Академический Документы
Профессиональный Документы
Культура Документы
ON
Performance Evaluation of Working Capital
OF
BSNL
: PGDM
: PGDM-09-051
ACKNOWLEDGEMENT
I want to place on record my gratitude to the organization and its people whose generous
help and support enabled me to complete this project within the stipulated time period.
My special thanks to my project guide, Mr. Hiralal, Senior Accounts Officer (TRA),
BSNL, Moradabad for his active help, guidance and support in accomplishment of the
report.
I am greatly indebted to all those people who have helped me in some way or other in the
completion of the project. I am also grateful to the management and the staff members of
BSNL for their support and co-operation during the course of my summer training.
The Faculty of my institute deserves the praise for their role in shaping this summer
training project.
A special thanks to my parents who encourage me a lot during my project session.
I once again thanks to all those who extended their support and co-operation in bringing
out this project work successfully.
DIVYANK GUPTA
CONTENTS
PAGE NO.
CHAP 1:-INTRODUCTION
1-A:-OVER VIEW OF COMPANY
4
1-B:-MEANING OF WORKING CAPITAL
28
1-C:-WORKING CAPITAL IN BSNL
38
CHAP 4:-CONCLUSION
56
BIBLOGRAPHY
58
CHAPTER I
INTRODUCTION
(I-A) Overview of the Company
Bharat Sanchar Nigam Ltd. formed in October, 2000, is World's 7th largest
Telecommunications Company providing comprehensive range of telecom services in
India: Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service,
MPLS-VPN, VSAT, VoIP services, IN Services etc. Presently it is one of the largest &
leading public sector unit in India.
BSNL has installed Quality Telecom Network in the country and now focusing on
improving it, expanding the network, introducing new telecom services with ICT
applications in villages and wining customer's confidence. Today, it has about 46 million
line basic telephone capacity, 8 million WLL capacity, 52 Million GSM Capacity, more
than 38302 fixed exchanges, 46565 BTS, 3895 Node B ( 3G BTS), 287 Satellite
Stations, 614755 Rkm of OFC Cable, 50430 Rkm of Microwave Network connecting
602 Districts, 7330 cities/towns and 5.6 Lakhs villages.
BSNL is the only service provider, making focused efforts and planned initiatives to
bridge the Rural-Urban Digital Divide ICT sector. In fact there is no telecom operator in
the country to beat its reach with its wide network giving services in every nook &
corner of country and operates across India except Delhi & Mumbai. Whether it is
inaccessible areas of Siachen glacier and North-eastern region of the country. BSNL
serves its customers with its wide bouquet of telecom services.
BSNL is numero-uno operator of India in all services in its license area. The company
offers vide ranging & most transparent tariff schemes designed to suite every customer.
BSNL cellular service, CellOne, has 55,140,282 2G cellular customers and 88,493
3Gcustomers as on 30.11.2009. In basic services, BSNL is miles ahead of its rivals,
with 35.1 million Basic Phone subscribers i.e. 85 per cent share of the subscriber base
and
92
percent
share
in
revenue
terms.
BSNL has more than 2.5 million WLL subscribers and 2.5 million Internet Customers
who access Internet through various modes viz. Dial-up, Leased Line, DIAS, Account
Less Internet (CLI). BSNL has been adjudged as the NUMBER ONE ISP in the country.
BSNL has set up a world class multi-gigabit, multi-protocol convergent IP infrastructure
that provides convergent services like voice, data and video through the same Backbone
and Broadband Access Network. At present there are 0.6 million DataOne broadband
customers.
The company has vast experience in Planning, Installation, network integration and
Maintenance of Switching & Transmission Networks and also has a world class ISO
9000 certified Telecom Training Institute.
Scaling new heights of success, the present turnover of BSNL is more than Rs.351,820
million (US $ 8 billion) with net profit to the tune of Rs.99,390 million (US $ 2.26
billion) for last financial year. The infrastructure asset on telephone alone is worth about
Rs.630,000 million (US $ 14.37 billion).
The turnover, nationwide coverage, reach, comprehensive range of telecom services and
the desire to excel has made BSNL the No. 1 Telecom Company of India.
BSNL Registered Office
Board of Directors
Phone
Designation
CMD
Name
KULDEEP GOYAL
(Office)
23372424
Fax No
23372444
Email
cmdbsnl@bsnl.co.in
Director(Enterprise)
RAJENDRA SINGH
23734064
23734166
dir.enterprise@bsnl.co.in
Director(Finance)
GOPAL DAS
23714141
23314141
dirfin@bsnl.co.in
Director(Human Resource)
GOPAL DAS
23734070
23734072
dirhrd@bsnl.co.in
diro@bsnl.co.in
Director(Consumer Mobility)
23734073
23734075
dirplg@bsnl.co.in
23353395
23353389
csgml@bsnl.co.in
R.K.Aggarwal
2) BSNL Mobile
India's fastest growing cellular service, along with postpaid and prepaid services brings
cellular telephony to the masses, through innovative technology and strategic
pricing. This ambitious service uses state-of-the-art GSM technology to attain global
excellence and leadership in business. Our entry into this sector has brought GSM
cellular service at an affordable cost to the common man. All serving a single
objective, to provide better communication to millions across India. Customers have
reposed tremendous faith in BSNL and it has enrolled over 30 Lakh Cellular customers
3) BSNL WLL-M
BSNL WLL-M is a communication system that connects customers to the The BSNL
Landline network using radio frequency signals instead of conventional copper wires, for
the full or part connection between the subscriber and the exchange This comes with
superior voice quality and high speed data capabilities. CDMA is popular with more than
100 million subscribers worldwide, and the number keeps on increasing exponentially.
4) Internet Services
BSNL is India's no. 1 Internet service provider with more than 17 lakh
subscribers, providing Internet service throughout the entire country (except in New
Delhi and Mumbai) under the brand name of "Sancharnet". Sancharnet provides free all
India roaming and enables it's users to access their accounts, using the same access code
(172233) and user ID from any where in the Country. In order to make Internet available
through out the length and breadth of the Country Internet Dhabas are being
commissioned at all the Block Headquarters. BSNL has also started DIAS and Account
free internet access (CLI based) facility on few select cities recently.
5) BSNL Broadband
BSNL is in the process of commissioning of a world class, multi-gigabit, multi-protocol,
convergent IP infrastructure through National Internet Backbone-II (NIB-II), that will
provide convergent services through the same backbone and broadband access network.
The Broadband service will be available on DSL technology (on the same copper cable
that is used for connecting telephone), on a countrywide basis spanning 198 cities. In
terms of infrastructure for broadband services NIB-II would put India at par with more
advanced nations. The services that would be supported includes always-on broadband
access to the Internet for residential and business customers, Content based services,
Video multicasting, Video-on-demand and Interactive gaming, Audio and Video
conferencing, IP Telephony, Distance learning, Messaging: plain and feature rich, Multisite MPLS VPNs with Quality of Service (QoS) guarantees. The subscribe will be able to
access the above services through Subscriber Service Selection System (SSSS) portal.
6) Intelligent Network (IN): BSNL is providing IN services like tele-voting, toll free
calling, premium calling etc.
Products
BSNL LANDLINE
BSNL MOBILE
- POSTPAID
- PREPAID
- UNIFIED MESSAGING
- SMS & BULK SMS
BSNL WLL
INTERNET SERVICES
- NETWORK
- BROADBAND
- TYPES OF ACCESS
- WI-FI
- CO-LOCATION SERVICE
- BSNL WEB HOSTING
- INTERNET TARIFF
- DIAL UP INTERNET
BSNL BROADBAND
BSNL MANAGED NETWORK SERVICES
10
BSNL MPLS-VPN
ISDN
LEASED LINE
INTELLIGENT NETWORK
- FREE PHONE SERVICE
- PREMIUM RATE SERVICE
- INDIA TELEPHONE CARD
- VIRTUAL PRIVATE NETWORK (VPN)
- VOICE VPN
- UNIVERSAL NUMBER
- UNIVERSAL PERSONAL NUMBER
- TELE VOTING
VIDEO CONFERENCING
AUDIO CONFERENCING
I NET
TELEX/ TELEGRAPH
EPABX
- EPABX
- CENTREX
11
HVNET
TRANSPONDER
Challenges
During Financial Year 2007-2008 (From April 01, 2006 to March 31, 2007) BSNL has
added 9.6 million new customers in various telephone services taking its customer base
to 64.8 million. BSNL's nearest competitor Bharti Airtel is standing at a customer base
of 39 million. However, despite impressive growth shown by BSNL in recent times, the
Fixed line customer base of BSNL is declining. In order to woo back its fixed-line
customers BSNL has brought down long distance calling rate under OneIndia plan,
however, the success of the scheme is not known. However, BSNL faces bleak fiscal
2006-2007 as users flee, which has been accepted by the CMD BSNL. Presently there is
an intense competition in Indian Telecom sector and various Telcos are rolling out
attractive schemes and are providing good customer services. However, BSNL being
legacy operator and its conversion from a Government Department earns lot of criticism
for its poor customer service.
Although in recent past there have been tremendous improvement in working of BSNL
but still it is much below the Industry's Expectations. A large aging (average age 49
years (appx)) workforce (300,000 strong), which is mostly semi-illiterate or illiterate is
the main reason for the poor customer service. Further, the Top management of BSNL is
still working in BSNL on deputation basis holding Government employee status thus
having little commitment to the organization. Although in coming years the retirement
profile of the workforce is very fast and around 25% of existing workforce will retire by
2010, however, still the workforce will be quite large by the industry standards. Quality
of the workforce will also remain an issue.
12
13
14
BSNL Network
TELEPHONE
as on
46,96,641
30.09.08
as on
5,54,928
31.07.09
as on
19,31,182
30.09.08
as on
33,206
30.09.08
(Route kms)
Coaxial
6,024
Microwave
50,430
UHF
45,130
Optical Fiber
5,60,086
82
99/38
TELEGRAPH
961
Telecom Centers
716
Combined Offices
44,754
Bureau-Fax Centers
MOBILE SERVICES
1427
(As on 28.2.2010)
15
59945215
-618(All
covered)
-362117
- 24769
-56705 (OUT
OF 62373)
-85772(OUT
OF 130007)
-43950(OUT
OF 53522)
16
973378
INTERNET SERVICES
(As on 30.10.2006)
SN
No. of nodes
2851
ANDHRA PRADESH
23
173105
ASSAM
15
17005
BIHAR
15
16064
CHHATTISGARH
19990
GUJARAT
22
146658
HARYANA
16
63702
HIMACHAL PRADESH
17758
27342
10
JHARKHAND
18964
11
KARNATAKA
27
162722
12
KERALA
15
260799
13
MADHYA PRADESH
43
71198
14
MAHARASHTRA
36
211950
15
NORTH EAST-I
9750
16
NORTH EAST-II
11958
17
ORISSA
13
33629
18
PUNJAB
19
122120
19
RAJASTHAN
32
96362
20
TAMILNADU
31
298509
21
UTTRANCHAL
10
26381
22
39
67081
23
20
67883
24
WEST BENGAL
12
36932
25
291
26
219202
27
119714
28
1129
17
TOTAL
427
2747624
Grievances
Redressal
Mechanism
(Public
Grievance
Redressal
Mechanism)
BSNL has a well structured and multilayered Public Grievances Redressal Mechanism
including Dispute Resolution Mechanism. The Public Redressal setup in BSNL has
been introduced right from the Corporate Office to SSA(Secondary Switching Area)
levels. Subscribers having complaints or grievances can interact with the organization
through the following for Public Grievance / Dispute settlements: (i) Complaints are being booked on "198". This Toll Free Service of booking complaints
are available in every telephone system. Grievances can be booked on "12727"(for Circle
Office) or "1095" (for District Office). This special Toll Free Service has been introduced
by BSNL for booking public grievances.
(ii) In every office 'visiting hours' are prescribed where the subscribers having complaints
or grievances can approach the officers of BSNL at various levels,
(iii) Public Grievance Officers are available right from Corporate Office to SSA
(Secondary Switching Area) level.
18
(iv) Special attention is being given to holding meetings with consumer organizations.
(v) Telephones Advisory Committees have been constituted,
(vi) Senior Officers are available for public without prior appointment during specified
hours on working days.
(vii Customer Service Centers have been opened for IMPCS.
II
Telephone Adalats:
Subscribers whose grievances remained unsettled are invited to make petitions for
redressal of their grievances in Telephone Adalats. SSA(Secondary Switching Area)
Level Telephone Adalats are being conducted on bimonthly periodicity and Circle level
Telephone Adalats are being conducted once in three months.
Customers are asked to give their grievances in writing with all supporting documents
within stipulated period to District Complaint Officer (DCO). The concerned office to
whom the case relates examines the case received by DCO and settles the case. A
speaking order settling the case is communicated to the customers. For unsettled cases, a
date is fixed for holding the Telephone Adalat. The customers are invited to attend the
19
Telephone Adalat. The Adalat is presided over by General Manager of the area. The
concerned officers of the Department are also called to be present in the Adalat. The full
details of the case is presented to the presiding officer. The order of the presiding
officer is communicated in the Adalat after hearing the arguments from both the parties.
Appellate Jurisdiction of Telephone Adalats:
Circle level adalats headed by CGMs can consider the cases of the appeals against the
decisions of the adalats chaired by SSA Heads. Adalats headed by SSA Heads can
consider cases of excess billing which have been rejected by them as administrative heads
of SSAs.
IV.
BSNL ensures prompt rectification of any fault or complaint booked through its extensive
grass root level online fault restoration system (FRS). However, in case you still have
your problem unsolved timely, BSNL has implemented a three tier consumer grievance
redressal mechanism comprising of call centres for various services, nodal officers at
SSA and Circle level and an appellate authority for deciding cases that the consumers
may wish to appeal against. As a first step, you may contact our Call Centre on toll free
helpline numbers given below.
For basic services including broadband services:1500 (toll free number)
For GSM Mobile services: 9400024365 (toll free number).
For Broadband &Internet services:1800-424-1600 (toll free number).
For MPLS & Other Data services: 1800-425-1957 (toll free number).
1.
20
(a) Shall register such complaint by allotting a unique identification number to be called
the docket number;
(b) Communicate, at the time of lodging the complaint, the unique identification number
to be called docket number, date and time of registration of the complaint, to you;
(c) Record details in respect of such complaint;
(d) Intimate you
(i) Through telephone or other electronic means or any other means; and
(ii) Within the time limit specified the action taken on your complaint; and
(e) give you contact details of the Nodal Officer (including his name, telephone number
and address) in case you are not satisfied with the redressal of your grievance or when
requested by you.
1.1
(1) Unless specified elsewhere, all complaints relating to fault or disruption of service or
disconnection of service shall be redressed within three days from the date of registration
of complaint;
(2) Unless specified elsewhere, all other complaints shall be redressed within seven days
from the date of registration of complaint;
(3) where lesser time limit has been specified by any other law for the time being in force
or other regulations of TRAI or DOT or by BSNL for redressal of grievance, the Call
Centres shall redress the grievances of the consumer within such specified time.
In case you are not satisfied with the redressal of your grievance at the Call Centre level
or in case the Call Centre within the above time limit does not attend to the complaint,
you may approach the Nodal Officer for redressal of your grievance.
2.
21
You may approach, by a letter in writing, or through telephone, or web based online filing
of complaints or through short message service or through other electronic means and any
other means, the Nodal Officer of the concerned SSA of the Circle/District for redressal
of your grievance.
In emergent situation, one can approach at the first instance itself a Nodal Officer instead
of a Call Centre and the Nodal Officer shall redress the grievance.
2.1
The Nodal Officer shall be accessible to the consumers at the address made available by
the public notice and telephone bills, as referred to above register every complaint lodged
by the consumers;
1.
Communicate, within three days from date of the receipt of the complaint, the
After taking the remedial measure for redressal of the grievance or decision thereon,
intimate, within the time limit specified as below the remedial measure or decision taken,
to the consumer.
2.2
The Nodal Officer shall redress the complaints of the consumer within ten days of the
registration of the complaint, provided that complaints relating to fault or disruption of
service or disconnection of service shall be redressed within three days from the date of
registration of complaint.
In case the consumer is still not satisfied with the redressal of his grievance by the Nodal
Officer or in case his complaint is not redressed by the Nodal Officer within the time
limit specified or no reply is received regarding resolution of the complaint from Nodal
Officer, he may appeal to the appellate authority for redressal of his grievance.
Accounting Policies
Basis of Preparation of Financial Statements
22
The financial statements of Bharat Sanchar Nigam Limited (the Company or BSNL)
are prepared under the historical cost convention adopting the accrual method of
accounting in accordance with Indian Generally Accepted Accounting Principles and in
accordance with the provisions of the Companies Act, 1956 (the Act).
Revenue Recognition
Income from services is accounted for on accrual basis and in conformity with
Accounting Standard 9 of ICAI. Accordingly,
a) Revenue for all services is recognized when earned and are realizable at the time of
billing. Unbilled revenues from the billing date to the end of the year are recorded as
accrued revenue during the period in which the services are provided. Provision is made
in respect of bills considered to be disputed (by the management), debts outstanding for
more than two years and for debts due for less than 2 years, to the extent considered
necessary by the management.
b) Installation Charges recovered from subscribers at the time of new telephone
connections are recognized as income in the first year of the billing.
c) In terms of the arrangement between Department of Telecommunications (DoT) and
the Company, the charges for telecommunication services and other infrastructural
services provided by BSNL to DoT are neither being billed nor provided for.
d) Sale proceeds of scrap arising from maintenance and project works are taken into
miscellaneous income in the year of sale.
e) Income from SIMs, recharge coupons of Mobile, Prepaid Calling Cards, and Prepaid
internet connection cards are treated as income of the year in which the payment is
received since the extent of use of these cards within the financial year could not be
ascertained.
f) Wherever there is uncertainty in realization of income, such as liquidated damages,
claims on Government Departments & local authorities etc., these are recognized on
collection basis.
23
Fixed Assets
a) Fixed assets are carried at cost less depreciation. Cost includes directly related
establishment and other expenses including employee remuneration and benefits, directly
identifiable to the construction or creation of the assets.
b) Expenditure on replacement of assets, equipments, instruments and rehabilitation
works is capitalized if, in the opinion of the management, it results in enhancement of
revenue generating capacity.
c) Assets are capitalized to the extent completion certificates have been obtained,
wherever applicable.
d) The cost of stores and materials at the time of issue to a project, is debited to CWIP.
e) Apparatus and plants principally consisting of telephone exchanges, transmission
equipments and air conditioning plants etc. are capitalized as and when an exchange is
commissioned and put to use.
f) Cables are capitalized as and when ready for connection to the main system.
g) Intangible assets are stated at cost of acquiring the same less accumulated
depreciation / amortization.
24
Depreciation/Amortization
Depreciation is provided based on the Written down Value method at the rates prescribed
in Schedule XIV to the Companies Act, 1956 except for Subscriber Installation. The
Subscriber Installation is depreciated over the useful life of 5 years on Written Down
Value method.
Assets costing up to Rs. 5,000 are depreciated fully in the year of purchase. Similarly,
partition works costing up to Rs. 2,00,000 are depreciated fully in the year of
construction.
The depreciation on machinery & tools used both for project and maintenance work is
charged to profit and loss account instead of capitalization. All telephone exchange
buildings,
administrative
offices
and
captive
consumption
assembling
25
a) Transactions in foreign currency are recorded at the exchange rate prevailing on the
date of the transaction i.e. on the date of payment or receipt as the case may be.
b) All Foreign Currency Liabilities and monetary assets are stated at the exchange rate
prevailing as at the date of Balance Sheet and the difference taken to Profit and Loss
Accounts as Exchange Fluctuation Loss or Gain.
Extraordinary Items
Extra-ordinary items of income and expenditure, as covered by AS 5, are disclosed
separately.
Manufacturing Expenses
Expenses incurred at Factory units are allocated to the cost of the manufactured products.
Prior Period Items
Items of Income/expenditure exceeding Rs. 5 lakh are only considered for being treated as
'prior period items'.
Taxes on Income
Taxes on Income for the current period are determined on the basis of taxable income and
tax credits computed in accordance with the provisions of the Income Tax Act, 1961.
In accordance with the AS-22, Deferred Tax Liability is recognized on the timing
differences between accounting income and the taxable income for the period taking into
consideration the contents of Accounting Standard Interpretations 3 and quantified using
the tax rates in force or substantively enacted as on the Balance Sheet date. Deferred Tax
Assets are recognized and carried forward to the extent there is a virtual certainty that
such deferred tax assets can be realized.
Provisions
26
Provisions are recognized when the Company has a present obligation as a result of past
events; it is more likely than not that an outflow of resources will be required to settle the
obligation; and the amount has been reliably estimated.
Contingent Liabilities
Liabilities, though contingent, are provided for if there are reasonable chances of
maturing such liabilities as per management. Other contingent liabilities, barring frivolous
claims, not acknowledged as debts, are disclosed by way of notes.
Segment Reporting
The primary segment consists of basic and cellular services provided. The
manufacturing activities have not been treated as a separate segment since such activities
are essentially carried on as support service to other segments.
The following specific accounting policies have been followed for segment reporting:
Segment Revenue includes service income and other income directly identifiable
with/allocable to the segment.
Income/expense, which relates to the Company, as a whole and not allocable to individual
business segment is included in Un-allocable Corporate Income/expense respectively.
Expenses that are directly identifiable with/allocable to segments are considered for
determining Segment Results.
Segment Assets and Liabilities include those directly identifiable with the respective
segments. Un-allocable corporate assets and liabilities represent the assets and liabilities
that relate to the Company as a whole and not allocable to any segment
27
2)
Working capital.
Every business needs funds for two purposes-for establishment and to carry out its dayto-day operations. Long term funds are required to create production facilities.
28
Through purchase of fixed assets such as plants and machinery, land, building, furniture,
etc. An investment in these assets represents that part of firms capital which is blocked
on permanent or fixed basis and is called fixed capital. Funds are also needed for shortterm purpose for the purchase of raw material, payment of wages and other day-to-day
expenses, etc. These funds are known working Capital.
capital refers to that part of the firms capital, which is required for financing shortterm or current assets such as cash, marketable securities, debtors and inventories.
Funds thus invested in current assets keep revolving fast and are being constantly
converted into cash and these cash flows out again in exchange for other current assets.
Hence, it is also known as revolving or circulating capital or short-term capital.
CLASSIFICATION OF WORKING CAPITAL
Working Capital may be classified on two bases:On the basis of Concept:-On the basis of concept, working capital can be classified as,
On the basis of Time:-On the basis of time, working capital can be classified as,
Gross Working Capital:The Gross Working Capital is the Capital invested in the total current assets of the
enterprises. Current assets are those assets, which can be converted into cash within a
short period, normally an accounting year.
Gross Working Capital = Total Current Assets
Net Working Capital:29
The term Net Working Capital refers to the excess of current assets over current
liabilities, or say,
Net Working Capital= Current Assets Current Liabilities
Net Working Capital can be positive or negative. When the current asset exceeds the
current liabilities the working capital is positive and the negative working capital results
when the current liabilities are more than the 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 of the income of the
business. The gross working capital concept is financial or going concern concept
whereas net working capital is an accounting concept of working capital. Both the
concepts have their own merits.
The gross concept is sometime preferred to the concept of working capital for the
following reasons:# It enables the enterprise to provide correct amount of working capital at correct time.
# Every management is more interested in total current assets with which it has to operate
then the sources from where it is made available.
# It takes into consideration of the fact every increase in the funds of the enterprise would
increase its working capital.
# The concept is also useful in determining the rate of return on investments in working
capital.
The net working capital concept, however, is also important for the following
reasons:# It is a qualitative concept, which indicates the firms ability to meet its operating
expenses the short term liabilities.
# It indicates the margin of protection available to short term creditors.
# It is an indicator of financial soundness of enterprise.
30
# It suggest the need of financing a part of working capital requirement out of the
permanent sources of funds.
Permanent or Fixed Working Capital
Permanent or fixed capital is the minimum amount, which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. Every
firm has to maintain a minimum level of current assets is called permanent or fixed
working capital as this part of working capital is permanently blocked in current assets.
As the business grow the requirement of working capital also increases due to increase in
current assets.
Temporary or Variable Working Capital
Temporary or variable working capital is the amount of working capital, which is
required to meet the seasonal demands and some special exigencies. Variable working
capital can further be classified as seasonal working capital and special working
capital. The capital required to meet the seasonal need of the enterprise is called the
seasonal working capital. Special working capital is that part of working capital which is
required to meet special exigencies such as launching of extensive marketing campaign
for conducting research etc.
Temporary working capital differs from permanent working capital in the sense
that it is required for short periods and cannot be permanently employed gainfully
in business.
NEEDS AND OBJECTIVES FOR WORKING CAPITAL
Every business needs some amount of working capital. The needs for working capital,
arises due to time gap between production and realization of cash from sales. There is an
operating cycle involved in sales and realization of cash. There are time gaps in purchase
of raw material and production, production and sales, and realization of cash.
Thus working capital is needed for the following purposes:
To incur day- to- day expenses and overhead costs such as fuel, power and office
expenses etc.
To maintain the inventories of raw material, work in progress, store and spares
and finished stock.
For studying the need of working capital in a business, one has to study the business
under varying circumstances such as new concern, as a growing and one, which has
attained maturity. A new concern requires a lot of funds to meets its initial requirement
such as promotion and formation etc. These expenses are called preliminary expenses and
are capitalized. The amount needed for working capital depends upon the size of the
company and the ambition of its promoters. Greater the size of the business unit generally
will be the requirement of the working capital. The requirement of the working capital
goes on increasing with the growth and expansion of the business till its gains maturity.
At maturity the amount of working capital required is called normal working capital.
FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENT
NATURE OF BUSINESS
The requirement of working capital is very limited in public utility undertaking such as
Electricity, Water Supply and Railways because they offer cash sales only and supply
services not products and no funds are tied up in inventories and receivables. On the other
hand the trading and financial firm requires less investment in fixed assets but have to
invest large amounts in current assets. The manufacturing undertakings requires sizable
amount of working capital along with fixed investments.
PRODUCTION POLICY
32
The determination of working capital needs depends upon the production policy of the
business. The demand for certain products is seasonal i.e., such products are purchased in
certain months of a year. For such industries two types of production policy can be
followed. Firstly they can produce the goods in the months of demand or secondly, they
produce for the whole year. If the second alternative is followed, it would mean that till
the time of demand finishes, product will have to be kept in stock. It would require
additional working capital.
LENGTH OF PRODUCTION CYCLE
The longer the manufacturing time, the raw material and other supplies have to be carried
for a longer time in the process with progressive increment of labor and service costs
before the final product is obtained. So working capital is directly proportional to the
length of the manufacturing process.
RATE OF STOCK TURNOVER
There is an inverse co-relationship between the quantum of working capital and the
velocity or speed with which the sales are affected. A firm having a higher rate of stock
turnover will need lower amount of working capital as compared to a firm having a low
rate of turnover.
CREDIT POLICY
Credit policy affects the working capital requirements in two ways:
A concern that purchases its requirements on credit and sells its product/services on cash
requires lesser amount of working capital and vice-versa.
WORKING CAPITAL CYCLE
33
The speed with which the working cycle completes one cycle determines the
requirements of working capital. Longer the cycle larger is the requirement of working
capital.
DEBTORS
CASH
FINISHED
RAW MATERIALS
WORK IN
GOODS
PROGRESS
34
BUSINESS FLUCTUATION
In period of boom, when the business is prosperous, there is a need for larger amount of
working capital due to rise in sales, rise in prices, optimistic expansion of business etc.
On the contrary in time of depression, the business contracts, sales decline, difficulties are
faced in collection from debtors and the firm may have a large amount of working capital
idle.
EARNING CAPACITY AND DIVIDEND POLICY
Some firms have more earning capacity than other due to quality of their products,
monopoly conditions, etc. Such firms may generate cash profits from operations and
contribute to their working capital. The dividend policy also effects the requirement of
working capital. A firm maintaining a steady high rate of cash dividend irrespective of its
profit needs more working capital than the firm that retains larger part of its profits and
does not pay so high rate of cash dividend.
PRICE LEVEL CHANGES
Price level changes also affect working capital needs. If the prices of different goods
increase, to maintain same level of production, more working capital is needed.
1. Estimate the cash cost of various current assets requirement: The cash cost of a current
asset is:
Value of current asset
(-) Profit element, if any, included in the value.
(-) Non-cash charges like depreciation, if any, included in the value.
2. Deduct the spontaneous current liabilities from the cash cost of current assets: A
portion of the cash cost of current assets is supported by trade credit and accruals of
wages on expense, which may be referred to as spontaneous current liabilities. The
balance left after such deduction has to be arranged from other sources
In 1997, the RBI permitted banks to evolve their own norms for assessment of the
Working Capital requirements of their clients.
CASH FLOW BASED COMPUTATION OF WORKING CAPITAL
_ Drawing up cash flow statements (monthly or quarterly) for the past few years clearly
indicate the seasonal and secular trend in utilization of working capital.
_ The projections drawn up by the entrepreneur may then be jointly discussed with the
banker as modified in light of the past performance and the bankers opinions.
_ The peak cash deficit is ascertained from the cash budgets.
_ The promoters share for such requirement maybe mutually arrived at by the banker
and the borrower with the balance requirement forming the Bank financed part of
Working Capital.
Cash flow based computation of working capital requirement has been recommended by
the RBI for assessment of working capital requirement permitting the banks to evolve
their own norms for such assessment However the reluctance to provide the cash budgets
thereby revealing additional information to the banks, has led to even larger companies
shying away from Cash Budget method of assessing Working Capital. Consequently
36
37
balance, less will be the number of transaction and vice-versa. However the opportunity
cost of maintaining the cash rises, as the cash balance increases.
KEY OF WORKING CAPITAL
On the basis of Concept
There are two concept of working capital
(i) Balance sheet Concept
(ii) Operating Cycle
(i) Balance Concept
There are two interpretation of working capital under the balance sheet concept.
(a) Gross Working Capital
(b) Net Working Capital
(ii) Operating cycle Concept
The gross operating cycle of a firm is equal to the length of the inventories and
receivables conversion period.
(c) Gross Operating Cycle: = RMCP + WIPCP+ FGCP+ RCP
Where RMCP = Raw material conversion period
WIPC = work in -progress conversion period
FGCP = Finished Goods conversion period
RCP = Receivables conversion period
RMCP = Avg. stock of RM / RM Consumption per day
WIPC = Avg. Stock of WIP / Total cost of production per day
FGCP = Avg. Stock of finished Goods / total cost of sales per day
38
Cash
Debtors\ B/R
Inventory.
39
But before looking into these factors the finance policies and revenue strategies must be
given due importance. These are as follows:Finance Policy of BSNL
Standards of Financial Proprieties
Ever officer incurring or authorizing expenditure from public funds should be guided by
high standards of financial propriety. Every officer should also enforce financial order and
strict economy at every step and see that all relevant financial rules and regulations are
observed, by his own officer and by subordinates disbursing officers.
Among the principles on which emphasis is generally laid are the following:
1. Every officer is expected to exercise the same vigilance in respect of expenditure
incurred from public moneys as a person of ordinary prudence would exercise in respect
of expenditure of his own money.
2. The expenditure should be prima-facie more that the occasion demands.
3. No authority should exercise its powers of sanctioning expenditure to pass an order
which be directly or indirectly to its own advantages.
4. Expenditure from pubic moneys should not be incurred for benefit of a person or
section of the people unless. a claim for the amount could be enforce in a Court of Law,
or b. the expenditure is in pursuance of a recognized policy or custom.
5. The amount of allowances granted to meet expenditure of a particular type should be so
regulated that the allowances are not on the whole a source of profit to the recipients.
6. The responsibility and accountability of every authority delegated with financial
powers to procure any item or service on Government account is total and indivisible.
Government expects that the authority a concerned will have the public interest
uppermost in its mind while making a procurement decision. The responsibility is not
discharged merely by the selection of the cheapest offer.
40
7. Whenever called for, the concerned authority must place on record in precise terms, the
considerations which weighed with it while talking the procurement decision.
Revenues Strategies
The telecom sector is the most competitive sector post liberalization. This has resulted in
a movement from growth based business model that emphasized growth in numbers to
profit-based model where the success is measured by margins. BSNL as part of the
transition has to adopt both cost reduction and revenue enhancement measures, which
would directly impact profitability.
It is evident that there is a declining trend in basic services and there is stagnation in
cellular revenues. Revenue maximization strategies will have two components, one
internal to the organization and the other external. The internal aspect would involve an
initiative for change of process, technology, organizational structure etc. In this context,
revenue assurance is the key to improving the bottom line for BSNL. This is proactive
strategy to capture all revenues due for the services provided. Presently, BSNL generates
bills through different softwares across the zones of operation, which are disintegrated
and provide only basic solutions. The industry standard for revenue leakage is about 3 to
7% percent of revenue, which in money terms translates to about Rs.2100 crores for
BSNL. Therefore plugging revenue leakages is just the first and most obvious part of a
Revenue Assurance initiative. The key concerns for BSNL for effective revenue
realization are
_ The delay in customer billing after activation
_ Time lag between calls generated and billed
_ Scope of fraud
_ Non-availability of uniform database.
Therefore the focus should be on immediate implementation of CDR based billing. This
would require huge investment but the return would more than commensurate. The
software should be scalable and be able to incorporate all the next generation value
41
added services. The implementation of CDR based system will also generate the
following benefits:
_ Plugging of leakage of revenue.
_ Formulation of appropriate marketing strategies.
On the basis of our research in the BSNL, Cash, Debtors, Inventories are managed
in the organisation, in the under mentioned manner.
CASH AND BANK BALANCES MANAGEMENT
The unit is dependent on the Corporate Office for the procurement of the cash. The
Corporate Office fulfills all the cash requirements of the unit. The unit prepares cash
budget for the whole year. A copy of the cash budget is sent to the Corporate Office. The
Corporate Office examines the cash budget and sanctions the funds accordingly. The
current position of the company is as follows.
Bank reconciliation statements in respect of six collection accounts of units under four
circles have not been prepared. In fourteen circles, it has been noticed that cheques
deposited with the bank & TT sent, have not been credited in the relevant bank accounts
of the company amounting to Rs. 8,596 lakh (P.Y. Rs. 4,012 lakh) as on 31.03.2009. The
management has taken up the case with the concerned banks for early crediting of the
amount in the respective account.
In sixteen circles (P.Y. eleven circles), unlinked credit items amounting to Rs. 1,677 lakh
(P.Y. Rs. 2,160 lakh) and in thirteen circles (P.Y. nine circles) unlinked debit items
amounting to Rs. 1,446 lakh (P.Y. Rs. 907 lakh) are appearing in the bank reconciliation
statement as at 31.03.2009. The management is in the process of reconciling all such
items at the earliest possible.
Bank balances in one circle include cheques in hand pending to be deposited in to bank
on 31.03.2009. Amount has not been quantified. In three circles cash/cheque/DD
amounting to Rs. 46 lakh (P.Y. not ascertained) has been received but remains pending
to be accounted in the books as on 31.03.2009.
42
DEBTORS MANAGEMENT
According to the extent of security deposits held by the company, thecclassification of
the sundry debtors as secured unsecured/considered good and considered doubtful, to the
extent available as per sub ledger is as follows:
Rs. In lakhs
PARTICULARS
127592
179713
but 122543
145959
Doubtful Debts
399731
422609
Total
649866
748281
Considered
good
unsecured
In twenty eight circles, the difference in the closing balance of subsidiary ledger and the
sundry debtor figure of the General Ledger has been noticed the General Ledger balance
which are considered for preparation of financial statement, being more by Rs. 8,788
lakh (P.Y. Rs. 13,887 lakh - GL excess) to the extent identified. The management is in
the process of reconciling these differences; pending reconciliation no adjustment has
been made. The provision for doubtful debts is made on the basis of information
available in the subsidiary records.
The requirement of Schedule VI of the Companies Act, 1956 has been complied with
respect to classification of Sundry Debtors as Secured, Unsecured & Doubtful and with
respect to age wise analysis as Debtors exceeding six months and other debts as per sub
ledger.
INVENTORY MANAGEMENT
43
Inventories, in BSNL, are valued at cost or net realizable value as the case may be cost
ascertained generally on weighted average method; obsolete/non moving inventories are
valued at net realizable value. The position of inventories as on 31st march 2009 is as
follows.
Physical inventory taken is being reconciled with the detailed inventory records and the
same will be further reconciled with the balance as per the financial books. Prices for the
transfer of stock from Telecom Factories to circles for self-consumption are
predetermined. The predetermined rates include direct cost including overhead allocation
at a fixed rate. This practice has resulted in internal profit of Rs. 1,404 lakh (P.Y. Rs.
1,546 lakh) for the year ended 31st March 2009 arising out of such transfer. The said
amount has been netted off against the administrative expenses in the profit and loss
statement for the year since it is not possible to identify the individual items of stores,
which have been capitalized or expensed off.
In certain cases, the Company has placed orders for procuring inventory at provisional
prices say 80-90% of the previous purchase price. Final purchase price in such cases is
determined at a later date. Price difference in such cases is adjusted on the total material
available in stock at the time of finalization of purchase price. The proportionate price
differential on the already consumed material is adjusted on the existing stock.
In all circles, the non-moving, slow moving and obsolete inventories are in the process of
identification. Pending finalization of the process, no provision if any, that may be
required, has been made.
At several locations physical verification of stock has been conducted by the
management during the year. Physical inventory taken is being reconciled with the
detailed inventory records and the same will be further reconciled with the balance as per
the financial books. In all circles, the difference between the Store Ledger and the
General Ledger to the extent identified amounting to Rs. 575 lakh (net) has been noticed
and is under reconciliation. The consequential adjustment will be made after the process
of reconciliation is over.
44
CHAPTER II
OBJECTIVE OF THE STUDY
The basic objective of the report is to evaluate the Performance of Working Capital in
BSNL regards to all factors includes Liquidity, Cash, Debtor and Inventory so as to
optimize the resources of Working Capital.
In nutshell the project seeks the position of Working Capital in BSNL.
45
CHAPTER III
ANALYSIS AND FINDINGS
(3-A) Cash Management
DIFFERENT SOLUTION FOR CASH MANAGEMENT
SOLUTION OF THE PROBLEM OF CASH MANAGEMENT WITH THE HELP OF
CERTAIN RATIOS
46
CURRENT RATIO
It is the best ratio to find relationship between the current assets and current liabilities of
BSNL. We can easily calculate the current ratio with the help of the following formula.
Years
Calculations
Ratio
2004-2005
3847879/1461541 2.6:1
2005-2006
4953909/1612334 3.07:1
2006-2007
5374788/1667919 3.22:1
2007-2008
5805843/1739788 3.33:1
2008-2009
5774861/2072702 2.78:1
Interpretation: As we know that the current ratio of any company may be 2:1 but according to the U.S.A.
Accounting standard a company should maintain a ratio of 1.33:1.
From the above table we can analyze that the current ratio of BSNL in 2005 is 2.6:1
which has risen to 3.07:1 in 2006, which shows an increase in current assets greater than
the increase in current liabilities. In 2007 the ratio has increased to 3.22:1, in 2008 it has
risen upto 3.33:1, which shows that the increase in current assets is more than current
47
liabilities consistently for three years. In 2009 the ratio has decline to 2.78, which shows
that the increase in current liabilities is more than current assets in this year.
LIQUIDITY RATIO:This ratio establishes a relationship between quick assets and current liabilities.
The major objective to compute this ratio is to measure the ability of the firm to meet its
short-term obligations as and when due without relying upon the realization stock.
We can easily calculate this ratio with the help of the following formula:
Calculations
Ratio
2004-2005
2432016/1461541 1.66:1
2005-2006
3400497/1612334 2.10:1
2006-2007
4102291/1667919 2.45:1
2007-2008
4514851/1739788 2.59:1
2008-2009
4357927/2072702 2.10:1
Interpretation
Liquid ratio indicates that what amounts of liquid assets are available for each rupee of
current liability. We know that the liquid ratio of any company may be 1:1, is considered
to be satisfactory. Now comparing the companys position according to the liquid ratio.
In 2007-08 the ratio is 2.59:1 which the best liquidity position years were for the
company.But it followed a downward trend in 2008-09 i.e. to 2.10. Otherwise in 200405, 2005-06, 2006-07, the ratios are 1.66:1, 2.10:1, 2.45:1 respectively.
48
It means that the liquidity position of the company is constantly increasing (upto 2008) it
is because of large amount of liquid assets as compared to current liabilities. Also the
numbers of debtors of the company are increasing. This is not better from managements
point of view. As more of amount is blocked in the debts and chances of bad debt will
increase.
49
Debtors turn over ratio establishes a relationship between net credit sales and average
trade debtors. The major objective to calculate ratio is to determine the efficiency with
which the trade debtors are managed. We can easily calculate this ratio with the help of
the following formula:
YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
ACTUAL
ACTUAL
ACTUAL
ACTUAL
ACTUAL
Turnover
3345004
3613894
3461621
3235953
3026857
AVERAGE
663703
646954
594135
552308
509302
5.03:1
5.58:1
5.82:1
5.85:1
5.94:1
Debtors
Ratio
INTERPRETATION:
It indicates the speed with which the debtors turnover an average each year. In general a
high ratio indicates the shorter collection period which implies prompt payments by
debtors and a low ratio indicates a long collection period which implies delayed payment
by debtors. So we can see from the above table that in the last five years the company is
trying to improve the debtors turnover ratio.
In 2004-05 it is the least i.e. 5.03:1 but it again started improving in 2005-06 5.58:1, in
2006-07 5.82:1, in 2007-08 5.85:1 in 2008-09 5.94:1. It depicts that how efficiently
debtors are collected.
50
YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
ACTUAL
ACTUAL
ACTUAL
ACTUAL
ACTUAL
Turnover
3345004
3613894
3461621
3235953
3026857
AVERAGE
663703
646954
594135
552308
509302
Ratio
5.03:1
5.58:1
5.82:1
5.85:1
5.94:1
Days of
inventory
73
65
63
62
61
Debtors
Interpretation
We can check the managerial efficiency with the help of this ratio by the comparison of
average collection period and credit policy of the company. From the table we can
analyze that in the year 2004-05 it was 73 days , but in year 2005-06 & 2006-07 there
was a decrease and it falls down to 65 & 63 respectively .
This indicates that the company was following a liberal policy, comparatively, in 2004-05
but it improved in the succeeding years. If the days are increasing it indicates that the bad
debts are also increasing but the case is just reverse in BSNL. It is difficult to lay down a
standard collection period; it depends upon the nature of the business. As a general rule
the receivables should not exceed 4 to 5 months of credit sales.
51
Inventory turn over ratio establishes a relationship between net credit sales and average
inventory. The major objective to calculate ratio is to determine the efficiency with which
inventories are managed. We can easily calculate this ratio with the help of the following
formula:
Inventory turn over ratio =Net credit sales / average inventory
YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
ACTUAL
ACTUAL
ACTUAL
ACTUAL
ACTUAL
Turnover
3345004
3613894
3461621
3235953
3026857
AVERAGE
184480
186250
188333
188664
188404
Ratio
18.13:1
19.4:1
18.38:1
17.15:1
16.06:1
Days of
Holding
20
19
20
21
23
Inventory
INTERPRETRATION
If we see from the above table that the days of inventory holding in the year 2005-06 has
come down to 19 days from 20 days in the previous year. In spite of increase in turnover
i.e. 3613894 in 2005-06 from 3345004 in the year 2004-05, the days of inventory holding
decreases. This indicates that the company is using effective strategy to bring down its
inventory level. This makes very less investment in inventory. But from 2007 the case is
just reverse. The inventory holding period has increased consistently.
52
53
54
55
CHAPTER- IV
CONCLUSION
In short time I have done vocational training in BSNL. It is very difficult to elaborate all
the work of working capital management. But I have tried my level best to cover all the
work done by it.
This project was undertaken in order to know the effectiveness of working capital section
of finance department of the company. I would like to conclude my project with these
points:
The company is able to reduce its working capital from, 1647722 lacks to
3208281 lacks in a span of five years without affecting the sales of the company
which means that company is sincerely utilizing its funds and has reduced the
locking of funds.
56
The current liabilities of the company have increased which means that company
has adopted a good realization policy.
The increased current liability is about 460378 lacks in just a span of five years.
The current ratio of the company in last five years has increased from 2.6 to 2.78
which revels that company is moving from conservative working capital strategy
to aggressive working capital strategy.
The quick ratio of the company has inclined from 1.66 to 2.10 in the span of five
years.
The latest working capital ratio indicates the efficiency of utilization of net
working capital is increased from 2.427 to 6.891 in a span of five years.
The current assets turnover ratio has increased from .63 to 1.18 in a span of six
years which indicates that current assets are efficiently turning into sales.
The debtors turnover ratio has gone up from 5.03 to 5.94 which show that the
company is collecting its debtors efficiently.
The debtors collection period has decreased from 73 days to 61 days which
shows that the company is collecting its debts speedily.
The inventory holding period has increased from 20 to 23 days which shows that
inventory is not turning into finished goods very quickly and the company has not
been able to reduce the locking of funds in inventories.
So at last I can say it was a good experience. I learnt a lot from there and I
am sure that this knowledge will help me forever. I can never forget these 45 days of
internship in BSNL.
57
BIBLIOGRAPHY
To complete this summer training project report the following sources were
referred:
www.bsnl.co.in
58
59