

Exports are a huge thrust area for Bharti. In 1991, Bharti became the first company to
export phones to Sprint Inc. USA – recognition of our world class quality. The export
operations have been highly successful over the years. In 2003-04, exports crossed the
half million mark - a quantum jump since we started. Today, we are present in 30
countries across 5 continents despite intense competition from the strongest brands in the
world. Brand building initiatives have also taken fruit in the global arena. The Beetel
brand is present in Vietnam, Iran, Chile, Oman, Bangladesh, Mauritius and Sri Lanka.
This list continues to grow with each passing month and it is a matter of time before
Beetel becomes a truly global brand.
Bharti Teletech Team is upbeat to create History by crossing a Sales Turnover beyond 2000 cores in FY
2006-07 against the last year's 543 crores.

ACHIEVEMENTS

Trend has won GOLDEN PEACOCK AWARD as the only phone with SIM
card reader. The model Millennium Clip Max (A high end Caller ID and Two
way speaker phone) recently launched in the market WON a GOLDEN
PEACOCK AWARD for INNOVATIVE DESIGN.

Beetel has a range of over 35 models across basic, feature and cordless segments
and continues to add a new model every month. With a current market share of
over 40%, Beetel is the first choice of the Indian consumer. In the growing
private service provider segment, Bharti Teletech commands a lion’s share of
over 90%. In the extremely competitive BSNL/ MTNL segment, we have crossed
a market share of 50%. BTTL has successfully met the challenge of providing
quality products at competitive prices.

Following are the new products recently introduced in the open market:-

DB 9200 - Caller Id with Speaker


CB 60000 -2.4 GHz Cordless Phones

CB 61000 -2.4 GHz Cordless Phones with base


dialing

CB 59000 -2.4 GHz Cordless Phones with color


Screen

CB 49000 - Low Priced 2.4 GHz Cordless


Phones
DF 8800 -Caller Id Phone with large Screen
Display

Following are the new products recently introduced for the DOT market as per
new TEC specifications (GTEL-02/04); all these models are GSM interference
free.

• IRIS 2K3
• GARNET
• PERIDOT (A CLI PHONE)

Beside this company has maintained its leadership in all chosen markets like PSP, DOT,
OPEN MARKET & EXPORT (exporting to 30 countries across five continents world
wide.

DOMESTIC

After years of careful and focused brand-building, Beetel is recognized as a


trusted brand in India and is poised to take on global players in the most
competitive international markets.
Beetel was the first Indian brand to launch caller ID phones in India and the first
to bring down the price of cordless phones to an affordable range at below Rs.
2000.

Beetel has also pioneered SMS phones, the first in India. With this landmark
development, India now has the pride of joining the select set of countries that
offer SMS on and from fixed-line telephony service platform worldwide. For the
consumer in India, Beetel is truly ringing in the future. Indian PTT has accepted
Beetel instruments whole heartedly and the brand has a 60% share in this market.

The private service providers have shown great faith in Beetel's products and
appreciate the company's ability to customize the phones to their specifications.
Beetel has garnered over 95% of this market.

Beetel has remained the No. 1 brand in the Indian retail market, with a market
share of over 50 %.

The company's marketing network encompasses over 580 distributors and over
30,000 dealers, taking Beetel phones to every corner of one of the biggest
markets in the world.

INTERNATIONAL

After years of careful and focused brand-building, Beetel is recognized as a


trusted brand in India and is poised to take on global players in the most
competitive international markets.

Overseas, the company has a richly diversified customer base in over 30


countries across five continents. The markets include the USA, South America,
Eastern Europe, the Middle East, South East Asia and Africa. Telephone
instruments are supplied to Siemens, Akai, Connair and the Sprint Group in the
USA among many others.

The Electronics and Computer Hardware Export Promotion Council conferred


upon Bharti Teletech, the award for the Top Telephone Instrument Exporter.

The company exemplifies a marketing success story that writes new chapters of
achievement with each passing year.

COMPANY’S VISION’S AND VALUES

VISION
To be a leader in Telecom and allied products
in chosen global market.

VALUES
Customer

We will be responsive to the needs of our


customer

People

We will trust and respect our employees

Learning
We will continuously improve our products and
services-innovatively and expeditiously

Community & Partners

We will be transparent and sensitive in our


dealing with all stakeholders

QUALITY POLICY

At Bharti Teletech quality has always been among the top priority .
QUALITY OBJECTIVES

• To meet customers' requirements in terms of functionality, safety,


aesthetics, life expectancy and taking effective actions on their feedback's.
• To ensure planned results and continual improvements in all operations
(processes and products).
• To increase productivity by reducing rejections & non-value adding
activities, and bringing automation.
• To effect continuous improvements in Customer Satisfaction Index.
• To ensure training of employees as per defined targets studying needs and
requirements.
• To ensure that all statuary and regulatory requirements are complied with.

QUALITY CULTURE

• Providing training on Quality education system right across the entire


organization to carry out continuous Improvement activity in collaborative
way.
• Deployment of Quality policy & Quality Objectives through out the
Organization in a structured way & is headed by CEO as Chairman of
Quality Improvement Team.
• Cross-functional Improvement teams to promote Synergy through sharing.
• All the employees always carry out an Improvement project, which leads
to improvement in their individual efficiency.
• Rewarding/ recognizing the good performers (individual as well as teams)
in monthly / quarterly and yearly functions.
• Encouraging innovation by way of giving token reward for each
suggestion and running trophy to department giving maximum suggestion
per person per month.
• Encouraging people to work as a team in Small Group Activities (TCAs) and
Quality Improvement Projects (QIPs)

QUALITY ACHIEVEMENTS

Bharti Teletech Limited is a Quality Conscious organization & continuously


Strives for Quality Improvement through Process Management. Some of the
achievements which have come out of company's unstinted faith in investing
for quality are :

Awards

• Golden Peacock Innovative Product/Services Award in the


Telecommunication Sector for the year 2002, the Golden Peacock For
Innovative Management for the year 2004 and Most Innovative Product
in 2005.
• Recipient of the ESC Award for Excellence in Exports in
Telecommunication Equipment in 2001-02 and 2002-03.
• Winner of the Voice & Data Award for "Top Telephone Manufacturer" in
2002-03 and 2003-04.
• Won the Consumer World Award for 2004.
• Awarded the "Top Fixed Line Phones Company-2006" by Voice and Data

BEETEL’S GROWTH

Beetel has established itself as a leader in "Modems". Beetel has also entered the "Set
Top Box" market and is on foray in this segment.

Bharti Teletech has joined hands with world leaders in their categories for manufacturing
and Distribution of their products through its Channel.

In addition to being manufactures and Distributors of "GE Phones" in India and select
SAARC countries, today BTTL are National Distributors for-

"Motorola" GSM mobile Handsets and Accessories

"Polycom" Audio and Video Conferencing Systems

"Microsoft X Box" gaming devices .


REVEIW
OF
LITRETURE

Approaches to Working capital Management


Working capital management takes place on two levels:
• Ratio analysis can be used to monitor overall trends in working capital and to
identify areas requiring closer management.
• The individual components of working capital can be effectively managed by
using various techniques and strategies.

When considering these techniques and strategies, companies need to recognize that
each department has a unique mix of working capital components. The emphasis that
needs to be placed on each component varies according to the companies. For
example, some companies have significant inventory levels; others have little if any
inventory.
Furthermore, working capital management is not an end in itself. It is an integral part
of the company’s overall management. The needs of efficient working capital
management must be considered in relation to other aspects of the company’s
financial and non-financial performance.

COMPONENTS
The term working capital refers to the amount of capital which is readily available to an
organization. That is, working capital is the difference between resources in cash or
readily convertible into cash (Current Assets) and organizational commitments for which
cash will soon be required (Current Liabilities).

Current Assets are resources which are in cash or will soon be converted into cash in "the
ordinary course of business".

Current Liabilities are commitments which will soon require cash settlement in "the
ordinary course of business".

WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

In a department's Statement of Financial Position, these components of working capital


are reported under the following headings:

Current Assets

• Liquid Assets (cash and bank deposits)


• Inventory
• Debtors and Receivables

Current Liabilities
• Bank Overdraft
• Creditors and Payables
• Other Short Term Liabilities
Component of Working Basis of Valuation
Capital
i. Stock of raw material Purchase cost of raw
Materials

ii. Stock of work in process At cost or market value,


whichever is lower

iii. Stock of finished goods Cost of production

iv. Debtors Cost of sales or sales


value

v. Cash Working expenses

Working Capital Cycle

Working capital cycle involves conversions and rotation of various


constituents/components of the working capital. Initially ‘cash’ is converted into raw
materials.

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. The cost of providing credit to customers and holding stocks can
represent a substantial proportion of a firm's total profits.

The usage of fixed assets result in value additions, the raw materials get converted into
work in process and then into finished goods. When sold on credit, the finished goods
assume the form of debtors who give the business cash on due date. Thus ‘cash’ assumes
its original form again at the end of one such working capital cycle but in the course it
passes through various other forms of current assets too. This is how various components
of current assets keep on changing their forms due to value addition. As a result, they
rotate and business operations continue. Thus, the working capital cycle involves rotation
of various constituents of the working capital. While managing the working capital, two
characteristics of current assets should be kept in mind viz.
(i) short life span, and
(ii) Swift transformation into other form of current asset.
Each constituent of current asset has comparatively very short life span. Investment
remains in a particular form of current asset for a short period. The life span of current
assets depends upon the time required in the activities of procurement; production, sales
and collection and degree of synchronization among them. A very short life span of
current assets results into swift transformation into other form of current assets for a
running business. These characteristics have certain implications:
i Decision regarding management of the working capital has to be taken
frequently and on a repeat basis.
ii. The various components of the working capital are closely related and
mismanagement of any one
component adversely affects the other components too.
iii. The difference between the present value and the book value of profit is not
significant.

If money moves faster around the cycle (e.g. collect monies due from debtors more
quickly) or the amount of money tied up is reduced (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, the cost of bank interest can be reduced or
additional free money will be available to support additional sales growth or investment.
Similarly, if improved terms with suppliers are negotiated e.g. longer credit or an
increased credit limit, then free finance to help fund future sales can be effectively
created.

Thus….

If you ....... Then ......


• Collect receivables (debtors) faster You release cash from the
cycle
• Collect receivables (debtors) slower Your receivables soak up
cash
• Get better credit (in terms of duration or You increase your cash
amount) from suppliers resources
• Shift inventory (stocks) faster You free up cash
• Move inventory (stocks) slower You consume more cash

MANAGEMENT OF COMPONENTS OF WORKING


CAPITAL

Inventory Management
Inventory includes all types of stocks. For effective working capital management,
inventory needs to be managed effectively. The level of inventory should be such that the
total cost of ordering and holding inventory is the least. Simultaneously, stock out costs
should be minimized. Business, therefore, should fix the minimum safety stock level, re-
order level and ordering quantity so that the inventory cost is reduced and its
management becomes efficient.
Average stock-holding periods will be influenced by the nature of the business. For
example, a fresh vegetable shop might turn over its entire stock every few days while a
motor factor would be much slower as it may carry a wide range of rarely-used spare
parts in case somebody needs them.
many large manufacturers operate on a just-in-time (JIT) basis whereby all the
components to be assembled on a particular today, arrive at the factory early that
morning, no earlier - no later. This helps to minimize manufacturing costs as JIT stocks
take up little space, minimize stock-holding and virtually eliminate the risks of obsolete
or damaged stock. Because JIT manufacturers hold stock for a very short time, they are
able to conserve substantial cash. JIT is a good model to strive for as it embraces all the
principles of prudent stock management.
Factors to be considered when determining optimum stock levels include:

• What are the projected sales of each product?


• How widely available are raw materials, components etc.?
• How long does it take for delivery by suppliers?
• Can you remove slow movers from your product range without
compromising best sellers?

Debtors Management

The objective of any management policy pertaining to debtors would be to ensure that the
benefits arising due to the debtors are more than the cost incurred for debtors and the gap
between benefits and cost increases profits. An effective control of receivables helps a
great deal in property managing it. Each business should, therefore, try to find out
average credit extended to its client using the below given formula
Creditors Management

Creditors are a vital part of effective cash management and should be managed carefully
to enhance the cash position. Purchasing initiates cash outflows and an over-zealous
purchasing function can create liquidity problems.

Thus, the following factors should be considered:

i. The purchasing authority in the company and whether it is tightly managed or


spread among a number of people.
ii. The purchase quantities should be geared to demand forecasts.
iii. Order quantities should be used that take into account stock-holding and
purchasing costs.
iv. The cost of carrying stock should be known.
v. Dependency on a single supplier should be avoided and facilities like best
discounts, credit terms etc. should be used from alternative suppliers.
vi. Suppliers’ returns policy should be considered.

Cash Management
Cash is the most liquid current asset. It is of vital importance to the daily operations of
business. While the proportion of assets held in the form of cash is very small, its
efficient management is crucial to the solvency of the business. Therefore, planning cash
and controlling its use are very important tasks.
Cash budgeting is a useful device for this purpose.

FINANCIAL RATIO ANALYSIS

Introduction

Financial ratio analysis calculates and compares various ratios of amounts and balances
taken from the financial statements.

The main purposes of working capital ratio analysis are:

• to indicate working capital management performance; and


• To assist in identifying areas requiring closer management.

Three key points need to be taken into account when analyzing financial ratios:

• The results are based on highly summarized information. Consequently, situations


which require control might not be apparent, or situations which do not warrant
significant effort might be unnecessarily highlighted;
• Different departments face very different situations. Comparisons between them,
or with global "ideal" ratio values, can be misleading;
• Ratio analysis is somewhat one-sided; favorable results mean little, whereas
unfavorable results are usually significant.
However, financial ratio analysis is valuable because it raises questions and indicates
directions for more detailed investigation.

Working Capital Ratio

Current Ratio

Current Assets divided by Current Liabilities

The working capital ratio (or current ratio) attempts to measure the level of liquidity, that
is, the level of safety provided by the excess of current assets over current liabilities.

Quick Ratio

Liquid Assets divided by Current Liabilities

This is another measure of liquidity. It looks at the number of days that liquid assets (for
example, inventory) could service daily operating expenses (including salaries).

Stock Turnover Ratio

Cost of Sales divided by Average Stock Level

This ratio applies only to finished goods. It indicates the speed with which inventory is
sold-or, to look at it from the other angle, how long inventory items remain on the
shelves. It can be used for the inventory balance as a whole, for classes of inventory, or
for individual inventory items.
Debtor Turnover Ratio

There is a close relationship between debtors and credit sales to third parties (that is, sales
other than to the Crown). If sales increase, debtors will increase, and conversely, if sales
decrease debtors will decrease.

Credit Sales per Period X Days per period


Average Debtors

The debtor ratio does not solve the collection problem, but it acts as an indicator that an
adverse trend is developing. Remedial action can then be instigated.

Creditor Turnover Ratio

It expresses the relationship between credit purchases and the liability to creditors. It can
be stated as the number of days that credit purchases are carried on the books.

Credit Purchases per Period X Days per period


Average Creditors

Thus…
Se. Ratio Formulae Result Interpretation
No.
Stock Average Stock = x days On average, the value of the
Turnover * 365/ entire stock is turned every x
(in days) Cost of Goods days. There may be a need to
Sold break this down into product
groups for effective stock
management.
Obsolete stock, slow moving
(i) lines will extend overall stock
turnover days.
Faster production, fewer product
lines, just in time ordering will
reduce average days.

It takes on an average of x days


to collect the due amount of
money. If the official credit

Receivables Debtors * 365/ terms are 45 day and it takes 65


= x days
Ratio Sales days... then ‘why’ should be
(ii)
(in days) found out?
One or more large or slow debts
can drag out the average days.
Effective debtor management
will minimize the days.
= x days
Payables Ratio Creditors *
On average, the suppliers are
(in days) 365/
paid every x days. If better
(iii) Cost of Sales
negotiations are done regarding
(or Purchases)
the credit terms this will
increase.
If paid earlier to the supplier,
say, to get a discount this will
decline.
If there is a deferment in
payment to the suppliers
(without agreement) this will
also increase - but the reputation,
the quality of service and any
flexibility provided by the
suppliers may suffer.

Current Assets are those assets


that can readily be turn into cash
or can be done so within 12
months in the course of business.
Current Liabilities are those

Total Current amounts which are due to pay

Assets/ within the coming 12 months.


(iv)
Current Ratio = x times
Total Current For example, 1.5 times means

Liabilities that one should be able to lay


his/her hands on $1.50 for every
$1.00 one owe. Less than 1 time
e.g. 0.75 means that one could
have liquidity problems and be
under pressure to generate
sufficient cash to meet oncoming
demands.
OBJECTIVES
OF
THE STUDY
OBJECTIVES OF THE STUDY
The objective of working capital management is to maintain the optimum balance of each
of the working capital components. This includes making sure that funds are held as cash
in bank deposits for as long as and in the largest amounts possible, thereby maximizing
the interest earned. However, such cash may more appropriately be invested in other
assets or in reducing other liabilities. My objectives of analyzing working capital
management in BEETEL are as follows:

 To study how BEETEL can improve its operating cycle.

 To study the current discrepancies in their current Working Capital Management

structure and ways to overcome them.

 To study the method which BEETEL is using to ascertain its working capital

requirement.

 To learn about the sources from which BEETEL is procuring funds to fulfill its

working capital requirements.

 To study where the procured funds have been used by BEETEL.

 To study whether the company is running effectively with as little money tied up

in current accounts as possible.


 To analyze whether the method being used for ascertainment of working capital

requirement is efficient or not.

 To have an appreciation of the financial environment within which business

operates.

RESEARCH
METHEDOLOGY
METHODOLOGY

The study is based on personal decision, interview schedules, documentary observation;


the data has been collected from the executives of the organization and through the
published sources.

RESEARCH

The research work is restricted only to the BEETEL DISTRIBUTION SYSTEM. The
study is based on the outcomes of personal interviews and documentary observation. But
the extreme care has been taken to involve the constructive suggestion from the
executives. The success of research basically depends upon the method, which is adopted
to solve the research problem i.e.

a) To collect desired information and data in a systematic manner.


b) Appropriate selection of method is necessary.

The first & foremost step in any research procedure is:-

STEP 1: Problem Formulation


It is a very important step which has to be understood properly and clearly on which the
study is based because it tells the scope of the study and it should not go beyond it nor
should execute some irrelevant aspect. In this case the study is based on how BEETEL
manages its Working capital requirements.

STEP 2: Objectives of the Study

After the problem formulation the objectives should be clear through which specific type
of information can be collected. The objective of this is to study about the management of
Working Capital for day to day business transactions.

STEP3: Determine source data

The third step includes the collection of data, which is from the source i.e. primary
secondary data. After the collection of data, it should be organized and analyzed to check
whether the objectives are fulfilled or not.

After analyzing the data investigation of research had worked out with the help of
following steps:

• Research design
• Tools & techniques

RESEARCH DESIGN:

A research is an arrangement of conditions for the collection & analysis of data in a


manner that aims the research purpose and achievements of goal with economy in
procedure depending on research problem. The study of Working Capital is generally
based on documentary evidences.

TOOLS AND TECHNIQUES:

In order to conduct the study the following methods were adopted.

1. Personal Discussion: There is certain information related to the subject


which is known to employees of the office so through connecting with the
employees and executives the information is gathered. Like, about the company
profile, its inception, growth etc.
2. Direct Personal Interviews: The investigator personally approaches the
concerned people and asks them to furnish information, which is of material input
for the enquiry. Therefore these ideas, suggestions views are collected on the
topic through interview.
3. Documentary observation: The investigator consults the secondary sources
like journals, annual reports, magazines, books, unpublished material from
library, internet and the area office.

COLLECTION OF DATA

Primary data: are those that are collected for the first time by the investigator and the
primary data used ad collected for this study are:-

 Direct Personal Interview with my project guide at BEETEL


 Indirect Oral Investigation auditors and other concerned employees at BEETEL
 Information through e-mail about the components of operating cycle from the
BEETEL manufacturing units in Ludiyana and Goa.
Secondary data: are not collected but obtained from the published and unpublished
sources and the secondary data collected for this study are:-

 Published data about BEETEL, through newspapers, magazines, research


institutes, journals and books.
 Unpublished data through scholars, libraries, area office in BEETEL.
 Company information from their BEETEL’S official website.

FINDINGS
&
ANALYSIS

ASSUMPTIONS
• All calculations have been done taking 365 days in a year.
• All sales are credit sales.
• All purchases are credit purchases.
• For all the years, opening & closing figures have been taken to calculate average
debtors, creditors, etc.
• Wages and salaries are paid at a lag of 1month.
(Rs ‘000)

Evaluation of various components of Working Capital


Major components of Working capital as % of Capital Employed are as follows:
Particulars 31st March,2005 31st March, 2006 31stMarch,2007
CURRENT ASSETS, LOANS &
ADVANCES
Inventories 2,49,252 14,59,500 51,48,650
Sundry Debtors 2,36,657 4,96,560 12,20,450
Cash & Bank Balances 77,069 3,89,130 5,07,380
Other Current Assets 11,461 7,820 2,830
Loans & Advances 3,73,321 4,11,800 5,76,470
Total Current Assets 9,47,760 27,64,810 74,55,780

Less CURRENT LIABILITIES &


PROVISIONS
Liabilities 1,55,038 14,40,230 56,40,720
Provisions 17,844 75,170 1,64,420
Total Current Liabilities 1,72,882 15,15,400 58,05,140
Working Capital 7,74,878 12,49,410 16,50,640

 Inventories -
217.67%
 Debtors -
51.60%
 Cash & Bank -
21.45%
 Loans & Advances -
24.36%
 Total Current Assets -
315.20%

 Liabilities -
238.47%
 Provisions - 6.95%
 Total Current Liabilities -
245.42%

Working Capital Ratios


Current Ratio

The Current Ratio is decreasing over the period i.e for 2005 it was 5.48:1, it went down
to 1.82:1 in 2006 and has now come down to 1.28:1 in 2007 which is very close to the
ideal ratio of 1.33:1. This indicates that there is a perfect balance between current assets
& current liabilities that the company owns. The major reasons for improvement in
current ratio are:
(i) The total % of debtors in the Current assets of 2007 has decreased to 16.37% from
17.96% in 2005.
(ii) Moreover, the percentage of money blocked in cash & bank balance has got
reduced from 14.07% in 2006 to 6.80% in 2007.
(iii) The liabilities in 2007 have increased as compared to liabilities in 2006 & 2005.
This means that the company is now trading at creditors worth.
Working Capital Ratios

5 5.48
4

3 4.04
2 1.82

1 1.28

0.86 Current Ratio


0 0.39
2005 Quick Ratio
2006
2007
Year
Quick Ratio

The quick ratio showed a drastic improvement in 2006 as compared to 2005, but it went
below the ideal quick ratio of 1:1 and in 2007 it went further down to 0.39:1. The major
reasons for changes in Quick ratio are:
(i) The company is blocking huge amount of money in maintaining their inventories i.e
69% of their total investment in current assets.
(ii) Provisions have decreased from 4.9% in 2006 to 2.8% in 2007.

Stock Turnover Ratio


Stock Turnover Ratio

10
9 9.14
8
7 6.87
6
Times

5
4 4.85
3
2
1
0
2004 2005 2006 2007 2008
Year

Stock Turnover Ratio had changed drastically from 9.14 times in 2005 to 4.85 times in
2006, but still it was way below the ideal of 6 to 7 times, which it achieved in 2007 by
coming at 6.87 times.

The major reason for improvement in Stock Turnover Ratio is that the sales have
increased because of the trading business as the company has entered in the fields of
MOTOROLA, XBOX, GE, BLACKBERRY.

Debtors Turnover Ratio


Debtors Turnover Ratio

30
28.34
25

20
Times

15
13.82
10
11.15

0
2004 2005 2006 2007 2008

Year

The Debtors Turnover Ratio has increased drastically from 13.82 times in 2006 to 28.34
times in 2007.
The major reason for change in Debtors Turnover Ratio is that the company has
entered into the trading business of MOTOROLA products and accessories. As the
company is purchasing the products from the MOTOROLA company in cash and
distributing the same, with the help of their TD’s, by providing a credit of 30 days.
Creditors Turnover Ratio

Creditors Turnover Ratio


12
11.4
10

8 7.59
Times

6 6.83

0
2004 2005 2006 2007 2008

Year

The creditors Turnover Ratio has decreased drastically from 11.4 times in 2005 to 6.83
times in 2006. This shows that the company has been paying off its debts earlier than
before. The ratio has increased to 7.59 times in 2007.
The major reason for change in Creditors Turnover Ratio is that the MOTOROLA
company is not providing any kind o credit to BEETEL for distributing the MOTOROLA
handsets.
Working Capital as a % of Capital Employed

Working Capital as a % of Capital


Employed
72.00%

70.00%
69.78%
68.00%
Percent

66.00%

64.00%
63.98%
62.00%

60.00%
58.96%
58.00%
2004 2005 2006 2007 2008

Year

Working Capital as a % of Capital Employed has increased from 58.96% in 2005 to


63.98% in 2006. It further increased to 69.78% in 2007. Even if we compare the figure of
working capital in these years then it is observed that working capital has increased from
Rs. 7, 74,878 in 2005 to Rs. 12, 49,410 in 2006 to Rs. 16, 50,640 in 2007. Thus this
increase of 32.11% in working capital of 2007 had effect on the overall profitability of
the company.

Profit After Sales as a % to Sales

PAT as a % to Sales

8.00%
7.00% 6.89%

6.00% 6.42%
5.00%
Percent

4.00%
3.00%
2.00%
1.00% 1.19%

0.00%
2004 2005 2006 2007 2008
Year
Profit After Tax as a % to sales increased from 6.42% in 2005 to 6.89% in 2006. But it
showed a drastic fall in 2007 and came down to 1.19%.
The major reason for change in PAT as % of sales is that the sales of basic and
cordless sets, manufactured by BEETEL has not increased but the balance sheet of the
company shows an increment of 96.45% on expenditure over raw materials.

BHARTI TELETECH LIMITED


BALANCE SHEET AS AT 31ST MARCH 2007
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
SOURCES OF FUNDS
SHAREHOLDERS' FUND
Share Capital 1 50,700,070
Reserve & Surplus 2 1,746,223,282 1,796,923,352

LOAN FUNDS
Secured Loan 3 560,099,122
Unsecured Loan 4 8,350,486 568,449,608

Deferred Tax Liability -


TOTAL >> 2,365,372,960

APPLICATION OF FUNDS
FIXED ASSETS 5
Gross Block 513,406,244
Less : Depreciation/Amortisation 231,900,454
Net Block 281,505,790
Capital Work in Process 140,591,016

INVESTMENTS 6 245,221,290

DEFERRED TAX ASSETS 46,924,182

CURRENT ASSETS, LOANS & ADVANCES 7


Inventories 5,148,654,309
Sundry Debtors 1,220,447,390
Cash & Bank Balances 507,383,049
Other Current Assets 2,830,564
Loans & Advances 576,465,133
7,455,780,445

Less CURRENT LIABILITIES & PROVISIONS 8


Liabilities 5,640,727,557
Provisions 164,408,934
5,805,136,491
NET CURRENT ASSETS 1,650,643,954

MISCELLANEOUS EXPENDITURE 9 486,729

TOTAL >> 2,365,372,960

SIGNIFICANT ACCOUNTING POLICIES 16 0


NOTES TO ACCOUNTS 17

BHARTI TELETECH LIMITED


PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2007

PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
INCOME
Gross Sales 24,572,389,810
Less :Excise Duty 238,438,125
Net Sales 24,333,951,685
Other Income 10 166,738,699
24,500,690,384

EXPENDITURE
Cost of Materials 11 22,719,069,689
Manufacturing Expenses 12 34,601,721
Personnel,Administration & Selling Expenses 13 1,189,899,894
23,943,571,304
PROFIT BEFORE FINANCIAL EXPS,
DEPRECIATION & AMORTISATION 557,119,079
Financial Expenses 14 68,326,817
PROFIT BEFORE DEPRECIATION &
AMORTISATION 488,792,262
Less : Depreciation/Amortisation 38,897,795

PROFIT BEFORE EXTRA ORDINARY ITEMS 449,894,467


Add / (Less) :Extra-Ordinary & Prior Period
Adjustments 15 41,192,148

PROFIT BEFORE TAXATION 491,086,615


Wealth Tax Paid 92,700
Provision for Income Tax:
(Refer note no 20 of Schedule 17)
-Current Tax 243,581,089
- Deferred Tax (52,880,620)
- Fringe Benefit Tax 8,647,244 199,347,713

PROFIT AFTER TAX 291,646,202

Surplus as per last Balance Sheet 824,124,500


PROFIT AVAILABLE FOR APPROPRIATION 1,115,770,702

APPROPRIATIONS 1,115,770,702
Proposed Dividend -
Provision for Dividend Tax -
Dividend Tax for Earlier Years -
Transfer to General Reserve -
Profit Carried Forward 1,115,770,702
1,115,770,702

EARNING PER SHARE (BASIC & DILUTED) 57.52

Significant Accounting Policies 16


Notes to Accounts 17

BHARTI TELETECH LIMITED


SCHEDULES TO ACCOUNTS

PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)

SHARE CAPITAL 1
Authorised
55,00,000 Equity Shares (Previous Year 55,00,000) of Rs. 10
each 55,000,000

Issued Subscribed and Paid up


50,70,007 (Previous Year 50,70,007) Equity Shares of Rs.10/-
each
{ (Of the above Equity Shares :
i) 5,070,000 shares are alloted as 'fully paid up pursuant to
scheme
of arrangement without payment being received in cash)
ii) 3615529 Shares are held by Holding Company - Bharti
Enterprises
(Holdings) Private Limited } 50,700,070

RESERVES AND SURPLUS 2


CAPITAL RESERVE
As per last Balance Sheet 132,191,500

SHARE PREMIUM ACCOUNT


As per last Balance Sheet 400,289,221

GENERAL RESERVE
97,971,85
As per last Balance Sheet 9
Add: Transferred from Profit & Loss Account - 97,971,859

Surplus in Profit & Loss Account 1,115,770,702

1,746,223,282

SECURED LOANS 3
From Banks #
Cash Credit & Foreign Currency Working Capital Loan 560,099,122

UNSECURED LOANS 4
Short Term Loans and Advances
7,250,00
From Holding Company 0
1,100,48
Interest accured and due thereon 6 8,350,486

Footnote: # Secured against the hypothecation of Stocks & Bookdebts of the company and First
charge on the all the Fixed Assets of the company except Land and Building at Gurgaon & the
related fixed assets.
BHARTI TELETECH LIMITED
SCHEDULES TO ACCOUNTS

PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
INVESTMENTS AT COST 6
LONG TERM INVESTMENTS
In Shares of companies (Fully Paid Up)
TRADE UNQUOTED

(a) In Subsidary Companies


400,000 Equity Shares (Previous Year 400,000 Equity Shares) of
Goa
Telecommunication & Systems Limited of Rs. 10/-each fully paid 22,820,69
up 3

b) In Other Company
Nil Equity Shares (Previous Year 16,528,404 Equity Shares) of
Teletech
Services (India) Limited of Rs. 10/- each -
22,820,693
CURRENT INVESTMENTS
(Refer Note No. 7 of Schedule 16 &Note No. 10 of Schedule
17)

OTHER THAN TRADE


In Mutual Funds (Unquoted) 95,470,580
In Equity Shares of Companies (Quoted) 126,930,017 222,400,597

245,221,29
0

Aggregated value of quoted investment 126,930,017


Aggregated value of unquoted investment 118,291,273
Market Value of Quoted Investments 147,210,594
BHARTI TELETECH LIMITED
SCHEDULE TO ACCOUNTS
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
CURRENT ASSETS,LOANS AND ADVANCES 7
INVENTORIES
(As Taken,Valued & Certified by the Management)
63,032,80
Raw Material 0
5,056,387,25
Finished Goods 5
13,840,51
Work-in- Progress 5
15,393,73
Stores and Spare Parts 9 5,148,654,309
(Raw Material amounting to Rs.21,398 thousand (PY Rs. 9,271
thousand), Finished
Goods amounting to Rs.1,370,420 thousand (PY Rs. 126,106
thousand) & Stores &
Spare parts amounting to Rs. Nil (PY Rs 128 thousand ) were in
transit at year end.)

SUNDRY DEBTORS
Debts outstanding for a period exceeding Six Months :
3,258,95
Considered Good 0
25,610,83
Considered Doubtful 1
28,869,78
1
Less : Provision for Doubtful Debts ,610,831
3,258,95
0
Others Debts :
1,217,188,44
Considered Good 0
12,684,85
Considered Doubtful 8
1,229,873,29
8
12,684,85
Less : Provision for Doubtful Debts 8 1,220,447,390

CASH & BANK BALANCES


1,197,91
Cash in Hand 7
33,054,95
Cheques & Drafts in Hand 7
Balance with Scheduled Banks:
472,609,17
In Current Account 5
350,00
In Deposit Account 0
In Margin Account (Under Lien) -
171,00
Saving Account with Post Office (Under Lien) 0 507,383,049

OTHER CURRENT ASSETS


Export Incentive & Interest Receivable:
2,830,56
Considered Good 4
3,243,22
Considered Doubtful 0
6,073,78
4
3,243,22
Less Provision For Doubtful Export Incentives 0 2,830,564

LOANS AND ADVANCES


(Unsecured Considered good unless otherwise stated)
Advances Recoverable in cash or kind or for value to be
received:
73,556,76
Considered Good 2
4,865,53
Considered Doubtful 0
78,422,29
2
4,865,53 73,556,76
Less Provision For Doubtful Advances 0 2

Security Deposits:
10,845,59
Considered Good 9
180,00
Considered Doubtful 0
11,025,59
9
180,00
Less Provision For Doubtful Deposits 0 10,845,599

Advance Tax (Net) -


Loans and Inter Corporate Deposits 268,626,625
Balance with Custom & Excise Authorities 9,203,187
Due from Subsidiary Company 214,232,960
576,465,133
Footnote: * Net of Provision for Taxation Rs. Nil thousand (Previous Year Rs.227,902
thousand)

BHARTI TELETECH LIMITED


SCHEDULE TO ACCOUNTS
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)

CURRENT LIABILITIES & PROVISIONS


CURRENT LIABILITIES 8
Trade & Other Creditors # 5,517,087,922
Advance from Customers 61,433,538
Security Deposit 58,910,543
Due to Holding Company 283,170
Investor Education & Protection Fund :
(Not due as at the year end)
- Unclaimed Dividend 241,910
Due to Directors 1,665,987
Interest Accured but not due 1,104,487 5,640,727,557
# Includes Rs. 7301 thousand (Previous Year 4,730) due to
SSI Creditors.

PROVISIONS
Proposed Dividend -
Dividend Tax -
Retirement Benefits 24,477,266
Warranty 31,018,204
Sales Tax/Excise /Service Tax 23,441,527
Sales Incentive 4,615,680
Others 46,457,437
Provision for Income Tax* 34,398,820 164,408,934
* Net of Advance Tax Rs. 388,084 thousand (Previous Year
ended Rs Nil)

MISCELLANEOUS EXPENDITURE 9
(To the extent Not written off or adjusted)
Voluntary Seperation Scheme
Opening Balance 3,159,858
Less : Charged during the year 2,673,129 486,729

b) OTHER INCOME 10
Interest (Gross) 35,672,671
(Tax deducted at source Rs. 7,994 thousand (Previous Year
6,293 thousand)
Profit on Sale of Investments:
Other than Trade - Current Investments 46,861,764
Miscellaneous Income 23,125,245
(Tax deducted at source Rs. 73 thousand (Previous Year 238
thousand)
Exchange Rate Difference 4,874,040
Dividend Received (Gross) (Current Investment - Other than
Trade) 6,798,910
Liabilities/Provisions Written Back 10,789,530
Rent Received 38,616,540
(Tax deducted at source Rs. 8,666 thousand (Previous Year
5,308 thousand)) 166,738,699

PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)

COST OF MATERIALS 11
Raw Material Consumed
Opening Stock 44,687,988
Add. Purchases 1,228,695,852
1,273,383,840
Less Closing Stock 63,032,800 1,210,351,040

Trading
Purchase of Trading Goods 25,170,393,280

Decrease/(Increase) in Work-in-progress
and Finished goods
Opening Stock
Work-in-Progress 12,121,848
Finished Goods 1,394,350,632
1,406,472,480

Less Closing Stock


Work-in-Progress 13,840,515
Finished Goods 5,056,387,255
5,070,227,770 (3,663,755,290)
Excise Duty on account of Increase/(Decrease) in Stock
of Finished Goods 2,080,659
Cost of Materials 22,719,069,689

BHARTI TELETECH LIMITED


SCHEDULE TO ACCOUNTS
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)

Manufacturing Expenses 12
Power & Fuel 13,597,049
Consumption of Stores and Spares 5,468,171
Electric Repairs 354,250
Testing Fees 254,663
Job Charges Paid 12,090,996
Machinery Repair 2,836,592 34,601,721

Personnel, Administration & Selling Expenses 13

Personnel Expenses
Salaries, Wages & Bonus 245,210,028
Contribution to Provident & Other Funds 22,002,529
Workman & Staff Welfare Expenses 9,882,792
Recruitment Expenses 12,623,766 289,719,115

Administration Expenses
Rent 12,149,283
Rates & Taxes 14,106,609
Insurance Charges 30,118,281
Travelling & Conveyance 65,975,682
Postage,Telephone & Telex 19,313,585
Repair & Maintenance:
a) Building 1,802,664
b) Others 17,709,267
Amount/Debtors Written Off 30,159,901
Miscellaneous Expenses 39,319,917
Auditors Remuneration 3,131,425
Loss on Sale of Fixed Assets # 1,271,828
Loss on Sale/Redemption of Investments (Current- other
than Trade) 8,549,643
Diminution in Value of Investment (Current- Other than
Trade) 8,669,949
Provision for Obsolete Stock -
Electricity & Water Charges 4,149,601
Board Meeting Fees & Expenses 306,702
Provision for Doubtful Debts, Advances & Claims ## 72,936,740
Research & Development 2,307,277
Exchange Rate Fluctuations - 331,978,354

Selling Expenses
Freight & Cartage 114,989,395
Advertisement & Publicity 210,024,534
Business Promotion 27,720,508
Rebate & Discount 120,660,004
Commission 5,461,866
Service Charges C & F 12,897,251
Warranty Cost 45,267,244
Spares Consumed 31,181,623 568,202,424

1,189,899,894
Less: Share of Centrailsed Expenses to Subsidiary
Company -
Less: Share of Centrailsed Expenses to Associate
Companies -
-

1,189,899,894
Footnote: # Net of Profit on Sale of Fixed Assets Rs. 329 thousand (previous year 172
thousand).
## Net of Provision of Doubtful Debts & Advances Written Back amounting to Rs.
327 thousand (previous year Rs. 1,623 thousand).
BHARTI TELETECH LIMITED
SCHEDULE TO ACCOUNTS

PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)

FINANCIAL EXPENSES 14
Interest :
- On Fixed Loan 1,562,050
- Others 42,524,081 44,086,131
Other Finance Charges 24,240,686
68,326,817

EXTRA-ORDINARY AND PRIOR PERIOD 15


ADJUSTMENTS
a) Extra Ordinary Items: Income/(Expenditure)
Voluantary Separation Scheme (2,673,129)
Provision for Sales Tax Liability -
Profit on Sale of Long Term Trade Investment 43,800,263

b) Prior Period Adjustments (Net) Income/(Expenditure)


Prior Period Expenses
Bank Charges (59,562)
Loss on Sale of Fixed Assets (5,649)
Rates & Taxes -
Advertisement & Publicity -
Other Finance Charges -
Contribution to Provident & Other Funds -
Postage, Telephone & Telex -
Freight & Cartage -
Salaries , Wages & Bonus -
Miscellaneous Expenses (21,781)
Travelling & Conveyance -
Total Prior Period Expenses (86,992)

Prior Period Income (including Reversal of Expenses)


Profit on Sale of Fixed Assets 20,932
Rent Received -
Sales -
Rates & Taxes -
Recruitment Expenses -
Depreciation/Amortisation 131,074
Miscellaneous Expenses -

Total Prior Period Income 152,006


Prior Period Adjustments (Net) 65,014

Extra Ordinary & Prior Period Adjustments 41,192,148

CASE
STUDY

Operating Cycles in BEETEL over the last 3 years

Particulars 2005 2006 2007


Working Capital (Rs ‘000) 7,74,878 12,49,410 16,50,640

Raw Material Conversion Period 11.15 days 35 days 40 days

Work-in- Progress Conversion Period 2.94 days 7 days 10 days

Finished Goods Conversion Period 37.74 days 26.27 days 17 days

Debtors Conversion Period 56.66 days 26.4 days 12.87 days


Gross Operating Days 96.4 days 82.67 days 79.87 days

Creditors Conversion Period 46.17 days 45.84 days 45 days

Net Operating Days 50.23 days 37.13 days 34.87 days

No. of Operating Cycles in a Year. 7.26 9.83 10.47


O p e r a t in g C y c le s
100
R a w M a te r ia l C o n v e r s io n
90 P e r io d
W o r k -in - P r o g r e s s
80 C o n v e r s io n P e r io d
F in is h e d G o o d s
70 C o n v e r s io n P e r io d
60 D e b to r s C o n v e r s io n
P e r io d
G r o s s O p e r a tin g C y c le
Days

50

40 C r e d it o r s C o n v e r s io n
P e r io d
30 N e t O p e r a t in g C y c le
20
C a s h C o n v e r s io n C y c le
10

0
2005 2006 2007
Year
Additional information is as follows:

Se Particulars 2004-05 2005-06 2006-07


No.
1. Lead time taken by the suppliers for 5 days 11 days 13 days
actual delivery
2. Minimum stock level held in stores 1,86,000 2,60,000 2,76,500
units units units
3. Quantity of material purchased in a single 2,96,500 2,90,000 2,89,500
order units units units
4. Time spent on each process and sub 22 minutes 18 minutes 21 minutes
process /process /process /process
5. Delivery time of the finished product to 2.5 days 2 days 1 days
the actual buyer of the product
6. Credit period allowed to customers 8 days 9 days 10 days

7. Time taken by BEETEL for depositing the 0, max 1,1,1 0, max 1,1,1 0, max 1,1,1
cheques received from debtors in the
bank
8. Credit period allowed by the suppliers for 19 days 16 days 14 days
the material purchased

9. Cash and trade discounts given to the customers and received by the customers
depends upon the amount of the customers.
10. The company has adopted decentralization method for receiving cheques from
its debtors.
11. The company shifted from assembly line to manufacturing some components in
the year 2005-2006 due to which the number of processes increased from 3 to 8.
Analysis of the above situation and the reasons for the
same

Raw Material Conversion Period:


Increased from 11.15 days in 2005 to 25 days in 2006 and then it further increased to 40
days in 2007, which is not a good sign. A constant increment will lead to higher working
capital requirement.
Reasons for the increase in the raw material conversion period are:
1) Lead Time:
)i It has increased because BEETEL has stared procuring a major part of its raw
material from international (25%) suppliers, earlier the company was
procuring from domestic (75%) suppliers.
)ii Moreover, for its spare parts and components also the company has shifted
from domestic (16%) suppliers to international (84%) suppliers.
2) Minimum Stock Level:
)i As the company is buying its raw material from foreign suppliers so it has to
maintain higher level of minimum stock as compared to previous years.
)ii The company increased its installed capacity from 20,00,000 units in 2004-
2005 to 40,00,00 units in 2005-06 with a corresponding increase in its
production from 3,92,678 units to 32,20,612 units.
)iii The installed capacity was again increased to 45,00,000 units in 2006-07 with
a corresponding increase in production to 37,59835 units.
3) Quantity of Material purchased in a single order:
i) This is because the company is now buying from international buyers and and
is maintaining a higher level of lead time so it is ordering less in each order.

Work in Progress Conversion Period:


Increased from 2.94 days in 2005 to 5 days in 2006 and again further increased 10 days in
2007, which is again not a good sign. This means that the goods are not worked upon
efficiently and there is increment in the time taken to process goods.
Reasons for the increase in the Work in Progress Conversion Period are:
1) Time Spent on each Process:
i) Till 2004-05 the company had 3 processes in all and was into assembling.
After the year 2004-05, the company entered into backward integration and
stared manufacturing its products with 8 processes, which includes:
Processes
Process 1: Manufacturing Outer Plastic Body
Process 2: Manufacturing Handset Microphone & Button Speaker installing
Process 3: Manufacturing of Hook Switch------To check if the handset is picker or
not.
Process 4: Manufacturing Rubber/Plastic Keypad--------For Dialing
Process 5: Manufacturing LCD screen-------If the phone has facilities like
Caller ID or name-number storage.
Process 6: Manufacturing Internal 4.3 ohm speaker for ring tone generation
Process 7: Manufacturing Reed Switch for Tone-Pulse selection
Process 8: Manufacturing Electronic Circuit Integration on PCB-----with
following components:
Sub Processes under process 8:
i) Opto-Coupler-----To check if the phone if off Hook
ii) 8086 Based 4 IC’s
iii) A number of Resistors and Capacitors
iv) LED(s) for Ring and dial
v) Telephone Jack Interface
vi) Copper Plated keypad interface
vii) EEPROM for data storage
viii) DTMF encoder and decoder(decoder only if Caller Id present)

ii) The company has installed better technology for manufacturing.

Finished Goods Conversion Period:


This has decreased from 37.74 days in 2006 to 26.27 days in 2006 and further decreased
to 17 days in 2007, which is a very good indicator. Thus, we see that the negative effects
due to high raw material conversion period and high work in progress conversion period
are almost wiped off.
Reasons for the decrease in the Finished Goods Conversion Period are:
1) Better advertisements
2) Better transportation facilities, reducing the time in delivery of goods from the
manufacturing unit to the buyers.

Debtors Conversion Period:


Decreased from 56.67 days in 2005 to 26.40 days in 2006 and 12.87 days in 2007, which
means that the company is collecting its debt more efficiently. A lower debtor conversion
period together with increased sales is a good sign for the company.
Reasons for the decrease in the Debtors conversion period Conversion Period are:
1) Credit Period allowed to customers:
i) The company shifted from centralization to decentralization method for
collection of payments from its debtors and on the other hand to benefit its
customers the company increased its credit collection period and hence the
steps positively affected the debtors collection period.

Gross Operating Cycle:


Decreased from 96.40 days in 2005 to 82.67 days in 2006 and 79.87 days in 2007, which
is mainly due to the reduction in debtor conversion period. A reduction in gross operating
cycle means reduced need of funds for day to day working. But the company should look
for the improvement in inventory conversion period.

Creditor Conversion Period:


Decreased from 46.17 days in 2005 to 45.54 days in 2006 and 45 days in 2007, which
means that the company is paying off its creditors earlier then before. The company
needs to delay payment to its creditors without loosing its reputation i.e. availing more
credit from its creditors to finance its working capital needs.
Reasons for the decrease in the Creditors conversion period Conversion Period are:
1) Credit Period allowed by the suppliers:
i) The company is building up its goodwill and paying back its debts on time.
ii) As the major suppliers of the company are international suppliers, hence the
company faced a credit policy change from their side.
iii)Due to 8 times increase in production capacity, the company is procuring
more quantity of raw material and hence on an average the credit time allowed
by its suppliers is being reduced , so the company has to pay back early.

Net Operating cycle:


Decreased from 50.23 days in 2005 to 37.13 days in 2006 and 34.87 days in 2007,
indicating that the company’s requirement has decreased with comparison to previous
year. The reasons for the same have been discussed above.

SUGGESTIONS
&
RECOMMENDATIONS

Recommendations

The management of the working capital is equally important as the management of long-
term financial investment. The goal of Working capital management is to ensure that the
firm is able to continue its operations and that it has sufficient cash flow to satisfy both
maturing short-term debt and upcoming operational expenses.

The various possible steps that BEETEL may take to improve its working capital
management are as follows:

• The company should look indigenous suppliers for its raw material and spare
parts requirements and reduce its lead time.
• The company is increasing its installed capacity and its production too each
year but the increase in production is not in proportion to installed capacity.
Thus, the two must be matched.

• Availing more credit from its suppliers.

• Prompt collection from its debtors.

• Moving towards zero working capital.

• Improvement in Inventory Conversion Period, mainly reduction in Work in


Progress.

• Reduction in loans and inter-corporate deposits and utilizing the money to pay
off debts and loans taken by the company.

• Given the working loan of Rs. 56,84,50,000 and interest thereon is Rs.
4,40,80,000 in 2007 which is almost 7.75%. So, the company might consider
some other sources of cheaper loans.

• The company can maintain separate books of accounts for their manufacturing
and trading businesses for more clarity and transparency in operations.

Working capital management is an important yardstick to measure a company operational


and financial efficiency. This aspect must form part of the company’s strategic and
operational thinking. Efforts should constantly be made to improve the working capital
position. This will yield greater efficiencies and improve customer satisfaction.
BIBLIOGRAPHY

Bibliography
 I.M. Pandey, Financial Management, 8th Edition

 www.bharti-teletech.com

 www.treasury.govt.nz/publicsector/workingcapital/further.asp

 www.planware.org/workingcapital.htm

 www.wikipedia.org