Financial Management Bhel 2010

Tej Inder Singh
Roll No. 29
MBA -General -Section A
Assignment no 1
Company: BHEL
Industry: Power Sector
Contents
1. Executive summary of the company and its industry.
2. Company’s capital expenditures analysis.
3. Account balances for properties, plant and equipment.
4. Company’s capital structure in comparison with its competitors.
5. Beta measure of the company.
6. Weighted average cost of capital(WACC) of the company.
7. Company’s debt-equity ratio in comparison to its competitors.
8. Du-Pont analysis of the company.
9. Comments:
a) Working capital position.
b) Cash position.
c) Short term financing.
d) Credit policy.
e) Inventory management policy.

Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
1
BHARAT HEAVY ELECTRICALS
Introduction :
In the post Independence era when India was moving towards industrialization the
major thrust of the govt. was in the core sector and this sector was given to the public
sector. With this objective, Heavy Electricals (I) Limited was setup in Bhopal in
August, 1956 with a view to reach self sufficiency in the industrial product and power
equipment. This plant was setup under technical collaboration of M/s AEI, U.K.
Three more plants were subsequently setup Tiruchy, Hyderabad and Haridwar with
Soviet and Czechoslovakian assistance in May 1965, Dec 1965 and Jan 1967 respectively.
As there was need for an integrated approach for the development of power
equipment to be manufactured in India, Heavy Electronics Ltd. Bhopal was merged
into BHEL in 1974.
BHEL has now become the largest Engineering and Manufacturing Company. Its
headquarters is located at Delhi.
BHEL Objectives :
A dynamic is one which keeps its aim high adopts itself quickly to changing
environment. So here we are in BHEL.
The objectives of the company have been redefined in the corporate plan for the 90’s.
Business Mission :
To maintain leading position as supplier of quality equipment, systems and services in

the field of conversion, transmission, utilization and conversion of energy for
application in the areas of electric power, transportation, oil & gas explorations and
industries.
Utilize company’s capabilities and resources to extend business into allied areas and
other priority sector of the economy like defense, communication and electronics.
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
Growth :
To ensure a steady growth by enhancing the competitive edge of BHEL in existing

business new areas and international market so as to fulfill national expectation from
BHEL.
Profitability :
To provide a reasonable and adequate return on capital employed, primarily through

improvement in operational, efficiency, capacity utilization and productivity and
generate adequate internal resources to finance the company’s growth.
Focus :
To build a high degree of customer confidence by providing increased value for his
money though International standards of product quality performance and superior
customer service.
People Orientation :
To enable each employees to achieve his potential, improve his capabilities perceive
his role and responsibilities and participate and contribute to the growth and
success of the company.To invest in human resources and continuously and alive to
there need.
Technology :
To achieve technological excellence in operation by development of indigenous

technologies and efficient absorption and adoption of imparted technologies to suit
business and priorities and provide competitive advantage to the company.
Image :
To fulfill the expectation which stakes holders like government as owner. Employees,
customers and the country at large have from BHEL.
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
BUSINESS AREAS
BHEL covers a wide area of business. These areas are mentioned below.
Power:
Provide a gamut of equipment for Thermal, Hydro and Nuclear Power Plants.
Range includes products and systems for the power generation, transmission and
utilization.
Transmission:
BHEL is manufacturing transmission equipments for all voltage rating including the
400 KV class transformers switch gears, control and relay panel, insulators, capacitors
and other substation equipments.
Industry:
Offers a comprehensive range of electrical, electronic and mechanical equipment

for a host of industries fertilizers, petrochemicals, refineries, paper, sugar, rubber,
cement, coal, steel, aluminum and mining.
Transportation:
BHEL offers a variety of transportation equipment to meet the growing needs of

country. 65% of Indian Railways are equipped with BHEL manufactured traction
equipment. Underground metro also runs on drives and control supplied by
BHEL.BHEL has taken up the manufacturing of locomotive to provide a pollution free
transportation. BHEL also offers a battery operated passenger van to Delhi
Government.
Oil and Gas:
Equipment for oil and gas exploration and transportation is manufactured by BHEL.
The range covers super deep drill rigs with matching draw works and hosting
equipment.
Non Conventional:
BHEL is playing a vital role in helping to harness the vest renewable sources of solar,
wind and biogas energy. BHEL has supplied several water heating system, windmills
generators and photo voltaic system.
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
Tele Communication:
BHEL has entered the field of telecom with electronics PABX system based on
indigenous technology from C-DOT.
Manufacturing Technologies:
BHEL has 14 manufacturing plants, which are spread different parts of the country
having unique manufacturing and testing facilities, CNC machines, turbine blade
shape system, system bener, 8000-ton hydraulic press, heavy-duty lathe mailing
machines and many more are available.
ACTIVITY PROFILE OF BHEL

Power Sector Projects:
♦ Thermal sets and auxiliaries.
♦ Steam generators and
♦ Industrial fans.
♦ Electrostatic Precipitators.
♦ Air pre-heaters.
♦ Nuclear power equipment.
♦ Hydro sets and auxiliaries.
♦ Motors
♦ Transformers
♦ Rectifiers
♦ Pumps
♦ Heat exchange
♦ Capacitors
♦ Porcelain/Ceramic insulators
♦ Seamless steel tubes
♦ Castings and forgings
System/Services:
♦ Turnkey power station
♦ Data acquisition system
♦ Power system
♦ HVDC commissioning system
♦ Erection and commissioning system
♦ Modernization and rehabilitation
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
Transportation Sector :
♦ Diesel electric generators

♦ AC/DC locomotives and loco shunters
♦ Traction system for Railways
♦ Electric trolley buses
Industry Sector :
♦ Boilers
♦ Valves
♦ T G Sets
♦ Power devices
♦ Solar cells
♦ Photo Voltaic cells
♦ Gas turbines
♦ Off rigs
♦ Blow out preventers
♦ Wind mills
♦ Control system for electric devices
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
2
Company’s capital expenditure analysis.
Rs. In crores
Sr. No. Year Capital Expenditure Change as compared

with previous year
1 2008-09 700.46 407.64
2 2007-08 292.82 61.39
3 2006-07 231.43 70.51

4 2005-06 160.92 -2.07
5 2004-05 162.99 61.19
Here in this case, the Capital Expenditures is not constant. Capital expenditure has changes considerably
changed. Its has been maximum for the year 2008-09, while for the year 2005-06 it shows
underinvestment. For the year 2008-09 the capital expenditure is very large owing to the new projects
undertaken by the company.
Data is taken from SCHEDULE 5 :FIXED ASSETS
capital expenditure
500
400
300
200 capital expenditure
100
0
-100 2008-09 2007-08 2006-07 2005-06 2004-05
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
Particulars Cost As at Additions/adj Deductions/ad Cost As at

31.03.2008 ustments justments 31.03.2009
during the during the
Factory/ Office Complex year year
Freehold land (incl. 4.22 0.15 4.37
Leasehold land 6.15 0.05 6.20
Roads, bridges and culverts 7.05 1.39 0.04 8.40
Buildings 347.67 135.29 2.04 480.92
Leashold buildings 3.04 0.08 3.12
Drainage, s 12.48 1.18 0.07 13.59
Railway siding 7.91 0.76 8.67
Locomotives and wagons 16.01 11.44 27.45
Plant & Machinery 2482.55 360.54 8.91 2834.18
Electronic data processing 98.43 22.17 5.26 115.34
euipment
Electrical installations 95.19 20.80 0.13 115.86
Construction Equipment 250.36 125.54 0.42 375.48
Vehicles 18.77 0.51 0.73 18.55
Furniture & fixtures 14.63 4.88 0.02 19.49
Office & other equipments 74.00 7.85 1.15 80.70
Fixed assets costing upto 55.95 8.01 0.30 63.66
Rs.10000/- 0.44 0.44
Capital expenditure
Assets Given on Lease 497.15 497.15
EDP Equipment taken on lease 146.16 99.31 27.67 217.80
Office & other equipment taken 1.52 0.38 0.41 1.49

Intangible Assets
Internally developed
Software
Others 2.46 2.52 4.98
Software 68.87 20.68 0.54 89.01
Technical Know-how 22.86 22.86
Others 8.80 8.80
4242.67 823.53 47.69 5018.51
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
3
Account balances for properties, plant and equipment.
Rs. In crores
Sr. No. Year Properties, Change when % change

As at 31st march equipment compared with
& plant machinery previous year
1 2009 1137.39 252.6 22.20
2 2008 884.79 -1.91 -0.21
3 2007 886.70 8.05 0.90
4 2006 878.65 -62.86 -7.15
5 2005 941.51 -54.08 -5.74
6 2004 995.59 -75.42 -7.57
7 2003 1071.01
As we may see , change in properties, equipments and plant machinery has been the highest for the year
2008-09 which is 22%. While for previous years the company didn’t not focus on technology up gradation.
As we may see that it had shown negative trend in regard to properties, equipments and plant
machinery.
The above increase is due to globalization and increasing competition that company has focused
considerably on it.
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
change in properties, equipment ,plant and

machinery
25
20
15
10
0
2009 2008 2007 2006 2005 2004
-5
-10
change in properties, equipment ,plant and machinery

Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
4
Company’s capital structure in comparison with its competitors.
The term capital structure refers to the percentage of capital (money) at work in a business by type.
Broadly speaking, there are two forms of capital: equity capital and debt capital.
In other words, capital structure refers to the way a corporation finances its assets through some
combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or
'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said
to be 20% equity-financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this
example, is referred to as the firm's leverage. In reality, capital structure may be highly complex and
include tens of sources.The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton
Miller, forms the basis for modern thinking on capital structure, though it is generally viewed as a purely
theoretical result since it assumes away many important factors in the capital structure decision. The
theorem states that, in a perfect market, how a firm is financed is irrelevant to its value. This result
provides the base with which to examine real world reasons why capital structure is relevant, that is, a
company's value is affected by the capital structure it employs. These other reasons include bankruptcy
costs, agency costs, taxes, information asymmetry, to name some. This analysis can then be extended to
look at whether there is in fact an optimal capital structure: the one which maximizes the value of the
firm.
For BHEL, currently the debt employed is very less, which means that the debt is much lower than equity.
In other words the firm prefers equity over debt.
Where as other companies, of the same industry, when compared with BHEL show a better mix of debt
and equity. Suzlon energy and BGR energy employs a good mix of debt and equity in the capital structure
as compared to BHEL..
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
BHEL Comparison With its Competitors
Rs in crores
company Total Debt Networth capital structure

debt equity
BHEL 149.37 12,938.81 1.14126 98.85874
Larsen 6,556.03 12,459.69 34.4769 65.5231
Suzlon Energy 7,329.48 6,580.32 52.6929 47.30708
BEML 567.64 1,915.37 22.861 77.13904
BGR Energy 707.8 561.15 55.7784 44.2216
100
80
60
equity
40 debt
20
0
BHEL Larsen Suzlon Energy BEML BGR Energy
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
equity
100
80
60
40 equity
20
0
BHEL Larsen Suzlon BEML BGR
Energy Energy
debt
60
50
40
30
debt
20
10
0
BHEL Larsen Suzlon BEML BGR
Energy Energy
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
5
Beta measure of the company
BETA measure of the company is 0.94
(Source :http://www.reuters.com/finance/stocks/overview?symbol=BHEL.BO)
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
6
WACC of the Company
The weighted average cost of capital is defined by:
Where,
The following table defines each symbol:

Symbol Meaning Units
C weighted average cost of capital %
Y required or expected rate of return on equity, or cost of equity" %
B required or expected rate of return on borrowings, or cost of debt %
tc corporate tax rate %
D total debt and leases (including current portion of long-term debt and rs
notes payable)
E total market value of equity and equity equivalents rs
K total capital invested in the going concern rs
Or
WACC = wd (1-T) rd + we re
wd = debt portion of value of corporation
T = tax rate
rd = cost of debt (rate)
we = equity portion of value of corporation
re = cost of internal equity (rate)
Amount in “%”
Year 2004-05 2005-06 2006-07 2007-08 2008-09
WACC 14.4 11.5 11.6 12.3 13.4
Taken from Economic Value Added (EVA), balance sheet 2008-09

Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
7
Company’s debt-equity ratio in comparison with its competitors.
Sr. No Year Debt/Equity Ratio % change
1. 2008-09 : 2007-08 0.01 : 0.01 0.0
2. 2007-08 : 2006-07 0.01 : 0.01 0.0
3. 2006-07 : 2005-06 0.01 :0.08 -87.5
4. 2005-06 : 2004-05 0.08 :.09 -14.2
5. 2004-05 :2003-04 0.09 : 0.10 -10.90
Five Year high Value is: 0.09
Five Year low Value is: 0.01
debt-equity % change
0
-20
Axis Title
-40
-60
-80
-100
2008-09 : 2007-08 2007-08 : 2006-07 2006-07 : 2005-06 2005-06 : 2004-05 2004-05 :2003-04
debt-equity % change 0 0 -87.5 -14.2 -10.9
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
Competitors : DEBT-EQUITY RATIO
Sr. No. Year BHEL LARSEN SUZLON BEML BGR

ENERGY ENERGY
1 2008-09 0.01 0.52 1.11 0.29 1.26
debt-equity ratio
BHEL
0% Larsen
17%
BGR Energy
39%
Suzlon Energy
35%
BEML
9%
Debt-Equity Ratio: Debt equity ratio shows the relationship between long-term debts and shareholders
funds’. It is also known as ‘External-Internal’ equity ratio.
Debt Equity Ratio = Debt/Equity
Where :
Debt (long term loans) include Debentures, Mortgage Loan, Bank Loan, Public Deposits, Loan from
financial institution etc.
Equity (Shareholders’ Funds) = Share Capital (Equity + Preference) + Reserves and Surplus – Fictitious
Assets
Objective and Significance: This ratio is a measure of owner’s stock in the business. Proprietors are
always keen to have more funds from borrowings because:
(i) Their stake in the business is reduced and subsequently their risk too
(ii) Interest on loans or borrowings is a deductible expenditure while computing taxable profits. Dividend
on shares is not so allowed by Income Tax Authorities.
The normally acceptable debt-equity ratio is 2:1.
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
8
Du Pont analysis for the company
WHAT IS THE DUPONT MODEL? DESCRIPTION
The DuPont Model is a technique that can be used to analyze the profitability of a company using
traditional performance management tools. To enable this, the DuPont model integrates elements of the
Income Statement with thos of the Balance Sheet.
ORIGIN OF THE DUPONT MODEL. HISTORY

Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
The DuPont model of financial analysis was made by F. Donaldson Brown , an electrical engineer who
joined the giant chemical company's Treasury department in 1914. A few years later, DuPont bought 23
percent of the stock of General Motors Corp. and gave Brown the task of cleaning up the car maker's
tangled finances. This was perhaps the first large-scale reengineering effort in the USA. Much of the credit
for GM's ascension afterward belongs to the planning and control systems of Brown, according to Alfred
Sloan, GM's former chairman. Ensuing success launched the DuPont model towards prominence in all
major U.S. corporations. It remained the dominant form of financial analysis until the 1970s.
CALCULATION OF DUPONT. FORMULA
Return on Assets = Net Profit Margin x Total Assets Turnover = Net Operating Profit After Taxes / Sales x
Sales / Average Net Assets
USAGE OF THE DUPONT FRAMEWORK. APPLICATIONS
• The model can be used by the purchasing department or by the sales department to examine or
demonstrate why a given ROA was earned.
• Compare a firm with its colleagues.
• Analyze changes over time.
• Teach people a basic understanding how they can have an impact on the company results.
• Show the impact of professionalizing the purchasing function.
STRENGTHS OF THE DUPONT MODEL. BENEFITS
• Simplicity. A very good tool to teach people a basic understanding how they can have an impact on
results.
• Can be easily linked to compensation schemes.
• Can be used to convince management that certain steps have to be taken to professionalize the
purchasing or sales function. Sometimes it is better to look into your own organization first. In stead
of looking for company takeovers in order to compensate lack of profitability by increasing turnover
and trying to achieve synergy.
LIMITATIONS OF THE DUPONT ANALYSIS. DISADVANTAGES
• Based on accounting numbers, which are basically not reliable.

• Does not include the Cost of Capital.
• Garbage in, garbage out.
ASSUMPTIONS OF THE DUPONT METHOD. CONDITIONS
• Accounting numbers are reliable.

Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
Year 2004-05 2005-06 2006-07 2007-08 2008-09
ROI 0.146 0.086 0.108 0.301 0.321
Year 2004-05 2005-06 2006-07 2007-08 2008-09
ROE 0.262 0.353 0.423 0.309 0.291
Du Pont Analysis
0.8
0.6
Axis Title
0.4 ROI
0.2 ROE
0
2004-05 2005-06 2006-07 2007-08 2008-09
As we can see ROE has fallen for the year 2008-09 as compared to the previous year. But if we see overall
the has a ROI close to 3 for years mentioned. Company is consisderably having returns at an average 2.8.
For ROI the company’s return on investments has substantially increased when compared to the year
2004-05.
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
ROI
0.35
0.3
0.25
0.2
0.15 ROI
0.1
0.05
0
2004-05 2005-06 2006-07 2007-08 2008-09
ROE
0.45
0.4
0.35
0.3
0.25
0.2 ROE
0.15
0.1
0.05
0
2004-05 2005-06 2006-07 2007-08 2008-09
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
9
a)Working Capital Position
Working capital= current assets – current liabilities
(in Rs. Crores)
2004-05 2005-06 2006-07 2007-08 2008-09

BHEL working 4897.08 6010.75 6642.87 7883.88 8568.17
capital
Source :From balance sheet.
What Does Working Capital Mean?

A measure of both a company's efficiency and its short-term financial health. The working capital
ratio is calculated as:
Positive working capital means that the company is able to pay off its short-term
liabilities. Negative working capital means that a company currently is unable to meet its short-
term liabilities with its current assets (cash, accounts receivable and inventory).
As we can see here, the working capital for BHEL is increasing every year. The financial base is
strong. In last five years, working capital has increased .
The firm can hold good in investing activities, or other activities of similar nature as the current
assets exceeds current liabilities.
working capital
10000
8000
6000
4000 working capital
2000
0
2004-05 2005-06 2006-07 2007-08 2008-09
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
BALANCE SHEET YEAR 2008-09
(Rs. in Crore)
Schedule AS AT 31.3.2009 AS AT 31.3.2008
SOURCES OF FUNDS
Shareholders’ Fund
Share Capital 1 489.52 489.52
Reserves & Surplus 2 12449.29 12938.81 10284.69 10774.21
Loan Funds
Secured Loans 3 0.00 0.00
Unsecured Loans 4 149.37 149.37 95.18 95.18 10869.39
13088.18
APPLICATION OF FUNDS
Fixed Assets
Gross Block 5 5224.87 4443.47
Less: Depreciation/Amortisation to-date 3713.25 3403.08
1511.62 1040.39
Less : Lease Adjustment Account 41.22 59.13

Net Block 1470.40 981.26
Capital Work-in-Progress 6 1156.97 2627.37 658.03 1639.29
Investments 7 52.34 8.29
Deferred Tax Assets Net (Refer note no. 20 of Schedule 19) 1840.30 1337.93
Current Assets, Loans and Advances
Current Assets 8
Inventories 7837.02 5736.40
Sundry Debtors 15975.50 11974.87
Cash & Bank Balances 10314.67 8386.02
Other current assets 350.21 421.09
Loans and advances 9 2423.67 1387.80
36901.07 27906.18
Less:
Current Liabilities & Provisions
Current Liabilities 10 23357.32 16576.45
Provisions 11 4975.58 3445.85
28332.90 20022.30
Net current assets 8568.17 7883.88

13088.18 10869.39
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
d) Credit policy
YEAR 2004-05 2005-06 2006-07 2007-08 2008-09
BHEL Credit policy 1.82 2.02 1.95 1.79 1.90
Debtors’ Turnover Ratio: Debtors turnover ratio indicates the relation between net credit sales and
average accounts receivables of the year. This ratio is also known as Debtors’ Velocity.
Debtors Turnover Ratio = Net Credit Sales/Average Accounts Receivables
Where Average Accounts Receivables = [Opening Debtors and B/R + Closing Debtors and B/R]/2
Credit Sales = Total Sales – Cash Sales
Objective and Significance: This ratio indicates the efficiency of the concern to collect the amount due
from debtors. It determines the efficiency with which the trade debtors are managed. Higher the ratio,
better it is as it proves that the debts are being collected very quickly.
The final result shows us that the credit policy, which is understood as the amount of credit the company
is allowing and the amount of sales.
This gives the idea about the policy of the firm. Here the firm has strict credit policies and as the result
the ratio for last five years is almost constant and the value is around 2.
Though we may see the variation in the debtors’s turnover ratio , for the year 2005-06 its 2.02 which has
considerably fallen to 1.79 for the year 2007-08 but has again picked up for the year 1.90, closing to 2.0. as
we know higher the ratio the better it is, hence company is considerably at an average of 1.8.
Responses to confirmation of outstanding balances of deductible expenditure.

Sundry debtors, creditors, contractor’s advances,deposits and stocks/materials lying with sub
contractors/fabricators were received in few cases, some of them seeking details. The reconciliations with
requirement the parties are carried out as an ongoing process.
debtor's turnover ratio

2.1
2
1.9
1.8 debtor's turnover ratio
1.7
1.6
2004-05 2005-06 2006-07 2007-08 2008-09
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
e) Inventory management policy
YEAR 2004-05 2005-06 2006-07 2007-08 2008-09

BHEL
inventory 3.54 3.8 4.6 3.8 3.7
turnover
This ratio is a relationship between the cost of goods sold during a particular period of time and the cost
of average inventory during a particular period. It is expressed in number of times. Stock turn over ratio /
Inventory turn over ratio indicates the number of time the stock has been turned over during the period
and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether
investment in stock is within proper limit or not.
Inventory Turnover Ratio = Net Sales / Inventory

Significance:
Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually a high inventory
turnover/stock velocity indicates efficient management of inventory because more frequently the stocks
are sold, the lesser amount of money is required to finance the inventory. A low inventory turnover ratio
indicates an inefficient management of inventory. A low inventory turnover implies over-investment in
inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow
moving goods and low profits as compared to total investment.
To get the idea about the company policy for the inventories, we have found out the ratio of sales and the
inventory.
This ratio for the firm moves around value 4.That means that the firm is moving its inventories. Overall
the firm is doing well.
inventory turnover ratio

6
4
2 inventory turnover ratio
0
2004-05 2005-06 2006-07 2007-08 2008-09
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
short term financing

25000
20000
15000
10000 short term financing
5000
0
2004-05 2005-06 2006-07 2007-08 2008-09
Tej Inder Singh
Roll No. 29
Assignment no 1
Company: BHEL
WACC
16
14
12
10
8
WACC
6
4
2
0
2004-05 2005-06 2006-07 2007-08 2008-09
Tej Inder Singh
Roll No. 29
MBA -General -
Section A
Assignment no 1
Company: BHEL
Inventory Valuation
I. Inventory is valued at actual/estimated cost or net realizable value, whichever is
lower.
II. Finished goods in Plant and work in progress involving Hydro and Thermal sets
including gas based power plants, boilers, boiler auxiliaries, compressors and
industrial turbo sets are valued at actual/estimated factory cost or at 97.5% of the
realizable value, whichever is lower.
III. In respect of valuation of finished goods in plant and work-in-progress, cost
means factory cost; actual/estimated factory cost includes excise duty payable on
manufactured goods
IV. In respect of raw material, components, loose tools, stores and spares cost
means weighted average cost.
V. a) For Construction contracts entered into on or after 01.04.2003:
Where current estimates of cost and selling price of a contract indicates
loss, the anticipated loss in respect of such contract is recognized
immediately irrespective of whether or not work has commenced.
b) For all other contracts:
Where current estimates of cost and selling price of an individually
identified project forming part of a contract indicates loss, the anticipated
loss in respect of such project on which the work had commenced, is
recognized.
c) In arriving at the anticipated loss, total income including incentives on
exports/deemed exports is taken into consideration.
VI. The components and other materials purchased / manufactured against
production orders but declared surplus are charged off to revenue retaining
residual value based on technical estimates.
Tej Inder Singh
Roll No. 29
MBA -General -
Section A
Assignment no 1
Company: BHEL
Inventories
YEAR 2008-09
Figures in Rs. Crore
Financial year 2008-09 2007-08

Inventories 7837 5736
Inventory increased by Rs. 2101 crore over previous year in tune with the increase in volume of
operations. In terms of days of turnover, it has increased from 98(ninety eight) days in 2007-
08 to 102 days in 2008-09.
YEAR 2007-08

Inventories 5736 4218
Inventory increased by Rs. 1518 crore over previous year in tune with the increase in volume of
operations. In terms of days of turnover, it has increased from 82 days in 2006-07 to 98 days in
2007-08. The inventory build up is also part of the strategies of the management considering
long lead time for certain special steel material and to meet shorter delivery requirements
the customers.
Tej Inder Singh
Roll No. 29
MBA -General -
Section A
Assignment no 1
Company: BHEL
YEAR 2006-07

Inventory increased by Rs. 473.30 crore or 12.64% over previous year in tune with the
increase in volume of operations. In terms of days of turnover, it has decreased from
94(ninety four) days in 2005-06 to 82 days in 2006-07.
YEAR 2005-06

Inventory increased by 28.40% over previous year, i.e. from Rs. 2916.1 crore in 2004-05 to Rs. 3744.4
crore in 2005-06. Inventory, in number of days of turnover, decreased from 103 days in 2004-05 to 94
days in 2005-06.
YEAR 2004-05

Inventory increased by 38.60% over previous year, i.e. from Rs.2103.9 crore in 2003-04 to Rs. 2916.1 crore
in 2004-05. Inventory, in number of days of turnover, increased from 89 days in 2003-04 to 103 days in
2004-05. The increase is mainly attributed to higher inventory holding for steel and pipes on
account of uncertainty of availability, longer deliveries from vendors, steel price increase and to
meet higher turnover targets for the year 2005-06. The increase is also due to some finished goods
awaiting customer clearance.
Tej Inder Singh
Roll No. 29
MBA -General -
Section A
Assignment no 1
Company: BHEL
b) Cash position
Cash and Bank balances
YEAR 2008-09
Cash & Bank balances 10315 8386
The cash and cash equivalents have increased from Rs. 8386 crore in 2007-08 to Rs. 10315 crore in 2008-09
reflecting the sound liquidity of the company.
The company has no accumulated losses as at March 31, 2009 and it has not incurred any cash losses in the
financial year ended on that date or in the immediately preceding financial year.
YEAR 2007-08
Cash & Bank balances 8386 5809
The cash and cash equivalents have increased from Rs. 5809 crore in 2006-07 to Rs. 8386 crore in 2007-08
reflecting the sound liquidity of the company.
YEAR 2006-07

Cash & Bank balances 5808.91 4133.97
The cash and cash equivalents have increased from Rs. 4133.97 crore in 2005-06 to Rs.5808.91 crore in
2006-07 reflecting the sound liquidity of the company. The company has no accumulated losses as at
Tej Inder Singh
Roll No. 29
MBA -General -
Section A
Assignment no 1
Company: BHEL
March 31, 2007 and it has not incurred any cash losses in the financial year ended on that date or in the
immediately preceding financial year.
YEAR 2005-06
Cash and bank balances, including short term deposits, at the year-end stood at Rs. 4134.0 crore as against Rs. 3177.9
crore at the end of last year.
YEAR 2004-05 Figures in Rs. Crore

Cash and bank balances, including short term deposits, at the year-end stood at Rs. 3177.9 crore as against Rs. 2659.6
crore at the end of last year.The company has no accumulated losses as at March 31, 2005 and it has not
incurred any cash losses in the financial year ended on that date or in the immediately preceding
financial year.
Tej Inder Singh
Roll No. 29
MBA -General -
Section A
Assignment no 1
Company: BHEL
y
YEAR 2008-09 AS AT 31.3.2009 AS AT 31.3.2008

Cash and Bank Balances
Cash & Stamps in hand 0.97 0.95
Cheques, Demand Drafts in hand 386.42 265.94
Remittances in transit 0.02 56.42

Balances with Scheduled Banks
Current Account 1534.08 1172.57
Deposit Account 8364.16 6875.00
Balance with non-scheduled Banks

Current Account
Maximum Balance
(Rs. in crore)
during the year
2008-09 2007-08
- Standard Chartered bank, Libya 0.22 0.09 0.00 0.05
- Bank Muskat, Oman 356.19 125.20 14.91 4.22
- Barclays Bank Ltd, Zambia 0.01 0.01 0.01 0.01
- Bank of commerce, Malaysia 0.31 0.05 0.05 0.31
- CIMB Berhad 0.32 0.02 0.32 0.02
- Indo Jambia Bank, Lusaka 1.18 0.92 0.16 0.79
- Commercial Bank of Ethopia 3.38 3.04 0.05 3.04

- Bank of Bhutan, Bhutan 0.04 0.08 0.01 0.02
- Jamahouria Bank, Libya 4.34 4.75 0.95 3.61
- National Bank of Egypt 0.13 0.43 0.13 0.10
- Standard Chartered bank, Bangladesh 72.69 3.24 1.02 0.32
- Bank of Khartoum, Sudan 15.47 6.33 11.36 2.65
- Standard Chartered bank, Dubai 0.22 - 0.05 0.00

10314.67 8386.02
Other Current Assets

Interest Accrued on Banks Deposits and 350.21 421.09
investments
350.21 421.09
Summary of Current Assets

Sundry Debtors 15975.50 11974.87

Cash & Bank Balances 10314.67 8386.02
Other Current Assets 350.21 421.09

34477.40 26518.38
Tej Inder Singh
Roll No. 29
MBA ‐General ‐Section A
Assignment no 1
Company: BHEL

Short Term Financing
YEAR 2004‐05 2005‐06 20o6‐o7 20o7‐o8 2008‐09
BHEL 7120.44 8807.74 11732.86 16576.45 23357.32
short‐term
financing

Taken from SCHEDULE 10 : CURRENT LIABILITIES
It includes Sundry Creditors, Accruals, Advances from the customers, Deposits from
contractor, other liabilities and interest accrued but not due.
The short term financing means the financing that you have got and you will utilize it in next
one year. Here the short term financing, which inclues
YEAR 2008‐09
SCHEDULE 10 : CURRENT LIABILITIES

AS AT 31.03.2009 AS AT 31.03.2008
Acceptances 67.14 59.83
Sundry Creditors
‐ Total outstanding dues of
Micro & Small Enterprises
(incl. interest) 96.50 38.87
‐ Other Sundry Creditors 5756.35 5852.85 4385.13 4424.00
Advances received from 16435.42 11394.62
customers & others
Deposits from Contractors & 325.68 233.81
others
‐ Unclaimed dividend * 1.31 0.91
Other liabilities 674.44 462.56
Interest accrued but not due 0.48 0.72
23357.32 16576.45

Financial Management Bhel 2010

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Tej Inder Singh

2. Company’s capital expenditures analysis.

3. Account balances for properties, plant and equipment.

4. Company’s capital structure in comparison with its competitors.

5. Beta measure of the company.

6. Weighted average cost of capital(WACC) of the company.

7. Company’s debt-equity ratio in comparison to its competitors.

8. Du-Pont analysis of the company.

a) Working capital position.

c) Short term financing.

e) Inventory management policy.

To maintain leading position as supplier of quality equipment, systems and services in

To ensure a steady growth by enhancing the competitive edge of BHEL in existing

To provide a reasonable and adequate return on capital employed, primarily through

To achieve technological excellence in operation by development of indigenous

Offers a comprehensive range of electrical, electronic and mechanical equipment

BHEL offers a variety of transportation equipment to meet the growing needs of

Oil and Gas:

ACTIVITY PROFILE OF BHEL

♦ Diesel electric generators

Sr. No. Year Capital Expenditure Change as compared

1 2008-09 700.46 407.64

2 2007-08 292.82 61.39

3 2006-07 231.43 70.51

5 2004-05 162.99 61.19

Data is taken from SCHEDULE 5 :FIXED ASSETS

Particulars Cost As at Additions/adj Deductions/ad Cost As at

Assets Given on Lease 497.15 497.15

EDP Equipment taken on lease 146.16 99.31 27.67 217.80

Office & other equipment taken 1.52 0.38 0.41 1.49

Sr. No. Year Properties, Change when % change

2 2008 884.79 -1.91 -0.21

3 2007 886.70 8.05 0.90

4 2006 878.65 -62.86 -7.15

5 2005 941.51 -54.08 -5.74

6 2004 995.59 -75.42 -7.57

change in properties, equipment ,plant and

change in properties, equipment ,plant and machinery

BHEL Comparison With its Competitors

company Total Debt Networth capital structure

BETA measure of the company is 0.94

The following table defines each symbol:

Year 2004-05 2005-06 2006-07 2007-08 2008-09

WACC 14.4 11.5 11.6 12.3 13.4

Taken from Economic Value Added (EVA), balance sheet 2008-09

Sr. No Year Debt/Equity Ratio % change

1. 2008-09 : 2007-08 0.01 : 0.01 0.0

2. 2007-08 : 2006-07 0.01 : 0.01 0.0

3. 2006-07 : 2005-06 0.01 :0.08 -87.5

4. 2005-06 : 2004-05 0.08 :.09 -14.2

5. 2004-05 :2003-04 0.09 : 0.10 -10.90

Five Year high Value is: 0.09

Five Year low Value is: 0.01

Competitors : DEBT-EQUITY RATIO

Sr. No. Year BHEL LARSEN SUZLON BEML BGR

WHAT IS THE DUPONT MODEL? DESCRIPTION

ORIGIN OF THE DUPONT MODEL. HISTORY

CALCULATION OF DUPONT. FORMULA

USAGE OF THE DUPONT FRAMEWORK. APPLICATIONS

STRENGTHS OF THE DUPONT MODEL. BENEFITS

LIMITATIONS OF THE DUPONT ANALYSIS. DISADVANTAGES

• Based on accounting numbers, which are basically not reliable.

ASSUMPTIONS OF THE DUPONT METHOD. CONDITIONS

• Accounting numbers are reliable.