SUMMER TRAINING PROJECT REPORT

ON

“Working Capital Management for Bharti Teletech Ltd.”

SUMITTED IN PARTIAL FULFILLMENT OF THE RQUIREMENT OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION

UTTARAKHAND TECHNICAL UNIVERSITY, DEHRADUN

SUBMITTED BY: SUBMITTED TO:

Charu Kejriwal Dr. Pradeep Suri

IMS-Dehradun H.O.D- Management

Roll No.- MB06063 IMS Dehradun

D EHRA D UNim s

CERTIFICATE

I have the pleasure in certifying that Ms………………….. is a bonafide student of ………..

Semester of Institute of management studies, Dehradun University Roll no………………

She has completed her project work entitled………………………………. Under my

supervision.

I certify that this is her original effort. It has not been copied from any other source. This

project has not been submitted in any other university for the purpose of award of any degree.

This project fulfills the requirement of the curriculum prescribed by UK. TECH. University,

for the said course. I recommend this project work for evaluation and consideration for the

award of degree to the student.

ACKNOWLEDGEMENT

Indebted to many people who helped throughout the project work and in the preparation of

this report. First of all I would like to offer my sincere gratitude to Mr. Sanjeev Sehgal,

project director and Deputy finance manager of BHARTI TELETECH LTD and IMS for

giving me the opportunity to undertake this project.

I would also wish to special thank my project guide Mr. Sandeep Jain, project guide in

BHARTI TELETECH LTD for his valuable guidance during the course of the project.

I owe special debt to Fellow professionals at BHARTI TELETECH LTD, Mr. Apoorv Kumar,

Mr. Amarender Jena and Mr. Rajeev Guha for having shared the knowledge for providing me

the constant support and valuable suggestions through the project.

My thanks are also to Dr. Pradeep Suri who has helped in organizing this project.

I am also thankful to all my friends for providing me the much needed the moral support

during the course of this project.

IMS Dehradun Charu Kejriwal

(MBA-III Sem)

PREFACE

The present study was undertaken as a part of the organizational training (1) Component of

the MBA course of masters in business studies in financial management.

The object of this training was to develop information search skills into students. This enables

them to gather information on a given subject in a systematic and consciously planned

manner.

The study was done as the project for BEETEL Ltd, New Delhi. BEETEL is engaged in

production of range of basic and cordless phones and is also National distributor of Motorola

handsets in India.

The study was carried out during the months of June-July’07. It’s objective was to study the

concept of Working Capital Management in detail in BEETEL and make suggestions about

the study.

CONTENTS

Certificate

Acknowledgement

Preface

1. Executive summary

2. Introduction

3. Company Profile

- BHARTI

- BEETEL

4. Review of Literature

- Components of Working Capital

- Working Capital Cycle

- Financing Working Capital

- Financial Ratios

5. Objective of the study

6. Research Methodology

7. Findings & Analysis in BHARTI TELETECH LTD.

- Evaluation of various components of Working Capital

- Working Capital Ratios

- Turnover Ratios

- Working Capital and Capital Employed

- Profit After Sales as a % to sales

- Various Cycles & their differences

- Working Capital Required at BEETEL

8. Suggestions and Recommendations

9. Conclusion

10. Bibliography

EXECUTIVE

SUMMARY

EXECUTIVE SUMMARY

India in a large and growing economy with rapidly expanding financial service sector.

Managing working capital is a matter of balance. A company must have sufficient cash on

hand to meet its immediate needs while ensuring that idle cash is invested to the

organization’s best possible advantage. To avoid tipping the scale, it is necessary to have clear

and accurate reports on each of the components of working capital and awareness of the

potential impact of outside influences.

WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES

In the analysis for Bharti Teletech Limited, a Bharti Group Company it was found that the

working capital has increased which could be mainly due to increased sales. The Gross

Operating Cycle declined significantly but the reduction was nullified due to the reduction in

inventory conversion period. This is why we see that Net operating Cycle for last two years is

almost identical. The main areas of emphasis were work in progress conversion period and

creditors conversion period. Debtors conversion period reduced but work in progress and

creditors conversion period increased. Few suggestions that are recommended for better

management of working capital are reducing inter-corporate deposits and loans, reducing

finished goods inventory, increment in creditors payment period etc.

The company uses Operating Cycle Method to calculate its Working Capital method.

Thus, good management of working capital is part of good financial management. Effective

use of working capital will contribute to the operational efficiency of a company, optimum

use will help to generate maximum returns.

INTRODUCTION

WORKING CAPTAL MANAGEMENT

Every business needs investment to procure fixed assets, which remain in use for a long

period. Money invested in these assets is called ‘Long term Funds’ or ‘Fixed Capital’.

Business also needs funds for short-term purposes to finance current operations. Investment in

short term assets like cash, inventories, debtors etc., is called ‘Short-term Funds’ or ‘Working

Capital’.

The ‘Working Capital’ can be categorized, as funds needed for carrying out day-to-day

operations of the business smoothly.

The management of the working capital is equally important as the management of long-term

financial investment. The goal of Working capital management is to ensure that the firm is

able to continue its operations and that it has sufficient cash flow to satisfy both maturing

short-term debt and upcoming operational expenses.

Every running business needs working capital. Even a business which is fully equipped with

all types of fixed assets required, is bound to collapse without

(i) adequate supply of raw materials for processing;

(ii)cash to pay for wages, power and other costs;

(iii)creating a stock of finished goods to feed the market demand regularly; and,

(iv)the ability to grant credit to its customers.

All these require working capital. Working capital is thus like the lifeblood of a business. The

business will not be able to carry on day-to-day activities without the availability of adequate

working capital.

Company Profile

-

BHARTI

BHARTI ENTERPRISE

Bharti Enterprises has successfully focused its strategy on telecom while straddling diverse

fields of business. From the creation of 'Airtel', one of India's finest brands, to becoming the

largest manufacturer and exporter of world class telecom terminals under its 'Beetel' brand,

Bharti has created a significant position for itself in the global telecommunications

sector. Bharti Airtel Limited is today acknowledged as one of India's finest companies, and its

flagship brand 'Airtel', has over 40 million customers across the length and breadth of India.

While a joint venture with TeleTech Inc., USA marked Bharti’s successful foray into the

Customer Management Services business, Bharti Enterprises’ dynamic diversification has

continued with the company venturing into telecom software development. Recently, Bharti

has successfully launched an international venture with EL Rothschild Group owned ELRO

Holdings India Ltd., to export fresh Agri products exclusively to markets in Europe and USA.

Bharti also has a joint venture - ‘Bharti AXA Life Insurance Company Ltd.’ - with AXA,

world leader in financial protection and wealth management. Bharti has recently forayed into

retail business under a company called Bharti Retail Pvt. Ltd. It also has a MoU with Wal-

Mart for the cash & carry business.

Group Structure

Highlights

Bharti Enterprises announced new Apex level Strategic Organization Structure.

Bharti Announced Strategic Roadmap for its Retail Venture

Bharti Group made an arrangement to buy 5.6% direct interest of Vodafone in Bharti

Airtel Limited for US$1.6 billion

Sunil B. Mittal has been chosen for this year’s Padma Bhushan Awards

Bharti Airtel received Letter of Offer to provide 2G and 3G mobile services in Sri

Lanka

Company profile

-

BEETEL

BHARTI TELETECH

PROFILE

In 1985, Bharti Teletech entered into a technical

collaboration with Siemens AG, the German

technological giant and set up a plant in Ludhiana to

manufacture telephones.

Come 2005 and Beetel has journeyed across twenty years of creating history. In 1991,

Beetel manufactured phones for 'Sprint', the American telecom mammoth. Shortly after,

in 1993-94, came ISO 9001-2000 accreditations for the manufacturing units - by this time

two in numbers, at Gurgaon and Ludhiana. And in a short span of time, Beetel was

already the market leader. Cornering half of the Indian market, Beetel became 'India's

Favorite Phone'.

Today Bharti Teletech has two ISO 9000 certified plants with an annual capacity of 5

million units p.a.

Bharti became the first company to:

1) Manufacture cordless telephone and telephone answering machines in India.

2) It is also the first to launch SMS phones on fixed line in the country thereby

heralding a revolution in fixed line SMS telephony.

3) In line with customer needs, Bharti was also the first to launch backlit LED and

GSM Interference free phones.

BEETEL’s products range includes the BASIC Phones, CALLER ID Phones, CORDLESS

Phones, 1.8 GHz DECT, 2.4 GHz phones, VOIP Phones, broadband (ADSL) equipments

like Modems, routers and set top boxes.

4 BTTL is the first Indian company to manufacture 20 million phones. Today, one out of every

three phones in India is a Beetel. With rapid growth over the years, Bharti Teletech today is the

largest manufacturer of phones in the Globe outside China. Bharti Teletech commands a lion's

share of over 90%, in the extremely competitive BSNL/ MTNL segment.

5 Bharti became the first company to export phones to Sprint Inc. USA - recognition of our world

class quality. Today, BTTL is present in 30 countries across 5 continents

Exports are a huge thrust area for Bharti. In 1991, Bharti became the first company to export

phones to Sprint Inc. USA – recognition of our world class quality. The export operations have

been highly successful over the years. In 2003-04, exports crossed the half million mark - a

quantum jump since we started. Today, we are present in 30 countries across 5 continents despite

intense competition from the strongest brands in the world. Brand building initiatives have also

taken fruit in the global arena. The Beetel brand is present in Vietnam, Iran, Chile, Oman,

Bangladesh, Mauritius and Sri Lanka. This list continues to grow with each passing month and it is

a matter of time before Beetel becomes a truly global brand.

Bharti Teletech Team is upbeat to create History by crossing a Sales Turnover beyond 2000 cores in FY

2006-07 against the last year's 543 crores.

ACHIEVEMENTS

Trend has won GOLDEN PEACOCK AWARD as the only phone with SIM card reader.

The model Millennium Clip Max (A high end Caller ID and Two way speaker phone)

recently launched in the market WON a GOLDEN PEACOCK AWARD for

INNOVATIVE DESIGN.

Beetel has a range of over 35 models across basic, feature and cordless segments and

continues to add a new model every month. With a current market share of over 40%,

Beetel is the first choice of the Indian consumer. In the growing private service provider

segment, Bharti Teletech commands a lion’s share of over 90%. In the extremely

competitive BSNL/ MTNL segment, we have crossed a market share of 50%. BTTL has

successfully met the challenge of providing quality products at competitive prices.

Following are the new products recently introduced in the open market:-

DB 9200 - Caller Id with Speaker

CB 60000 -2.4 GHz Cordless Phones

CB 61000 -2.4 GHz Cordless Phones with base

dialing

CB 59000 -2.4 GHz Cordless Phones with color

Screen

CB 49000 - Low Priced 2.4 GHz Cordless Phones

DF 8800 -Caller Id Phone with large Screen

Display

Following are the new products recently introduced for the DOT market as per new TEC

specifications (GTEL-02/04); all these models are GSM interference free.

IRIS 2K3

GARNET

PERIDOT (A CLI PHONE)

Beside this company has maintained its leadership in all chosen markets like PSP, DOT, OPEN

MARKET & EXPORT (exporting to 30 countries across five continents world wide.

DOMESTIC

After years of careful and focused brand-building, Beetel is recognized as a trusted brand

in India and is poised to take on global players in the most competitive international

markets.

Beetel was the first Indian brand to launch caller ID phones in India and the first to bring

down the price of cordless phones to an affordable range at below Rs. 2000.

Beetel has also pioneered SMS phones, the first in India. With this landmark

development, India now has the pride of joining the select set of countries that offer SMS

on and from fixed-line telephony service platform worldwide. For the consumer in India,

Beetel is truly ringing in the future. Indian PTT has accepted Beetel instruments whole

heartedly and the brand has a 60% share in this market.

The private service providers have shown great faith in Beetel's products and appreciate

the company's ability to customize the phones to their specifications. Beetel has garnered

over 95% of this market.

Beetel has remained the No. 1 brand in the Indian retail market, with a market share of

over 50 %.

The company's marketing network encompasses over 580 distributors and over 30,000

dealers, taking Beetel phones to every corner of one of the biggest markets in the world.

INTERNATIONAL

After years of careful and focused brand-building, Beetel is recognized as a trusted brand

in India and is poised to take on global players in the most competitive international

markets.

Overseas, the company has a richly diversified customer base in over 30 countries across

five continents. The markets include the USA, South America, Eastern Europe, the

Middle East, South East Asia and Africa. Telephone instruments are supplied to Siemens,

Akai, Connair and the Sprint Group in the USA among many others.

The Electronics and Computer Hardware Export Promotion Council conferred upon

Bharti Teletech, the award for the Top Telephone Instrument Exporter.

The company exemplifies a marketing success story that writes new chapters of

achievement with each passing year.

COMPANY’S VISION’S AND VALUES

VISION

To be a leader in Telecom and allied products in

chosen global market.

VALUESCustomer

We will be responsive to the needs of our customer

People

We will trust and respect our employees

Learning

We will continuously improve our products and services-

innovatively and expeditiously

Community & Partners

We will be transparent and sensitive in our

dealing with all stakeholders

QUALITY POLICY

At Bharti Teletech quality has always been among the top priority .

QUALITY OBJECTIVES

To meet customers' requirements in terms of functionality, safety, aesthetics, life

expectancy and taking effective actions on their feedback's.

To ensure planned results and continual improvements in all operations (processes

and products).

To increase productivity by reducing rejections & non-value adding activities, and

bringing automation.

To effect continuous improvements in Customer Satisfaction Index.

To ensure training of employees as per defined targets studying needs and

requirements.

To ensure that all statuary and regulatory requirements are complied with.

QUALITY CULTURE

Providing training on Quality education system right across the entire organization

to carry out continuous Improvement activity in collaborative way.

Deployment of Quality policy & Quality Objectives through out the Organization

in a structured way & is headed by CEO as Chairman of Quality Improvement

Team.

Cross-functional Improvement teams to promote Synergy through sharing.

All the employees always carry out an Improvement project, which leads to

improvement in their individual efficiency.

Rewarding/ recognizing the good performers (individual as well as teams) in

monthly / quarterly and yearly functions.

Encouraging innovation by way of giving token reward for each suggestion and

running trophy to department giving maximum suggestion per person per month.

Encouraging people to work as a team in Small Group Activities (TCAs) and Quality

Improvement Projects (QIPs)

QUALITY ACHIEVEMENTS

Bharti Teletech Limited is a Quality Conscious organization & continuously Strives

for Quality Improvement through Process Management. Some of the achievements

which have come out of company's unstinted faith in investing for quality are :

Awards

Golden Peacock Innovative Product/Services Award in the Telecommunication

Sector for the year 2002, the Golden Peacock For Innovative Management for the

year 2004 and Most Innovative Product

in 2005.

Recipient of the ESC Award for Excellence in Exports in Telecommunication

Equipment in 2001-02 and 2002-03.

Winner of the Voice & Data Award for "Top Telephone Manufacturer" in 2002-03

and 2003-04.

Won the Consumer World Award for 2004.

Awarded the "Top Fixed Line Phones Company-2006" by Voice and Data

BEETEL’S GROWTH

Beetel has established itself as a leader in "Modems". Beetel has also entered the "Set Top Box"

market and is on foray in this segment.

Bharti Teletech has joined hands with world leaders in their categories for manufacturing and

Distribution of their products through its Channel.

In addition to being manufactures and Distributors of "GE Phones" in India and select SAARC

countries, today BTTL are National Distributors for-

"Motorola" GSM mobile Handsets and Accessories

"Polycom" Audio and Video Conferencing Systems

"Microsoft X Box" gaming devices .

REVEIW

OF

LITRETURE

Approaches to Working capital Management

Working capital management takes place on two levels:

Ratio analysis can be used to monitor overall trends in working capital and to identify areas

requiring closer management.

The individual components of working capital can be effectively managed by using various

techniques and strategies.

When considering these techniques and strategies, companies need to recognize that each

department has a unique mix of working capital components. The emphasis that needs to be

placed on each component varies according to the companies. For example, some companies

have significant inventory levels; others have little if any inventory.

Furthermore, working capital management is not an end in itself. It is an integral part of the

company’s overall management. The needs of efficient working capital management must be

considered in relation to other aspects of the company’s financial and non-financial

performance.

COMPONENTS

The term working capital refers to the amount of capital which is readily available to an

organization. That is, working capital is the difference between resources in cash or readily

convertible into cash (Current Assets) and organizational commitments for which cash will soon

be required (Current Liabilities).

Current Assets are resources which are in cash or will soon be converted into cash in "the ordinary

course of business".

Current Liabilities are commitments which will soon require cash settlement in "the ordinary

course of business".

WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

In a department's Statement of Financial Position, these components of working capital are

reported under the following headings:

Current Assets

Liquid Assets (cash and bank deposits)

Inventory

Debtors and Receivables

Current Liabilities

Bank Overdraft Creditors and Payables Other Short Term Liabilities

Component of Working Capital Basis of Valuation

i. Stock of raw material

ii. Stock of work in process

iii. Stock of finished goods

Purchase cost of raw

Materials

At cost or market value,

whichever is lower

Cost of production

Cost of sales or sales

iv. Debtors

v. Cash

value

Working expenses

Working Capital Cycle

Working capital cycle involves conversions and rotation of various constituents/components of the

working capital. Initially ‘cash’ is converted into raw materials.

Cash flows in a cycle into, around and out of a business. It is the business's life blood and every

manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a

business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't

generate surpluses, the business will eventually run out of cash and expire.

The faster a business expands the more cash it will need for working capital and investment. The

cheapest and best sources of cash exist as working capital right within business. Good management

of working capital will generate cash will help improve profits and reduce risks. The cost of

providing credit to customers and holding stocks can represent a substantial proportion of a firm's

total profits.

The usage of fixed assets result in value additions, the raw materials get converted into work in

process and then into finished goods. When sold on credit, the finished goods assume the form of

debtors who give the business cash on due date. Thus ‘cash’ assumes its original form again at the

end of one such working capital cycle but in the course it passes through various other forms of

current assets too. This is how various components of current assets keep on changing their forms

due to value addition. As a result, they rotate and business operations continue. Thus, the working

capital cycle involves rotation of various constituents of the working capital. While managing the

working capital, two characteristics of current assets should be kept in mind viz.

(i) short life span, and

(ii) Swift transformation into other form of current asset.

Each constituent of current asset has comparatively very short life span. Investment remains in a

particular form of current asset for a short period. The life span of current assets depends upon the

time required in the activities of procurement; production, sales and collection and degree of

synchronization among them. A very short life span of current assets results into swift

transformation into other form of current assets for a running business. These characteristics have

certain implications:

i Decision regarding management of the working capital has to be taken frequently and on

a repeat basis.

ii. The various components of the working capital are closely related and mismanagement of

any one

component adversely affects the other components too.

iii. The difference between the present value and the book value of profit is not significant.

If money moves faster around the cycle (e.g. collect monies due from debtors more quickly) or the

amount of money tied up is reduced (e.g. reduce inventory levels relative to sales), the business

will generate more cash or it will need to borrow less money to fund working capital. As a

consequence, the cost of bank interest can be reduced or additional free money will be available to

support additional sales growth or investment. Similarly, if improved terms with suppliers are

negotiated e.g. longer credit or an increased credit limit, then free finance to help fund future sales

can be effectively created.

Thus….

If you ....... Then ......

Collect receivables (debtors) faster You release cash from the

cycle

Collect receivables (debtors) slower Your receivables soak up

cash

Get better credit (in terms of duration or amount)

from suppliers You increase your cash

resources

Shift inventory (stocks) faster You free up cash

Move inventory (stocks) slower You consume more cash

MANAGEMENT OF COMPONENTS OF WORKING

CAPITAL

Inventory Management

Inventory includes all types of stocks. For effective working capital management, inventory needs

to be managed effectively. The level of inventory should be such that the total cost of ordering and

holding inventory is the least. Simultaneously, stock out costs should be minimized. Business,

therefore, should fix the minimum safety stock level, re-order level and ordering quantity so that

the inventory cost is reduced and its management becomes efficient.

Average stock-holding periods will be influenced by the nature of the business. For example, a

fresh vegetable shop might turn over its entire stock every few days while a motor factor would be

much slower as it may carry a wide range of rarely-used spare parts in case somebody needs them.

many large manufacturers operate on a just-in-time (JIT) basis whereby all the components to be

assembled on a particular today, arrive at the factory early that morning, no earlier - no later. This

helps to minimize manufacturing costs as JIT stocks take up little space, minimize stock-holding

and virtually eliminate the risks of obsolete or damaged stock. Because JIT manufacturers hold

stock for a very short time, they are able to conserve substantial cash. JIT is a good model to strive

for as it embraces all the principles of prudent stock management.

Factors to be considered when determining optimum stock levels include:

What are the projected sales of each product?

How widely available are raw materials, components etc.?

How long does it take for delivery by suppliers?

Can you remove slow movers from your product range without compromising best

sellers?

Debtors Management

The objective of any management policy pertaining to debtors would be to ensure that the benefits

arising due to the debtors are more than the cost incurred for debtors and the gap between benefits

and cost increases profits. An effective control of receivables helps a great deal in property

managing it. Each business should, therefore, try to find out average credit extended to its client

using the below given formula

Creditors Management

Creditors are a vital part of effective cash management and should be managed carefully to

enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing

function can create liquidity problems.

Thus, the following factors should be considered:

i. The purchasing authority in the company and whether it is tightly managed or spread

among a number of people.

ii. The purchase quantities should be geared to demand forecasts.

iii. Order quantities should be used that take into account stock-holding and purchasing

costs.

iv. The cost of carrying stock should be known.

v. Dependency on a single supplier should be avoided and facilities like best discounts, credit

terms etc. should be used from alternative suppliers.

vi. Suppliers’ returns policy should be considered.

Cash Management

Cash is the most liquid current asset. It is of vital importance to the daily operations of business.

While the proportion of assets held in the form of cash is very small, its efficient management is

crucial to the solvency of the business. Therefore, planning cash and controlling its use are very

important tasks.

Cash budgeting is a useful device for this purpose.

FINANCIAL RATIO ANALYSIS

Introduction

Financial ratio analysis calculates and compares various ratios of amounts and balances taken from

the financial statements.

The main purposes of working capital ratio analysis are:

to indicate working capital management performance; and

To assist in identifying areas requiring closer management.

Three key points need to be taken into account when analyzing financial ratios:

The results are based on highly summarized information. Consequently, situations which

require control might not be apparent, or situations which do not warrant significant effort might

be unnecessarily highlighted;

Different departments face very different situations. Comparisons between them, or with

global "ideal" ratio values, can be misleading;

Ratio analysis is somewhat one-sided; favorable results mean little, whereas unfavorable

results are usually significant.

However, financial ratio analysis is valuable because it raises questions and indicates directions for

more detailed investigation.

Working Capital Ratio

Current Ratio

Current Assets divided by Current Liabilities

The working capital ratio (or current ratio) attempts to measure the level of liquidity, that is, the

level of safety provided by the excess of current assets over current liabilities.

Quick Ratio

Liquid Assets divided by Current Liabilities

This is another measure of liquidity. It looks at the number of days that liquid assets (for example,

inventory) could service daily operating expenses (including salaries).

Stock Turnover Ratio

Cost of Sales divided by Average Stock Level

This ratio applies only to finished goods. It indicates the speed with which inventory is sold-or, to

look at it from the other angle, how long inventory items remain on the shelves. It can be used for

the inventory balance as a whole, for classes of inventory, or for individual inventory items.

Debtor Turnover Ratio

There is a close relationship between debtors and credit sales to third parties (that is, sales other

than to the Crown). If sales increase, debtors will increase, and conversely, if sales decrease

debtors will decrease.

Credit Sales per Period X Days per period

Average Debtors

The debtor ratio does not solve the collection problem, but it acts as an indicator that an adverse

trend is developing. Remedial action can then be instigated.

Creditor Turnover Ratio

It expresses the relationship between credit purchases and the liability to creditors. It can be stated

as the number of days that credit purchases are carried on the books.

Credit Purchases per Period X Days per period

Average Creditors

Thus…

Se.

No.

Ratio Formulae Result Interpretation

(i)

Stock Turnover

(in days)

Average Stock *

365/

Cost of Goods

Sold

= x days

On average, the value of the entire

stock is turned every x days. There

may be a need to break this down into

product groups for effective stock

management.

Obsolete stock, slow moving lines

will extend overall stock turnover

days. Faster

production, fewer product lines, just

in time ordering will reduce average

days.

(ii)

Receivables

Ratio

(in days)

Debtors * 365/

Sales = x days

It takes on an average of x days to

collect the due amount of money. If

the official credit terms are 45 day

and it takes 65 days... then ‘why’

should be found out?

One or more large or slow debts can

drag out the average days. Effective

debtor management will minimize the

days.

(iii)

Payables Ratio

(in days)

Creditors * 365/

Cost of Sales (or

Purchases)

= x days

On average, the suppliers are paid

every x days. If better negotiations are

done regarding the credit terms this

will increase.

If paid earlier to the supplier, say, to

get a discount this will decline.

If there is a deferment in payment to

the suppliers (without agreement) this

will also increase - but the reputation,

the quality of service and any

flexibility provided by the suppliers

may suffer.

(iv)Current Ratio

Total Current

Assets/

Total Current

Liabilities

= x times

Current Assets are those assets that

can readily be turn into cash or can be

done so within 12 months in the

course of business.

Current Liabilities are those amounts

which are due to pay within the

coming 12 months. For

example, 1.5 times means that one

should be able to lay his/her hands on

$1.50 for every $1.00 one owe. Less

than 1 time e.g. 0.75 means that one

could have liquidity problems and be

under pressure to generate sufficient

cash to meet oncoming demands.

OBJECTIVES

OF

THE STUDY

OBJECTIVES OF THE STUDY

The objective of working capital management is to maintain the optimum balance of each of the

working capital components. This includes making sure that funds are held as cash in bank

deposits for as long as and in the largest amounts possible, thereby maximizing the interest earned.

However, such cash may more appropriately be invested in other assets or in reducing other

liabilities. My objectives of analyzing working capital management in BEETEL are as follows:

To study the method which BEETEL is using to ascertain its working capital requirement.

To learn about the sources from which BEETEL is procuring funds to fulfill its working

capital requirements.

To study where the procured funds have been used by BEETEL.

To study whether the company is running effectively with as little money tied up in current

accounts as possible.

To analyze whether the method being used for ascertainment of working capital

requirement is efficient or not.

To have an appreciation of the financial environment within which business operates.

RESEARCH

METHEDOLOGY

METHODOLOGY

The study is based on personal decision, interview schedules, documentary observation; the data

has been collected from the executives of the organization and through the published sources.

RESEARCH

The research work is restricted only to the BEETEL DISTRIBUTION SYSTEM. The study is

based on the outcomes of personal interviews and documentary observation. But the extreme care

has been taken to involve the constructive suggestion from the executives. The success of research

basically depends upon the method, which is adopted to solve the research problem i.e.

a) To collect desired information and data in a systematic manner.

b) Appropriate selection of method is necessary.

The first & foremost step in any research procedure is:-

STEP 1: Problem Formulation

It is a very important step which has to be understood properly and clearly on which the study is

based because it tells the scope of the study and it should not go beyond it nor should execute some

irrelevant aspect. In this case the study is based on how BEETEL manages its Working capital

requirements.

STEP 2: Objectives of the Study

After the problem formulation the objectives should be clear through which specific type of

information can be collected. The objective of this is to study about the management of Working

Capital for day to day business transactions.

STEP3: Determine source data

The third step includes the collection of data, which is from the source i.e. primary secondary data.

After the collection of data, it should be organized and analyzed to check whether the objectives

are fulfilled or not.

After analyzing the data investigation of research had worked out with the help of following steps:

Research design

Tools & techniques

RESEARCH DESIGN:

A research is an arrangement of conditions for the collection & analysis of data in a manner that

aims the research purpose and achievements of goal with economy in procedure depending on

research problem. The study of Working Capital is generally based on documentary evidences.

TOOLS AND TECHNIQUES:

In order to conduct the study the following methods were adopted.

1. Personal Discussion: There is certain information related to the subject which is

known to employees of the office so through connecting with the employees and executives

the information is gathered. Like, about the company profile, its inception, growth etc.

2. Direct Personal Interviews: The investigator personally approaches the concerned

people and asks them to furnish information, which is of material input for the enquiry.

Therefore these ideas, suggestions views are collected on the topic through interview.

3. Documentary observation: The investigator consults the secondary sources like

journals, annual reports, magazines, books, unpublished material from library, internet and

the area office.

COLLECTION OF DATA

Primary data: are those that are collected for the first time by the investigator and the primary

data used ad collected for this study are:-

Direct Personal Interview with my project guide at BEETEL

Indirect Oral Investigation auditors and other concerned employees at BEETEL

Information through e-mail about the components of operating cycle from the BEETEL

manufacturing units in Ludiyana and Goa.

Secondary data: are not collected but obtained from the published and unpublished sources

and the secondary data collected for this study are:-

Published data about BEETEL, through newspapers, magazines, research institutes,

journals and books.

Unpublished data through scholars, libraries, area office in BEETEL.

Company information from their BEETEL’S official website.

FINDINGS

&

ANALYSIS

ASSUMPTIONS

All calculations have been done taking 365 days in a year.

All sales are credit sales.

All purchases are credit purchases.

For all the years, opening & closing figures have been taken to calculate average debtors,

creditors, etc.

Wages and salaries are paid at a lag of 1month.

Particulars 31st March,2005 31st March, 2006 31stMarch,2007

CURRENT ASSETS, LOANS &

ADVANCES      

Inventories 2,49,252 14,59,500 51,48,650

Sundry Debtors 2,36,657 4,96,560 12,20,450

Cash & Bank Balances 77,069 3,89,130 5,07,380

Other Current Assets 11,461 7,820 2,830

Loans & Advances 3,73,321 4,11,800 5,76,470

 Total Current Assets 9,47,760 27,64,810 74,55,780

   

Less CURRENT LIABILITIES &

PROVISIONS  

Liabilities 1,55,038 14,40,230 56,40,720

Provisions 17,844 75,170 1,64,420

 Total Current Liabilities 1,72,882 15,15,400 58,05,140

Working Capital 7,74,878 12,49,410 16,50,640

(Rs ‘000)

Evaluation of various components of Working Capital

Major components of Working capital as % of Capital Employed are as follows:

Inventories - 217.67%

Debtors - 51.60%

Cash & Bank - 21.45%

Loans & Advances - 24.36%

Total Current Assets - 315.20%

Liabilities - 238.47%

Provisions - 6.95%

Total Current Liabilities - 245.42%

Working Capital Ratios

Current Ratio

The Current Ratio is decreasing over the period i.e for 2005 it was 5.48:1, it went down to 1.82:1

in 2006 and has now come down to 1.28:1 in 2007 which is very close to the ideal ratio of 1.33:1.

This indicates that there is a perfect balance between current assets & current liabilities that the

company owns. The major reasons for improvement in current ratio are:

(i) The total % of debtors in the Current assets of 2007 has decreased to 16.37% from 17.96% in

2005.

(ii) Moreover, the percentage of money blocked in cash & bank balance has got reduced from

14.07% in 2006 to 6.80% in 2007.

(iii) The liabilities in 2007 have increased as compared to liabilities in 2006 & 2005. This means

that the company is now trading at creditors worth.

20052006

2007

Quick Ratio

Current Ratio

5.48

1.82

1.28

4.04

0.860.390

1

2

3

4

5

6

Year

Working Capital Ratios

Quick Ratio

The quick ratio showed a drastic improvement in 2006 as compared to 2005, but it went below the

ideal quick ratio of 1:1 and in 2007 it went further down to 0.39:1. The major reasons for

changes in Quick ratio are:

(i) The company is blocking huge amount of money in maintaining their inventories i.e 69% of

their total investment in current assets.

(ii) Provisions have decreased from 4.9% in 2006 to 2.8% in 2007.

Stock Turnover Ratio

Stock Turnover Ratio

6.87

4.85

9.14

0

1

2

3

4

5

6

7

8

9

10

2004 2005 2006 2007 2008

Year

Tim

es

Stock Turnover Ratio had changed drastically from 9.14 times in 2005 to 4.85 times in 2006, but

still it was way below the ideal of 6 to 7 times, which it achieved in 2007 by coming at 6.87 times.

The major reason for improvement in Stock Turnover Ratio is that the sales have increased

because of the trading business as the company has entered in the fields of MOTOROLA, XBOX,

GE, BLACKBERRY.

Debtors Turnover Ratio

Debtors Turnover Ratio

28.34

13.82

11.15

0

5

10

15

20

25

30

2004 2005 2006 2007 2008

Year

Tim

es

The Debtors Turnover Ratio has increased drastically from 13.82 times in 2006 to 28.34 times in

2007.

The major reason for change in Debtors Turnover Ratio is that the company has entered into

the trading business of MOTOROLA products and accessories. As the company is purchasing the

products from the MOTOROLA company in cash and distributing the same, with the help of their

TD’s, by providing a credit of 30 days.

Creditors Turnover Ratio

Creditors Turnover Ratio

7.59

11.4

6.83

0

2

4

6

8

10

12

2004 2005 2006 2007 2008

Year

Tim

es

The creditors Turnover Ratio has decreased drastically from 11.4 times in 2005 to 6.83 times in

2006. This shows that the company has been paying off its debts earlier than before. The ratio has

increased to 7.59 times in 2007.

The major reason for change in Creditors Turnover Ratio is that the MOTOROLA company is

not providing any kind o credit to BEETEL for distributing the MOTOROLA handsets.

Working Capital as a % of Capital Employed

Working Capital as a % of Capital Employed

58.96%

63.98%

69.78%

58.00%

60.00%

62.00%

64.00%

66.00%

68.00%

70.00%

72.00%

2004 2005 2006 2007 2008

Year

Per

cen

t

Working Capital as a % of Capital Employed has increased from 58.96% in 2005 to 63.98% in

2006. It further increased to 69.78% in 2007. Even if we compare the figure of working capital in

these years then it is observed that working capital has increased from Rs. 7, 74,878 in 2005 to Rs.

12, 49,410 in 2006 to Rs. 16, 50,640 in 2007. Thus this increase of 32.11% in working capital of

2007 had effect on the overall profitability of the company.

Profit After Sales as a % to Sales

PAT as a % to Sales

1.19%

6.42%

6.89%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

2004 2005 2006 2007 2008

Year

Per

cent

Profit After Tax as a % to sales increased from 6.42% in 2005 to 6.89% in 2006. But it showed a

drastic fall in 2007 and came down to 1.19%.

The major reason for change in PAT as % of sales is that the sales of basic and cordless sets,

manufactured by BEETEL has not increased but the balance sheet of the company shows an

increment of 96.45% on expenditure over raw materials.

BHARTI TELETECH LIMITED

BALANCE SHEET AS AT 31ST MARCH 2007

PARTICULARS Sch- As at

  dule 31.03.2007 (Rs.)

SOURCES OF FUNDS      

SHAREHOLDERS' FUND    

Share Capital 1 50,700,070  

Reserve & Surplus 2

1,746,223,282

1,796,923,352

     

LOAN FUNDS    

Secured Loan 3 560,099,122  

Unsecured Loan 4 8,350,486

568,449,608

     

Deferred Tax Liability   -

TOTAL >>  

2,365,372,960

     

APPLICATION OF FUNDS    

FIXED ASSETS 5    

Gross Block 513,406,244  

Less : Depreciation/Amortisation 231,900,454  

Net Block   281,505,790

     

Capital Work in Process   140,591,016

     

INVESTMENTS 6   245,221,290

   

DEFERRED TAX ASSETS   46,924,182

     

CURRENT ASSETS, LOANS & ADVANCES 7    

Inventories

5,148,654,309  

Sundry Debtors

1,220,447,390  

Cash & Bank Balances 507,383,049  

Other Current Assets 2,830,564  

Loans & Advances 576,465,133  

 

7,455,780,445  

      Less CURRENT LIABILITIES & PROVISIONS 8    

Liabilities

5,640,727,557  

Provisions 164,408,934  

  5,805,136,

 

491

NET CURRENT ASSETS  

1,650,643,954

     

MISCELLANEOUS EXPENDITURE 9   486,729

     

     

TOTAL >>  

2,365,372,960

     

SIGNIFICANT ACCOUNTING POLICIES 16   0

NOTES TO ACCOUNTS 17    

BHARTI TELETECH LIMITED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2007

PARTICULARS

Sch- As at

 

dule 31.03.2007 (Rs.)

INCOME    

Gross Sales   24,572,389,810

Less :Excise Duty   238,438,125

Net Sales  

24,333,951,685

Other Income 10   166,738,699

   

24,500,690,384

     

EXPENDITURE    

Cost of Materials 11   22,719,069,689

Manufacturing Expenses 12   34,601,721

Personnel,Administration & Selling Expenses 13   1,189,899,894

   

23,943,571,304

PROFIT BEFORE FINANCIAL EXPS,    

DEPRECIATION & AMORTISATION   557,119,079

Financial Expenses 14   68,326,817

PROFIT BEFORE DEPRECIATION & AMORTISATION  

488,792,262

Less : Depreciation/Amortisation 38,897,795

      PROFIT BEFORE EXTRA ORDINARY ITEMS  

449,894,467

Add / (Less) :Extra-Ordinary & Prior Period Adjustments 15  

41,192,148

     

PROFIT BEFORE TAXATION   491,086,615

Wealth Tax Paid   92,700

Provision for Income Tax:    

(Refer note no 20 of Schedule 17)    

-Current Tax 243,581,089  

- Deferred Tax (52,880,620)  

- Fringe Benefit Tax 8,647,244

199,347,713

     

PROFIT AFTER TAX   291,646,202

     

Surplus as per last Balance Sheet   824,124,500

     

PROFIT AVAILABLE FOR APPROPRIATION  

1,115,770,702

     

APPROPRIATIONS  

1,115,770,702

Proposed Dividend   -

Provision for Dividend Tax   -

Dividend Tax for Earlier Years   -

Transfer to General Reserve   -

Profit Carried Forward   1,115,770,702

   

1,115,770,702

      EARNING PER SHARE (BASIC & DILUTED)  

57.52

     

     

Significant Accounting Policies 16    

Notes to Accounts 17    BHARTI TELETECH LIMITED SCHEDULES TO ACCOUNTS

PARTICULARS

Sch- As at

 

dule 31.03.2007 (Rs.)

       

SHARE CAPITAL 1    

Authorised       55,00,000 Equity Shares (Previous Year 55,00,000) of Rs. 10 each    

55,000,000

       

Issued Subscribed and Paid up       50,70,007 (Previous Year 50,70,007) Equity Shares of Rs.10/-each      

{ (Of the above Equity Shares :       i) 5,070,000 shares are alloted as 'fully paid up pursuant to scheme       of arrangement without payment being received in cash)       ii) 3615529 Shares are held by Holding Company - Bharti Enterprises      

(Holdings) Private Limited }     50,700,070

       

RESERVES AND SURPLUS 2    

CAPITAL RESERVE      

As per last Balance Sheet     132,191,500

       

SHARE PREMIUM ACCOUNT      

As per last Balance Sheet     400,289,221

       

GENERAL RESERVE      

As per last Balance Sheet  

97,971,859  

Add: Transferred from Profit & Loss Account   -

97,971,859

       

Surplus in Profit & Loss Account    

1,115,770,702

       

     

1,746,223,282

       

SECURED LOANS 3    

From Banks #       Cash Credit & Foreign Currency Working Capital Loan    

560,099,122

       

       

UNSECURED LOANS 4    

Short Term Loans and Advances      

From Holding Company  

7,250,000  

Interest accured and due thereon  

1,100,486

8,350,486

       Footnote: # Secured against the hypothecation of Stocks & Bookdebts of the company and First charge on the all the Fixed Assets of the company except Land and Building at Gurgaon & the related fixed assets.

BHARTI TELETECH LIMITED SCHEDULES TO ACCOUNTS

PARTICULARS

Sch- As at

 

dule 31.03.2007 (Rs.)

INVESTMENTS AT COST 6    

LONG TERM INVESTMENTS  

In Shares of companies (Fully Paid Up)  

TRADE UNQUOTED  

   

(a) In Subsidary Companies   400,000 Equity Shares (Previous Year 400,000 Equity Shares) of Goa  

Telecommunication & Systems Limited of Rs. 10/-each fully paid up  

22,820,693

   

b) In Other Company   Nil Equity Shares (Previous Year 16,528,404 Equity Shares) of Teletech  

Services (India) Limited of Rs. 10/- each   -

      22,820,693

CURRENT INVESTMENTS   (Refer Note No. 7 of Schedule 16 &Note No. 10 of Schedule 17)  

 

OTHER THAN TRADE  

In Mutual Funds (Unquoted)  

95,470,580

In Equity Shares of Companies (Quoted)  

126,930,017

222,400,597

   

   

245,221,290

   

Aggregated value of quoted investment   126,930,017

Aggregated value of unquoted investment   118,291,273

Market Value of Quoted Investments     147,210,594

BHARTI TELETECH LIMITED SCHEDULE TO ACCOUNTS

PARTICULARS Sch- As at

  dule 31.03.2007 (Rs.)

CURRENT ASSETS,LOANS AND ADVANCES 7    

INVENTORIES  

(As Taken,Valued & Certified by the Management)  

Raw Material 63,032,800

Finished Goods 5,056,387,255

Work-in- Progress 13,840,515

Stores and Spare Parts 15,393,739

5,148,654,309

(Raw Material amounting to Rs.21,398 thousand (PY Rs. 9,271 thousand), Finished   Goods amounting to Rs.1,370,420 thousand (PY Rs. 126,106 thousand) & Stores &   Spare parts amounting to Rs. Nil (PY Rs 128 thousand ) were in transit at year end.)  

   

SUNDRY DEBTORS   Debts outstanding for a period exceeding Six Months :  

Considered Good 3,258,950

Considered Doubtful 25,610,831

  28,869,781

Less : Provision for Doubtful Debts ,610,831

  3,258,950

Others Debts :  

Considered Good 1,217,188,440

Considered Doubtful 12,684,858

 1,229,873,298

Less : Provision for Doubtful Debts 12,684,858

1,220,447,390

   

CASH & BANK BALANCES  

Cash in Hand 1,197,917

Cheques & Drafts in Hand 33,054,957

Balance with Scheduled Banks:  

In Current Account

472,609,175

In Deposit Account 350,000

In Margin Account (Under Lien) -

Saving Account with Post Office (Under Lien) 171,000

507,383,049

   

OTHER CURRENT ASSETS  

Export Incentive & Interest Receivable:  

Considered Good 2,830,564

Considered Doubtful 3,243,220

  6,073,784

Less Provision For Doubtful Export Incentives 3,243,220

2,830,564

   

LOANS AND ADVANCES   (Unsecured Considered good unless otherwise stated)   Advances Recoverable in cash or kind or for value to be received:  

Considered Good 73,556,762

Considered Doubtful 4,865,530

  78,422,292

Less Provision For Doubtful Advances 4,865,530

73,556,762

   

Security Deposits:  

Considered Good 10,845,599

Considered Doubtful 180,000

  11,025,599

Less Provision For Doubtful Deposits 180,000 10,845,599

   

Advance Tax (Net)   -

Loans and Inter Corporate Deposits  

268,626,625

Balance with Custom & Excise Authorities   9,203,187

Due from Subsidiary Company  

214,232,960

     

576,465,133

Footnote: * Net of Provision for Taxation Rs. Nil thousand (Previous Year Rs.227,902 thousand)

BHARTI TELETECH LIMITED SCHEDULE TO ACCOUNTS

PARTICULARS Sch- As at

  dule 31.03.2007 (Rs.)

       

CURRENT LIABILITIES & PROVISIONS      

CURRENT LIABILITIES 8    

Trade & Other Creditors #  

5,517,087,922  

Advance from Customers   61,433,538  

Security Deposit   58,910,543  

Due to Holding Company   283,170  

Investor Education & Protection Fund :      

(Not due as at the year end)      

- Unclaimed Dividend   241,910  

Due to Directors   1,665,987  

Interest Accured but not due   1,104,487

5,640,727,557

# Includes Rs. 7301 thousand (Previous Year 4,730) due to SSI Creditors.      

       

PROVISIONS      

Proposed Dividend   -  

Dividend Tax   -  

Retirement Benefits   24,477,266  

Warranty    

31,018,204

Sales Tax/Excise /Service Tax   23,441,527  

Sales Incentive   4,615,680  

Others   46,457,437  

Provision for Income Tax*   34,398,820

164,408,934

* Net of Advance Tax Rs. 388,084 thousand (Previous Year ended Rs Nil)      

       

MISCELLANEOUS EXPENDITURE 9    

(To the extent Not written off or adjusted)      

Voluntary Seperation Scheme      

Opening Balance   3,159,858  

Less : Charged during the year   2,673,129

486,729

       

b) OTHER INCOME 10    

Interest (Gross)   35,672,671  

(Tax deducted at source Rs. 7,994 thousand (Previous Year 6,293 thousand)      

Profit on Sale of Investments:      

Other than Trade - Current Investments   46,861,764  

Miscellaneous Income   23,125,245  

(Tax deducted at source Rs. 73 thousand (Previous Year 238 thousand)      

Exchange Rate Difference   4,874,040  

Dividend Received (Gross) (Current Investment - Other than Trade)  

6,798,910  

Liabilities/Provisions Written Back   10,789,530  

Rent Received   38,616,540  

(Tax deducted at source Rs. 8,666 thousand (Previous Year 5,308 thousand))    

166,738,699

PARTICULARS Sch- As at

  dule 31.03.2007 (Rs.)

     

COST OF MATERIALS 11    

Raw Material Consumed    

Opening Stock 44,687,988  

Add. Purchases

1,228,695,852  

 

1,273,383,840  

Less Closing Stock 63,032,800 1,210,351,040

     

     

Trading    

Purchase of Trading Goods   25,170,393,280

     

Decrease/(Increase) in Work-in-progress    

and Finished goods    

Opening Stock    

Work-in-Progress 12,121,848  

Finished Goods

1,394,350,632  

 

1,406,472,480  

     

Less Closing Stock    

Work-in-Progress 13,840,515  

Finished Goods

5,056,387,255  

 

5,070,227,770 (3,663,755,290)

Excise Duty on account of Increase/(Decrease) in Stock    

of Finished Goods 2,080,659  

     

Cost of Materials     22,719,069,689

BHARTI TELETECH LIMITED SCHEDULE TO ACCOUNTS

PARTICULARS Sch- As at

  dule 31.03.2007 (Rs.)

       

Manufacturing Expenses 12    

Power & Fuel 13,597,049  

Consumption of Stores and Spares 5,468,171  

Electric Repairs 354,250  

Testing Fees 254,663  

Job Charges Paid 12,090,996  

Machinery Repair 2,836,592

34,601,721

      Personnel, Administration & Selling Expenses 13    

     

Personnel Expenses    

Salaries, Wages & Bonus 245,210,028  

Contribution to Provident & Other Funds  

22,002,529

Workman & Staff Welfare Expenses 9,882,792  

Recruitment Expenses 12,623,766

289,719,115

     

Administration Expenses    

Rent 12,149,283  

Rates & Taxes 14,106,609  

Insurance Charges 30,118,281  

Travelling & Conveyance 65,975,682  

Postage,Telephone & Telex 19,313,585  

Repair & Maintenance:    

a) Building 1,802,664  

b) Others 17,709,267  

Amount/Debtors Written Off 30,159,901  

Miscellaneous Expenses 39,319,917  

Auditors Remuneration 3,131,425  

Loss on Sale of Fixed Assets # 1,271,828  

Loss on Sale/Redemption of Investments (Current- other than Trade)

8,549,643  

Diminution in Value of Investment (Current- Other than Trade)

8,669,949  

Provision for Obsolete Stock -  

Electricity & Water Charges 4,149,601  

Board Meeting Fees & Expenses 306,702  

Provision for Doubtful Debts, Advances & Claims ## 72,936,740  

Research & Development 2,307,277  

Exchange Rate Fluctuations -

331,978,354

     

Selling Expenses    

Freight & Cartage 114,989,395  

Advertisement & Publicity 210,024,534  

Business Promotion 27,720,508  

Rebate & Discount 120,660,004  

Commission 5,461,866  

Service Charges C & F 12,897,251  

Warranty Cost 45,267,244  

Spares Consumed 31,181,623

568,202,424

     

   

1,189,899,894

Less: Share of Centrailsed Expenses to Subsidiary Company

-  

Less: Share of Centrailsed Expenses to Associate Companies

-  

    -

       

     

1,189,899,894

Footnote: # Net of Profit on Sale of Fixed Assets Rs. 329 thousand (previous year 172 thousand).

## Net of Provision of Doubtful Debts & Advances Written Back amounting to Rs. 327 thousand (previous year Rs. 1,623 thousand).

BHARTI TELETECH LIMITED SCHEDULE TO ACCOUNTS

PARTICULARS Sch- As at

  dule 31.03.2007 (Rs.)

       

FINANCIAL EXPENSES 14    

Interest :      

- On Fixed Loan   1,562,050  

- Others   42,524,081

44,086,131

Other Finance Charges     24,240,686

      68,326,817

       

       

EXTRA-ORDINARY AND PRIOR PERIOD 15    

ADJUSTMENTS      a) Extra Ordinary Items: Income/(Expenditure)      

Voluantary Separation Scheme     (2,673,129)

Provision for Sales Tax Liability     -

Profit on Sale of Long Term Trade Investment     43,800,263

       b) Prior Period Adjustments (Net) Income/(Expenditure)      

Prior Period Expenses      

Bank Charges   (59,562)  

Loss on Sale of Fixed Assets   (5,649)  

Rates & Taxes   -  

Advertisement & Publicity   -  

Other Finance Charges   -  

Contribution to Provident & Other Funds   -  

Postage, Telephone & Telex   -  

Freight & Cartage   -  

Salaries , Wages & Bonus   -  

Miscellaneous Expenses   (21,781)  

Travelling & Conveyance   -  

Total Prior Period Expenses   (86,992)  

       Prior Period Income (including Reversal of Expenses)      

Profit on Sale of Fixed Assets   20,932  

Rent Received   -  

Sales   -  

Rates & Taxes   -  

Recruitment Expenses   -  

Depreciation/Amortisation   131,074  

Miscellaneous Expenses   -  

       

Total Prior Period Income   152,006  

Prior Period Adjustments (Net)     65,014

       

Extra Ordinary & Prior Period Adjustments     41,192,148

METHOD USED IN BEETEL FOR WORKING CAPITAL

REQUIREMENT

Various Cycles and their Difference in BEETEL

Particulars 2005 2006 2007

Working Capital (Rs ‘000) 7,74,878 12,49,410 16,50,640

Raw Material Conversion Period 11.15 days 35 days 40 days

Work-in- Progress Conversion Period 2.94 days 7 days 10 days

Finished Goods Conversion Period 37.74 days 26.27 days 17 days

Debtors Conversion Period 56.66 days 26.4 days 12.87 days

Gross Operating Days 96.4 days 82.67 days 79.87 days

Creditors Conversion Period 46.17 days 45.84 days 45 days

Net Operating Days 50.23 days 37.13 days 34.87 days

No. of Operating Cycles in a Year. 7.26 9.83 10.47

Operating Cycles

0

10

20

30

40

50

60

70

80

90

100

2005 2006 2007

Year

Da

ys

Raw Material ConversionPeriod

Work-in- ProgressConversion Period

Finished Goods Conversion Period

Debtors ConversionPeriod

Gross Operating Cycle

Creditors ConversionPeriod

Net Operating Cycle

Cash Conversion Cycle

Raw Material Conversion Period: Increased from 11.15 days in 2005 to 25 days in 2006 and

then it further increased to 40 days in 2007, which is not a good sign. A constant increment will

lead to higher working capital requirement.

Work in Progress Conversion Period: Increased from 2.94 days in 2005 to 5 days in 2006 and

again further increased 10 days in 2007, which is again not a good sign. This means that the goods

are not worked upon efficiently and there is increment in the time taken to process goods.

Finished Goods Conversion Period: This has decreased from 37.74 days in 2006 to 26.27 days in

2006 and further decreased to 17 days in 2007, which is a very good indicator. Thus, we see that

the negative effects due to high raw material conversion period and high work in progress

conversion period are almost wiped off.

Debtors Conversion Period: Decreased from 56.67 days in 2005 to 26.40 days in 2006 and 12.87

days in 2007, which means that the company is collecting its debt more efficiently. A lower debtor

conversion period together with increased sales is a good sign for the company.

Gross Operating Cycle: Decreased from 96.40 days in 2005 to 82.67 days in 2006 and 79.87 days

in 2007, which is mainly due to the reduction in debtor conversion period. A reduction in gross

operating cycle means reduced need of funds for day to day working. But the company should look

for the improvement in inventory conversion period.

Creditor Conversion Period: Decreased from 46.17 days in 2005 to 45.54 days in 2006 and 45

days in 2007, which means that the company is paying off its creditors earlier then before. The

company needs to delay payment to its creditors without loosing its reputation i.e. availing more

credit from its creditors to finance its working capital needs.

Net Operating cycle: Decreased from 50.23 days in 2005 to 37.13 days in 2006 and 34.87 days in

2007, indicating that the company’s requirement has decreased with comparison to previous year.

Working Capital Required in BEETEL

Working Capital Required = Total Expenses in a Year .

No. of Operating cycles in a year

Working Capital 23,943,571,304 = Rs 2,286,874,050

Required in BEETEL = 10.47

Working capital currently

Employed in BEETEL = Rs 1,650,640,000

(As per broader approach i.e Current assets – Current liabilities)

The is a huge discrepancy between the actual working capital and the required working

Capital i.e of Rs 636,234,050. This is because they are using factoring services from UTI bank

and these Factoring services are off balance sheet financing scheme so whichever method they

would apply, it will not depict the correct picture of working capital requirement because the

factoring services are accounted on mark- to- market basis. Moreover, BEETEL is not using

separate books of accounts for their trading business of MOTOROLA handsets and accessories so

its accounts does not give the correct amount of debtors and outside liabilities.

SUGGESTIONS

&

RECOMMENDATIONS

Recommendations

The management of the working capital is equally important as the management of long-term

financial investment. The goal of Working capital management is to ensure that the firm is able to

continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt

and upcoming operational expenses.

The various possible steps that BEETEL may take to improve its working capital management are

as follows:

Availing more credit from its suppliers.

Prompt collection from its debtors.

Moving towards zero working capital.

Improvement in Inventory Conversion Period, mainly reduction in Work in Progress.

Reduction in loans and inter-corporate deposits and utilizing the money to pay off debts

and loans taken by the company.

Given the working loan of Rs. 56,84,50,000 and interest thereon is Rs. 4,40,80,000 in

2007 which is almost 7.75%. So, the company might consider some other sources of

cheaper loans.

The company can maintain separate books of accounts for their manufacturing and

trading businesses for more clarity and transparency in operations.

Working capital management is an important yardstick to measure a company operational and

financial efficiency. This aspect must form part of the company’s strategic and operational

thinking. Efforts should constantly be made to improve the working capital position. This will

yield greater efficiencies and improve customer satisfaction.

CONCLUSION

Conclusion

In the analysis for Bharti Teletech Limited, a Bharti Group Company it was found that the working

capital has increased which could be mainly due to increased sales. The Gross Operating Cycle

declined significantly but the reduction was nullified due to the reduction in inventory conversion

period. This is why we see that Net operating Cycle for last two years is almost identical. The main

areas of emphasis were work in progress conversion period and creditors conversion period.

Debtors conversion period reduced but work in progress and creditors conversion period increased.

Moreover, the interest and concentration of BEETEL has entirely shifted towards MOTOROLA

trading business, which is not giving that much amount of returns that they were previously getting

from their basic and cordless manufactured phones, as their previous achievements clearly shows

that in the growing private service provider segment, Bharti Teletech commands a lion’s share of

over 90%.

Few suggestions that are recommended for better management of working capital are reducing

inter-corporate deposits and loans, reducing finished goods inventory, increment in creditors

payment period etc.

Thus, Good management of working capital is part of good financial management. Effective use of

working capital will contribute to the operational efficiency of a company, optimum use will help

to generate maximum returns.

BIBLIOGRAPHY

Bibliography

I.M. Pandey, Financial Management, 8th Edition

www.bharti-teletech.com

www.treasury.govt.nz/publicsector/workingcapital/further.asp

www.planware.org/workingcapital.htm

www.wikipedia.org