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LETTER OF AUTHORIZATION

Date-

Kanpur, Uttar Pradesh

I ‘Akash Rathore’ has finalized my project report on “A Project report on


calculation of Working Capital of BSNL” in guidance of “Mrs. Neetu
Sharma” is been submitted to you. The main purpose of this project report
is to obtain all the possible information as about different elements of
Working capital in BSNL.

Kindly, I request you to accept my project report.

Sincerely,

Akash Rathore

Signature-
EXECUTIVE SUMMARY

Financial management is that managerial activity which with the planning


and controlling of the firm’s financial resources. Financial management
focuses on finance manager performing various tasks as Budgeting,
Financial forecasting, Cash management, Credit administration, Investment
analysis, Funds management, etc. which help in the process decision
making.

Financial management includes management of assets and liabilities in the


long run and short run. The management of fixed and current assets,
however, differs in three important ways: Firstly, in managing fixed assets,
time is very important; consequently discounting and compounding aspects
of time element play an important role in capital budgeting and a minor one
in the management of current assets.

Secondly, the large holdings of current assets, especially cash, strengthen


firm’s liquidity position but it also reduces its overall profitability. Thirdly, the
level of fixed as well as current depends upon the expected but it is only
the current assets, which can be adjusted with sales fluctuation in the short
run.

Working capital Management or simply the management of capital invested


in current assets as the focus of my study. My topic is to calculation of
working capital of Bharat Sanchar Nigam Limited.

Working Capital is the fund invested by the firm in current assets. Now in a
cut-throat competition era where each firms competes with each other to
increase their production and sales holding of sufficient current assets have
become mandatory as current assets include investors and raw materials
which are required for smooth production run. Holding of sufficient current
asset will ensure smooth and uninterrupted production but at the same time
it will consume a lot of working capital.
The management of working capital takes place in the realm of short term
decision making. These decisions are, therefore, based primarily on
profitability, cash flows and their management. Many criteria go into the
management of cash flows and subsequently the management of working
capital- including the evaluation of appropriate interest rates.

The interest rate most commonly used in working capital management is


the cost of capital. The cost of capital, in financial market equilibrium, will
be the same as the market rate of return on the financial asset mixture the
firm uses to finance capital investment. In other words, a company’s cost of
capital is the cost of obtaining funds for operation through the sale of equity
or debt in market place. In market equilibrium, investors will determine what
return they expect from providing funds to a company. The return expected
on debt depends upon the credit rating of the company, which takes into
account a number of factors to determine how risky loaning funds to a
company will be. The return expected from equity also involves a number
of factors, usually centered around the operation of the company and its
prospectus for profitability.

When evaluating short-term profitability, company may use measures such


as return on capital. ROC is shown as a percentage, determined by
dividing relevant income for the 12 months by capital employed. Firm value
is enhanced when, and if, the return on capital, which results from working-
capital management, exceeds the cost of capital, which results from capital
investment decisions. ROC measures are therefore useful as a
management tool, in that they link short-term policy with long-term decision
making.

As mentioned, working capital decisions are made with the short-term in


mind. Thus, working capital policies aim at managing the current assets
(generally cash and cash equivalents, inventories and debtors) and the
short term financing, such that cash flows and returns are acceptable.
Decision criteria that focus on interest rates include debtor’s management
and short-term financing.

Debtor’s management involves identifying the appropriate credit policy i.e.


credit terms which will attract customers such that any impact on cash
flows and the cash conversion cycle will be offset by increased revenue
and, hence, return on capital. Interest returns can affect this decision
because of the time value of money. If inflation is at a high level or there
are opportunities foregone because of lack of working capital, a firm will
more than likely have a stricter credit policy.

Short term financing involves identifying the appropriate source of


financing, given the cash conversion cycle. For instance, inventory is
ideally financed by credit granted by the supplier; however, it may be
necessary to utilize a bank loan or to “convert debtors to cash”. Another
possible solution is to use services from companies sell outstanding
invoices to raise working capital for their clients. Obviously interest rates
will play a vital role in determining whether an option such as a bank loan is
viable for obtaining short term financing.

Decisions relating to working capital (Current assets- Current liabilities) and


short term financing are known as working capital management. It involves
the relationship between a firm’s short term assets and its short term
liabilities.

The goal of working capital management is to ensure that the firm is able to
continue its operation and that it has sufficient cash flow to satisfy both
maturing short term debt and upcoming operational expenses.

Working Capital is used in BSNL, for the following purpose:-

Raw material, work in progress, finished goods, inventories, sundry


debtors, and day to day cash requirements. The BSNL keep certain funds
which is automatically available to finance the current assets requirements.

The various information regarding working Capital management such as


classification, determinants, sources have been discussed.

Whatever may be the organization, working capital plays an important role,


as the company needs capital for its day to day expenditure. Thousands of
companies fail each year due to poor working capital management
practices. Entrepreneurs often don’t account for short term disruptions to
cash flow and are forced to close their operations.

In simple term, working capital is an excess of current assets over the


current liabilities. Good working capital management reveals higher returns
of current assets than the current liabilities to maintain a steady liquidity
position of a company. Otherwise, working capital is a requirement of funds
to meet the day to day working expenses. So a proper way of management
of working capital is highly essential to ensure a dynamic stability of the
financial position of an organization.

Working capital management commonly involves monitoring cash flow,


assets, and liabilities through the ratio analysis of key elements of
operating expenses, including the working capital ratio, collection ratio, and
the inventory turn over ratio. Efficient working capital management helps
maintain the smooth operation of the operating cycle (the minimum amount
of time required to convert net current assets and liabilities into cash) and
can also help to improve the company's earnings and profitability.
Management of working capital includes inventory management and
management of accounts receivables and accounts payables. The main
objectives of working capital management include maintaining the working
capital operating cycle and ensuring its ordered operation, minimizing the
cost of capital spent on the working capital, and maximizing the return on
current asset investments.
ACKNOWLEDGEMENT
I want to place on record my gratitude to the people and my mentors and
all those whose generous help and support enabled me to complete this
project within the stipulated time period.

My special thanks to my project guide, Mrs. Neetu Sharma for her active
help, guidance and support in accomplishment of the project report.

I am greatly indebted to all those people who have helped me in some way
or the other in the completion of the project report.

The Faculty of my institute deserves the praise for their role in shaping this
project.

A special thanks to my parents and my guardians who encouraged me a lot


during project session.

I once again thanks to all those people who extended their support and
coordination in bringing out this project work successfully.
TABLES OF CONTENTS
Letter of authorization

Executive Summary

Acknowledgement

1. Background Section

 Problem Statement
 Introduction (Working Capital)

 Importance of Working Capital


 Types of Working Capital
 Sources of Working Capital
 Working Capital Cycle
 Calculation of Working Capital Cycle
 Shorten of Working Capital Cycle
 Working Capital Formula
 Factors Determining Working Capital
 Methods of estimating Working Capital Requirements
 Working Capital Analysis

 Cash Required for Working Capital


 Cash Flow based computation of Working Capital
 Why Firm need Cash?
 Optimal Cash Balance
 Depreciation

2. Company Profile

 Introduction of BSNL
 Objective of BSNL
 Vision
 Mission
 Social Commitment
 SWOT Analysis

3. Scope of the Study


4. Objective of the Study
5. Review of Literature
6. Research Methodology

 Research Design
 Statement of Problem
 Objective of Research Study
 Data Collection
 Sample Design(Sample Technique, Sample Size)
 Data Analysis

7. Findings

 Data Analysis and Interpretation


 Calculation of Working Capital of BSNL
 Findings and Analysis

8. Conclusions

 Limitations of the Study


 Conclusion
 Recommendations

9. Annexure

 Questionnaire
 Bibliography
BACKGROUND SECTION
PROBLEM STATEMENT

In the management of working capital, the firm is faced with two key
problems:

1. First, given the level of sales and the relevant cost considerations,
what are the optimal amounts of cash, accounts receivable and
inventories that a firm should choose to maintain?
2. Second, given these optimal amounts, what is the most economical
way to finance these working capital investments? To produce the
best possible results, firms should keep no unproductive assets and
should finance with the cheapest available sources of funds. Why? In
general, it is quite advantageous for the firm to invest in short term
assets and to finance short term liabilities.

India has undergone tremendous development form an telecommunication


sector towards a middle income nation by registering real Gross Domestic
Product (GDP) growth of an average of 5.8% per annum from 1991 to
2010. Management of working capital is known as one of the most
important part of the business management. This project studies the impact
of working capital management on the profitability of Telecom Industry.

Working capital represents short-term assets available to a business for


meeting financial obligations such as payroll, creditors and suppliers. A
company with insufficient working capital can have liquidity problems even
when their asset position and profitability is healthy. Manufacturing
companies are subject to working capital challenges because supplier and
production expenses frequently require payment several months before
goods are sold to customers.

The research is carried on in a proper planned and scientific manner.

 The research was particularly based on departmental research. We


have to various departments and meet people which include their
names and contacts numbers given by BSNL training and
development department.
 During the department we have to know about to departmental
works by explaining the working process of a particular department.

 Each department presences section supervisors (SS) this SS will


provide carious data of relative department and give opportunity to
handling the working process and resolve our doubts.
INTRODUCTION
WORKING CAPITAL

Finance is an integral part of modern economic life and occupies an


important place in all economic activities. Economic growth virtually
rests to a considerable extent on the availability of adequate and
timely finance. It is finance which brings together various segments
of an organization and transforms them into an integrated whole so
as to function smoothly and move in the direction of achieving the
organizational goals. That is why finance has been called the
backbone of business activities. In fact, finance is a process of
transforming accumulated savings into productive use.

Finance management is related to the finance system of those


organizations which are established and run with a profit objective.
In wider sense, financial management is a combination of two words
‘financial’ meaning related to finance and ‘Management’ meaning
making arrangements to get a job done in the most efficient and
best possible manner. Thus, the combined meaning of financial
management is to manage the finance related operations of a
business enterprise in the best and most efficient manner. The
establishment of companies and corporations and the tough
competition between them nowadays has attracted the attention of
managers towards optimum utilization of resources. Thus, financial
management is largely connected to arrangement, management
control and administration of funds and thereby has become the key
to success of a business enterprise.

It is an important pillar of Business Management, financial


management has acquired a very matured role- a role that is less
descriptive and more analytical. Administration decisions are now
not based on assumptions. Many concepts used in statistical
analysis are useful for financial analysis that help the management
to evaluate various alternatives in the context of internal and
external factors and select the best one.
WORKING CAPITAL

In every business, assets are classified under two heads-fixed


assets and current assets. Fixed assets include those assets which
are not acquired for realize or for being consumed in production, but
are to be kept permanently or for a long-term in business, such as
land and buildings, plant and machinery, furniture and fittings etc.
The nature of such assets is either permanent or long term. On the
contrary, current assets are of short term nature and are meant
either for resale or for being consumed in production processes,
such as cash, current investments, inventory, receivables, etc.
Current assets circulate along with the business operations and
hence they are also called circulating assets. The part of a firm’s
capital that is used to finance these short term assets or current
assets is called working capital.

There are two points of view regarding the meaning of working


capital. According to one view, working capital is the total of current
assets represented by long-term and short term liabilities. This view
places more emphasis on the quantitative aspect of working capital
rather than its qualitative aspect. The argument given in support of
this view is that as all the current assets assist in the conduct of
business operations, it does not make any difference whether they
are financed by long- term funds or by current or short term
liabilities.

The other view gives more emphasis on the qualitative aspect rather
than the quantitative aspect of working capital. Accordingly, the
definition of working capital should be based on the net-concept
which means that working capital is the excess of current assets
over current liabilities. The view pin-points the need for a working
fund which is represented by current assets minus current liabilities.
In case the current assets and current liabilities are equal then it
would mean that the business has no working capital. In such a
situation the current ratio will be 1:1 meaning thereby that the firm is
operating on zero working capital basic, presumably because the
entire funds obtained through permanent or long term sources have
been blocked in acquiring fixed assets leaving nothing as working
fund. Needless to say that operating with a zero working capital is
very risky.
In order to avoid confusion between gross and net concepts of
working capital, it will be more appropriate to call the former as
gross working capital and the latter as net working capital (i.e.
excess of current assets over current liabilities). However, according
to current accounting conventions the word working capital,
whenever used always means net working capital or working fund.

The net working capital will normally not change with change in
current liabilities, because if there is an increase or decrease in a
current liability, there is normally a corresponding increase or
decrease in one or more items of current assets. Thus the net
amount of working capital remains the same.

Business operations cannot be conducted merely on the basis of


fixed capital (i.e. funds blocked in fixed assets). In addition to this, a
minimum level of working capital has also to be kept in order to
serve as a working fund for conducting day to day operations
smoothly and efficiently. Adequate amount of working capital is
essential to meet the following needs of business:

 To finance purchase of raw materials and other stores


 To finance the entire process of converting raw material into
finished products, such as salaries, wages, light, water and
other direct factory expenses.
 To finance credit sales
 To meet unforeseen contingencies

The need for a minimum regular working fund becomes imperative,


because the flow of funds is constant whereas it takes some time to
recover the out go. The time lag between the outflow and the inflow has to
be financed with permanent working fund (at least partially) in order to meet
the above mentioned current obligations. Meeting various commitments
already made and making timely repayments of loans and other obligations
can be only possible when the firm has enough or adequate working fund
at its disposal. That is why some authors have to aptly remarked that “The
management of working capital is a constant headache of a financial
manager”. There is ample truth in this statement. Fixed assets, once
acquired, present no recurring problems except those relating to their
proper maintenance; but the management of working capital is an endless
process which involves constant vigil and watch of flow of funds during an
operating cycle.

Working capital has gone through succession developmental stages, since


early introduction in early 20th century. In any stage managers act as
problem provider and academics on to find solution while it is true to
assume that scholars provide new horizons while managers implement
finds to prove usefulness. The evolution of working capital management is
full of such two way debate between managers and academicians.
Nevertheless, making sense of working capital research today and likely
future directions require an in-depth understanding of historical
perspectives. The pathway of development while vital for research exposes
needs and responds that is fundamental for forecast of future prospects of
working capital management.

One of the most significant uses of working capital is inventory. The longer
inventory sits on the shelf or in the warehouse, the longer the company's
working capital is tied up.

When not managed carefully, businesses can grow themselves out of cash
by needing more working capital to fulfill expansion plans than they can
generate in their current state. This usually occurs when a company has
used cash to pay for everything, rather than seeking financing that would
smooth out the payments and make cash available for other uses. As a
result, working capital shortages cause many businesses to fail even
though they may actually turn a profit. The most efficient companies invest
wisely to avoid these situations.

Analysts commonly point out that the level and timing of a company's cash
flows are what really determine whether a company is able to pay its
liabilities when due. The working-capital formula assumes that a company
really would liquidate its current assets to pay current liabilities, which is not
always realistic considering some cash is always needed to meet payroll
obligations and maintain operations. Further, the working-capital formula
assumes that accounts receivable are readily available for collection, which
may not be the case for many companies.

It is also important to understand that the timing of asset purchases,


payment and collection policies, the likelihood that a company will write off
some past-due receivable, and even capital-raising efforts can generate
different working capital needs for similar companies. Equally important is
that working capital needs vary from industry to industry, especially
considering how different industries depend on expensive equipment, use
different revenue accounting methods, and approach other industry-specific
matters.

Finding ways to smooth out cash payments in order to keep working capital
stable is particularly difficult for manufacturers and other companies that
require a lot of up-front costs. For these reasons, comparison of working
capital is generally most meaningful among companies within the same
industry, and the definition of a "high" or "low" ratio should be made within
this context.

Having positive working capital can be a good sign of the short-term


financial health for a company because it has enough liquid assets
remaining to pay off short term bills and to internally finance the growth of
their business. Without additional working capital, a company may have to
borrow additional funds from a bank or turn to investment bankers to raise
more money.

Negative working capital means assets aren’t being used effectively, and a
company may a liquidity crisis. Even if a company had lots invested in fixed
assets, it will face financial challenges if liabilities come due too soon. This
will lead to more borrowing, late payments to creditors or suppliers and, as
a result, a lower corporate credit rating for the company.

Depending on the type of business, companies can have negative working


capital and still do well. Examples are grocery stores like Walmart or fast-
food chains like McDonald’s that can generate cash very quickly due to
high inventory turnover rates and by receiving payment form customers in a
matter of few days. These companies need little working capital.

Products that are bought from suppliers are immediately sold to customers
before the company even gets a chance to pay vendor or supplier. In
contrast, capital- intensive companies that manufacture heavy equipment
and machinery usually can’t raise cash quickly, as they sell their products
on a long term payment basis. Since they can’t sell fast enough, cash won’t
be available immediately during tough financial times, so having enough
working capital is desirable.
Importance of Working Capital

Working capital management refers to a company’s managerial accounting


strategy designed to monitor and utilize the two components of working
capital, current assets and current liabilities, to ensure the most financial
efficient operation of the company. The primary purpose for working capital
management is to make sure the company always maintain sufficient cash
flows to meet its short- term operating costs and short term obligations.

1. A considerable part of working fund is invested in current assets,


which necessitates their management in an efficient manner, so as to
keep the minimum possible level of investment in such assets.
2. As explained under operating cycle, current assets are changing or
circulating constantly in course of business operations. Quicker the
velocity of this change, larger will be the volume of business with
minimum of investment in current assets.
3. There is a direct relationship between working capital needs and
scale of sales. With an increase in the scale of operations, investment
in cash, inventory and credit sales is bound to rise. Hence an efficient
working capital management requires maintenance of perfect
harmony between targeted or budgeted volume of sales and the size
of various components of current sales.
4. Credit- worthiness of a firm depends inter alia, on adequate working
capital. Suppliers and bankers become reluctant to extent credit if
they find that the managements is operating with a very thin current
ratio.
5. With adequate liquidity firm can the benefit of cash discounts by
making prompt or spot payments for purchases.
6. Adequate working fund enables the management to exploit
occasional opportunities to its advantage and thus maximize its rate
of return an owned capital. If there remains a paucity of current
resources such opportunities will be exploited by other competing
firms which have or can manage to have enough resources.
7. Adequate working fund boosts the morale of workers and other
employees; as they feel assured of timely and regular payments of
their wages, salaries, allowances and bonus etc. This creates a sort
of psychological satisfaction and sense of loyalty towards their
organization.
8. Ability to meet obligations as and when they become due (like rent,
interest, rates and taxes) improves the image of the firm.
9. Management with the sufficient working fund at their disposal tide
over financial crisis which may at times occur in business on account
of internal and external pulls and pressures.

Types of Working Capital

Working Capital Management is the process of planning and controlling


the level and mix of current assets of the firm as well as financing these
assets. Specifically, Working Capital Management requires financial
managers to decide what quantities of cash, other liquid assets,
accounts receivables and inventories the firm will hold at any point.

Working capital is divided into various types based balance sheet view
and operating cycle view. Balance sheet view divides working capital
into gross working capital and net working capital and the operating
cycle view divides the working capital into permanent and temporary
working capital. Permanent working capital is further divided into
seasonal and special working capital whereas temporary working capital
into regular and reserve working capital.

Working capital is the capital/funds required for day to day operations of


the business. Working capital is invested usually in all types of
inventories such as raw materials, spares, finished goods etc and credit
extension to debtors and cash in hand.

On the basis of Balance Sheet

 Gross Working Capital (GWC)

Current assets in the balance sheet of a company are known as


gross working capital. Current assets are those short- term assets
which can be converted into cash within a period of one year. The
grey area in the management of current assets or gross working
capital is its unpredictability i.e. it is very difficult to ascertain the
exact time of conversion of such assets. Why is such a nature
problematic? It is because the liabilities occur at their time and do
not wait for our current assets to realize This mismatch or the gap
creates a need for arranging working capital financing.
 Net Working Capital (NWC)

Net Working Capital is a very frequently used term. There are two
ways to understand networking capital. First one says it is simply
the difference between current assets and the current liabilities on
the balance sheet of a business. The other understanding
discloses little deeper or hidden meaning of the term. As per that,
NWC is that part of current assets which are indirectly financed by
long term assets. Compared to gross capital, net working capital is
considered more relevant for effective working capital financing
and management.

On the basis of Operating Cycle view

 Permanent Working Capital

Dealing with current assets and fixed assets is totally different.


Determining the financing requirement in the case of fixed assets
is simply the cost of the asset. Same is not true for current assets
because the value of current assets is constantly changing and is
difficult to accurately forecast that value at any point in time. To
simplify the complexity to some extent, on the basis of past trend
and experience, we can find a level below which current asset has
never gone. This type of capital is divided into two types:

o Initial Working Capital

Initial working capital is that part of permanent working


capital which is required at the time of a commencement of
a business. It is amount need to start business activities. In
the initial stage, the business usually does not credit from
suppliers. Therefore, all operating expense had to be
incurred in cash. The capital to meet initial operating
expenditure is generally provided by the owners.

o Regular Working Capital

It means that part of permanent working capital which is


required for the continuous business operations. It
represents the excess of current assets over current
liabilities. It consist of enough cash to meet short term
obligations, to build up inventory and enough stock of
finished goods to ensure quick delivery to customers.

 Temporary Working Capital

Temporary working capital is easy to understand after getting hold


over the permanent working capital. In simple terms, it is the
difference between net working capital and permanent working
capital. The main characteristic which can be made out of the
example is ‘fluctuation’. The temporary working capital, therefore,
cannot be forecasted. In the interest of measurability, this can be
further bifurcated as below which can create at least some base to
forecast.

o Seasonal Working Capital

Seasonal Working capital is that temporary increase in


working capital which is caused due to some relevant
season for the business. It is applicable to businesses
having the impact of seasons, for example, the
manufactures of sweaters for whom relevant season is the
winters. Normally, their working capital requirement would
increase in that season due to higher sales in that period
and then go down as the collection from debtors is more
than sales.

o Special Working Capital

Special Working Capital is that rise in the temporary working


capital which occurs due to a special event which otherwise
normally does not take place. It has no basis to forecast and
has rare occurrence normally. For example, a country where
Olympic Games are held, all the business requires extra
working capital due to a sudden rise in business activity.

Working capital is the fuel of your business that keeps your operational
gears running smoothly. Be it paying creditors while you await payment
from clients or paying salaries and utilities on time, or holding inventory in
your warehouse, without sufficient working capital, your firm won’t be able
to function at its full potential.
However, simply facilitating working capital isn’t enough. Understanding the
various ways in which it is calculated will facilitate working capital
management. Broadly, there are two views of working capital, the balance
sheet view and operating cycle view. Let’s take a look at what the two
include.

Sources of Working Capital

 Spontaneous sources of Working Capital

The word ‘spontaneous’ itself explains that this source of working


capital is readily or easily available to the business in the normal
course of business affairs. The quantum and terms of this credit
depends on the industry norms and the relationship between
buyer and seller. These sources include trade credit allowed by
the sundry creditors, credit from employees, and other trade
related credits. The biggest benefit of spontaneous sources as
working capital is its ‘effortless raising’ and ‘insignificant cost’
compared to traditional ways of financing.

o Trade Credit

Trade Credit is the credit extended by one business firm to


another as incidental to sale or purchase of goods and
services. It is also known as mercantile credit. Trade credit
may be defined as credit extended by sellers to buyers at all
levels of production and distribution process down to the
retailer. It does not include consumer credit or installment
credit. It arises out of transfer of goods and is unsecured.

o Bills Payable

Bills payable is a liability document which shows the


indebtedness of an individual, an organization, etc.
Generally, in a transaction of sale and purchase of goods,
during the credit term, seller of goods need money. So, it
will draw a bill to purchaser of goods. Purchase of goods will
accept the bill and returns to seller of goods. This becomes
Bills receivable for drawer of bill/ seller of goods and Bills
Payable for drawee of bill/ purchaser of goods.

o Sundry Creditors

Any person who supplies the goods or services or


consumable items to a business firm on credit basis, will be
called a s sundry creditors by the firm who avails this facility.
The suppliers of various items relating to expenses on credit
basis, are also called sundry creditors. Sundry creditors are
the liabilities of the firm because the firm is supposed to pay
the outstanding amount in future as per terms and
conditioned agreed upon by both the parties. They are
called as trade creditors also.

 Short-term Sources of Working Capital

Short – term working capital finance availed from banks and


financial institutions are costly compared to spontaneous and long-
term sources in terms of rate of interest but have great time
flexibility. Due to time flexibility, the finance manager can use the
funds and pay interest on the money which his business utilizes
and can pay them anytime when cash is available. Overall, in
comparison to long-term sources where you have to hold funds
even when not required, these facilities prove cheaper. This is of
two types Internal Sources and External Sources

Internal Sources

o Tax Provision

In financial accounting, a provision is an account which


records a present liability of an entity. The recording of the
liability in the entity’s balance sheet is matched to an
appropriate expenses account in the entity’s income
statement. The preceding is correct in IFRS.

o Dividend Provision

A dividend is a payment made by a corporation to its


shareholders, usually as a distribution of profits. When a
corporation earns a profit or surplus, the corporation is able
to re-invest the profit in the business and pay a proportion of
the profit as a dividend to shareholders. Distribution to
shareholders may be in cash or, if the corporation has a
dividend reinvestment plan, the amount can be paid by the
issue of further shares or share repurchase.

External Sources

o Cash Credit

It is a revolving credit agreement under which a borrower is


allowed to borrow up to a certain limit. Unlike a loan, it is
running account from which the amounts can be withdrawn
from time to time, subject to the stipulated amount. Cash
credit is of two types. When the cash credit is not backed by
any security, it is known as clean cash credit. In case of
secured cash credit, the borrower is required to give security
in the form of tangible assets or guarantees.
o Bank Overdrafts

It is a kind of a temporary financial accommodation


extended by a bank to its regular customers. Under this
arrangement, a customer having a current account with the
bank is allowed to overdraw his account up to a specified
amount. A business enterprise can enter into this
arrangement to take care of a temporary shortage of
working capital.

o Bills Discounting

This implies procuring cash from a bank in exchange for


credit instrument. Commercial banks provide short term
finance to business concerns by discounting their bills of
exchange, promissory notes and hundies. Banks charge
some commission for this service by paying a price lower
than the face value of the credit instrument.

 Long term Sources of Working capital

Long term can also be divided into internal and external sources.
Long term internal sources of finance are retained profits and
provision for depreciation whereas external sources are share
capital, long term loans and debentures.

Internal Sources

o Retained Profits

Retained profits refer to the process of retaining a part of the


net profits year after year and reinvesting the same in
business. Well established companies often use
undistributed profits to meet a part of their financial
requirements. This source is also called self financing as it
is an internal method of finance. Retained profits are a
popular source of capital for modernization and expansion
of business.
o Provision for Depreciation

Provision of depreciation is the collected value of all


depreciation .With making of this account we are not
credited depreciation in asset account. But transfer every
year depreciation to provision of depreciation account.
Every year we adopt this procedure and when assets are
sold we will transfer sold assets ‘total depreciation to credit
side of asset account for or calculating correct profit or loss
on fixed asset.

External Sources

o Share Capital

Issue of shares is the most important method of raising long


term funds. Shares are the ownership securities and share
capital represents the ownership capital. Funds raised
through shares provide a financial base to the company.
The capital of a company is divided into a number of equal
parts known as shares. Thus, the term share means the
interest of a shareholder.

o Debentures

Debentures denote borrowing by a company and represents


it loan capital. Debenture holders are creditors of the
company. A debenture is a document or certificate issued
by a company as proof of the money lent to it by the holder.
It is an acknowledgement of debt as well as an undertaking
to repay the specified sum with interest on or before the
prescribed date. A debenture is a certificate issued by a
company under its common seal as acknowledgement of
debt with or without a charge on the company’s assets.
Interest on debentures is paid at a fixed rate and it is
payable periodically until the maturity and repayment of
debentures. Debentures carry no voting rights but they
generally involve a charge on the company’s asset.
Working Capital Cycle

Working Capital Cycle refers to the time taken by an organization to


convert its net current assets and current liabilities into cash. It reflects
ability and efficiency of the organization to manage its short term liquidity
position. In other words, the working capital cycle is the time between
buying goods to manufacture products and generation of cash revenue on
selling the products. The shorter the working capital cycle, the faster the
company is able to free up its cash stuck in working capital. If the working
capital cycle is too long, then the capital gets locked in the operational
cycle without earning any returns. Therefore, a business tries to shorten the
working capital cycles to improve the short term liquidity conditions and
increase their business efficiency.

The working capital cycle focuses on management of four key elements


viz., cash, receivables (Debtors), payables (Creditors) and inventory
(Stock). A business needs to have complete control over these four items
in order to have a fairly controlled and efficient working capital cycle.

Ultimately, the working capital ratio that you have will determine if you can
afford short-term expenses, so it’s imperative that you monitor your
business’s finances. One way to do this is to keep a balance sheet, which
is a statement of your business’s assets, capital, and liabilities. Referring to
your balance sheet frequently will enable you to review how much positive
working capital you have, so that you can adjust payment cycles or other
factors.

Working Capital Cycle Calculation

The Working Capital cycle for the company can be calculated a s given
below:

Working Capital Cycle = Inventory turnover in days + debtors turnover in


days- creditors turnover

=102+55-30

=127 days

This implies that the company as its cash locked in for a period of 127 days
and would need funding from some source to let the operations continue as
creditors need to be paid off in 30 days. Assuming the company had to
make all cash payments for its raw material requirement, there wouldn’t be
any creditors and the working capital cycle would then be 102+55 = 157
days.

Every company would like to keep its working capital cycle as short as
possible. A shorter working capital cycle can be achieved by focusing on
individual aspects of the working capital cycle.

How to shorten Working Capital Cycle?

A company can aim to shorten its working capital cycle by:

 Reducing the credit period given to its customers and thereby


reducing the average collection period. Giving cash discount can
also help improve the debtor’s turnover ratio or average collection
period amid various other ways.

 The company can try to improve streamline its process of


manufacturing and focus on various ways to increase sales to
reduce the time taken for inventory to convert to sales. The earlier
the stock clearance better is the working capital cycle.
 A better negotiation to increase the credit period from suppliers of
raw material and goods required for production can also aid
reduction in the working capital cycle.

While the average collection period and credit period from suppliers aid is
shortening the working capital cycle, the initial prime focus of the business
should be reduce the time taken for inventory to convert to sales. If the time
taken is very long it could imply that the business is not able to generate
sales for the goods produced and more and more capital gets locked in
inventory. Either the business should try and reduce the time or should
reduce the amount of inventory thereby reducing the amount locked in
working capital. In other words, if the business is not able to reduce its
working capital cycle and has higher inventory levels, it should aim at
reducing inventory levels and reduce the amounts locked in the working
capital keeping the cycle time length same.

Working Capital Formula

The net working capital formula is calculated by subtracting the current


liabilities from the current assets. Here is what the basic equation looks
like.

Net Working Capital

Net Working capital = Current Assets- Current Liabilities

Typical current assets that are included in the net working capital
calculation are cash, accounts receivable, inventory, and short term
investments. The current liabilities section typically includes accounts
payable, accrued expenses and taxes, customer deposits and other trade
debt.

Some people also choice to include the current portion of long term debt in
the liabilities section. This makes sense because although it stems from a
long term obligation, the current portion will have to be repaid in the current
year. Thus, it’s appropriate to include it in with the other obligations that
must be met in the next 12 months.

Factors Determining Working Capital


A major problem which is faced by the promoters of a new enterprise is to
take a decision regarding the size of working capital in relation to total
investment. No set formula can be given for solving this issue, because the
relative size of investment in working capital depends on many factors
which are discussed below:

 Nature of business

The relative size of working capital varies with the nature of business,
that is to say whether the business is a public utility or a basic
industry or a capital intensive or labour intensive industry. In capital
intensive industry, the proportion of fixed capital to total investment
will be higher, whereas in a labor intensive industry, reverse will be
the case.

 Seasonal nature of business

Sugar, woolen, cold drinks, electric fans, water coolers are industries
which suffer from the problem of seasonality. The demand for
products of certain industries is perennial but production in them is
confined to a particular season. In such an industry the relative size
of working capital will be more during the busy or brisk season and
the level of current assets will fall during the slack season. The
working capital management policy will have to be designed
according to the seasonal nature in such industries.

 Manufacturing Cycle

Time duration is a vital factor in production. Longer the manufacturing


cycle, more will be the need for working funds in order to finance the
current assets during the prolonged manufacturing cycle. This will be
because of the need to maintain huge size of semi manufactured and
work in process inventory. Manufacturing cycle plus the operating
cycle will determine the time lag between the outflow of cash and the
ultimate inflow of cash.

 Growth and expansion Plan

The size of working fund gradually goes up along with the growth of
the firm. In expansion there is normally an abrupt rise in working fund
commensurate with the size of such expansion.
 General Business Conditions

Business cycles also exercise a great bearing on the relative size of


working capital. As soon as recession starts inflows gradually decline
whereas cash outflows continue till a decision taken to curtail the
volume of output. Even then certain expenses have to be incurred
considerable outflow of funds.

 Other miscellaneous factors

During abnormal internal situations (such as frequent strikes, lock


outs, go slow tactics, frequent power etc.) need for working capital
increases. Distant or isolated location of the plant site irregular
supplies due to transport bottlenecks etc., also enhance the need for
working capital.

 Availability of Raw Material

Availability of raw material also influences the amount of working


capital. If the enterprise makes use of such raw material which is
available easily throughout the year, then less working capital will be
required, because there will be no need to stock it in large quantity.

 Inflation

Inflation means rise in prices. In such a situation more capital is


required than before in order to maintain the previous scale of
production and sales. Therefore, with the increasing rate of inflation,
there is a corresponding increase in the working capital.

 Level of Competition

High level of competition increases the need for more working capital.
In order to face competition, more stock is required for quick delivery
and credit facility for a long period has to be made available.

 Credit Allowed

Those enterprises which sell goods on cash payment basis need little
working capital but those who provide credit facilities to the
customers need more working capital.
Methods of Estimating Working Capital Requirements

This problem of forecasting working capital needs arises during the initial
project planning stage when estimates of total capital requirements are
being made. Along with estimates of funds for fixed assets, estimates of
working capital requirements are also included in total project costs.
Subsequently, this problem is faced by a going concern wherever
expansion is contemplated. Beside the above normal growth of the firm
over the year may also rises the size of working fund, gradually. There are
several methods available:-

1. Current Assets and Current Liabilities Forecasting Method

This method is based on the estimates of current assets and current


liabilities for next year. Estimation of current assets is done on the
basis of individual estimate of average stacks of raw materials, work
in progress, finished goods and average debtors and bills
receivables. Similarly required amount to meet current liabilities i.e.
creditors and bills due, direct labor and indirect expenses, overheads
etc. are also estimated.

2. Cash Forecasting Method

This method depends on Receipt and Payment of Cash. In this


method position of cash at the end of the period is shown after
considering the receipts and payments to be made at that period. Its
form assumes more or less a summary of cash book. This shows the
surplus or deficiency of cash at the definite point of time. In the way it
is clear that the difference between the total expected receipts and
total expected payments is considered to be equal to the requirement
of working capital.

3. Operating Cycle Method

Circulating Capital (or current assets) circulated in the conduct of


business operations. Each operating cycle begins with a cash outflow
and after a time gap, ends with a cash inflow. The process does not
cease there but another operating cycle with a fresh outflow start and
again ends with a subsequent inflow of cash after a time lag. In this
way a series of operating cycles begin and end again during the
conduct of business operations. The shorter the time lag between
inflow and outflow of cash, the larger will be the number of operating
cycles and greater will be the volume of total business turnover with
minimum of investment of funds in current assets in an operating
period. On the other hand, any increase in the normal length of the
operating cycle will create need for more working fund and may also
result in reducing the size of total business turnover. Delays in
conversion of raw materials into finished products, delays in sales of
finished goods and delays in recovery of cash from debtors and bills
receivables can be cited as examples which unduly lengthen the
normal duration of an operating cycle.

4. Projected Balance Sheet Method

An important dimension of financial forecasting including forecasting


working capital requirements is preparation of financial statements.
Under this projected balance sheet and projected income statements
are prepared which are based on estimates of sales, income and
expenditure for coming years. In this context, projected balance sheet
has special significance. This is a statement which projects the
financial status of the firm at the end of next year. Based on the
progress and performance of the past year, total sales in next year
and the resultant income are estimated. In addition, based on the
estimates or gross profit, cost of the sales are computed by deducting
estimated gross profit from total estimated sales.

Working Capital Analysis

Working capital analysis is one way of evaluating the credit worthiness of a


business. By evaluating changes in a firm's current assets or liabilities, an
analyst can determine changes to the business' working capital. This figure
helps lenders determine how much financing will be required to see a
business through its normal cycle of operation.

Determining the amount of a business' working capital typically is a process


of subtracting its current liabilities from its assets. Working capital is the
amount of assets a business has on hand to see it through the time after
which a product is acquired and sold but before the business has collected
on the sale. The more working capital a business has, the less it needs to
borrow for routine operations and the better credit risk it poses.
An important step in working capital analysis is to review changes in a
firm's net worth. A simple definition of net worth is total liabilities subtracted
from total assets. If the net worth figure increases, a business should have
more working capital. A lower net worth mean less working capital. The
various tools of working capital analysis are:-

1. Current Ratio

The current ratio is a liquidity ratio that measures a company’s ability


to pay short term obligations or those due within one year. It tells
investors and analysts how a company can maximize the current
assets. It is a financial ratio that shows the proportion of a company’s
current assets to its current liabilities. The current ratio is often
classified as a liquidity ratio and a larger current ratio is better than a
smaller one.

2. Quick Ratio

The quick ratio is an indicator of a company’s short term liquidity


position and measures a company’s ability to meet its short term
obligations with its most liquid assets. Since it indicates the
company’s ability to instantly use its near cash assets to pay down its
current liabilities, it is also called as the acid test ratio. An acid test is
a quick test designed to produce instant results.

3. Cash Ratio

The cash ratio is the ratio of a company’s total cash and cash
equivalents to its current liabilities. The metric calculates a company’s
ability to repay its short term debt with readily liquidated cash
resources. This information is useful to parties such as creditors
when they decide how much debt, if any, they would be willing to
extend to the asking party. The cash ratio is generally a more
conservative look at a company’s ability to cover its liabilities than
many other liquidity ratios because other assets, including accounts
receivable, are left out of the equation.

4. Turnover Ratio

A turnover ratio represents the amount of assets or liabilities that a


company replaces in relation to its sales. The concept is useful for
determining the efficiency with which a business utilizes its assets. In
most cases, a high asset turnover is considered good, since it implies
that receivables are collected quickly, fixed assets are heavily
utilized, and little excess inventory is kept on hand. This implies a
minimal need for invested funds, and therefore a high return on
investment.

Cash Required For Working Capital

For estimating the actual cash requirement one may follow the following
two step procedure:

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 1977, the RBI permitted banks to evolve their own norms for
assessment of the working capital requirements.

Cash flow based Computation of Working Capital

 Drawing up of 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 banker’s opinions.
 The peak cash deficit is ascertained from the cash budgets.
 The promoters share for such requirements may be 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 reluctant 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, cash budget method is currently prevalent mainly in case of
seasonal industries, construction sector as well as other entities whose
operations are linked to projects.

Why Does a Firm Need Cash?

 Transaction motive: firms need cash for transaction purpose


 Precautionary motive: The magnitude and time of cash inflows
and outflows is always uncertain and hence the firms need to have
some cash balance as a buffer.
 Speculative motive: All firms want to make profits from fluctuation
in commodity prices, security prices, interest rates and foreign
exchange rates. A cash rich firm is in a better position to exploit
such bargains. Hence, the firm with such speculative leanings may
carry additional liquidity.

The firm must decide the quantum of transactions and precautionary


balances to be held, which depends upon the following factors:

 The expected cash inflows and outflows based on the cash budgets
and forecasts, encompassing short/long range cash needs of the
firm.
 The degree of deviation between the expected and actual net cash
flow.
 The maturity structure of the firm’s liabilities
 The firm’s ability to borrow at a short notice, in case of emergency.
 The philosophy of management regarding liquidity and risk of
insolvency
 The efficient planning and control of cash
OPTIMAL CASH BALANCE

Cash balance is maintained for transaction purposes and an additional


amount may be maintained as a buffer or safety stock. It involves a tradeoff
between the costs and the risk.

If a firm maintains a small cash balance, it has to sell its marketable


securities and probably buy them later more often, than if it holds a large
cash balance. More the number of transactions more will be the trading
cost and vice-versa; also, lesser the cash balance, less will be the number
of transactions and vice versa. However the opportunity cost of maintaining
the cash rises, as the cash balance increases.

Depreciation/ Amortization

Depreciation policy of the firm, through its effect on tax liability and retained
earnings, has an influence on the Working Capital. The firm may charge a
high rate of depreciation, which will reduce the tax payable and also retain
more cash, as the cash does not flow out. If the dividend policy is linked
with net profits, the firm can pay fewer dividends by providing more
depreciation. Thus depreciation is an indirect way of retaining profits and
preserving the firm’s working capital position.

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 and 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 premises/workshops are considered as
normal building and not as factory building. Accordingly depreciation is
charged uniformily.
Intangible assets such as Entry License Fee for Telecom Service
operations are amortized over the license period (i.e. 20 years) and
standalone computer software applications are amortized over the license
period subject to maximum of 10 years as straight line method.
COMPANY PROFILE
BHARAT SANCHAR NIGAM LIMITED (BSNL)

The Indian Telecommunications Industry is the world’s fastest growing


telecommunications industry, with 962.82 million telephones (landline and
mobile) subscribers and 929.37 million mobile phone connections as of
May 2012. It is also the second largest telecommunications network in the
world in terms of number of wireless connections after China. The Indian
mobile phone subscriber base has increased in size by a factor of more
than one hundred since 2001 when the number of subscribers in the
country was approximately 5 million to 962.82 million as on 30th June,
2012.

As the fastest growing telecommunication industry in world, it is projected


that India will have 1.159 billion mobile subscribers by 2013. Furthermore,
projections by several leading global consultancies indicate that the total
number of subscribers in India will exceed the total subscriber count in the
China by 2013. The industry is expected to reach a size of 344,921 crore
by 2012 at a growth rate of over 26 per cent, and generate employment
opportunities for about 10 million people during the same period. According
to analysts, the sector world would create direct employment for 2.8 million
people and for 7 million indirectly. In 2008-09 the overall telecom
equipments revenue in India stood at 136,833 crore during the fiscal, as
against 115,382 crore a year before. Indian telecom operators added a
staggering 227.27 million wireless subscribers in the 12 months between
Mar 2010 and Mar 2011averaging at 18.94 million subscribers every
month. To put this into perspective, China which currently posses the
world’s largest telecommunications network added 119.2 million wireless
subscribers during the same period.

Company Profile

TYPE Communication Service Provider

Availability Country wide except Delhi &


Mumbai

Owner The Government of India


Key People S.D Saxena (CFO) ; Dr. Ajay Data
(CEO)

Founded 19th Century, incorporated 2000

Website www.bsnl.in

BSNL is India’s oldest and largest Communication Service Provider (CSP).


Currently, BSNL has a customer base of 64.8 million (Basic and mobile
telephony). It has foot prints throughout India except for the metropolitan
cities of Mumbai and New Delhi which are managed by MTNL.

The foundation of Telecom Network in India was laid by the British


sometime in 19th century. The history of BSNL is linked with the beginning
of Telecom in India. In 19th century and for almost entire 20th century, the
Telecom in India was operated as a Government of India wing. Earlier it
was part of erstwhile Post & Telegraph Department (P&T). In 1975 the
Department of Telecom was separated from P&T. DoT was responsible for
running of Telecom services in entire country until 1985 when Mahanagar
Telephone Nigam Limited (MTNL) was carved out of DoT to run the
telecom services of Delhi and Mumbai. It is a well known fact that BSNL
was carved out of Department of Telecom to provide level playing field to
private telecoms. Subsequently in 1990s the telecom sector was opened by
the Government for private investment, therefore it became necessary to
separate the Government’s policy wing from operations wing. The
Government of India corporatized the operations wings of DoT on October
01,2000 and named it as Bharat Sanchar Nigam Limited (BSNL). BSNL
operates as a public sector.

Since its corporatization in October 2000, BSNL has been actively


providing connections in both Urban and Rural areas and the efficiency of
the company has drastically improved from the days when one had to wait
for years to get a phone connection to now when one can get a connection
in even hours. Pre- activated mobile connections are available at many
places across India. BSNL has now unveiled very cost effective Broadband
internet access plans (Data One) targeted at homes and small businesses.
At present BSNL enjoys 47% of market share of ISP services.
Former Indian Communications Minister ‘Thiru Dayanidhi Maran’ had
declared year 2007 as “Year of Broadband” in India and BSNL is gearing
up to provide 5 million Broadband connectivity by the end of 2007. BSNL
has upgraded existing Data one (Broadband) connections for a speed of up
to 2 Mbit/s without any extra cost. This 2 Mbit/s broadband service is being
provided b BSNL at a cost of just US$ 5.5 per month. Further, BSNL is
planning to upgrade its broadband services to Triple play
(telecommunications) in 2007.

BSNL has been asked to add 108 million customers by 2010 by Former
Indian Communications Minister Thiru Dayanidhi Maran with the frantic
activity in the communication sector in India, the target appears achievable,
however due to intense competition in Indian Telecom Sector BSNL’s
growth has slowed down.

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 winning 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), 3287 satellite stations,
614755 Rkm of microwave network connecting 602 Districts, 7330 cities
and 5.6 lakhs village.

BSNL is the only service provider, making focused efforts and planned
initiatives to bridge the Rural- Urban Digital Drive 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 the country and operates across
India except Delhi and 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 wide ranging and most transparent tariff schemes designed
to suite every customer.

BSNL cellular service, Cell One has 55,140,282 2G cellular customers and
88,493 3G customers. 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 per cent share in revenue terms.
BSNL has more than 2.5 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 Data
One broadband customers. The company has vast experience in
Planning, Installation, network integration and maintenance of
Switching & Transmission Networks and also has a world class
ISO9000 certified Telecom Training Institute. Scaling new heights
of success, the present turnover of BSNL is more than Rs.351,820
m i l l i o n ( U S $ 8 b i l l i o n ) wi t h n e t p r o f i t t o t h e t u n e o f
R s . 9 9 , 3 9 0 mi l l i o n ( US $ 2 . 2 6 billion) for last financial year. The
infrastructure asset on telephone alone is worth aboutRs.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.

Objectives of BSNL

BSNL had been focusing on several objectives in keep maintaining its


image in the country. Some of the objectives of BSNL are:-

 To be a lead Telecom Services Provider

 To provide quality and reliable fixed telecom service to our customers


and thereby increase customer’s confidence

 To provide mobile telephone service of high quality and became no. 1


GSM operator in its area of operation

 To provide point of interconnection to other service provider as per


their requirement promptly.

 Expansion of Cellular Telephone to all towns

 To raise necessary financial resources for its development needs

 Popularize Broadband services and to be on demand in the whole


country
 To increase accessibility of services, by providing a large number of
Local and NSD/ISD Public Call Offices (PCOs) so as to reach out to
the masses

 To open Internet Kiosks (Café’s)at all Block Head Quarters

Vision of BSNL

 To become the largest Telecom Service Provider in Asia

 Be the leading Telecom Service Provider in India with global


presence. Create a customer focused organization with excellence in
sales, marketing and customer care.

 Leverage technology to provide affordable and innovative products


and services across customer segments provide a conducive work
environment with strong focus on performance establish efficient
business processes enabled by IT.

Mission of BSNL

 To provide world class State-of-art technology telecom services to its


customers on demand at competitive prices.

 To provide world class telecom infrastructure in its area of operation


and to contribute to the growth of the country’s economy

Social Commitment

BSNL is committed to provide quality Telecom services at affordable price


to the citizens of the remotest part of the country. BSNL is making all efforts
to ensure that the main objectives of the new Telecom Policy 1999 are
achieved.

Access to telecommunications is of utmost importance for achievement of


the country’s social and economic goals. Availability of affordable and
effective communications for the citizen is at the core of the vision and goal
of the new Telecom policy 1999.
Strive to provide a balance between the provision of universal service to all
uncovered areas, including the rural areas, and the provision of high level
services capable of meeting the needs of the country’s economy.

Encourage development of telecommunication facilities in remote, hilly and


tribal areas of the country.

Transform in a time bound matter, the telecommunication sector to a


greater competitive environment both urban and rural areas providing equal
opportunities and level playing field for all players.

SWOT Analysis

1. Strengths

 Pan-India reach

 Experienced Telecom service provider

 Total telecom service provider

 Huge customer base

 Transparency in billing

2. Weaknesses

 Poor marketing strategy

 Poor franchisee network

 Lack of strategic alliances

 Poor knowledge management

 Huge and aged manpower

3. Opportunities

 Untapped broadband services

 Fuller utilization of slack resources


 Diversification of business to turn key points

 Leveraging the brand image to source funds

 Untouched international market

4. Threats

 Manpower churning

 Competition from private operators

 Market maturity in basic telephone segment

 Keeping pace with fast technological changes

 Multinational eyeing Indian telecom market


SCOPE OF THE STUDY
Working capital is purchase of raw materials, payment of wages and
expenses. It changes constantly to keep the wheels of business moving. It
helps in enhancing liquidity, solvency, creditworthiness and reputation of
the enterprise. It generates the elements of cost namely: materials, wages
and expenses. It enables the enterprise to avail the cash discount facilities
offered by its suppliers. It has helped to improve the morale of business
executives and their efficiency reaches at the highest climax. It facilitates
expansion programme of the enterprise and helps in maintaining
operational efficiency of fixed assets.

The basic ingredient of the theory of the working capital management may
include:-

 Optimum level of current assets

 Trade of between profitability and risk, which is associated with the


level of current assets and liabilities

 Financing mix strategies

Working Capital management is concerned with the problems that arise in


attempting to manage the Current assets, the Current liabilities and the
inter-relationship that exists between them. The term current assets refers
to those assets which in the ordinary course of business can be, or will be,
converted into cash within one year without undergoing a diminution in
value and without disrupting the operations of the firm. The major Current
Assets are Cash, Marketable Securities, Accounts Receivables and
Inventory.

Current liabilities are those liabilities, which are intended at their inception,
to be paid in the ordinary course of business, within a year out of the
current assets or the earnings of the concern. The basic Current liabilities
are Accounts Payable, Bills Payable, Bank Overdraft outstanding expense.
The goal of Working Capital Management is to manage the firm's Assets
and Liabilities in such a way that a satisfactory level of working capital is
maintained. This is so because if the firm cannot maintain a satisfactory
level of working capital, it is likely to become insolvent and may even be
forced into bankruptcy.
The Current Assets should be large enough to cover its current liabilities in
order to ensure a reasonable margin of safety. Each of the current assets
must be managed efficiently in order to maintain the liquidity of the firm
while not keeping too high a level of any one of them. Each of the short
term sources of financing must be continuously managed to ensure that
they are obtained and used in the best possible way. The interaction
between current assets and current liabilities is, therefore, the main theme
of the theory of management of working capital.

The scope of the study is identified after and during the study is conducted.
The scope of the study is to check the management of working capital
(current assets and current liabilities) of only Indian telecommunications
sector. The study analyzed the liquidity position and working capital
management of a limited sample consisting of Bharat Sanchar Nigam
Limited. The study of working capital is based on only one tool i.e. Ratio
Analysis. Further the study is based on five years annual reports of the
BSNL. As only Telecom sector was studied so the findings could only be
generalized to this sector’s firms.

The present study “Calculation of working capital of BSNL” analyses the


efficiency of the working management and its components i.e. inventory
amount, cash and bank balances and various current liabilities. The study
attempts to determine the efficiency and effectiveness of management in
each segment of working capital. Since the net concept of working capital
has been taken in the present study, management of both current assets
and current liabilities will be critically reviewed.

The importance of the study is emphasized by the fact that the manner of
administration of current assets and current liabilities determined to a very
large extent the success or failure of the business. The effective and
efficient management of working capital is of crucial importance for the
success of a business, which involves the management of the current
assets and current liabilities. The business firm therefore has to optimize
the use of available resources through the efficient and effective
management of the current assets and current liabilities. This will enable to
increase the profitability of the concern and the firm could be able to meet
its current obligation will in time.
OBJECTIVE OF THE STUDY
Working Capital is a measure of company’s liquidity, operational efficiency
and its short term financial health. If a company has substantial working
capital, then it should have the potential to invest and grow. If a company’s
current assets do not exceed its current liabilities, then it may have trouble
growing or paying back creditors, or even go bankrupt.

The main objective of this study is to carry on brief study on “Analysis of


five year balance sheet of BSNL through comparative balance sheet in
Comparative Statement” through this project I am able to get the difference
of various assets and liabilities of the BSNL.

There are different objectives obtained while working on this project report:-

1. To become aware about working capital

The main objective of this project report is that one should clearly
know the concept of working capital. To study this project report a
person should properly understand what working capital is, why need
working capital in an organization, its uses, objectives, advantages
and etc.

2. To identify various assets of BSNL with Annual Reports

As we know this project is all about working capital of BSNL, but to


calculate BSNL’s working capital we need to know about the various
assets and liabilities of BSNL with regard to respect to annual reports
of BSNL. Annual reports help in identifying all the assets and
liabilities of the organization giving clear status of all the current
assets and liabilities making work easy for people.

3. Comparative Study of Five year Annual Reports

The main objective of the project is studying about the five year
annual reports through which we can further carry on our research to
calculate working capital of BSNL. To calculate working capital one
need annual reports to study all the current assets and current
liabilities of BSNL. Through five year annual reports we can also
study for financial statement also.
4. To study various departments of BSNL in India

BSNL is India’s largest telecom sector, it has helped people across


world to connect with each other. BSNL is India’s largest and oldest
Communication Service Provider. In this project we will study more
about BSNL, its working and current status.

5. Measuring the Profitability

The main objective of a business it to earn a satisfactory return on the


funds invested in it. Working capital helps in ascertaining the current
assets and current liabilities of the organization and through this
financial analysis helps in ascertaining whether adequate profits are
being earned on the capital invested in the business or not.

6. To interpret the financial position of company is appropriate or


not.

Working capital is the most widely used and powerful technique of


financial analysis. Through working capital one can understand all the
current assets and liabilities of the BSNL. It helps in understanding
the concept that whether the financial position of company is
appropriate or not, the company is doing its business properly or not.

7. Analyzing of relationship between working capital and


profitability

Another very important objective report is to understand the


relationship between working capital and profitability, what happen is
sometimes that working capital is always related with profitability, it is
a different topic but there is some kind of relationship that is there
between both of them.

8. Analyzing the level of current assets with relation to current


liabilities

Working capital is the whole study of current assets and current


liabilities, through working capital we are able to analyzed the actual
position of current assets and current liabilities. The proper idea is
paid that what assets and liabilities are there in the organization.
REVIEW OF LITERATURE

Working Capital Management plays an important role in financial


management of the industry. Numbers of research has been done on
different components of working capitals and subject on. In this project
report I have included the relevant articles as well as research work on the
same topic and subject and this is a part of my research work on the same
title the working capital management of BSNL. The main aim of this topic is
to identify the gaps in current body of my research work which gives the
direction towards forward attention to be given.

The National Council of applied Economic Research in 1966 first time


formal study was conducted on working capital management in India. The
council published a structure of working capital which was limited analysis
of the creation of working capital with special attention to the fertilizers,
sugar and cement industries the main objective of the study was
emphasized on come out with findings that working capital management
practices were extremely unplanned and hence need to develop proper
accounting policies like inventory management, debtors management as
above. And the study suggested developing suitable working capital
policies required in the success of the business.

Bhatt V.V has given concentration on system to appraise working capital


management and its finance especially for the large scale companies. This
tool also helpful to others sectors like agriculture as well retail trade etc. As
bank provide short term finance to operation of business at the same time
need to pay attention on repayment of loan and required finance necessity.
If these two area is to be maintain properly no need to appraise the working
capital management concern.

Research has been given focused on the short term finance need to be
given more attention for the success of the individual firm. For that finance
manger has to give more attention on current assets and current liabilities.
Many firms do investment of current assets in a basket while current liability
in many different request.

Here, in this analysis try to identify the problems of working capital in six
public enterprises for the period of 1960. Importance and findings are here
under: selected samples of companies were not able to utilize working
capital efficiently. As well excess inventory level which shows inappropriate
management of inventory. In order delay exchange was made to foreign
exchange and issue of import license. Furthermore, account receivable
ratio is very law because liberal credit policy and inappropriate collection
policy. In most of the selected firms were having huge cash amount on
account and improper management and control on cash.

Nataranjan Sundar (1980) has been given views on working capital is


having immense important at both, the national as well business level. To
keep control on working capital at the national level by controlling credit
controls. In practice efficient working capital includes to determine the best
suitable level of working capital, financing it and control over it. If we talked
about corporate level investment is important in both case short term
investment and fixed assets. And that can be possible many company not
surviving as well not incurring profit because of not efficiently manage the
working capital. Thus, cost management with improved operational
efficiency, and that aspect working capital is very important to be manage
in proper way.

Rajeshawar (1985) he has done the study on few selected public


enterprises in India. He tried to check the working capital policies adopted
by the sample units. He made attempt to examine the working capital
components how efficiently managed. At the last no one company clearly
defined working capital policies and hence most of them could not achieve
efficiently in working capital management. In this study it is found that
majority of investment was made in finished goods inventory that was
indicate that working capital was not managed in a planned way. Thus,
study recommended for careful management of working capital in finance
management.

This study observed that strong and weak point of conventional techniques
of working capital analysis. Outcomes of this study shows that some of the
conventional techniques which could realized the working capital behavior
well. And some of them fail to do so. And thus authors suggest proper
working capital management with conventional method i.e. ratio analysis.
Study suggests further inclusive factors which are decisive yardstick in
working capital efficiency.
Research has been put light on financial restrain on investment by giving
focus the ignoring role of working capital in both as use and source of
funds. As per the views of authors liquidity can be maintain by maintaining
working capital on smooth manner means to be investment in a manner
which does not create cash flow constrain. Through the research found that
working capital investment should be “excessively sensitive” with summing
up that controlling on smoothing working capital create a long impact of
finance constraints and reported in many other studies also.

The main objective of this study is to maintain working capital in proper


way, i.e., time of fund requirement, amount of fund and from where to raise
fund to be maintain so can possible to acquire trade off among liquidity and
profitability. The analysis showed that BSNL has followed aggressive
working capital policy by taking the risk of liquidity. The study analyzed that
company continuously raising trend in negative net working capital during
the period of the study. That was suggest to BSNL not to raise only fund
from long term source instead by understating the requirement of fund
need to take short term source also.

This study is evaluated that the interest rate of fund reducing money power
on output. For the study rational expectation model is used to find out
relation between production decisions and debt finance. As working capital
having immense important factors and its cost, the rate of interest, affects
the supply of goods, this study revealed that this model helps to identify the
alarming situation when interest rate is used. This model also revealed that
effects of monetary policy on the price level and supply side.

Observation of study has shown that in increasing in mode, but net profit
has in decreasing in trend because operating cost is high. The others find
out and thrown light on the importance of cost of production. Other side
found that the return on network and the return to total assets were on the
decreasing trend. Researcher has found that the return on investment is
stable and the company invested in a profitable way. Company’s payout
ratio was very conservative and that shows growth of the company. With
the sum of the research is that for the long term financial stability and
formed the debt equity ratio. Opposite side of the research interest
coverage ratio and the proprietary ratio were not satisfactory.
RESEARCH METHODOLOGY
RESEARCH METHODOLOGY

The science of methods is termed as research methodology. It refers to the


process of conducting the research. Research methodology not only
describes the steps involved in conducting the research, but also justifies
the choices of various methods, state the limitations of the research and
also brings out the presuppositions and consequences and conducting the
research. Research methodology answers the questions like the why, what,
how, when of conducting the research e.g. why has the research been
undertaken, how was the problem formulated, what were the methods
employed to collect the data, when was the data collected, which
techniques o analysis was adopted and so on and so forth.

Research is an academic activity and as such the term should be used in a


technical sense. According to Clifford Woody research comprises defining
and redefining problems, formulating hypothesis or suggested solutions;
collecting, organizing and evaluating data; making deductions and reaching
conclusions; and at last carefully testing the conclusions to determine
whether they fit the formulating hypothesis.

D. Slesinger and M. Stephenson in the Encyclopedia of Social Sciences


define research as “the manipulation of things, concepts or symbols for the
purpose for generalizing to extend, correct or verify knowledge, whether
that knowledge aids in construction of theory or in the practice of an art”.
Research is, thus, an original contribution to the existing stock of
knowledge making for its advancement. It is the pursuit of truth with the
help of study, observation, comparison and experiment. In short, the search
for knowledge through objective and systematic method of finding solution
to a problem is research. The systematic approach concerning
generalization and the formulation of a theory is also research. As such the
term research refers to the systematic method consisting of enunciating the
problem, formulating a hypothesis, collecting the facts or data, analyzing
the facts and reaching certain conclusions either in the form of solutions
towards the concerned problems or in certain generalizations for some
theoretical formulation.

The purpose of research is to discover answers to questions through the


application of scientific procedures. The main aim of research is to find out
the truth which is hidden and which has not been discovered yet. Though
each research study has its own specific purpose, we may think of
research objectives as falling into a number of following broad groupings.

All progress is born of inquiry. Doubt is often better than overconfidence,


for it leads to inquiry, and inquiry leads to invention” is a famous Hudson
Maxim in context of which the significance of research can well be
understood. Increased amounts of research make progress possible.

Research inculcates scientific and inductive thinking and it promotes the


development of logical habits of thinking and organization. The role of
research in several fields of applied economics, whether related to
business or to the economy as a whole, has greatly increased in modern
times.

RESEARCH DESIGN

A research design is a map developed to guide the research. It is a part of


the planning stage of research, a blueprint for the collection, measurement
and analysis of data. William Zikmund has described research design as a
master plan specifying the methods and procedures for collecting and
analyzing the needed information.

These decision need to be taken on sound base, so that we can anticipate


the difficulties that may arise in future and plan for them. A good research
design serves three important functions: Firstly, it gives a blueprint for
research. Secondly, it limits the boundaries of research activity and makes
systematic investigation possible. Thirdly, it enables a researcher to
anticipate potential problems that he may encounter in future.

The formidable problem that follows the task of defining the research
problem is the preparation of the design of the research project, popularly
known as the ‘research design’. Decisions regarding what, where, when,
how much, by what means concerning an inquiry or a research study
constitute a research design. “A research design is the arrangement of
conditions for collection and analysis of data in a manner that aims to
combine relevance to the research purpose with economy in procedure”.

In fact, the research design is the conceptual structure within which


research is conducted, it constitutes the blueprint for the collection,
measurement and analysis of data.
1. Statement of Problem

The research is carried on in a proper planned and systematic


manner. The research was particularly based on working capital of
BSNL. The project is carried on research with people having a
planned way and result in their working.

2. Objective of the research study

Working Capital is purchase of raw materials, payment of wages and


expenses. It helps in enhancing liquidity, solvency, creditworthiness,
and reputation of the enterprise. The main objective of the study is to
carry on brief study on analyzing of five year balance sheet of BSNL
through comparative balance sheet in comparative statement. The
other objective is that the working capital is needed to check the
annual reports of the BSNL. The comparative study of five year plans
is very needed to calculate the working capital of the company.

3. Data Collection

The task of data collection begins after a research problem has been
defined and research design or plan chalked out. While deciding
about the method of data collection to be used for the study, the
researcher should keep in mind two types of data viz., primary and
secondary.

There are numerous possible sources of data, this is a determination


that is special to each project. A step toward that determination is
having, first, general classification of sources, which we now offer in
several dimensions. Secondary sources should first be considered,
which refer to those for already gathered and available data.

 Primary data

The primary data of this project report is collected by


questionnaires and surveys done on this project report.

 Secondary data

Secondary data will consist of different literatures likes books


which are published, articles, internet and websites of
company. I order to reach in a relevant conclusion, research
work needed to be designed in a proper way.

This research methodology also includes:-

 Familiarization with the concept of finance and its various


merits and demerits

 Through study of the information collected


 Conclusions based on findings

4. Sample Design

The researcher collects data as per the guidelines laid down in the
research design. An essential component of the research design is
the sampling design which is concerned with the selection of a
sample. We encounter sampling in our day to day lives.

Once the researcher has formulated the problem and developed a


research design including the questionnaire, he has to decide
whether the information is to be collected from all the people
comprising the population. In case the data are collected from each
member of the population of interest, it is known as the census
survey.

 Sample technique

In my project report I have used Convenience Sampling.


Convenience sampling is the most common type of non-
probability sampling done without any restrictions in
convenience sampling. In this the researches has the freedom
of choosing any respondent based on his convenience.
Respondents become a part of the sample because they
happen to be at the right in at the right time.

 Sample Size

The sample size of the project report is 50. The report is


calculated on this purpose.
5. Data Analysis

Data Analysis is the process of systematically applying statistical


and/or logical techniques to describe and illustrate, condense and
recap, and evaluate data. According to Shamoo and Resnik (2003)
various analytic procedures “provide a way of drawing inductive
inferences from data and distinguishing the signal (the phenomenon
of interest) from the noise (statistical fluctuations) present in the
data”. While data analysis in qualitative research can include
statistical procedures, many times analysis becomes an ongoing
iterative process where data is continuously collected and analyzed
almost simultaneously. Indeed, researchers generally analyze for
patterns in observations through the entire data collection phase
(Savenye, Robinson, 2004). The form of the analysis is determined
by the specific qualitative approach taken (field study, ethnography
content analysis, oral history, biography, unobtrusive research) and
the form of the data (field notes, documents, audiotape, videotape).
FINDINGS
DATA ANALYSIS AND INTERPRETATION

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 organization and 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 revenue due for the services provided.
Presently, BSNL generates bills through different software 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.

COMPARATIVE STUDY BETWEEN YEARS 2008-2007

During the current financial year, the management based on physical


verification of fixed assets and inventory and reconciliation of various heads
of assets and liabilities in the subsidiary and general ledgers which has
resulted into increase/decrease in the following assets and liabilities taken
over as on 1st October 2000 amounting to net reduction in the assets of Rs.
5,910 lakh (P.Y. – Rs. 25,452 lakh)

Figures in Lakhs of Rupees

Particulars Up to Up to Absolute Percentage


March March change Change (%)
31,2007 31,2008 Rs.

Assets
Fixed Assets 5,417,921 5,416,697 (1,224) -0.02
Capital WIP 503,112 502,631 (481) -0.10
Inventory 188,647 188,681 34 0.02

Sundry Debtors 682,740 684,430 1,690 0.25


Advance to 39,448 39,448 - 0.00
contactors
Deposit with 2,086 2,138 52 2.49
Electricity
board/other
Total A 6,833,954 6,834,025 71 0.001
Liabilities
Customer Deposits 391,656 393,704 2,048 0.52
Earnest Money 12,525 12,158 (367) -2.93
Deposits
Security deposits 29,454 29,099 (355) -1.21
from
Contractors/Suppliers
Working Expense 38,283 42,666 4,383 11.45
Liability as on 1st
October 2000
Contractors Bills 10,008 10,280 272 2.72
payable as on 1st
October 2000
Net Assets taken 6,352,028 6,346,118 (5,910) -0.09
over by the company
Total B 6,833,954 6,834,025 71 0.001

Interpretation of Comparative Balance Sheet:-


The comparative balance sheet of the company reveals that during 2008
there has been on increase in final assets of Rs. 1224 lakh i.e. 0.02% while
long term liabilities to other side have relative increase by Rs. 4383 lakh
and contractor bill pay has increased by Rs. 272 lakh . This fact depicts the
policy of the company is to purchase fixed assets from the long term
sources of finance there by not affect the working capital.

Current assets have increased by Rs. 1261 lakh and advance of contractor
not increased on the other hand there has been an increase in inventories
amount Rs. 34 lakh. The current liabilities have increased by Rs. 4582 lakh
i.e. 0.06%. This further confirms that the company has revised long term
finances.

The overall financial position of the company is satisfactory.

CALCULATION OF WORKING CAPITAL OF BSNL

CALCULATION OF WORKING CAPITAL IN FOUR YEARS

On the basis of Gross Working Capital

Particulars 2008 2007 2006 2005


(Current
Assets)
Building 344 466 534 400
Materials
Lines and 14,696 16,354 15,500 12,300
Wires
Cables 132,359 106,839 103,125 104,564
Apparatus and 120,566 83,342 130,333 65,548
plants
Telephone 19,257 19,268 19,272 19,365
and Telex
Instruments
Broad Band 10,218 1,168 1,652 1,109
Equipments
Satellite based 414 227 235 365
Broad band
Equipments

Raw Material 12,572 11,108 10,985 10,562


(at Factory)
Finished 952 1,078 1,258 1,365
Goods (at
Factory)
Finished Stock 15,348 15,932 15,658 15,369
(at various
Circles)
Stores 20,189 13,016 16,015 19,489
Excess/(Short) 150 2,186 1,264 1,856
in Inventory
Account
Sundry 546,551 558,066 630,205 663,703
Debtors
Cash and 4,055, 158 3,745,296 3,057,948 2,193,113
Bank
Balances
Loans and 744,441 714,431 923,207 752,160
Advances
Inventories 322,006 242,847 278,922 224,535
Gross 6015371 5531773 5206268 4085956
Working
Capital
(Total)

Interpretation:-

Above Calculation shown in the year of 2008 the Gross Working Capital
(WC) is Rs. 60,15,371 and the working capital of the year 2005 is Rs.
40,85, 956. This statement say that Working Capital is increased every
year.
Chart Title
6015371 5
0

5531773

5206268

4085956

0 0 0
2005 2006 2007 2008

2000000 4000000 6000000 8000000

On the basis of Net Working Capital

Particulars 2008 2007 2006 2005


Building 344 466 534 400
Materials
Lines and 14,696 16,354 15,500 12,300
Wires
Cables 132,359 106,839 103,125 104,564
Apparatus and 120,566 83,342 130,333 65,548
Plants
Telephone 19,257 19,268 19,272 19,365
and Telex
Instruments
Telegraph and 150 149 155 153
Telex Spares
Broadband 10,218 1,168 1,652 1,109
Equipments
Satellite 414 227 235 365
based
Broadband
Equipments

Raw Material 12,572 11,108 10,985 10,562


(at Factory)
Finished 952 1,078 1,258 1,365
Goods (at
Factory)
Finished 15,348 15,932 15,658 15,369
Stocks (at
various
Circles)
Stores 20,189 13,016 16,015 19,489

Excess/(Short) 150 2,186 1,264 1,856


in Inventory
Account
Sundry 546,551 558,066 630,205 663,703
Debtors
Cash and 4,055,158 3,745,296 3,057,948 2,193,113
Bank balance
Loans and 744,441 714,431 923,307 752,160
Advances
Inventories 322,006 242,847 278,922 224,535
Total of 6015371 5531773 5206268 4085956
Current
Assets (A)

Sundry 606,327 597,419 498,365 564,235


Creditors
Advances 32,802 24,176 27,256 65,258
received from
customers
and others
Deposits from 582,676 613,555 525,864 586,565
customers
and others
Income 48,569 39,027 47,589 48,489
received in
advance
against
services
Claims 37,610 48,521 54,961 48,753
payable to
DoT
Claims 19,176 12,469 17,654 15,864
Payable to
departments
of Govt. of
India
Claims 79,094 68,584 65,864 63,654
payable to
government
companies
License fee 4,662 40,644 45,846 42,696
and
Transponder
charges
payable
Payable for 121,318 18,930 19,631 20,984
revised wages
Salary and 83,679 84,692 85,693 82,981
Incentive
payable to
employees
Payable to 251 569 465 512
SAARC
countries
Liabilities for 63,730 62,649 59,894 61,854
services
Liabilities for 1,128 - - -
construction
account
Claims 80 - - -
payable for
USO tower
Other 41,780 37,154 38,658 40,458
provisions for
expenses
Other 13,524 16,252 15,856 14,489
liabilities
Interest 3,241 3,275 3,846 3,964
accrues but
not due on
deposits
Total of 1,739,647 1,667,916 1,507,442 1,660,756
Liabilities(B)

Net Working Capital = 4,275,724 | 3,863,857 | 3,698,826 | 2,425,200

(A-B)

Interpretation:-

Above Calculation shown in the year of 2008 the Net Working Capital
(Working Capital) is Rs. 42,75,724 and the Net Working Capital of the year
2005 is Rs. 24,25,200. This statement say that the Net working capital is
also increased every year.

Net WC
4500000

4000000

3500000

3000000

2500000

2000000 Net WC

1500000

1000000

500000

0
2005 2006 2007 2008
COMPARATIVE GRAPH OF WORKING CAPITAL

12000000

10000000

8000000

6000000 Gross WC
Net WC

4000000

2000000

0
2005 2006 2007 2008

Working 2005 2006 2007 2008


Capital
Net WC 2425200 3698826 3863857 4275724
Gross WC 4085956 5206268 5531773 6015371

Findings of Project Report

 Financial position of BSNL is not that good compared to others.


 The comparative graph of BSNL reveals that after year 2005,
increase in the working capital in year 2006 and same capital
continued till year 2008.
 Financial position of BSNL was far better in year 2005
comparison to other years.
 BSNL lacks in coordination in departments.
 Working Process of BSNL is too slow.
 Computerizing work is less because they focus more on paper
work.
 Qualification of employees does not match their posts.
 At present, BSNL does not lead in investments.

Analysis of the Project

From the calculation it was found that amongst year 2005 to 2008,

 In year 2005, financial position of BSNL was much better as based on


year 2008
 In year 2006, financial condition of BSNL had improved as based on
year 2005.
CONCLUSION
LIMITATIONS OF THE STUDY

Financial analysis is a powerful mechanism of determining financial


strengths and weaknesses of a firm but, the analysis is based on the
information available in the financial statements. We have also careful
about the impact of price level chances, windows dressing of financial
statements, charges in accounting policies of BSNL, accounting concepts
and conventions, and personal judgements etc.

Due to the following unavoidable and uncontrollable factors, the result


might not be accurate. Some of the problems faced while conducting the
survey are as follows:-

 Chances of some biasness could not be eliminated


 A majority of respondents show lack of cooperation and are
biased towards their own opinions

Some of the important limitations of financial analysis are however,


summed up as below:-

 It is only a study of interim reports.


 Financial analysis is based upon only monetary information and non-
monetary factors are ignored
 As the financial statements are prepared on the basis of a going
concern, it does not give exact position. Thus accounting concepts
and conventions cause a serious limitation to financial analysis.
 Changes in accounting procedure by a firm may often make financial
analysis misleading.
 Analysis is only a means and not an end in itself. We have to make
interpretation and draw own conclusion.
CONCLUSION

After overhauling the Four Years Balance Sheet of BSNL and all condition,
I have reached to a conclusion. The Conclusion is described in points.

 The financial position of BSNL was much better in year 2008 as


comparison to year 2005 and present year.
 Working process of BSNL is time consuming because of which BSNL
is not able to progress, to progress in upcoming years BSNL need to
improve the working process to run in competition.
 BSNL is facing the problem of capital and because of that the
financial position of BSNL is disturbed and it is not able to take higher
investment decisions.
 BSNL because of its higher policies paying higher taxes and
revenues and because of that financial position of BSNL has come on
low pattern.
 BSNL earned higher profits in year 2005 but year by year BSNL is
coming in loss because of its financial positions, decision making and
investments, etc.
 As we know BSNL is paying high taxes, these taxes are paying leave
over effect on Earnings Per Shares (EPS).
 BSNL is facing a problem of over capitalization and this problem is
generated by decommissioned assets.
 BSNL is able to reduce its working capital in a short span of four
years without affecting the sales of the company is sincerely utilizing
its funds and has reduced the locking of funds.
 The current liabilities of the company have increased which means
that the company has adopted a good realization policy.
 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.
 The latest working capital indicates the efficiency of utilization of net
working capital is increased from 2.427 to 6.891 in a span of four
years.
RECOMMENDATIONS

This project report has provided with the useful data from the respondents.
There is still a lot to be recommended. Following are the
recommendations:-

 There should be improved working process of BSNL because


working process is time consuming.
 BSNL should increase its investments, so it could earn more profits
because if investments will be higher there will be higher profits.
 BSNL should provide more returns on revenues policies.
 There should be computerized data work in BSNL because still there
are several departments of BSNL which do paper work.
 BSNL lacks in good communication with customers just because of
this people are not satisfied.
 Recruitment of new qualified employees technical or non technical.
 Create new accounting or finance policies. This policies will help in
generating new revenues.
 BSNL need to launch better plans according to customers.
 Departmental process is so long I suggest make a short process of
work to departmental.
 BSNL need for better promotion for the investment and services.
 As the BSNL provides the telecom facility to its customers. It should
provide this facility by tie up with the other organizations as well.
 BSNL should also plan such kind of schemes, which are benefitted to
small retailers. Big players of the market later on directly or indirectly
affect the sale and performance of the company and direct sales
associates.
 BSNL can start training and awareness programmes for small
retailers.
 Company should not change the schemes frequently because it
creates uncomfortability among small retailers.
 Departments of BSNL do not have good coordination. So there
should be good coordination in departments of BSNL. If coordination
will have good in departments, then there they don’t face any problem
in proper work.
 BSNL should try to decrease expenditure especially in the
employee’s remuneration and benefit area.
 BSNL should increase the service quality as well as better customer
care service.
ANNEXURE
QUESSTIONAIRE

1. What is your age?

a. Between 20-30 fffff


b. Between 31-35
c. Between 36-40
d. Between 41-50
e. Above 50

2. Which of these best describe your job?

a. Managerial
b. Professional
c. Clerical
d. Manual worker
e. Student
f. Retired
g. Agriculture

3. Under which category you belong to regarding your monthly Income?

a. Below 5000
b. Between 5000-10000
c. Between 10000-15000
d. Between 15000-25000
e. Above 25000

4. Are you using mobile services?

a. Yes
b. No

5. Which of the mobile services you are using currently?

a. BSNL
b. Airtel
c. Vodafone
d. Idea
e. Reliance Jio
6. Which of the following Landline Services you are using currently?

a. BSNL
b. Airtel
c. Reliance

7. How familiar are you with BSNL services?

a. Very familiar (use on regular basis)


b. Little bit familiar
c. Familiar but never used it

8. How satisfied are you with tariff plan of BSNL?

a. Very satisfied
b. Quite satisfied
c. Neutral

9. How satisfied are you with the network of BSNL?

a. Very satisfied
b. Quite satisfied
c. Neutral

10. How satisfied are you with the cost of BSNL?

a. Very satisfied
b. Quite satisfied
c. Neutral

11. How satisfied are you with the customer care of BSNL?

a. Very satisfied
b. Quite satisfied
c. Neutral

12. How satisfied are you with additional packages of BSNL?


a. Very satisfied
b. Quite satisfied
c. Neutral

13. Compared with others would you say that BSNL is

a. Much better
b. Some what better
c. About the same
d. Don’t know never used
BIBLIOGRAPHY

Websites:-

www.scribd.com

www.slideshare.com

www.investopedia.com

www.google.com

Books:-

Research Methodology (Integral University)

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