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LETTER OF AUTHORIZATION
Date-
Sincerely,
Akash Rathore
Signature-
EXECUTIVE SUMMARY
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 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.
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.
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)
2. Company Profile
Introduction of BSNL
Objective of BSNL
Vision
Mission
Social Commitment
SWOT Analysis
Research Design
Statement of Problem
Objective of Research Study
Data Collection
Sample Design(Sample Technique, Sample Size)
Data Analysis
7. Findings
8. Conclusions
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.
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.
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.
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.
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.
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 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.
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.
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.
o Trade Credit
o Bills Payable
o Sundry Creditors
Internal Sources
o Tax Provision
o Dividend Provision
External Sources
o Cash Credit
o Bills Discounting
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
External Sources
o Share Capital
o Debentures
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.
The Working Capital cycle for the company can be calculated a s given
below:
=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.
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.
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.
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.
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
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
Inflation
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 Ratio
2. Quick Ratio
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
For estimating the actual cash requirement one may follow the following
two step procedure:
Value of current asset (-) Profit element, if any, included in the value
In 1977, the RBI permitted banks to evolve their own norms for
assessment of the working capital requirements.
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
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.
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)
Company Profile
Website www.bsnl.in
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
Vision of BSNL
Mission of BSNL
Social Commitment
SWOT Analysis
1. Strengths
Pan-India reach
Transparency in billing
2. Weaknesses
3. Opportunities
4. Threats
Manpower churning
The basic ingredient of the theory of the working capital management may
include:-
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 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.
There are different objectives obtained while working on this project report:-
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.
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
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.
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.
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
RESEARCH DESIGN
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”.
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.
Primary data
Secondary data
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.
Sample technique
Sample Size
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.
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
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.
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
(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
From the calculation it was found that amongst year 2005 to 2008,
After overhauling the Four Years Balance Sheet of BSNL and all condition,
I have reached to a conclusion. The Conclusion is described in points.
This project report has provided with the useful data from the respondents.
There is still a lot to be recommended. Following are the
recommendations:-
a. Managerial
b. Professional
c. Clerical
d. Manual worker
e. Student
f. Retired
g. Agriculture
a. Below 5000
b. Between 5000-10000
c. Between 10000-15000
d. Between 15000-25000
e. Above 25000
a. Yes
b. No
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
a. Very satisfied
b. Quite satisfied
c. Neutral
a. Very satisfied
b. Quite satisfied
c. Neutral
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
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:-