Working Capital

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT
TABLE OF CONTENTS
S. NO. PAGE NO.

1.
CONTENTS
Title of the Project
05 2. 06-12 3. 13-52 4. 53-86 5. 87-89 6. 90-94 7. 95-118 8. 119-121 Conclusion and Major Findings. Data Analysis and interpretation. Research Design Review of Literature Company profile Introduction to the topic Introduction to financial management
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9. 122
Bibliography
TITLE OF THE PROJECT
FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT OF THE (LCA PG)HAL
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CHAPTER 1
INTRODUCTION TO FINANCIAL MANAGEMENT INTRODUCTION
Financial as become so much important for every business undertaking that all managerial activity is concerned with it. Financial viability of various propositions influences decisions on them. Finance functions have become so important that it has given birth to financial management as a separate subject. Financial management which is recognized as the most important branch of business administration one cannot think of any business activity in isolation from its financial implication. Financial management is that part of management with is concerned mainly with raising fund in the most economic and suitable manner, using these funds as profitability (for a given
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risk level) as possible and future operation and controlling current performance and future development through financial accounting, budgeting, statistics and other means. It provides a best guide for future resources allocation by a firm. It provides relatively uniform yards stick for judging most of the enterprises operation projects. It implies the designing and implementation of certain plan. Here plans aim at an effective utilization of funds. Financial management is the dynamic evolving or making of day today financial decision in a business of any size. It is important because it has an impact on all the activities of a firm. Its primary responsibilities are to discharge the finance function successfully. All business decisions have financial implication and a single decision may financially affect different departments of an organization.
Financial management however should not be taken to be a profit extracting device. No doubt, finance has to be so planned as to contribute to profit-making activity, finance cannot be generated without profit, but this is not at all. It implies more comprehensive concept then the simple objective of profit making or efficiency. Its roader mission is to maximize the value of the firm. So that the interests of different section of the community remain undistributive and protected Financial management applies to an organization, irrespective of its size, nature of ownership and control. Whether it is manufacturing or service organization, it applies to any activities o an organization which ha financial implication.
DEFINITIONS OF FINANCIAL MANAGEMENT

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Financial management is an area of financial decision making, harmonizing individual motives and enterprise goals. Financial management is the application of the planning and control function the finance function. By Archer and Ambrosia. Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operation . By Joseph and massie Financial management involves the application of general management principles to particular financial operation. By Howard and Upton
MEANING OF FINANCIAL MANAGEMENT

Financial management is a subject which deals with the tools and techniques of through which a companys balance sheet is constructed. It offers ideas to the executives in building items in liabilities and asset side of a balance sheet . It clearly guides the financial manager to select long term as well as short term funds and its allocation to capital and revenue expenditure, hence ultimately used as a communication tool to convince the investors about the performance of a corporate entity.
FEATURES OF FINANCIAL MANAGEMENT

It is an essential part of general management.
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It is not a profit-extracting device. It is applicable to all organization. It is dynamic in nature and different form accounting. It doesnt handle merely routine day-to-day matters. In modern sense it has become less descriptive in nature and more scientific and analytical. It presents the base for planning and control. It is highly centralized function in nature.
SCOPE OF FINANCIAL MANAGEMENT

1.
DECIDING CAPITAL STRUCTURE:
The capital structure refers to the kind and proportion of different securities for raising funds. After deciding about the quantum of funds. After deciding about the quantum of fund required, it should be decided which type of securities should be used is an important decision, which influences the short term and long-term financial planning of an enterprise.
2.
SELECTING
After preparing a capital structure, various sources from which finance may be raised, including share capital, debenture, financial institution commercial bank, public deposits etc., should be selected.
SOURCE
OF
FINANCE:
3.
SELECTING A PATTERN OF INVESTMENT: when

funds have been procured then a decision about investment pattern is to be taken. The selection of investment pattern is related to the use of funds. The funds will have to be spent first on fixed assets and then inappropriate portion will be retained for working capital. The decision-making techniques such as capital budgeting, opportunity cost analysis may be applied in making decisions about capital expenditures.
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4.
PROPRE CASH MANAGEMENT: Cash management is

also an important task of finance managers. Cash may be required to purchase raw material, make payment to creditors, meet wage bills, and meet day-to-day expenses. A proper idea on sources of cash inflow enables to assess the utility of various sources.
5.
IMPLEMENTING
An efficient system of financial management necessitates the use of various control devices. Financial control devices generally used are return on investment; break even analysis; cost control; ratios analysis; cost and internal audit. The use of various control techniques by the finance manager will help in evaluating the performance in various areas and take corrective measures whenever needed.
FINANCIAL
CONTROLS:
6.
PROPER USE OF SURPLUSES: The utilization of

profits or surpluses is also an important factor in financial management. A judicious use of surpluses is essential for expansion and diversification plans and also in protecting the interest of share holders. A finance manager should consider the influence of various factors, such as : Expected earning in future. Market value of shares. Need for fund for financing, expansion etc.
A judicious policy for distributing surpluses will be essential for maintaining proper growth of unit.
FINANCE MANAGER
Finance manager are a person who leads the department of finance. He forms important activities in connection with each of the general functions of management. He groups activities in such a way that areas of responsibility and accountability are clearly defined.
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FUNCTIONS OF THE FINANCE MANAGER

He should anticipate the finance requirement. Selection of right source, at right time and at right cost. Allocation of funds. Analysis of the financial performance. Administrates the financial activities. Protection of interest of investors and creditors.
FUNCTIONAL AREAS OF FINANCIAL MANAGEMENT

1.
Estimation of the financial requirements:

The requirement of finance to a business concern is continuous. it is needed in all the stage of business cycle namely; initial growth, saturation and declining stages. Funds are needed to establish the industry both for meeting capital expenditure and revenue expenditure. If the firms become sick, to rejuvenate the activities of such business concern rescheduling, repackage of financial services are needed. Hence, it is the first task of finance manager.
2.SELECTION OF THE RIGHT SOURCES OF FUNDS:
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After estimating the second important step of the concern, it is the second important step of the finance manager to select the right type of sources of funds at the right time at right cost. Equity has the cost of dividend or expectation of the share holders, debenture or borrowings has the cost of interest, preference share has the cost of dividend careful selection has to be made out of the available alternative sources of funds.
3. ALLOCATION OF FUNDS:
After mobilizing the total funds of a firm, it is the responsibility of finance manager to distribute the funds to capital expenditure and revenue expenditure. The evaluation of different proposal of project must be made before making a final decision on investment.
4.
ANALYSIS AND INTERPRETATION OF FINANCIAL PERFORMANCE:

It is another important task of finance manager. He is expected to watch the performance of each portfolio, than can be measured in terms of profitability and returns on the investments. Ratio analysis and comparison of actual with standard helps the finance manager to have maximum control over the entire operations of the business unit.
5.
ANALYSIS OF COST-VOLUME-PROFIT:
Make or buy decision. Deletion and continuation of a product line decision can be made by adopting CVP/BEP analysis.
6.CAPITAL BUDGETING:
It is a technique through which a finance manager evaluates the investment proposal. In how many years the original investment can be recovered? At what
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percentage of returns a business should run? Payback period, AAR, IRR, NPV are some of the modern techniques, very popular in capital budgeting.
7.
WORKING CAPITAL MANAGEMENT:

Working capital is rightly an adjunct of fixed capital investment. It is a financial lubricant which keeps business operations going. Cash account receivables (Drs) and investors are the components of working capital. They rotate is in a sequence. The finance manager should weigh the advantage of customer trade credit such as increase in volume of sales, against limitation of costs and risks involved there in.
8.
PROFIT PLANNING AND CONTROL:

Profit planning guides the management in attaining the corporate goals. Profit is the surplus of income over the expenditure. It may be earned through sales, or through operating revenue or by reducing the cost of operations
9.
FAIR RETURNS TO THE INVESTORS:

Returns are the divisible profits available to the investors. Equity holders normally expect fair amount of profits and capital appreciation for their investment. Unless and until this fulfilled by a company, the confidence of the investors will be at stake. It also a social and economic obligation on the part of the company protect the interest of the investors.
10. MAINTAINING LIQUIDITY AND WEALTH MAXIMIZATION:

Liquidity of a firm increases the borrowing capacity. Expansion and diversification activities can the
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comfortably executed. Increased liquidity builds the firms ability to meet short-term obligation, towards creditors or bankers. Flexibility in the planning for investment can be introduced; in turn the overall profitability of the firm can be maximized. This helps the firm to meet all types of obligation to the target group like investors, creditors, employees, management, government and society thus wealth maximization takes place in the form of growth of capital over the year.
DECISIONS IN FINANCIAL MANAGEMENT
INVESTMENT DECISIONS: capital expenditure

and revenue expenditure.
FINANCING DECISIONS: Long-term and shortterm (D:E mix). DIVIDEND DECISION: increased dividend and
increased capital gain.
CURRENT ASSET MANAGEMENT: Continuous

flow of materials and money, and maintaining liquidates.
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INTRODUCTION
TO THE TOPIC
WORKING CAPITAL MANAGEMENT
Working capital of regarded as lifeblood of a business. Its effective provision can do match to ensure the success of a business, while its efficient management can lead not only to loss of profits but also the ultimate downfall of an promising concern. The cost increase by organization due to wrong planning of working capital is immeasurable. A study of working capital is of major importance to internal and external analysis because of its close relationship with the current dayto-day operations of business. Working capital is rightly an adjunct of fixed capital investment. It is a financial lubricant which keeps business operations going. Cash accounts receivables (Drs) and inventories are the components of working capital. The rotate in sequence (cash to stock to sale to cash or account receivables).
MEANING Capital means the money or other assets with which a company starts in business. Capital required for a business can be classified under two main categories viz. (i) (ii) Fixed capital Working capital
EVERY BUSINESS NEEDS FUNDS FOR TWO PURPOSES: For its establishment and
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To carry out its day-to-day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, buildings, furniture, etc. Investment in these assets represents that part of firms capital which is blocked on a permanents or fixed basis and is called fixed capital. Funds are also needed of wages and other day-to-day expenses, etc. These funds are known as working capitals. In simple words, working capital refers o that part of the working capital which is required for financing short-term or current assets such as cash, marketable securities, debtors and inventories. DEFINITION OF WORKING CAPITAL The sum of the current assets is the working capital of business. J.S.MILL. Any acquisition of funds which increases the current assets increases working capital, for they are one and the same. BONNERILLE.
Working capital is the excess of current assets over current liabilities. SHUBIN.
Working capital is the excess of current assets over current liabilities. HUSBAND DOCKERY
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AND
In accounting, working capital is the difference between the inflow and outflow of funds. In other words, it is the net cash inflow. It is defined as the excess of current assets over current liabilities and provision. Working capital, as an accountant defines; it is the difference between current asset and current liabilities. This oversimplified definition simply tells us how working capital is calculated. NEED FOR WORKING CAPITAL The needs for working capital (gross) or current assets cannot be overemphasized. Given the objective of financial decision making to maximize the shareholders wealth, it is necessary to generate sufficient profits. A successful sales programmed is in other words, necessary for earning profits by business enterprise. However, sales do not convert into cash instantly: these are invariably a time-lag between the sale of good and the receipt of cash. There is therefore a need for working capital in form of current assets to deal with the problem arising out of lack of immediate realization of cash against good sold. Therefore, sufficient working capital is necessary to sustain sales activity. Technically, this is referred to as the operating or cash cycle. The operating cycle can be said to be at the heart of need for working capital. The continuing flow from cash to suppliers, to inventory, to accounts receivable and back into cash is what is called the operating cycle. In other words, the term cash cycle refers to the length of time necessary to complete the following cycle of events:
1. Conversion of cash into inventory. 2. Conversion of cash into receivable.

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3. Conversion of receivable into cash
The operating cycle consists of three phases. In phrasal, cash gets converted into inventory. This includes purchase of raw materials, conversion of raw material into work-in-progress, finished goods and finally the transfer of goods to stock at the end of the manufacturing process. In the case of trading organization, this phase is shorter as there would be no manufacturing activity and cash is directly converted into inventory. The phase is, of course, totally absent in the case of service organization.
Credit sales are made to customers. Firms which do not sell on credit obviously not have phase 2 of the operating cycle. The last phase, phase 3 , represents the stage when receivables are collected. This phase completes the operating cycles. Thus the firm has moved from cash to inventory, to receivables and to cash again.
CLASSIFICATION OR KINDS OF WORKING CAPITAL

Working capital may be classified in two ways: (a) On the basis of concept.
(b) On the basis of time. On the basis of concept, working capital is classified as: 1. Gross working capital 2. Net working capital. This classification is important from the point of view financial manager
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On the basis of time, working capital may be classified as: 1. Permanent or fixed working capital. 2. Temporary or variable working capital.
KINDS OF WORKING CAPITAL
ON ONTHE THE BASIS BASISOF OF CONCEPT CONCEPT
ON ONTHE THE BASIS BASISOF OF TIME TIME
GROSS GROSS WORKIN WORKIN G G CAPITAL CAPITAL
NET NET WORKIN WORKIN G G CAPITAL CAPITAL
PERMANE PERMANE NT NT WORKING WORKING CAPITAL CAPITAL
TEMPORA TEMPORA RY RY WORKING WORKING CAPITAL CAPITAL
REGULAR REGULAR WORKING WORKING CAPITAL CAPITAL RESERVE RESERVE WORKING WORKING CAPITAL CAPITAL
SEASONA SEASONA LL WORKING WORKING CAPITAL CAPITAL SPECIAL SPECIAL WORKIN WORKIN G G CAPITAL CAPITAL
Permanent or fixed working capital:

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Permanent or fixed working capital is the minimum amount which is requires ensuring effective utilization of fixed facilities and for maintaining the circulation at current assets. These are always a minimum level of current assets which is continuously required by the enterprises to carry out its normal business operations. For example, every firm has to maintain a minimum level of raw materials, work-in-progress, finished goods and cash balance. This minimum level of current assets is called permanent fixed working capital as this part of capital is permanently blocked in current assets. The permanent working capital can further be classified as regular working capital and reserve working capital required ensuring circulation of current assets from cash to inventories to receivable and from receivables to cash and so on .Reserve working capital is the excess amount over the requirement for regular working capital which may be provided for contingencies that may arise at unstated periods such as strikes, rise in prices, depression etc.
Temporary or variable working capital:

Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies variable working capital can be further classified as seasonal working capital and special working capital. Most of the enterprises have to provide additional working capital to meet the seasonal and special needs of the enterprises is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing campaigns for conducting research etc.
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Temporary working capital differs from permanent working capital in the sense that is required for short period and cannot be permanently employed gainfully in the business. Figure given below illustrate the difference between permanent and temporary working capital.
IMPORTANCE OR ADVANTAGES OF ADEQUATE WORKING CAPITAL.

Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully without an adequate amount of working capital. The main advantages of maintaining adequate amount of working capital are as follows:
1. Solvency of the business: Adequate working capital helps in maintaining solvency of the business be providing uninterrupted flow of production. 2. Good will: Sufficient working capital enables a business concern to make prompt payments and helps in the creating and maintaining good will. 3. Easy loans: A concern having adequate working capital high solvency and good credit standing can arrange loans from banks and others on easy and favourable terms. 4. Cash discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it is reduces costs.
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5. Regular supply of raw materials: sufficient working capital ensures regular supply of raw material and continuous production. 6. Regular payment of salaries, wages and other day-to-day commitments: A company which has sample working capital can make regular payment or salaries, wages and other day-to-day commitments which raise the morale of its environment of costs and enhance production and profits.
7. Exploitation of favourable market conditions: only concern with adequate working capital can exploit favourable market conditions such as purchasing its requirements in bulk when the prices are lower and by holding its inventories for higher price. 8. Ability to face crisis: Adequate working capital enables a concern to face business crisis in emergencies such as depression because during such period, generally, there is much pressure on working capital. 9. Quick and regular return on investment: every investor wants a quick and return on his investments. Sufficiency of working capital enables a concern to pay quick and regular dividends to its investors as there may not be much pressure to plough back profits. This gains the confidence of its inventors and creates a favourable market to raise additional funds in the future. 10. High morale: Adequate of working capital creates an environment of security, confidence, high morale and creates overall efficiency in a business. ADEQUACY OF WORKING CAPITAL
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Working capital should be adequate for the following reasons; It protects a business from the adverse effects of shrinkage in the values of current assets. It is possible to pay all the current obligation promptly and to take advantage of cash discounts. It enables a company to extend favourable credit terms to customers. They may be an unwise dividend policy.
INADEQUACY OF WORKING CAPITAL

It is not possible for it to utilize production facilities fully for the want of working capital. A company may not be able to take advantage of cash discount facilities. The modernization of equipment and even routine repairs and maintains facilities may be different to administer. A company may have to borrow funds at exorbitant rates of interest. Its low liquidity may lead to low profitability in the same ways as low profitability result in low liquidity. DANGER IN EXCESSIVE WORKING CAPITAL To much working capital is a dangerous as too little of it. Excessive working capital raises the following problems:Company may be tempted to over trade and lose heavily. A company may keep big inventories and tie up its funds unnecessarily.
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There may be an imbalance between liquidity and profitability. A firm cannot pay day to day expenses costs and reduces the profits of the business. The rate of return on investment also falls with the shortage of working capital. CONCEPTS OF WORKING CAPITAL. There are two concepts of working capital: A. Balance sheet concept B. Operating cycle or circular flow concept.
Balance sheet concept: There are two interpretations of working capital under the balance sheet concept: l. Gross working capital ll. Net working capital In the broad sense the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Thus, the gross working capital invested in total current asset of the enterprise. Current assets are those assets which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. CONSTITUENTS OF CURRENT ASSETS
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Cash in hand and balances Bills receivables. Sundry debtor (less provision for bad debts) Short-term loans and advances. Inventories of stock as: (a) Raw materials. (b) working-in-process. (c) Stores and spares. (d) Finished goods. Temporary investments of surplus fund. Prepaid expenses. Accrued incomes.
In a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities, or say: Net working capital= current assets - current liabilities. Net working capital may be positive or negative. When the current assets exceed the current liabilities the working capital is positive and the negative working capital results when the current liabilities are those liabilities which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets or the income of the business.
CONSTITUENT OF CURRENT LIABILITIES

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Bills payable. Sundry creditors and accounts payable. Accrued or outstanding expenses. Short-term loans, advances and deposits. Dividend payable. Bank overdraft. Provision for taxation, if it does not amount to appropriation of profits. (b)Operating cycle or circular flow concept Funds invested in current assets keep revolving fast and are being constantly converted into cash and these cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital. The circular flow concept of working Capital cycle of a firm. The cycle starts with the purchase of raw material and other resources and ends with the realization of cash from the sale of finished
Goods. It involves purchase of raw material and stores, its conversion into stock of finished goods through work-inprogress with progressive incensement of lab our and service costs, conversion of and ultimately realization of cash and this cycle continues again from cash to purchase raw material and so on..
CASH MATERIALS
RAW
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DEBTORS WORK PROCESS
IN
SALES FINISHED GOODS
FACTORS DETERMINING CAPITAL REQUIREMENTS
THE
WORKING
The working capital requirement of a concern depend upon a large number of factors such as nature and size of business, the character of their operations, the length of production cycles, the rate of stock turn over and the state of economic situation. It is not possible to rank
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them because all such factors are of different importance and the influence of individual factors changes for a firm over time. However, the following are the important factors changes for a firm over time. However, the following are the important factors generally influencing the working capital requirements. NATURE OF INDUSTRY: The composition of assets is function of the size of a business and the industry to which it belongs. Small companies have smaller propositions of case, receivables and inventory than large corporation. DEMAND OF INDUSTRY: Creditors are interested in the security of loans. They want their obligation o be sufficiently covered. They want the amount as security in assets which are greater than liability. CASH REQUIREMENTS: Cash is the one of the current assets which is essential for successful operation of the production cycle. Cash should be adequate and properly utilized. It would be very expensive to hold excessive cash. NATURE OF BUSINESS: The nature of a business is an important determinant of the level of the working capital requirement depends upon the general nature or type of business. MANUFACTURING TIME: If the time is longer, the size of working capital is great. Moreover, the amount of working capital depends upon inventory turnover and the unit cost the goods that are sold.
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VOLUME OF SALES: A firm maintains current assets because they are needed to support the operational activities which result in sales. As the volume of sales increases, there is an increase in the investment of working capital in the cost of operations, in inventories and in receivables. TERMS PURCHASES AND SALES: If the credit terms with respect to purchases are more favourable and those sales less liberal, less case will be invested in inventory.
INVENTORY TURN-OVER: If the inventory turn-over is the high, the working capital requirements will be low. With a better inventory control, a firm is able to reduce its working capital requirements.
RECEIVABLE TURN-OVER: A prompt collection of receivable and good facilities for setting payable result into low working capital.
PRODUCTION SCHEDULE: The production schedule of an organization requires systematic planning and organization of material for continuous production.
BUSINESS CYCLE: Business expands during the periods of prosperity and declines during the period of depression. Consequently: more working capital is required during period of prosperity and less during the periods of depression. VARIATION IN SALES: A seasonal business requires the maximum amount of working capital for a relatively short period of time.
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VALUE OF CURRENT ASSETS: A decrease in the real value as current assets as compare to their book value reduces the size of the working capital. if the real value of current assets increases, there is an increase in working capital.
PRODUCTION CYCLE: The time taken to convert raw materials into finished products is referred to as the production cycle or operating cycle. The longer the production cycle, the greater is the requirement of working capital.
CREDIT CONTROL: credit control includes such factors as the volume of cash sales, the terms of credit sales, the collection credit policy etc. with a sound credit policy; it is possible for a firm to improve its cash inflow.
LIQUIDITY AND PROFITABILITY: If a firm desires to take a greater risk for bigger gains or losses, it reduces the size of its working capital in relation to its sales. If it is interested in improving its liquidity, it increases the level of its working capital.
INFLATION: as a result of inflation, size of the working capital is increased in order to make it easier for a firm to achieve a better cash inflow.
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SEASONAL FLUCTUATIONS: Seasonal fluctuation in sales affects the level of variable working capital often; the demand for products may be of a seasonal nature. Yet inventories have got to be purchased during certain seasons only.
PROFIT PLANNING AND CONTROL: Adequate profit assists in substantial generation of cash. It makes it possible for the management of plough backs a part of its earning in the business and substantially builds up internal financial resources.
REPAYMENT ABILITY: A firms repayment ability determines the level of its working capital. The usual practice of a firm is to prepare cash flow projection according to its plans of repayment and to fix working capital levels accordingly.
CASH RESERVES: it would be necessary for a firm to maintain some cash reserves to enables it to meet contingent disbursement.
OPERATIONAL AND FINANCIAL EFFICIENCY: With a greater working capital turn-over. It may be able to reduce its working capital requirements.
CHANGES IN TECHNOLOGY: Technological developments related to the production process have a sharp impact on the need for working capital.
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FIRMS POLICIES: These affect the levels permanent and variable working capital. Changes in credit policy, production policy etc, are bound.
ACTIVITIES OF THE FIRM: A firms stocking on heavy inventory or selling on easy credit terms calls for a higher level of working capital than for selling services or making cash sales.
ATTITUDE OF RISK: The greater the amount of working capital, the lower is the risk of liquidity.
SOURCES OF WORKING CAPITAL

The various sources for the financing of working capital are as follows:
SOURCE OF WORKING CAPITAL
PERMANENT TEMPORARY OR FIXED VARIABLE 1. Shares Commercial banks
OR
1.
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2. Debentures Indigenous bankers 3. Public deposits creditors 4. ploughing back of profits Installments credit 5. Loans and financial institution receivables 5. Advances
2. 3. Trade 4.
6. accounts Credit/fac toring 7. Accrued expenses 8. Commercial papers
FINANCIAL OF PERMANENT/ FIXED LONG-TERM OR WORKING CAPITAL Permanent working capital should be financed in such a manner that the enterprise may have its interrupted use for a sufficiently long period. These are five important sources of permanent or long-term working capital.
SHARES: Issue of shares is the most important sources of permanent or long term capital. A company can issue
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various types of shares, preference shares and deferred share.
DEBENTURES: a debenture is an instrument issued by the company acknowledging its debt to its holder. Its also an important method of raising long-term or permanent working capital. The debenture may be of various kinds as simple, naked or unsecured debenture, secured or mortgaged debenture, redeemable debenture, irredeemable debenture, convertible debenture and nonconvertible debenture.
PUBLIC DEPOSITS: Public deposits are the fixed deposits accepted by business enterprises directly from the public. This source of raising short term and medium term finance was very popular in the absence of banking facilities. The reserve bank of India has also laid down certain limits on public deposits. Non-banking concerns cannot borrow by way of public deposits more than 25% of its paid-up capital and free reserves.
POLUGHING BACK OF PROFITS: Ploughing back of profits means the reinvestments by concern of its surplus earning in its business. It is an internal source of finance and is most suitable for an establishment firm for its expansion, modernization and replacement etc. this method of finance has a number of advantages as it is the cheapest rather cost-free sources of finance.
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LOANS FROM FINANCIAL INSTITUTION: Financial institution such as commercial banks, Life Insurance Corporation, industrial finance corporation of India, state financial corporation, state industrial development corporations, industrial development bank of India, etc. FINANCING OF TEMPORARAY, VARIABLE OR SHORTTERM WORKING CAPITAL: The main sources of short-term working capital are as follows: INDIGENOUS BANKERS: private money-lender and other country bankers used to be the only source of finance prior to the establishment of commercial banks. They used to change very high rates of interest and customers to the largest extent possible. TRADE CREDIT: Trade credit refers to the credit extended by the suppliers of goods in the normal course of business. As present day commerce is built upon credit, the trade credit arrangement of a firm with its suppliers is an important source short-term finance. INSTALLMENT CREDIT: This is another method by which the assets are purchased and the possession of goods is taken immediately but the payment is made in installment over a pre-determined period of time. FACTORING OR ACCOUNTS RECEIVABLE CREDIT: Another method of raising short-term finance is through accounts receivable credit offered by commercial banks and factors. A commercial bank may provide finance by discounting the bills or invoices of its customers.
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ACCRUED EXPENSES: Accrued expenses are the expenses which have been incurred but not yet due and hence not yet paid also. These simply represent a liability that firm has to pay for the services already received by it. The most important items of accruals are wages and salaries, interest, and taxes. DEFERRED INCOMES: Deferred incomes are incomes received in advance before supplying goods or services in future. These funds increase the liquidity of a firm and constitute an important source of short-term finance. COMMERCIAL PAPERS: commercial papers represent unsecured promissory notes issued by firm to raise shortterm funds. It is an important money market instruments in the recommendation of the working group on money market. But only large companies enjoying high credit rating and sound financial health can issue commercial paper to raise short-term funds. WORKING CAPITAL FINANCE BY COMMERCIAL BANKS: Commercial banks are the most important source of short-term capital. The major portion of working capital loans are provided by commercial banks. They provide a wide variety of loans tailored to meet the specific requirement of a concern. The different forms in which the banks normally provide loans and advances are as follows: LOANS: When a bank makes an advance in lumpsum against some security is it called a loan. In case of a loan, a specified amount is sanctioned by the bank to the customer. The entire loan amount is paid to the borrower either in cash or by credit to his account. CASH CREDIT: A cash credit is an arrangement by which a bank allows his customer to borrow money up to a certain limit against some tangible securities
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or guarantees. The customer can withdraw from his cash credit limit according to his needs and he can also deposit any surplus amount with him. OVERDRAFT: overdrafts means an agreement with a bank by which a current account- holder is allowed to withdraw more than the balance to his credit up to a certain up to a certain limit. PURCHASING AND DISCOUNTING OF BILLS : purchasing and discounting of bills is the most important from in which a bank lands without any collateral security. Present day commerce is built upon credit. The seller draws a bill of exchange on the buyer of goods on credit. Such a bill may be either a clean or a documentary bill which is accompanied by documents of title to goods such as a railway receipt.
CASH MANAGEMENT
MEANING
Cash is one of the current assets of a business. It is needed at all time to keep the business going. It includes money and such instruments as cheques, money orders and bank drafts. A business concern should always keep sufficient cash for meeting its obligations. Cash is required to meet a firms transactions and precautionary needs. A firm needs cash to make payments for acquisition of resources and services for the normal conduct of business. It keeps additional funds to meet any emergency situations. Some firms may also maintain cash for taking advantages of speculative changes in prices of input and output.
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Management of cash involves three things: Managing cash flow into and out of the firm. Managing cash flows within the firm. Financing deficit or investing surplus cash and thus, controlling cash balance at a point of time. It is an important function in practice because it is difficult to predict cash flows and there is hardly any synchronization between inflow and outflows.
MOTIVES FOR HOLDING CASH Cash is held by the firm with the following motives: Transaction Precautionary Motives of holding cash Speculative Compensatory
Transaction motive: transaction motive requires a firm to held cash to conduct its business in the ordinary course. The firm needs cash to make payments for purchases, wages, operating expenses, and other inevitable payments. For transaction purposes, a firm must invest its cash in marketable securities. The cash needs arise due to the fact that there is no complete synchronization between cash receipts and payments. Precautionary motive: cash is also maintained by the firms and even by individuals to meet unforeseen expenses a future date. There are incontrollable factors like governments policies competition, natural calamities, labor unrest, customer behavior which will have heavy
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impact on business operations. Hence, the firm should hold cash reserve to meet such contingencies. Speculative motive : To advantages of unexpected opportunities, a firm holds cash for investing in profitmaking opportunities. Such a motive is purely speculative in nature. The speculative motive relates to holding of cash for investing in profitable opportunities as and when they arise. Such opportunities cannot be scientifically predicated but only conjectures can be made about their occurrence.
Compensatory motive: A business form has to maintain minimum amount of cash balance in saving bank account and current account. The minimum balance of these account will be insisted by the banks independently to provide several facilities to the customers viz.., cheque book, pass book, statement of transaction etc.. Cash management needs strategies to deal with various facets of cash. Following are the some of the facts. Cash planning Cash planning is a technique is a technique to plan and control the use of cash. A projected cash flow statement may be anticipated future activities. The cash inflows from various sources may be anticipated future activities. The cash inflows from various sources may be anticipated and cash outflows will determine the possible uses of cash. Cash forecasts and budgeting:
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A cash budget is the most important device for the control of receipts and payments of cash. A cash budget is an estimate of cash receipts and disbursements during a future, short or long period of time. It is a forecast of expected cash intake and outlay. The short-term forecasts can be made with the help of cash flow projections. The finance manager will make estimates of likely receipts in the near future and the expected disbursements in that period. Through it is not possible to make exact forecasts even then estimates of cash flows will noble the planners to make arrangement for cash needs. It may so happen that expected cash receipts may fall short or payments may exceed estimates. A financial manager should keep in mind the sources from where he will meet short-term needs. He should also plan for productive use of surplus cash for short periods. The long-term cash forecasts are also essential for proper Cass planning. These estimates may be for three, four, five or more years.
Long-term forecasts indicate companys future financial needs for working capital, capital projects etc.. Both short-term and long term cash forecast may be made with the help of following methods: Receipts and disbursements method. Adjusted net income method. Receipts and disbursements method
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In this method the receipts and payments of cash are estimated. The cash receipts may be from cash sales, collection from debtors, sale of fixed assets, receipts of dividend or other incomes of all the items; it is difficult to forecast sales. The sales may be on cash as well as credit basis. Cash sales will bring receipts at the time of sale while credit sales will bring cash later on. The collections from debtors (credit sales) will depend upon the credit policy of the firm. Any fluctuations in sales will disturb the receipts of cash. Payments may be made for cash purchases, to creditors for goods, purchases such as wage bill, rent, rates, taxes or other usual expenses, dividend to share holders etc.. Adjusted net income method: This method may also be known as sources and uses approach. It generally has three sections; sources of cash, uses of cash and adjusted cash balance. The adjusted net income method helps in projecting the companys need for cash at some future date and to see whether the company will be able to generate sufficient cash. It not, then it well have to decide about borrowing or issuing shares etc. in preparing its statement the items like net income, depreciation, dividend, taxes etc. can easily be determined from companys annual operating budget. The estimation of working capital movement becomes difficult because items like receivable and inventories are influenced by factors such as fluctuation in raw material costs, changing demand for companys products and likely delays in collections. This method helps in keeping a control on working capital and anticipating financial requirements.
IMPORTANCE OF CASH MANAGEMENT
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Cash management assume more importance than other current assets because cash is the most significant and the least productive assets that the firm holds cash is unproductive and such, the aim of cash management is to maintain adequate cash position to keep the firm sufficiently liquid to use excess cash position to keep the firm sufficiently liquid to use excess cash in some profitable way. MANAGING CASH FLOWS Cash management will be successfully only if cash collection are accelerated and cash disbursement, as far as possible, are delayed. The following methods of cash management will help: Methods of accelerating cash inflows Prompt payment by customers: In order to accelerate cash flows, the collections from customers should be prompt. This will be possible by prompt billing. The customers should be promptly informed about the amount payable and the time by which it should be paid. QUICK CONVERSION OF PAYMENT INTO CASH: Cash inflows can be accelerated by improving the cash collecting process. Once the customer writes a cheque in favor of the concern the collected can be quickened by its early collection. There is a time gap between the cheque sent by the customer and the amount collected against it. This is due to many factors. Postal float. Lethargy Bank float Deposit float
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Decentralized collection: A big firm operation over wide geographical area can accelerate collections b using the system of decentralized collections. A number of collecting centre are opened in different areas instead of collecting receipts at one place. Lock box system: Lock box system is another technique of reducing mailing, processing and collecting time. Under this system the firm selects some collecting centre at different places. The places are selected on the basis of number of customers and the remittances to be received from a particular place.
Goal of cash management: The basic aim of cash management is to trade-off between liquidity and profitability in order to maximize long-term profit. This is possible only if the firm is able to optimize the utilization of working capital funds. The following are the important goals of cash management: To met the day-to-day requirements. To provide for scheduled major payments. To meet unexpected cash adversities. To meet the credit-requirements of banks. To built an image of storing credit-standing. To maximize the operating cost of cash management.
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Following methods can be used to delay disbursement: Paying on last date: The disbursements can delayed on making payments on the last due date only. If the credit is for 10 days then payments should be made on 10th day only.
Payments through drafts: A company can delay payments by issuing drafts to the suppliers instead of giving cheques. When a cheque is issued then the cheque is paid whenever it comes. On the other hand a draft is payable only on presentation to the issuer.
Adjusting payroll funds: Some economy can be exercised a payroll funds also . If the payments are made weekly then this period can be extended to a month.
Centralization of payments: The payment should be centralized and payment should be made through drafts or cheques when cheques are issued from the main office then it will take time for cheques to be cleared through post.
Interbank transfer:
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An efficient use of cash is also possible by inter-bank transfers. If the company has accounts with more than one bank then amounts can be transferred to the bank where disbursements are to be made.
RECEIVBLE MANAGEMENT
Receivable constitute a significant portion of a current assets of a firm. For investment in receivables, a firm has to incur certain costs. Further, there is a list of bad debts also. It is, therefore, very necessary to have a proper control and management of receivables.
MEANING OF RECEIVABLE:
Receivable represent amounts owned to the firm as a result of sales of goods or services in the ordinary course of business. These are claims of firm against its customers and form part of its current assets. Receivable are also known as accounts receivables, trade receivables, customer receivable or book debts.
Factors influencing the size of receivables Size of credit sales. Credit policies Terms of trade
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Expansion plans Relation with profits Credit collection efforts Habits of customers
Meaning and objective of receivable management Receivable management is the process of making decision relating to investment in receivable is necessary to increase than sales and the profits of a firm. The objective of receivable management is to take a sound decision as regard investment in debtor. In the words of Bolton, S.E. the objective of receivable management is to promoter sales and profits until that point is reached where the return on investment in further of receivables is less than cost of funds raised to finance that additional credit. Issue governing the accounts receivables or credit sales: Credit sales volumes Credit policies Business terms Competition Location New products
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Credit sales volume:
In order to increase the profit and push sales, many firms will have credit sales. Higher the volume of credit sales, higher will be accounts receivable. The level of credit sales in that business determined by the custom that exists in that business.
Credit police Another important factor which determines the volume of accounts receivable is credit policy of the eorm . by credit policy we mean the policy adopted to extend credit sales which include The time period allowed collecting the debts. The types of discounts allowed. The assessment of customers creditworthiness. Collection policy etc.
Business terms: The volume of accounts receivable also depends on the terms and conditions relating to credit sales. These conditions includes The time period allowed paying back the purchase price. The types of discounts allowed. Completion:
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If a firm is having a competitive environment. It will have liberal credit policy arid this increases the size to the accounts receivable. They complete with the object of pushing sale and easy credit terms become inevitable.
Location: Location of business unit also contributes for the size of accounts receivable. If the business firms are located in far off places, they are forced to adopt a credit policy which attracts the customer. If the product is exclusive, location will not be problem and customer development will be good.
New products: When the new products are introduced the firm has to extend the liberal credit policy till such time the product catches the market and even influence the policy has to continue to maintain customers. These naturally increase the size of accounts receivables. DIMENSIONS OF RECEIVABLES MANAGEMENT Receivables management involves the careful consideration of th following aspects: Forming of cash policy. Executing the credit policy. Formulating and executing collection policy.
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FACTORING Receivables constitute a significant portion of current assets of a firm. But, for investment in receivables, a firm has to incur certain costs such as costs of financing receivables and costs of collection from receivables. A factor is a financial institution which offers services relating to management and financing of debts arising out of credit sales. Factoring may be broadly be defined as the relationship, created by an agreement, between the seller of goods/services amd a financial institutions called the factor, where by the latter purchases the receivable of the former and also controls and administer the receivables of the former.
The mechanism of factoring An agreement is entered into between the selling firm and the factor firm. The agreement provides the basis and the scope of the understanding reached between the two for rendering factor services. The sales documents should contain the instruction to make payments directly to the factor who is assigned the job of collection of receivables.
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Functions of a factor Factor renders a number of services to the selling firms. Some of the important services rendered or functions performed by a factor are as below: Bill discounting facilities. Administration of credit sales. Maintenance of sales ledger. Collection of accounts receivables. Credit control. Protection against bad debts. Provision for finance. Rendering advisory services.
Benefits of a factor It ensures a definite pattern of cash inflows from the credit sale. It serves as a source of short term finance. It ensures better management of receivable as factor firm is a specialized agency for the same. It saves in cost as well as space as it is a substitute for in house collection department. The selling firm is also benefited by advisory services rendered by a factor. Types of factoring
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Following are some of the important types of factoring arrangements. RECOURSE AND NON RECOURSE FACTORING: In a recourse factoring arrangement, the factor that has recourse to the client [selling firm] if the receivable purchased term out to be bad, i.e. the risk of bad debts is to be borne by the client and the factor does not assume the risk of default associated with receivables.
ADVANCE AND MATURITY FACTORING: Under this, certain percentage receivable is paid in advance to the client the balance being paid on the guaranteed payment date. CONVENTIONAL OR FULL FACTORING: In conventional or full factoring the factor performs almost all the services of factoring including nonresources and advance factoring. DOMESTIC AND EXPORT FACTORING: The basic difference between domestic and export factoring is on account of the number of parties involved. In domestic factoring three parties are involved, namely, the selling firms (client), the factor and the customer of the client (buyer).
INVENTORY MANAGEMENT MEANING The dictionary meaning of inventory is stock of goods, or a list of goods.
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The word inventory is understood differently by various authors. In accounting language it may mean stock of finished goods only. In a manufacturing concern, it may include rawmaterial, work-in-progress and stores, etc. INVENTORY INCLUDES THE FOLLOWING THINGS: Raw-material: Raw-material form a major input into the organization. Work-in-progress: The work-in-progress is that stage of stocks which are in between rawmaterial and finished goods. Consumables: These are the goods which are ready for the consumers. The stock of finished goods provides a buffer between production and market. Spares: Spares also form a part of inventory. The consumption pattern of raw-material, consumables, finished goods are different from that of spares. Inventory management: Inventory management is one of component of working capital management. It involves the processes of providing continuous flow of raw-materials to production department. It refers to stocks, raw-materials, components, spares or working progress maintained in an organization to have continuous production and sales. Importance of inventory control: The importance of inventory control is well explained in terms of the objectives of inventory control as explained above. A proper inventory control aims at lowering the cost of inventory and production and maximizing the profits of the firm. The following are the advantages from the efficient inventory management. Reduction in investment in inventories.
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Proper and efficient use of raw-materials. Ensuring continuous production and maximum sales. Maintaining sufficient stock of finished goods for smooth and timely supply of goods to customers and maintain their patronage. Minimizing inventory costs. Efficient and optimum use of physical as well as financial resources. Objectives of inventory management: To provide continuous supply of raw-materials to carry out uninterrupted production. To reduce the wastage and to avoid loss of pilferage , breakage and deterioration. To exploit the opportunities available and to reduce the cost of purchase. To introduce techniques. scientific inventory management
To meet the demand for goods of ultimate consumers on time. Tools and techniques of inventory management The following are the import tools and techniques of inventory management and control: Determination of stock levels. Determination of safety stock. Selecting a proper system of ordering for inventory Determination of economic order quantity ABC analysis
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VED analysis Inventory turnover ratios Aging schedule of inventories Classification of codification of inventories Preparation of inventory reports Lead time Perpetual inventory system JIT control systems Determination of stock levels An efficient inventory management required that a firm should maintain an optimal level of inventory where inventory costs are the minimum and at the same time no stock-out which may result in loss of sales or stoppage of production various stock levels are discussed as such.
(a) Minimum level: This represents the quality which

must be maintained in hand at all times. Lead time: A purchasing firm requires some time to process the order and time is also required by the supplying firm to executive. Rate of consumption: It is the average consumption of materials in the factory. The rate of consumption will be decided on the basis of past expenditure and production plans. Nature of material: The nature of material also affects the minimum level.
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Minimum stock level= recording level (normal consumption X normal recorder period).
(b)
Re-ordering level: when the quantity of materials reaches at a certain figure then fresh order is sent to get material again.
Reordering level=( maximum consumption X minimum reorder period).

(c) Maximum
level: maximum stock level will depend upon the following factors : The availability of capital for the purchase of materials. The maximum requirements of materials at any point of time. The availability of space for storing the materials. The cost of maintaining the stores. The possibility of fluctuation in prices
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(d)
Danger level: It is the beyond which materials should not fall in any case.
Danger level= Average consumption X maximum Maximum stock level= reorder period for emergency purchases Reordering level+ reordering quantity (minimum (e) Average stock level: The average stock level is consumption X minimum calculated as such: reordering period). Average stock level = minimum stock level+ of reorder quantity.
(f)
Determination of safety stocks: The basic problem is to determine the level of quantity of safety stocks . two costs are involved in the determination of this stock i.e., opportunities cost of stock-outs and the carrying costs.
(g) Ordering system of inventory: The recorder point

is determined with the help of these things: Average consumption rate. Duration of lead time.
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Economic order quantity.
(h) Economic order quantity (EOQ):
economic order quantity is the point at which inventory carrying costs are equal to order costs. In determining economic order quantity it is assumed that cost of managing inventory is made up solely of two parts i.e. ordering costs and carrying costs.
(i)
A-B-C-Analysis: The materials are dividend in to a number of categories for adopting a selective approach for material control. Under A-B-C Analysis , the materials are divided into 3 categories viz., A,B &C. VED Analysis: The VED analysis is used generally for space parts. The requirements and urgency of spare parts is different from that of materials. Spare parts are classified as vital(V), essential(E) and desirable(D).
(j)
(k) Inventory turnover ratios: inventory turnover

ratios are calculated to indicate whether inventories have been used efficiency or not . The purpose is to ensure the blocking of only required minimum funds in inventory: Symbolically: Inventory turn over ratio= cost of goods sold Average inventory at cost Inventory conversion period = days in a year
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Inventory turnover ratio
(l)
Again scheduled of inventories: classification of inventories according to the period (age) of their holding also helps in identifying slow moving inventories there by helping in effective control and management of inventories. Classification and codification of inventories: the inventories of a manufacturing concern may consist of raw materials, work-in-process, finished goods, spares, consumable stocks, etc. all these categories may have their sub-divisions. The raw materials used may be of 3-4 types, finished goods may also be of more than one type, spares may be of a number of types and so on . a proper classification of various types of items is essential. The classification and controlling of inventories enables the introduction of mechanized accounting. It also helps in maintaining secrecy of description. It also helps the prompt issue of stores.
(m)
(n) Inventory reports:
From effective inventory control, the management should be kept informed with the latest stock position of different items. This is usually done by preparing periodical inventory reports. These reports should contain all information necessary for managerial action. On the basis of these reports management takes corrective action wherever necessary.
(o) Lead time: lead time is the period that elapses

between the recognition of a need and its fulfillment. these are a direct relationship between lead time and inventories lead time has two components: Administrative lead time
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Producers lead time
(p) Perpetual inventory system: the institute or cost

and management accountants. London, defines perpetual inventory system as a system of records maintained by the controlling department. Which reflects the physical movements of stocks and their current balance. This facilitates regular checking of stores without closing down the plant.
(q)
Just in time (JIT) inventory control system: according to the official terminology of C.L., MA, JIT is a technique for the organization of work flows, to allow rapid, high quality, flexible production whilst minimizing manufacture work and stock level. JIT inventory control system involves of the purchase of materials in such a way that delivery of purchased material is assured just before their use or demand.
INTRODUCTION TO THE COMPANY(HAL)
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Hindustan Aeronautics Limited (HAL) came into existence on 1st October 1964. The Company was formed by the merger of Hindustan Aircraft Limited with Aeronautics India Limited and Aircraft Manufacturing Depot, Kanpur.
The Company traces its roots to the pioneering efforts of an industrialist with extraordinary vision, the late Seth Walchand Hirachand, who set up Hindustan Aircraft Limited at Bangalore in association with the erstwhile princely State of Mysore in December 1940. The Government of India became a shareholder in March 1941 and took over the Management in 1942.
Today, HAL has 19 Production Units and 10 Research & Design Centres in 8 locations in India. The Company has an impressive product track record - 15 types of Aircraft/Helicopters manufactured with in-house R & D and 14 types produced under license. HAL has manufactured over 3658 Aircraft/Helicopters, 4178 Engines, Upgraded 272 Aircraft and overhauled over 9643 Aircraft and 29775 Engines.
HAL has been successful in numerous R & D programs developed for both Defence and Civil Aviation sectors. Several Co-production and Joint Ventures with international participation are under consideration. HAL's supplies / services are mainly to Indian Defence Services, Coast Guard and Border Security Force. Transport Aircraft and Helicopters have also been
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supplied to Airlines as well as State Governments of India. The Company has also achieved a foothold in export in more than 30 countries, having demonstrated its quality and price competitiveness. HAL has made substantial progress in its current projects : Advanced Light Helicopter Weapon System Integration (ALH-WSI) . Tejas - Light Combat Aircraft (LCA) Intermediate Jet Trainer (IJT) Light Combat Helicopter (LCH)
Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast Guard in March 2002, in the very first year of its production, a unique achievement. HAL has played a significant role for India's space programs by participating in the manufacture of structures for Satellite Launch Vehicles like PSLV (Polar Satellite Launch Vehicle) GSLV (Geo-synchronous Satellite Launch Vehicle) IRS (Indian Remote Satellite) INSAT (Indian National Satellite)
HAL has formed the following Joint Ventures (JVs): BAeHAL Software Limited
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Indo-Russian Aviation Limited (IRAL) Snecma-HAL Aerospace Pvt Ltd SAMTEL-HAL Display System Limited HALBIT Avionics Pvt Ltd HAL-Edgewood Technologies Pvt Ltd INFOTECH-HAL Ltd TATA-HAL Technologies Ltd HATSOFF Helicopter Training Pvt Ltd International Aerospace Manufacturing Pvt Ltd Multi Role Transport Aircraft Ltd
NATURE OF THE BUSINESS CARRIED Manufacture of aircraft / helicopters, aero engines, accessories and avionic
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SOME OF THE PRESTIGIOUS AWARDS RECEIVED ARE: HAL was conferred NAVRATNA status by the Government of India on 22nd June 2007. The Company scaled new heights in the Financial Year 2010-11 with Turnover of Rs.13, 116 Crores and PBT of Rs 2,841 Crores. MoU Excellence Award for the top performing CPSEs for the year 2006-07(Top Ten Public Sector Enterprises). HAL has been receiving awards consecutively since 2001-02. Raksha Mantris Award for Excellence for the year 2007-08 under the Institutional category. Regional Export Award from EEPC, India for the year 2007-08.This award was presented on 21st Feb 2010 in Maldives. The Supplier of the year 2009 by Boeing, USA. Foundry & Forge Division, Bangalore conferred with International Diamond Star Award for Quality in the realm of customer satisfaction, leadership, innovation and technology as established in QC100 TQM Model. Foundry & Forge Division, Bangalore conferred with Gargi HuttenesAlbertus Green Foundry Award of the year 2008-09 by Institute of Indian Foundrymen. 2010-11
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MoU Excellence Award for the top performing CPSEs for the year 2008-09. Raksha Mantri's Award for Excellence for the years 2008-09, for Export under the Institutional category.
International Aerospace Awards (instituted by SAP Media Worldwide Ltd) as mark of recognition to the Indian Industry for excellence in innovation, indigenous technology and entrepreneurship under the following categories: Golden Award for Quality and Business Prestige from Otherways Management Association Club, France Performance Excellence Award -2009 (Organisation) for the year 200809 by Institution of Industrial Engineering. Foundry & Forge Division, Bangalore conferred with Casting of the Year 2010 award to Main Gear Box (MGB) casting of ALH from the Institute of Indian Foundrymen. Aerospace Division, Bangalore: Runner-Up in Viswakarma Rashtriya Puraskar and National Safety Award 2008 instituted by Ministry of Labour, Government of India.
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Aerospace Division, Bangalore was awarded Gold Medal by the Society of Aerospace Manufacturing Engineers (SAME) for the year 2010 for outstanding contribution in the field of Aerospace Manufacturing. Engine Division, Bangalore won Rajiv Gandhi National Quality Awards 2009, instituted by Bureau of Indian Standards, New Delhi for Commendation for Large Scale Manufacturing Industry-Engineering & Others. Shri A.Selvaraj, AGM (Mfg), Foundry & Forge Division, Bangalore was awarded the Foundryman of the year 2010 by the Institute of Indian Foundrymen.
VISION, MISSION, VALUES, QUALITY POLICY VISION:

To become a significant global player in the aerospace industry.
MISSION: To achieve self reliance in design, development, manufacture, upgrade and maintenance of aerospace equipment diversifying into related areas and managing the business in a climate of growing professional competence to achieve world class performance standards for global competitiveness and growth in exports. VALUES: customer satisfaction
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commitment to total quality cost and time consciousness innovation and creativity trust and team spirit respect for the individual integrity
QUALITY POLICY: Policy of the Vigilance Department of Hindustan Aeronautics Limited is to achieve customers total satisfaction through result oriented Quality AntiCorruption Services with Trust, Integrity and Efficiency. The Vigilance Department will consistently strive to exceed the customers expectations through continual improvements by meeting all applicable Regulatory requirements. InfoTech HAL Ltd. is qualified for AS9100 , ISO9001:2000 certification. We at InfoTech HAL Limited are committed to providing internal and external customers with excellence in products and services through:
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Ensure maximum customer satisfaction by adhering to quality standards in the technologies, products and services that we deliver. Our team of dedicated professionals works with passion to maintain and continually improve the quality in keeping with our mission objectives. Strive for the highest level of customer satisfaction: By constantly listening to the customer By providing on time, error free and fit for use products and services Provide a work environment and culture, which promotes initiative, innovation and teamwork. Practice processes, which are defined and measurable We integrate quality management systems to ensure the health and safety of our people and environmental protection into all aspects of our business.
PRODUCTS
INDIGENOUS DEVELOPMENT OF LINE REPLACEABLE UNITS (LRUs) FOR LCA-TEJAS LIGHT COMBAT AIRCRAFT (LCA) (Tejas)
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Tejas is a single engined, light weight, highly agile, multi-role supersonic fighter. It has quadruplex digital fly-by-wire Flight Control System (FCS) with associated advanced flight control laws. The aircraft with delta wing is designed for air combat and offensive air support with reconnaissance and anti-ship as its secondary roles. Extensive use of advanced composites in the airframe gives a high strength to weight ratio, long fatigue life and low radar signatures. Aeronautical Development Agency is the designated project manager for the development of LCA.
Specification
Length:13.2 m,Span:8.2 m, Height:4.4 m, Max Take of Weight:13.5 t, Payload:5.3 t,Speed:1.6M,Radius of Action: 300 km, Takeoff distance:1700 m, Landing distance:1300 m, Service Ceiling:16 km. Power Plant GE 404F2/J-IN20 (1 in no.) (General Electric)
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Turbofan engine Max. Thrust: 5618 kgf
INTERMEDIATE JET TRAINER (IJT)
HAL has undertaken development of IJT to replace the ageing Kiran trainer aircraft in service with Defence Services. This aircraft will be used for Stage II training of pilots. IJT has cockpit with twin tandem seats with good visibility for the pilots, modern Active Matrix Liquid Crystal Displays and Head-Up Display (HUD). The aircraft is equipped with a Mission Computer and Integrated Avionics system. 1000 kg of external stores carrying capacity allows fitment of various armaments and fuel drop tanks on the aircraft for effective training. The aircraft is designed for a max. speed of 750 km/h, max. range of 1500 km, max. endurance of 2 hrs. with internal fuel. Technical Parameters Length:11.0 m,Span:10.0 m,Height:4.4 m,Max Take of Weight:4.5t,Payload:1.0 t ,Speed:0.75 M,Service Ceiling:9 km, Takeoff distance:880 m, Landing distance:890 m. Power Plant
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Technical Parameters: Max. Thrust :1760 KgfDry, Weight :315 KgsThrust, Weight Ratio:5.6Sp, Fuel Consumption:0.69 Kg/Kg/HrTBO:1200 hrs.
LIGHT COMBAT HELICOPTER (LCH)
Light Combat Helicopter (LCH) was proposed to meet IAFs requirement of a dedicated light helicopter for combat operations. LCH will have maximum possible commonality with ALH. LCH with a narrow fuselage will have pilot and co-pilot/gunner in tandem configuration incorporating a number of stealth features, Armour protection, Night attack capability and crashworthy landing gear for better survivability. The major features of LCH are:
Technical Parameters
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MTOW:5.5 t, Max. Speed: 265 Kmph, Range: 550 Km, Service Ceiling: 6.5 km, Climb rate: 5 m/s. Power Plant SHAKTI engine (2 no.) Power is 895 kW
LIGHT UTILITY HELICOPTER (LUH)
Sanction for the development of LUH was accorded by GoI in Feb 09. The timeframe for development is 6 years.The helicopter in 3 Ton Weight class with Glass Cockpit with MFDs will be deployed for Reconnaissance and Surveillance role. It will be powered by a single engine. The helicopter will be capable of flying at 220 Kmph; service ceiling of 6.5 Km and a range of 350 Km with 500 kg payload.
Technical Parameters
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Max. TOW: 2700 kg, Speed at Sea Level:Vcruise > 220 kmph VNE > 250kmph ROC: > 7.5 m/s,VROC: > 5.5 m/s, Service Ceiling: 6.5 km, Range:350 km, g:+2 to 0.5 g at SL, Power Plant Technical Parameters: Max. Thrust :1760 Kgf, Dry Weight: 315 Kgs, Thrust / Weight Ratio:5.6, Sp. Fuel Consumption: 0.69 Kg/Kg/Hr, TBO: 1200 hrs.
JAGUAR DARIN-III Upgrade

Aircraft upgraded to DARIN-III standard would feature following equipment/systems in addition to those integrated as part of the recent strike aircraft produced (DARIN II + additional systems) : Modified avionics Architecture New cockpit with dual SMD on single seater A/C Integration of MULTI MODE RADAR on single seater Aircraft Engine and Flight Instrument system/Integrated Standby Instrument system (EFIS/ISIS) Integration to replace existing electro-mechanical flight instruments and/or engine instruments. Solid State Flight Data Recorder and Solid State Video Recording System Additional functionalities related to display, data transfer and Auto Pilot New Weapons
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Development activities would involve major structural modification to the airframe to accommodate the radar (on the nose cone of Strike aircraft). On the Avionics front Mission computer software development, new cockpit design, radar integration and solid state video recording system is to be addressed. Modification will also be required to be carried out on the air-conditioning system to meet the equipment cooling requirements.
MIRAGE UPGRADE
Mirage 2000 Upgrade is proposed in two Phases: Phase-1: Development for Initial Operational Clearance (IOC) & Supply of IOC Equipment by French OEMs (Thales & Dassault) Phase-2: Development for Final Operational Clearance (FOC) and series upgrade of the fleet by HAL: Integration of Buyer Furnished Equipment (BFE) Six subsystems viz. Laser Designation Pod (LDP), Air Combat Maneuvering Instrumentation (ACMI) pod, Helmet Mounted Display System (HMDS), Crystal Maze missile (CM), BDL-CMDS and Operational Data Link (ODLprovision only). Design and development of HAL Mission computer Upgrade of two IOC standard aircraft to FOC standard. Series Upgrade of aircraft.
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FIFTH GENERATION FIGHTER AIRCRAFT
The proposed FGFA will have air combat superiority, high tactical capability, group action capability in the regions even with poor communication support. The aircraft will have advanced features like Increased Stealth Supersonic cruise Data link and network centric warfare capability.
FGFA will be co-developed with Russians. Sukhoi Design Bureau (SDB) has been selected as the Russian agency for this development project.
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MULTI-ROLE TRANSPORT AIRCRAFT (MTA)
Co-development and co-production of Multi-role Transport Aircraft, jointly by Russian partners and HAL, is being launched to meet the requirement of Russian and Indian Air Forces. The aircraft will be designed for the roles of a 15-20 ton Cargo / Troop transport, Para trooping / Airdrop of supplies including Low Altitude Parachute Extraction System (LAPES) capability. It will be configured such that all types of cargo can be transported and the aircraft would be capable of operating from semi prepared runways. Technical Parameters
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Length: 35.2 m, Height:11.0 m, MTOW: 60 Ton, Payload: 20 Ton, Speed:800 Km/hr, Range : 6000 km, Takeoff distance:1300 m, Landing distance:1200 m, Engine Thrust:2X11,000 kgf ,
HTT-40
Roles Basic flying training Aerobatics Instrument Flying Navigation Night Flying Close formation
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Technical Parameters Max TOW: 2800 Kg, Speed: 450 Km/hr, Range:1000 KM,Engine Thrust: 950 SHP, Cockpit: Tandem seating, Air conditioned cockpit Modern Aircraft System :All metal, FADEC control Turbo Prop trainer aircraft with Zero-Zero ejection seats and Multifunction displays.
INDIAN MULTI ROLE HELICOPTER (IMRH)
Co-Design and co-production of a 10 Ton class Medium Lift Helicopter is proposed to be taken with an international helicopter manufacturer to meet the requirement of the 3 Indian Defence Services. This approach is taken to shorten the development timeframe.
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The Helicopter will be powered by twin engines and will feature blade folding option for ship deck operations. The variant for Army/IAF will support Air assault, Air Transport, Combat logistic, Combat search & rescue and casualty evacuation operations. The naval variant will be developed for Anti Submarine Warfare and Anti Surface Vessel Strike roles.
SERVICES
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Aeroengines Aircraft Aircraft Accessories Avionics Helicopters Helicopters Accessorie
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Top Competitors for Hindustan Aeronautics Limited Lockheed Martin Corporation BAE Systems plc Kawasaki Heavy Industries, Ltd.
LOCKHEED MARTIN CORPORATION COMPANY PROFILE Lockheed Martin takes flight in times of crisis. A leading global military contractor, the company serves the civil and commercial sectors, but it is firmly on the defense/government side of the aerospace industry; sales to the US government accounts for about 82% of revenue, with the US DoD accounting for about 61%. Electronic Systems is its largest segment, providing such products as surface ship and submarine combat systems. Other segments include Aeronautics (combat aircraft and UAVs), Information Systems & Global Services (IS&GS; data protection and intelligence) and Space Systems (satellites and space travel). Lockheed Martin also provides engineering, logistics, and information services.
BAE SYSTEMS PLC COMPANY PROFILE BAE Systems helped win the Battle of Britain in 1940 with its Spitfire and Mosquito fighters; today it is a leading military contractor and major foreign player in the US defense market. BAE's main operating groups -electronic systems, cyber & intelligence, and platforms & services -- provide products and services that include electro-optical sensors, flight controls,
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commercial and financial security, ship repair and modernization, and aircraft. BAE's fighter aircraft include the Hawk, Tornado, and the next-generation Eurofighter Typhoon. North America is BAE's biggest market, with the US Department of Defense (DoD) its largest single customer.
KAWASAKI HEAVY INDUSTRIES, LTD. COMPANY PROFILE Through surf, turf, or space, machinery by Kawasaki Heavy Industries (KHI) takes off. KHI straddles seven operations. A consumer products and machinery segment, famous for its "Let the good times roll" marketing, makes the Kawasaki brand motorcycle, all-terrain vehicles, and Jet Ski brand personal watercraft. KHI's rolling stock and construction machinery segment produces electric and diesel locomotives, material-handling equipment, and heavy engines. Jet engines, satellites, and structural parts for passenger aircraft are made by aerospace and gas turbine segments. The global conglomerate's lineup includes industrial robots, precision machinery, ships, and snow plows. Asia accounts for a majority of KHI sales.
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FUTURE GROWTH AND PROSPECTS
Up gradation of 61 Jaguar Aircraft to DARIN III (Display Attack Ranging and Inertial Navigation) Standard progressively by 2018. Manufacturing of Radome for Light Combat Aircraft. Manufacturing of Radome for Jaguar DARIN III Upgrade. Establishment of Repair and Overhaul facilities for 208 Hawk Aircraft Accessories progressively by December 2012. Facility Establishment for Major Servicing of HAWK Aircraft by 201415. Setting-up of Infrastructure for Assembly, Integration and Testing for UAV (Unmanned Aerial Vehicle) through Transfer of Technology. Mid Life upgradation (MLU) of 51 Mirage Aircraft with state of art Avionics progressively by 2020-21. Series Upgradation of Jaguar Re-engineing to achieve high thrust. Project is expected to start from 2015-16.
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BANGALORE COMPLEX Aircraft Division Bangalore Engine Division Bangalore Overhaul Division Bangalore Foundry & Forge Division Bangalore Aerospace Division Bangalore IMGT Division Bangalore Airport Services Centre Bangalore Facilities Management Division Bangalore
MiG COMPLEX Aircraft Division Nasik Aircraft Overhaul Division Nasik Engine Division Koraput
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Sukhoi Engine Division Koraput
ACCESSORIES COMPLEX TAD-Kanpur Division Accessories Division Lucknow Avionics Division Hyderabad Avionics Division Korwa
HELICOPTER COMPLEX Helicopter Division Bangalore Helicopter MRO Division Bangalore Barrackpore Division CMD Division Bangalore
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SWOT ANALYSIS
STRENGTHS Highly skilled and competitive workforce. Quality of the product. Monopoly in overhauling of Industrial and Marine Gas Turbines of higher capacity. Have good testing facilities for all the Engines they produce and Overhaul. Maintain timely delivery of goods and services. Brand name of HAL WEAKNESS Lack of Research and development facility. Lack of innovations.
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Decision making process is prolonged due to the hierarchical nature of the organization OPPORTUNITIES Tata power is planning to setup more power producing plants this serves HAL (SUNABEDA) as an opportunity. Reliance oil and corporation has plans to increase their production by increasing the no. at the Godavari basin. Demand may increase further due to the increased demand from the 44military ship programs around the world. Demand for the power is increasing around the world so this serves as a opportunity of industrial gas turbines. THREATS International competitor is a major threat.
INFRASTRUCTURE FACILITIES Man Power and Infrastructure Helicopter Division employs 1100 highly skilled persons, direct, indirect and officers and is housed in 42000 sq. meters. of factory buildings in which the manufacturing, assembly and other facilities have been established. Manufacturing Shops Besides the conventional turning, milling, drilling and grinding machines, Jig Grinding machine is available for manufacturing parts with close tolerances. For manufacturing the various gears and components gear shapers, gear hobbers, gear grinding, broaching and copy milling machines are used. Structural components are welded
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byoxy-acetylene, argon arc welding and spot welding in the welding shop. Special machines NC drilling and boring machines, jig boring machine, CNC lathe and gear grinder are some of the special machines for which a large number of programmes have been developed. In addition Spiral Bevel Gear generator, Hypoid generator and tester and cutter sharpeners supplied by MI s Gleason Gear Machines are extensively used in the manufacture of ALH gears. Assembly Shops In the final and structural assemblies, equipping of the helicopter and assemblies and sub-assemblies of components are carried out with aid of jigs. T transmission components are assembled in the transmissions assembly which is provided with all the necessary testing facilities for clearing the components. The blade assembly shop for fabricating main and tail rotor blades is equipped with bonding fixtures and balancing aids. Composite shop is equipped with bonding fixtures and balancing aids. Composite shop is equipped with facilities for lay-up of composites and autoclave for curing fabricated components.
Welding Shop The welding Shop carries out precision welding of body structures, tail boom, fuel tank, canopy, doors, seats and so on. Tubular structures of thickness 0.8 mm to 3 mm are welded. Range of jigs & fixtures ensure complete interchange ability. NDT methodology is used to ensure integrity of weld. Process Shop In the Process Shop the finishing processes undertaken are: cad-plating, chrome-plating, silver plating, phosphating (bondorite&parcolubrite),
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surface conversion coating on aluminium (alochrome) & normal anodizing both in sulphuric acid and chromic acid.
The painting scheme undertaken includes the normal DTD-868 process, finishing on glass & painting byanti-collusion paints. Reclamation by nickel plating in nickel sulphate bath gives a very high rate of metal deposition, reducing surface fatigue. The process shop has also facilities for chemical milling of aluminium alloys including taper milling.
Mc Kinseys 7s frame work with special reference to organization under study:

The model starts on the premise that an organization is not just Structure, but consists of seven elements:
Structure Strategy Shared Values Skills Staff Style Systems
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Those seven elements are distinguished in so called hard Ss and soft Ss. The hard elements (green circles) are feasible and easy to identify. They can be found in strategy statements, corporate plans, organizational charts and other documentations. The four soft Ss however, are hardly feasible. They are difficult to describe since capabilities, values and elements of corporate culture are continuously developing and changing. They are highly determined by the people at work in the organization. Therefore it is much more difficult to plan or to influence the characteristics of the soft elements. Although the soft factors are below the surface, they can have a great impact of the hard Structures, Strategies and Systems of the organization.
1. Structure: Organization has clearly been segmented into different business sectors and the structure is clearly demarcated for empowerment with regard to each product and/or sector of economy which is managed by independent Strategic Business Unit as independent profit / growth centers.
Organization Structure:
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2. Strategy:
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The company has a rolling plan called Strategic Plan which spans a period of years. The strategic plans are dove-tailed to the companys Mission and Vision statements. The plans are reviewed annually and changes / coursecorrections carried out in regard to additions of new products to its portfolio, in line with the changing business, economic environment both domestic and international. Strategic plan for 2012-2013 is as follows.
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3. Systems: Being a professionally-managed organization since, there are separate Divisional Boards to oversee/supervise the operations of each Operating Division. Further, there are sector wise business meetings to take stock of the business parameters and take corrective action wherever required. has a very strong communication network for propagating companys plans, policies and procedures in order to keep everybody informed. A number of software applications for different functions are provided by Oracle. They are as follows Inventory, Bills of Inventory, Costing, Purchasing, Receiving. MPS/MRP Planning, Lead Times, Order Management, Invoicing. Attendance Recording system, Physical Attributes, Service, GroupWise LAN One of the screenshot representing the software used for ABC analysis is represented.
Skills:
HAL has a very strong people-oriented process. For assessing the performance of employees they have assessment process. For assessing the availability of future leaders, they have leadership programs. There are a host of training programs (both internal and external) covering performanceoriented development programs, technical competence, personality development etc. which cover the entire gamut of skills required for running the organization effectively and profitably and also develop the individual as well.
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Style/Culture:
Organization culture:
It is a set of some shared values, norms and belief systems that controls organization operations and interaction with the members both inside & outside of the company. HAL follows a very distinct and insular culture throughout the company. The company incorporates various activities, which help in the betterment of four factors that account for cultural differences among the organization: Organizational ethics, Organization structure. The property right system used by the organization. The characteristics of people working in the organization.
Every employee needs to portray officer like qualities which makes them different from their competitors. A unique characteristic of each employee is that they contribute towards production and share the information to each other as when required. The top managers are right to use organization resources. The work force may be given rights to participate in decision making through various forums so that they can help in achieving the goals of an organization of higher productivity, good quality and cost reduction. The shareholders of the company are given the strongest property rights as they own the resources of the employee and shares from profit.
MANAGEMENT STYLE:
Its all about the fundamental responsibility of employees in interacting with each department:
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INFORMATIO N AND DATA MANAGEMEN T
TRAINING
RESOURCE PLANNING AND MANAGEMEN T
PLANT & EQUIPMENT MAINTENANC E
CUSTOM ER
MARKETI NG / SALES
PRODUCTI ON PLANNING
PRODU CT REALIS A TION
CUSTOM ER CUSTOM ER
DESIGN & DEVELOPMEN T PLANNING
PRODU CT SERVIC E PURCHASI NG
QUALITY ASSURANCE
Shared Values:
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Integrity: Aligning actions with words and consistently deliver what they promise. Building and strenghtening reputation through trust. To be respectful and behave in an open and honest manner. Beleiving in ethical performance.
Excellence: Being passionate about their people, process and products. Quality of their products reflect what their processes are and how committed their employees are. They believe in continuous improvements and also significantly focus on customer needs and dedication.
Team work: They share their talents and knowledge with whom they were and take decisions on time to strenghthen team work. They respect and value people with different opinion experience and background. They shall always thrive to understand the big picture and work together for consistently improving their performance.
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REVIEW OF LITERATURE
Every business needs funds for two purposes basically; they are for establishment and to carry day-to-day operations. Long term funds are required for establishment of the organization, it is required for production facility through purchase of fixed assets and it needs fixed capital and the funds which are needed for short term purposes for the purchase of raw materials, payment of wages, payment of day to day expenses etc, the funds required for these are known as WORKING CAPITAL. Working capital refers to that part of the firm's capital which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories. Funds, thus, invested in current assets keep revolving fast and are being constantly converted into cash and this cash flow out in exchange for other current assets. Hence it is also known as CIRCULATING CAPITAL or REVOLVING CAPITAL or SHORT TERM CAPITAL. According to GENESTENBERG:"Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another, as for example, from cash to inventories, inventories to receivables into cash." Need for working capital cannot be over emphasized. Every business needs some amount of working capital. The need of working capital arises due to the time gap between production and realization of cash from sales. Thus, the working capital is needed for the following purposes:a) For the purchase of raw materials, components and spares. b) To pay wages and salaries. c) To incur day-to-day expenses and overhead costs such as fuel, power and office expenses etc. d) To met the selling costs as packing, advertising etc. e) To provide credit facility to customers. f) To maintain the inventories of raw material, work-in-progress, stores and spares and finished stock.
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For studying the need of working capital in a business, one has to study the business under varying circumstances such as a new concern, as a going concern and as one which has attained maturity. Many researchers have studied working capital from different views and in different environments. The following ones were very interesting and useful for our research. According to Eljelly, in 2004:Elucidated that efficient liquidity management involves planning and controlling current assets and current liabilities in such a manner that eliminates the risk of inability to meet due short-term obligations and avoids excessive investment in these assets. The relation between profitability and liquidity was examined, as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia using correlation and regression analysis. The study found that the cash conversion cycle was of more importance as a measure of liquidity than the current ratio that affects profitability. The size variable was found to have significant effect on profitability at the industry level. The results were stable and had important implications for liquidity management in various Saudi companies. First, it was clear that there was a negative relationship between profitability and liquidity indicators such as current ratio and cash gap in the Saudi sample examined. Second, the study also revealed that there was great variation among industries with respect to the significant measure of liquidity. According to Deloof, in 2003:Discussed that most firms had a large amount of cash invested in working capital. It can therefore be expected that the way in which working capital is managed will have a significant impact on profitability of those firms. Using correlation and regression tests he found a significant negative relationship between gross operating income and the number of days accounts receivable, inventories and accounts payable of Belgian firms. On basis of these results he suggested that managers could create value for their shareholders by reducing the number of days accounts receivable and inventories to a reasonable minimum. The negative relationship between accounts payable and profitability is consistent with the view that less profitable firms wait longer to pay. According to Ghosh and Maji, in 2003:-
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A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT In this paper made an attempt to examine the efficiency of working capital management of the Indian cement companies during 1992 1993 to 2001 2002. For measuring the efficiency of working capital management, performance, utilization, and overall efficiency indices were calculated instead of using some common working capital management ratios. Setting industry norms as target-efficiency levels of the individual firms, this paper also tested the speed of achieving that target level of efficiency by an individual firm during the period of study. Findings of the study indicated that the Indian Cement Industry as a whole did not perform remarkably well during this period.
Chapter: 2
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Research Design
INTRODUCTION TO THE TOPIC:
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Working capital management plays a vital role in an organization. It merely means, firm analysis their effect on return and risk. The management is fixed in various ways and which mainly deals with the cash, inventory and receivable management these are act as agent for the organization to work on short and long term project which deals gross and net working capital.
TITLE OF THE STUDY

A STUDY ON FACTORS INFLUENCING CAPITAL MANAGEMENT [WITH REFERENCE TO HAL] WORKING
STATEMENT OF THE PROBLEM

Working capital management is one of the core areas of financial management which recognizes the working capital management under 3 classifications namely cash management. Inventory and debtors management. The success of any company largely depends on the management of its working capital.HAL as a government owned public sector undertaking has on existence of more than 48 years, such reputation of long existence comes only from efficient management of fixed and working capital. Current project is an effort made to test the efficiency of HAL in managing the working capital. The problem established for the research is evaluation of working capital efficiency at HAL with emphasis on the factors affecting the working capital.
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OBJECTIVES OF THE STUDY To study the operating cycle of HAL LCA PG. To analyze and identify the factors influencing working capital management under three broad heads cash, inventory and debtors. To analyze various modes of financing working capital requirements. To examine various reasons for the changes in working capital over two balance sheet period.
SCOPE OF THE STUDIES The study restricts itself to analysis of working capital management at LCA PG. HAL. Further the scope is restricted to the analysis of three areas of working capital management i.e.. cash ,debtors and inventory management.
PURPOSE OF THE STUDY

* The purpose of this study is to analyse how far the company made an effective decision in controlling % utilization of working capital and also to identifying the risk and profitability from those decisions
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LIMITATIONS OF THE STUDY As the study was restricted only to the air craft division hence it could not throw light upon the overall performance of working capital management. Time limitation Therefore constructive analysis could not be carried out comparing the performance over longer period thus may act as a hindrance to conclude the overall efficiency of working capital management.
RESEARCH METHODOLOGY
For collecting the information about working capital management, the descriptive type of research is used. The descriptive methodology given on all over pictures of steps taken for conducting the research. The major purpose of descriptive research is description of the state of affairs as it exists at present. Research the major purpose of descriptive research is description of the state of affairs as it exists at present.
METHODS OF DATA COLLECTION
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Data is collected from 2 sources namely, primary and secondary data like direct interaction with financial manager and previous year annual reports were also made. Tools used for researching working capital management in H.A.L are:
PRIMARY DATA :
Primary data is collected by means of direct interaction with the executives, financial affairs and accountants of the company.
SECONDARY DATA:
Secondary data is derived form the publication by the company like profit and loss account, balance sheet, and company profile of three years.
GEOGRAPHICAL SCOPE OF THE STUDY

The area selected for a study of working capital management relates to H.A.L factory, particularly in H.A.L,
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Chapter: 5 Analysis and Interpretation
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Statement of changes-in-Working Capital
PARTICULAR
TOTAL CURRENT ASSETS
2008
2009
(+)
(-)
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INVENTORIES Cash and bank balance Loans and advances
2658.72 7253.53 9912.25
11415.94 1195.25 28580.84 41192.03
8757.22 1195.25 21327.31
Total A Total current liability Sundry creditors Others Non interest bearing Advances from other customer
8474.73 101725.6 2 15586.30
13358.58 114665.85 9919.87
5666.43
4883.85 12940.23 -
Total B Net working capital (A-B ) Decrease in working capital TOTAL
125786. 64 115874.3 9
137944.3 0 96752.27 19122.12 19122.12 36946.21 36946.21
115874. 39
115874.3 9
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PARTICULAR
TOTAL CURRENT ASSETS INVENTORIES Cash and bank balance Loans and advances
2009
2010
(+)
(-)
11415.94 1195.25 28580.84 41192.03
34407.23 24858.12 59265.35
22991.29 -
1195.25 3722.72
TOTAL A Total current liability Sundry creditors Others Non interest bearing Advances from other customer
13358.58 114665.85 9919.87
8507.88 114665.85 13524.44
4850.7 -
3604.57
TOTAL B Net working capital (AB) Decrease in working capital TOTAL
137944.3 (-)96752.2 7 (-)116165. 87 95506.14
136698.17 (-)19413.6 Page 105 95506.14 27841.99 27841.99
PARTICULAR
TOTAL CURRENT ASSETS INVENTORIES Cash and bank balance Loans and advances
2010
2011
(+)
(-)
34407.23 24858.12 59265.35
56566.79 15325.49 71892.56
22159.56 -
9532.63
Total A Total current liability Sundry creditors Others Non interest bearing Advances from other customer
8507.88 114665.85 13524.44
9328.88 276128.70 11844.78
1679.66
821 161462. 85 -
Total B Net working capital (A-B ) Decrease in working capital TOTAL
136698.1 7 (-)77432.8 2
297302.36 (-)225410.0 8 (-)302842.9
225410.0 7
225410.07
23839.2 2
23839.2 2 Page 106
RATIO ANALYSIS
a) Current Ratio: current ratio is defined as the relationship between the total current assets to the total current liabilities. It is calculated by dividing current assets by current liabilities.
This ratio measures the short terms solvency i.e. its ability to meet short term obligations. As a measure of current financial liquidity, it indicates the rupee of current assets available for each rupee for each rupee of current liability. It is calculated by dividing total of current assest by total of current liabilities
Current Ratio= Current Assets/Current Liability Table 1: Calculation of Current Ratio: (RS IN LAKHS) Current Asset 2009 9912.24 Current Liability 125786.64 Ratio 0.241
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2010 2011 2012
41192.03 59265.35 71892.28
137944.30 136698.17 297302.35
0.433 0.298 0.078
CURRENT RATIO
INTERPRETATION: The higher the ratio, the larger the amount of rupee available per rupee of current liability. Hence greater safety of funds of short term creditors. However
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a very high ratio would indicate slackness in management practices. As conventional rule a current ratio of 2:1 is considered satisfactory. There is a progressive decline in the ratio. Analysis reveals that there is sharp increase in advances from the government of India for many projects like HAWK, AJT, and JAGUAR etc.
b) Quick/Liquidity ratio:
Quick ratio is that ratio which expresses the
relationship between the liquid asset and liquid liability. It is a measure of quick or acid liquidity. It is referred to as quick ratio because it is measurement of a firm's ability to convert its current assets quickly into cash in order to meet its current liabilities. Quick ratio is calculated by dividing quick asset by the current liabilities.
Quick Ratio = Quick assets/Current liabilities
Table 2: Calculation of quick Ratio: (RS IN LAKHS)
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Quick Asset 200 9 201 0 201 1 201 2 15325.49 24858.12 29776.09 7253.53
Quick Liability 125786.64
Ratio
0.057
137944.30
0.21
136698.17
0.18
297302.35
0.051
QUICK RATIO
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INTERPRETATION: It is a rigorous measure of firm's ability to service short term liabilities. The usefulness of the ratio lies in the fact that it is widely accepted as the best available test of liquidity position of a firm. A company with a higher quick ration suffers from shortage of funds. On the other hand company with low ratio may be prospering and paying its current obligation in time. Quick ratio of 1:1 is considered ideal. In the above years quick ratio is less than one indicating an undesirable position. It is because of inventories constituting a major portion of current assets and a large part of finance tied up in inventory. Besides current liability is high on account of large scale borrowing from the government.
Inventory Turn over ratio: It is computed by dividing the cost of goods sold by the average inventory. This ratio indicates whether investment in inventory is efficiently used or not. The ratio is determined as follows:
Inventory turnover Ratio= Sales/Average inventor
Table 3: Calculation of Inventory turnover ratio: (RS IN LAKHS)
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Years
Sales
Average inventory
Ratio
2010 2011 2012
16388.47 19061.24 21282.22
7037.33 22911.58 45487.01
2.33 0.83 0.46
INVENTORY TURN OVER RATIO
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INTERPERTATION: The above analysis shows that the inventory turnover ratio measures the velocity of conversion of stock into sales. Usually, a high inventory turnover ratio indicates efficient management for inventory because more frequently stock is sold, the lesser amount of money required financing the inventory. A low inventory turnover ratio indicates an inefficient management of inventory. It implies over in inventories ,dull business, and poor quality of goods, stock accumulations, and accumulation of obsolete and slow moving goods and low profit as compared to total investment. The company always keep the ratio has high, it gives the better profits and high efficiency in management.
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DEBT-EQUITY RATIO: The ratio reflects the relative claims of creditor and shareholders against the asset of the firm. This ratio indicates the relationship between the external equities or the shareholder funds and the internal equities or the shareholders fund. Debt Equity ratio can be calculated by dividing the debt capital by shareholders fund plus reserves and surplus. It is calculated as follows:
Debt Equity Ratio =
Debt Capital Shareholder fund + Reserves & surplus
Table 4: Calculation of Debt-equity ratio: YEAR 2009 2010 2011 2012 Debt 397.70 38.10 Equity 235.83 242.51 350.95 569.39 Ratio 0.004 0.004 1.13 0.06
DEBT EQUITY RATIO

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INTERPRETATION: The above ratio indicates that the proportionate claims of owner & the outsiders against the firms assets. The company debt-equity ratio is 1 i. e. total debt is equal to equity considered as to quite satisfactory. A higher the ratio indicates that the claims of outsiders (creditors) are greater than those of owners, may not be considered by the creditors because it gives a lesser margin of safety for them at the time of liquidation of firm. If the company uses maximum outsiders funds in order to take lesser risk of investment & to increase their earnings by paying a lower fixed rate of interest to outsiders. The company uses internal funds instead of outsiders funds.
Gross Profit Ratio:

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Gross profit measures the percentage of each sales rupee remaining after the firm has paid for its goods. This ratio expresses relationship between gross profit and net sales. It is calculated as follows:
Gross Profit Ratio= Gross Profitx100/Net sales
Table 5: Calculation of Gross profit ratio:
YEAR 2009 2010 2011 2012
Gross profit 14567.09 17570.56 25999.67 27911.34
Net sales 13219.14 16388.47 19061.24 21282.22
Ratio 110.19 107.2 136.4 131.14
GROSS PROFIT RATIO

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INTERPRETATION: This ratio indicates the degree to which the selling price of goods per unit may decline without resulting in losses from operations to the firm. It also helps in ascertaining whether average percentage of mark up on the goods is maintained.
Gross profit is obtained by deducting raw materials and components, direct expenses, salaries and wages from the sales and adjusting changes in WIP/SIT. This reflects the efficiency with which management produces each unit of produced.
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Net Profit Ratio: It measures the percentage of each sales rupee remaining after all costs and expenses including interest and taxes have been deducted, This ratio expresses relationship between gross profit and net sales. It is calculated as followed:
Net Profit Ratio = Net Profit X 100 Net sales
Table 6: Calculation of Net profit ratio:
Years 2009 2010 2011 2012
Net profit 235.83 242.51 350.96 569.39
Sales 13219.14 16388.47 19061.24 21282.22
Ratio 1.78% 1.48% 1.84% 2.67%
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NET PROFIT RATIO
INTERPRETATION: This ratio helps in determining the efficiency with which the affairs of the business are being managed. An increase in the ratio over the previous period indicates improvement in the operational constant. The ratio is thus an effective measure to check the profitability of business. It is obtained when operating expenses, interest and taxes are subtracted from the gross profit. It establishes a relationship between net profit and sales and indicates managements efficiency in manufacturing, administering and serving the products. This ratio is overall measure of firms ability to turn every rupee spent in expenses into sales and net profit.
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Return on Investment: Return on investment measures the overall effectiveness of the management in generating profits with its available assets It is
determined by dividing Profit after tax by Shareholder Fund multiplied by 100.
Return on Investment =
Profit after tax
X 100
Shareholder Funds
Table 7: Calculation of Return on investment
Year 2008 2009 2010 2011
Net Profit After Tax 235.83 242.51 350.95 569.39
Total assets 9958.68 41256.41 59341.73 71999.99
Ratio 2.37% 0.98% 0.59% 0.79%
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RETURN ON INVESTMENT
INTERPRETATION: From the above analysis the return on total assets ratio measures that the profitability of total funds / investment on fixed assets of a firm. The objective of computing return on total assets is to be finding out how effectively the funds pooled together have been used. The above ratio shows the total assets utilization capacity of the company & also the return on assets both have been decreased gradually. In the current year 2011-12 the ratio has been increased slight.
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INVENTORY TO WORKING CAPITAL RATIO: It is determined by dividing inventory by working capital it is calculated by using the following formula.
INVENTORY TO WORKING CAPITAL= INVENTORY WORKING CAPITAL
Table 8: Calculation of inventory to working capital:
{RS. IN LAKHS) Years 2009 2010 2011 2012 Inventory 2658.72 11415.94 34407.23 56566.79 Working Capital -1158744 -96752.27 -77432.82 -225410.07 Ratio -0.002 -0.11 -0.44 -0.25
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INVENTORY TO WORKING CAPITAL RATIO
INTERPRETATION:
The ratio shows that the relationship between inventory & working capital. The ratio indicates that the percentage of the inventory invested in working capital as the ratio has increased high in the year 2010-11. After that the ratio goes to negative. Because of the amount invested in working capital is nil & negative. It means the current assets are less than current liabilities. Here, the company trying to increase the amount invested in inventory through increased in working capital.
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TOTAL ASSETS TURN OVER RATIO: It is determined by dividing net sales by total assets. It is calculated by using the following formula.
TOTAL ASSETS TURN OVER RATIO=NET SALES TOTAL ASSET
Years 2009 2010 2011 2012
Net Sales 13219.14 16388.47 19061.24 21282.22
Total Assets 9958.68 41256.41 59341.73 71999.99
Ratio
1.33 0.39 0.32 0.29
Table 8: Calculation of total assets turn over ratio:
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TOTAL ASSETS TURN OVER RATIO
INTERPRETATION:
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Higher total assets turnover ratio indicates the efficient utilization of fixed assets and current assets for the purpose of sales. In the above table the assets the assets turnover ratio has been decreased to 0.29 in 2011-12, 0.32 in 201011, 0.39 in 2009-10 and 1.33 in 2008-09.
CURRENT ASSETS TO NET WORTH RATIO: It is determined by dividing current assets by net worth. It is calculated by using the following formula.
CURRENT ASSETS TO NET WORTH RATIO=CURRENT ASSETS NET WORTH
Table 9: Calculation of current asset to net worth ratio:
(Rs. In Lakhs) Current Assets Net Worth Ratio

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2009 2010 2011 2012
9912.24 41192.03 59265.35 71892.28
-115768.43 -0.321 -96544.98 -0.767 -77232.26 -0.426 -224077.02 -0.080
CURRENT ASSETS TO NET WORTH RATIO
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INTERPRETAION: The ratio shows that the relationship between current assets & share holders fund. The ratio indicates the extent to which promoters funds invested in current assets. The ratio of the company in the year 2011-12 is increased to -0.321 from -0.767 in 2010-11. It shows that the company invested in current assets has been decreased. The main purpose of calculating ratio is to calculate the percentage of share holders funds in current assets.
SUGGESTION:
The company has to conduct a customer meeting at east once in a three months so the problems of the product or default can be understood it helps to increase the sales of the company product. Company should give more periods to its customer and also take more periods from its suppliers for high turnover. The company should provide the more information of its company website with product pictures. The company liability is more, it should be in control. Company should come with a new product. Company should maintain quick services to its customer.
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Infrastructure of the company should be improved. The company should increase the working capital position.
ANALYSIS AND FINDING OF ORGANISATION
HAL among the public sector claims to be the best and which is true.
HAL has learnt it hard way and has been continuously striving to compete with others.
Competitors and has been successful.
HAL does not approach the customer instead it waits for the customer to come to it.
Since its products are priced higher than other players in the field so it thinks that those.
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Who can afford its products will automatically approach it.
HAL is being showing consistent growth prospective.
There has been constant rise in HAL profit year after year.
HAL is managing its Human Resources and marketing very effectively by conducting research.
CONCLUSION:
Working capital management has so far been looked at as the driving seat of the financial manager. By studying the working capital management in HAL, LCA PG division , one can know the growth aspects of the company All kinds of act in the operating field of production , procurement , marketing and services get ultimately interrupted by the final implication of the management of working capital and its segment . the efficiency in the use of working capital happens to be the most important condition for the running of the business so has to earn adequate profit. In HAL, LCA PG division, the use of working capital is efficient , affordable and can be even improved in order to have more profit for
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further period . With the passage of time and improvement in technology, there is further scope for A STUDY ON WORKING CAPITAL MANAGEMENT . By this i can conclude it has made up the complete effort in planning and making strategy to have the good will in the corporate world.
BIBLOGRAPY
FINANCIAL MANAGEMENT:
M.Y. KHAN R.K. JIAN
S.K. GUPTA N. GUPTA
I.M PANDEY
WEBSITES:
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WWW.GOOGLE.COM ANNUAL REPORTS OF THE COMPANY.
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A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

S. NO. PAGE NO.

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

TITLE OF THE PROJECT

FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT OF THE (LCA PG)HAL

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

DEFINITIONS OF FINANCIAL MANAGEMENT

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

MEANING OF FINANCIAL MANAGEMENT

FEATURES OF FINANCIAL MANAGEMENT

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

SCOPE OF FINANCIAL MANAGEMENT

DECIDING CAPITAL STRUCTURE:

SELECTING A PATTERN OF INVESTMENT: when

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

PROPRE CASH MANAGEMENT: Cash management is

PROPER USE OF SURPLUSES: The utilization of

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

FUNCTIONS OF THE FINANCE MANAGER

FUNCTIONAL AREAS OF FINANCIAL MANAGEMENT

Estimation of the financial requirements:

2.SELECTION OF THE RIGHT SOURCES OF FUNDS:

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

ANALYSIS AND INTERPRETATION OF FINANCIAL PERFORMANCE:

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT:

PROFIT PLANNING AND CONTROL:

FAIR RETURNS TO THE INVESTORS:

10. MAINTAINING LIQUIDITY AND WEALTH MAXIMIZATION:

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

DECISIONS IN FINANCIAL MANAGEMENT

INVESTMENT DECISIONS: capital expenditure

CURRENT ASSET MANAGEMENT: Continuous

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

WORKING CAPITAL MANAGEMENT

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

1. Conversion of cash into inventory. 2. Conversion of cash into receivable.

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

3. Conversion of receivable into cash

CLASSIFICATION OR KINDS OF WORKING CAPITAL

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

KINDS OF WORKING CAPITAL

ON ONTHE THE BASIS BASISOF OF CONCEPT CONCEPT

ON ONTHE THE BASIS BASISOF OF TIME TIME

GROSS GROSS WORKIN WORKIN G G CAPITAL CAPITAL

NET NET WORKIN WORKIN G G CAPITAL CAPITAL

PERMANE PERMANE NT NT WORKING WORKING CAPITAL CAPITAL

TEMPORA TEMPORA RY RY WORKING WORKING CAPITAL CAPITAL

Permanent or fixed working capital:

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

Temporary or variable working capital:

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

IMPORTANCE OR ADVANTAGES OF ADEQUATE WORKING CAPITAL.

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

INADEQUACY OF WORKING CAPITAL

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

CONSTITUENT OF CURRENT LIABILITIES

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

A STUDY ON FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

DEBTORS WORK PROCESS