-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
1/114
A REPORT
ON
WORKING CAPITAL MANAGEMENT INWORKING CAPITAL MANAGEMENT IN
HCL INFOSYSTEMS LIMITEDHCL INFOSYSTEMS LIMITED
BY
(Submitted in partial fulfillment of the requirements ofMBA program at
!"A Business S#hool$ !handigarh%
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
2/114
ACKOWLEDGEMENT
A#hie&ement is finding out 'hat ou 'ould be then doing$ 'hat ou ha&e to
do) The higher the summit$ the harder is the #limb) The goal 'as fi*ed and 'e
began 'ith a determined resol&ed and put in #easeless sustained hard 'or+)
,reater #hallenge$ greater 'as our effort to o&er#ome it)
This pro-e#t 'or+$ 'hi#h is m first step in the field of professionali.ation$ has
been su##essfull a##omplished onl be#ause of m timel support of 'ell/
'ishers) 'ould li+e to pa m sin#ere regards and than+s to those$ 'ho
dire#ted me at e&er step in m pro-e#t 'or+)
'ould also li+e to than+ the fa#ult members and the staff members of HCL
Infosystems Ltdfor their +ind support and help during the pro-e#t)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
3/114
TA!LE OF CONTENTS
A#+no'ledgement
Abstra#t
0) ntrodu#tion
The problems
Purpose of stud
Resear#h methodolog
S#ope of the stud
1ata sour#es
2imitations
3) 4industan !omputers 2imited
5) 4!2 nfosstems 6 An O&er&ie'
!ompan7s histor
4!2 at a glan#e
Allian#es and partnerships
Management team
!orporate information
8) !on#eptual "rame'or+
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
4/114
ntrodu#tion to 9or+ing !apital Management
Signifi#an#e of 'or+ing #apital management
2iquidit &s Profitabilit: Ris+ 6 Return trade off
!lassifi#ation of 'or+ing #apital
Tpes of 'or+ing #apital needs
"inan#ing of 'or+ing #apital
"a#tors determining 'or+ing #apital requirements
9or+ing #apital ##le
Sour#es of 'or+ing #apital
4!2 finan#ials
9or+ing #apital position
n&entor management
!ash management
Re#ei&ables management
Managing paables (!reditors%
"inan#ing #urrent assets
9or+ing #apital ; short/term finan#ing
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
5/114
"inan#ial graphs
!on#luding analsis
Suggestions and re#ommendations
Bibliograph
=) Appendi#es
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
6/114
A!STRACT
This pro-e#t is based on the stud of 'or+ing #apital management in 4!2
nfostems)An insight &ie' of the pro-e#t 'ill en#ompass 6 'hat it is all
about$ 'hat it aims to a#hie&e$ 'hat is its purpose and s#ope$ the &arious
methods used for #olle#ting data and their sour#es$ in#luding literature sur&e
done$ further spe#ifing the limitations of our stud and in the last$ dra'ing
inferen#es from the learning so far)
4!2 nfosstems 2imited (4!2%$ is a leading domesti# #omputer hard'are
and hard'are ser&i#es #ompan) 4!2 is engaged in selling manufa#tured ( li+e
P!s$ ser&ers$ monitors and peripherals% and traded hard'are ( li+e noteboo+s$
peripherals% to institutional #lients as 'ell as in retail segment) t also offers
hard'are support ser&i#es to e*isting #lients through annual maintenan#e#ontra#ts$ net'or+ #onsulting and fa#ilities management)
The 'or+ing #apital management refers to the management of 'or+ing #apital$
or pre#isel to the management of #urrent assets) A firm7s 'or+ing #apital
#onsists of its in&estments in #urrent assets$ 'hi#h in#ludes short/term assets>
#ash and ban+ balan#e$ in&entories$ re#ei&able and mar+etable se#urities)
This pro-e#t tries to e&aluate ho' the management of 'or+ing #apital is done in
4!2 nfosstems through in&entor ratios$ 'or+ing #apital ratios$ trends$
#omputation of #ash$ in&entor and 'or+ing #apital$ and short term finan#ing)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
7/114
INTROD"CTION
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
8/114
The problems
Purpose of stud
Resear#h methodolog
S#ope of the stud
1ata sour#es
2imitations
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
9/114
INTROD"CTION#
The pro-e#t underta+en is on ?9OR@N, !APTA2 MANA,EMENT N
4!2 N"OSYSTEMS 2MTE1)
t des#ribes about ho' the #ompan manages its 'or+ing #apital and the
&arious steps that are required in the management of 'or+ing #apital)
!ash is the lifeline of a #ompan) f this lifeline deteriorates$ so does the
#ompans abilit to fund operations$ rein&est and meet #apital requirements
and paments) Cnderstanding a #ompans #ash flo' health is essential to
ma+ing in&estment de#isions) A good 'a to -udge a #ompans #ash flo'
prospe#ts is to loo+ at its 'or+ing #apital management (9!M%)
9or+ing #apital refers to the #ash a business requires for da/to/da operations
or$ more spe#ifi#all$ for finan#ing the #on&ersion of ra' materials into
finished goods$ 'hi#h the #ompan sells for pament) Among the most
important items of 'or+ing #apital are le&els of in&entor$ a##ounts re#ei&able$
and a##ounts paable) Analsts loo+ at these items for signs of a #ompans
effi#ien# and finan#ial strength)
The 'or+ing #apital is an important ardsti#+ to measure the #ompan7s
operational and finan#ial effi#ien#) An #ompan should ha&e a right amount
of #ash and lines of #redit for its business needs at all times)
This pro-e#t des#ribes ho' the management of 'or+ing #apital ta+es pla#e at
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
10/114
4!2 nfosstems)
THE PRO!LEMS
n the management of 'or+ing #apital$ the firm is fa#ed 'ith t'o +e problems:
0) "irst$ gi&en the le&el of sales and the rele&ant #ost #onsiderations$ 'hat are the
optimal amounts of #ash$ a##ounts re#ei&able and in&entories that a firm should
#hoose to maintainD3) Se#ond$ gi&en these optimal amounts$ 'hat is the most e#onomi#al 'a to
finan#e these 'or+ing #apital in&estmentsD To produ#e the best possible
results$ firms should +eep no unprodu#ti&e assets and should finan#e 'ith the
#heapest a&ailable sour#es of funds) 9hD n general$ it is quite ad&antageous
for the firm to in&est in short term assets and to finan#e short/term liabilities)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
11/114
P"RPOSE OF ST"DY
The ob-e#ti&es of this pro-e#t 'ere mainl to stud the in&entor$ #ash and
re#ei&able at 4!2 nfosstems 2td)$ but there are some more and the are /
The main purpose of our stud is to render a better understanding of
the #on#ept ?9or+ing !apital Management)
To understand the planning and management of 'or+ing #apital at HCL
Infosystems Ltd
To measure the finan#ial soundness of the #ompan b anal.ing &arious
ratios)
To suggest 'as for better management and #ontrol of 'or+ing #apital at
the #on#ern)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
12/114
RESEARCH METHODOLOGY
This project requires a detailed understanding of the concept
!or"ing #apital $anage%ent&' Therefore( firstl) *e need to ha+e
a clear idea of *hat is *or"ing capital( ho* it is %anaged in ,#-
.nfos)ste%s( *hat are the different *a)s in *hich the financing of
*or"ing capital is done in the co%pan)'
The management of 'or+ing #apital in&ol&es managing in&entories$
a##ounts re#ei&able and paable and #ash) Therefore one also needs to
ha&e a sound +no'ledge about #ash management$ in&entor management
and re#ei&ables management)
Then #omes the finan#ing of 'or+ing #apital requirement$ i)e) ho' the
'or+ing #apital is finan#ed$ 'hat are the &arious sour#es through 'hi#hit is done)
And$ in the end$ suggestions and re#ommendations on 'as for better
management and #ontrol of 'or+ing #apital are pro&ided)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
13/114
SCOPE OF THE ST"DY
T$%s &'o(e)t %s *%t+, to me %n + s%-n%f%)+nt .+y It does $+*e some
%m&o't+n)e fo' t$e )om&+ny too T$ese +'e +s fo,,o.s /
This pro-e#t 'ill be a learning de&i#e for the finan#e student)
Through this pro-e#t 'ould stud the &arious methods of the 'or+ing
#apital management)
The pro-e#t 'ill be a learning of planning and finan#ing 'or+ing #apital)
The pro-e#t 'ould also be an effe#ti&e tool for #redit poli#ies of the
#ompanies)
This 'ill sho' different methods of holding in&entor and dealing 'ith
#ash and re#ei&ables)
This 'ill sho' the liquidit position of the #ompan and also ho' do the
maintain a parti#ular liquidit position)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
14/114
DATA SO"RCES#
The follo'ing sour#es ha&e been sought for the prep of this report:
Primar sour#es su#h as business maga.ines$ #urrent annual reports$
boo+ on "inan#ial Management b &arious authors and internet 'ebsites
the imp amongst them being : ''')h#l)#om$ ''')indiainfoline)#om$
''')studfinan#e)#om)
Se#ondar sour#es li+e pre&ious ears annual reports$ reports on 'or+ing
#apital for resear#h$ analsis and #omparison of the data gathered)
9hile doing this pro-e#t$ the data relating to 'or+ing #apital$ #ash
management$ re#ei&ables management$ in&entor management and short
term finan#ing 'as required)
This data 'as gathered through the #ompan7s 'ebsites$ its #orporate
intranet$ 4!27s annual reports of the last fi&e ears)
A detailed stud on the a#tual 'or+ing pro#esses of the #ompan is also
done through dire#t intera#tion 'ith the emploees and b timel
studing the happenings at the #ompan)
Also$ &arious te*t boo+s on finan#ial management li+e !"A7s boo+$
@han ; ain$ Prasanna !handra and )M)Pande 'ere #onsulted to equip
oursel&es 'ith the topi#)
http://www.hcl.com/http://www.indiainfoline.com/http://www.studyfinance.com/http://www.hcl.com/http://www.indiainfoline.com/http://www.studyfinance.com/ -
8/12/2019 Working Capital Management in Hcl Infosystems Limited
15/114
LIMITATIONS OF THE ST"DY#
9e #annot do #omparisons 'ith other #ompanies unless and until
'e ha&e the data of other #ompanies on the same sub-e#t)
Onl the printed data about the #ompan 'ill be a&ailable and not
the ba#+6end details)
"uture plans of the #ompan 'ill not be dis#losed to the trainees)
2astl$ due to shortage of time it is not possible to #o&er all the
fa#tors and details regarding the sub-e#t of stud)
The latest finan#ial data #ould not be reported as the #ompan7s
'ebsites ha&e not been updated)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
16/114
HIND"STAN COMP"TERS LIMITED#
Ty&e P01,%)
2!SE# 3445678!SE# 39::;5ES6
To help people in 4!2 nfosstems 2td)$ share #ompan7s su##ess$
'hi#h the ma+e possibleU to pro&ide -ob se#urit based on their
performan#eU to
re#ogni.e their indi&idual a#hie&ementsU and help them gain a sense of
satisfa#tion and a##omplishment from their 'or+)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
26/114
ALLIANCES +nd PARTNERSHIPS#
To pro&ide 'orld/#lass solutions and ser&i#es to all our #ustomers$ 4!2
nfosstems ha&e formed Allian#es and Partnerships 'ith leading T #ompanies
'orld'ide)
4!2 nfosstems has allian#es 'ith global te#hnolog leaders li+e Inte,8 AMD8
M%)'osoft8 !0,,8 Tos$%1+8 No%+8 S0n M%)'osystems8 E'%)sson8 n>IDIA8
SAP8 S)+nsoft8 SCO8 EMC8 >e'%t+s8 C%t'%8 CISCO8 O'+),e8 Com&0te'
Asso)%+tes8 RedH+t8 Info)0s8 D0&,o8 S+ms0n- +nd No*e,,
These allian#es on one hand gi&e us a##ess to best te#hnolog ; produ#ts as
'ell as enhan#ing our understanding of the latest in te#hnolog) On the other
hand the enhan#e our produ#t portfolio$ and enable us to be one stop shop for
our #ustomers)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
27/114
MANAGEMENT TEAM#
A(+% C$o.d$'y!o/"ounder 4!2$ !hairman and !EO / 4!2 nfosstems)An engineer b training$ A-ai !ho'dhr is one of the si* #o/founder members of 4!2$ ndia s premier T #onglomerate)
> R+m+m0't$y
!hief Operating Offi#er 4!2 nfosstems 2td) H Ramamurth has an engineering degree in Ele#troni#s ;!ommuni#ations$ from ,uind Engineering !ollege$ and a Masters
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
28/114
degree in Applied Ele#troni#s from the Madras nstitute ofTe#hnolog$ both in !hennai)
R+(end'+ K0m+'
E*e#uti&e Hi#e President / "rontline 1i&ision 4!2 nfosstems 2td)Mr) Ra-endra @umar has been 'ith 4!2 for o&er 5K ears and hasseen 4!2 gro' from a startup #ompan to a giganti# #onglomeratethat it is toda)
CORPORATE INFORMATION#
!OARD OF DIRECTORS C$+%'m+n C$%ef Ee)0t%*e Off%)e' A-ai !ho'dhr
W$o,et%me D%'e)to'
)H) Ramamurth
D%'e)to's
S) Bhatta#hara 1)S) Puri
R)P) @hosla
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
29/114
E)A) @shirsagar Anita Rama#handran T)S) Purushothaman Narasimhan egadeesh H)N) @oura
COMPANY SECRETARY Sushil @umar ain
A"DITORS Pri#e 9aterhouse$ Ne' 1elhi
!ANKERS State Ban+ of ndia !anara Ban+
41"! Ban+ 2td) !! Ban+ 2td) So#iete ,enerale Standard !hartered Ban+ State Ban+ of Patiala State Ban+ of Saurashtra
REGISTERED OFFICE LK=$ Siddharth$ F=$ Nehru Pla#e$ Ne' 1elhi / 00K K0F)
CORPORATE OFFICE E / 8$
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
30/114
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
31/114
WORKING CAPITAL MANAGEMENT
CONCEPT"AL FRAMEWORK
ntrodu#tion
Signifi#an#e of 'or+ing #apital management
2iquidit Hs profitabilit: Ris+ 6 Return trade off
!lassifi#ation of 'or+ing #apital
Tpes of 'or+ing #apital needs
"inan#ing of 'or+ing #apital
"a#tors determining 'or+ing #apital requirements
9or+ing #apital ##le
Sour#es of 'or+ing #apital
4!2 finan#ials
9or+ing #apital position
n&entor management
!ash management
Re#ei&ables management
Managing paables (!reditors%
"inan#ing #urrent assets
9or+ing #apital ; short/term finan#ing
"inan#ing !urrent Assets
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
32/114
INTROD"CTION TO WORKING CAPITAL
Working Capital is the Life-Blood and Controlling Nerve Center of a
business
T$e .o'%n- )+&%t+, m+n+-ement &'e)%se,y 'efe's to m+n+-ement of
)0''ent +ssets A f%'ms .o'%n- )+&%t+, )ons%sts of %ts %n*estment %n
)0''ent +ssets8 .$%)$ %n),0de s$o'tte'm +ssets s0)$ +s#
!ash and ban+ balan#e$
n&entories$
Re#ei&ables (in#luding debtors and bills%$
Mar+etable se#urities)
9or+ing #apital is #ommonl defined as the differen#e bet'een #urrent assets
and #urrent liabilities)
9OR@N, !APTA2 W !CRRENT ASSETS/!CRRENT 2AB2TES
There are t'o ma-or #on#epts of 'or+ing #apital:
,ross 'or+ing #apital
Net 'or+ing #apital
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
33/114
G'oss .o'%n- )+&%t+,#
t refers to firms in&estment in #urrent assets) !urrent assets are the assets$
'hi#h #an be #on&erted into #ash 'ith in a finan#ial ear) The gross 'or+ing
#apital points to the need of arranging funds to finan#e #urrent assets)
Net .o'%n- )+&%t+,#
t refers to the differen#e bet'een #urrent assets and #urrent liabilities) Net
'or+ing #apital #an be positi&e or negati&e) A positi&e net 'or+ing #apital
'ill arise 'hen #urrent assets e*#eed #urrent liabilities) And &i#e/&ersa for
negati&e net 'or+ing #apital) Net 'or+ing #apital is a qualitati&e #on#ept) t
indi#ates the liquidit position of the firm and suggests the e*tent to 'hi#h
'or+ing #apital needs ma be finan#ed b permanent sour#es of funds) Net
'or+ing #apital also #o&ers the question of -udi#ious mi* of long/term and
short/term funds for finan#ing #urrent assets)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
34/114
S%-n%f%)+n)e Of Wo'%n- C+&%t+, M+n+-ement
T$e m+n+-ement of .o'%n- )+&%t+, %s %m&o't+nt fo' se*e'+, 'e+sons#
"or one thing$ the #urrent assets of a tpi#al manufa#turing firm a##ount
for half of its total assets) "or a distribution #ompan$ the a##ount for
e&en more)
9or+ing #apital requires #ontinuous da to da super&ision) 9or+ing
#apital has the effe#t on #ompans ris+$ return and share pri#es$
There is an ine&itable relationship bet'een sales gro'th and the le&el of
#urrent assets) The target sales le&el #an be a#hie&ed onl if supported b
adequate 'or+ing #apital neffi#ient 'or+ing #apital management ma
lead to insol&en# of the firm if it is not in a position to meet its liabilities
and #ommitments)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
35/114
LIB"IDITY >S PROFITA!ILITY# RISK RET"RN TRADE OFF
Another important aspe#t of a 'or+ing #apital poli# is to maintain and
pro&ide suffi#ient liquidit to the firm) 2i+e the most #orporate finan#ial
de#isions$ the de#ision on ho' mu#h 'or+ing #apital be maintained in&ol&es a
trade off/ ha&ing a large net 'or+ing #apital ma redu#e the liquidit ris+
fa#ed b a firm$ but it #an ha&e a negati&e effe#t on the #ash flo's) Therefore$
the net effe#t on the &alue of the firm should be used to determine the optimal
amount of 'or+ing #apital)
Sound 'or+ing #apital in&ol&es t'o fundamental de#isions for the firm) The
are the determination of:
The optimal le&el of in&estments in #urrent assets)
The appropriate mi* of short/term and long/term finan#ing used to support
this in&estment in #urrent assets$ a firm should de#ide 'hether or not it
should use short/term finan#ing) f short/term finan#ing has to be used$ the
firm must determine its portion in total finan#ing) Short/term finan#ing
ma be preferred o&er long/term finan#ing for t'o reasons:
The #ost ad&antage
"le*ibilit
But short/term finan#ing is more ris+ than long/term finan#ing) "ollo'ing
table 'ill summari.e our dis#ussion of short/term &ersus long/term finan#ing)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
36/114
Maintaining a poli# of short term finan#ing for short term or temporar
assets needs (Bo* 0% and long/ term finan#ing for long term or permanent
assets needs (Bo* 5% 'ould #omprise a set of moderate ris+ 6profitabilit
strategies) But 'hat one gains b follo'ing alternati&e strategies (li+e b bo*
3 or bo* 8% needs to 'eighed against 'hat ou gi&e up)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
37/114
CLASSIFICATION OF WORKING CAPITAL
9or+ing #apital #an be #lassified as follo's:
On the basis of time
On the basis of #on#ept
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
38/114
TYPES OF WORKING CAPITAL NEEDS
Another important aspe#t of 'or+ing #apital management is to anal.e the
total 'or+ing #apital needs of the firm in order to find out the permanent and
temporar 'or+ing #apital) 9or+ing #apital is required be#ause of e*isten#e
of operating ##le) The lengthier the operating ##le$ greater 'ould be the
need for 'or+ing #apital) The operating ##le is a #ontinuous pro#ess and
therefore$ the 'or+ing #apital is needed #onstantl and regularl) 4o'e&er$
the magnitude and quantum of 'or+ing #apital required 'ill not be same all
the times$ rather it 'ill flu#tuate)
The need for #urrent assets tends to shift o&er time) Some of these #hangesrefle#t permanent #hanges in the firm as is the #ase 'hen the in&entor and
re#ei&ables in#reases as the firm gro's and the sales be#ome higher and
higher) Other #hanges are seasonal$ as is the #ase 'ith in#reased in&entor
required for a parti#ular festi&al season) Still others are random refle#ting the
un#ertaint asso#iated 'ith gro'th in sales due to firms spe#ifi# or general
e#onomi# fa#tors)
T$e .o'%n- )+&%t+, needs )+n 1e 1%f0')+ted +s#
Permanent 'or+ing #apital
Temporar 'or+ing #apital
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
39/114
Pe'm+nent .o'%n- )+&%t+,#
There is al'as a minimum le&el of 'or+ing #apital$ 'hi#h is #ontinuousl
required b a firm in order to maintain its a#ti&ities) E&er firm must ha&e a
minimum of #ash$ sto#+ and other #urrent assets$ this minimum le&el of
#urrent assets$ 'hi#h must be maintained b an firm all the times$ is +no'n
as permanent 'or+ing #apital for that firm) This amount of 'or+ing #apital is
#onstantl and regularl required in the same 'a as fi*ed assets are required)
So$ it ma also be #alled fi*ed 'or+ing #apital)
Tem&o'+'y .o'%n- )+&%t+,#
An amount o&er and abo&e the permanent le&el of 'or+ing #apital is
temporar$ flu#tuating or &ariable 'or+ing #apital) The position of the
required 'or+ing #apital is needed to meet flu#tuations in demand #onsequent
upon #hanges in produ#tion and sales as a result of seasonal #hanges)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
40/114
The permanent le&el is #onstant 'hile the temporar 'or+ing #apital is
flu#tuating in#reasing and de#reasing in a##ordan#e 'ith seasonal demands as
sho'n in the figure)
n the #ase of an e*panding firm$ the permanent 'or+ing #apital line ma not
be hori.ontal) This is be#ause the demand for permanent #urrent assets might
be in#reasing (or de#reasing% to support a rising le&el of a#ti&it) n that #ase
line 'ould be rising)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
41/114
FINANCING OF WORKING CAPITAL
There are t'o tpes of 'or+ing #apital requirements as dis#ussed abo&e) The
are:
Permanent or "i*ed 9or+ing !apital requirements
Temporar or Hariable 9or+ing !apital requirements
Therefore$ to finan#e either of these t'o 'or+ing #apital requirements$ 'e
ha&e long/term as 'ell as short/term sour#es)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
42/114
FACTORS DETERMINING WORKING CAPITAL
REB"IREMENTS
There are man fa#tors that determine 'or+ing #apital needs of an enterprise)
Some of these fa#tors are e*plained belo':
N+t0'e o' C$+'+)te' of !0s%ness
The 'or+ing #apital requirement of a firm is #losel related to the
nature of its business) A ser&i#e firm$ li+e an ele#tri#it underta+ing or
a transport #orporation$ 'hi#h has a short operating ##le and 'hi#h
sells predominantl on #ash basis$ has a modest 'or+ing #apital
requirement) Oh the other hand$ a manufa#turing #on#ern li+e a
ma#hine tools unit$ 'hi#h has a long operating ##le and 'hi#h sells
largel on #redit$ has a &er substantial 'or+ing #apital requirement)
4!2 nfosstems #arr on a#ti&ities related to #omputer sstems)
Though the are primaril an assembling firm the also ha&e
manufa#turing fa#ilities in !hennai and Pondi#herr) This requires
them to +eep a &er si.eable amount in 'or+ing #apital)
S%e of !0s%nessS)+,e of O&e'+t%ons
4!2 is the leader in its segment in both #onsumer as 'ell as
#ommer#ial mar+et share) The ha&e in#reased their share in the
#onsumer segment notabl in the last four ears) This the ha&e
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
43/114
a#hie&ed through retail e*pansion) The s#ale of operations and the si.e
it
holds in the ndian T mar+et ma+es it a must for them to hold their
in&entor and #urrent asset at a huge le&el)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
44/114
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
45/114
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
46/114
WORKING CAPITAL CYCLE
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
47/114
The upper portion of the diagram abo&e sho's in a simplified form the #hain of
e&ents in a manufa#turing firm) Ea#h of the bo*es in the upper part of the
diagram #an be seen as a tan+ through 'hi#h funds flo') These tan+s$ 'hi#h
are #on#erned 'ith da/to/da a#ti&ities$ ha&e funds #onstantl flo'ing into
and out of them)
The #hain starts 'ith the firm buing ra' materials on #redit)
n due #ourse this sto#+ 'ill be used in produ#tion$ 'or+ 'ill be #arried
out on the sto#+$ and it 'ill be#ome part of the firm7s 'or+/in/progress)
9or+ 'ill #ontinue on the 9P until it e&entuall emerges as the
finished produ#t)
As produ#tion progresses$ labor #osts and o&erheads need ha&e to be
met)
Of #ourse at some stage trade #reditors 'ill need to be paid)
9hen the finished goods are sold on #redit$ debtors are in#reased)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
48/114
The 'ill e&entuall pa$ so that #ash 'ill be in-e#ted into the firm)
Ea#h of the areas/ Sto#+ (ra' materials$ 9P$ and finished goods%$ trade
debtors$ #ash (positi&e or negati&e% and trade #reditors 6 #an be &ie'ed as tan+s
into and from 'hi#h funds flo')
9or+ing #apital is #learl not the onl aspe#t of a business that affe#ts the
amount of #ash)
The business 'ill ha&e to ma+e paments to go&ernment for ta*ation)
"i*ed assets 'ill be pur#hased and sold
2essors of fi*ed assets 'ill be paid their rent
Shareholders (e*isting or ne'% ma pro&ide ne' funds in the form of
#ash
Some shares ma be redeemed for #ash
1i&idends ma be paid
2ong/term loan #reditors (e*isting or ne'% ma pro&ide loan finan#e$
loans 'ill need to be repaid from time/to/time$ and
nterest obligations 'ill ha&e to be met b the business
Cnli+e$ mo&ements in the 'or+ing #apital items$ most of these Xnon/'or+ing#apital7 #ash transa#tions are not e&er da e&ents) Some of them are annual
e&ents (e)g) ta* paments$ lease paments$ di&idends$ interest and$ possibl$
fi*ed asset pur#hases and sales%) Others (e)g) ne' equit and loan finan#e and
redemption of old equit and loan finan#e% 'ould tpi#all be rarer e&ents)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
49/114
SO"RCES OF WORKING CAPITAL
4!2 nfosstems has the follo'ing sour#es a&ailable for the fulfillment of its
'or+ing #apital requirements in order to #arr on its operations smoothl:
!+ns:
These in#lude the follo'ing ban+s 6
State Ban+ of ndia
!anara Ban+ 41"! Ban+ 2td)
!! Ban+ 2td)
So#iete ,enerale
Standard !hartered Ban+
State Ban+ of Patiala
State Ban+ of Saurashtra
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
50/114
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
51/114
WORKING CAPITAL POSITION #
!CRRENT ASSET 6 TOTA2 ASSET
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
52/114
PARTIC"LARS :44? :443 :44@ :449 :44:!CRRENT
ASSETS
0KKFGK L0
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
53/114
!APTA2 N!REASE
SA2ES
N!REASE
0F)08 3F)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
54/114
The ratio of the net #urrent asset to the fi*ed ones is an indi#ator as to the
liquidit position of the firm) This ratio has de#lined for the firm #ompared to
the pre&ious ear) There #ould be an argument as to 'hether the in#reased ratio
of 'or+ing #apital to net blo#+ is a #onser&ati&e poli# and 'hether it 'ould be
detrimental to the interest of the #ompan) Or$ 'hether it 'ould ha&e been
proper if the #ompan in&ested more into the #apital e*penditure in the form of
plant and ma#hiner or in&ested in an other form that 'ould ha&e got them an
internal rate of return) 9hat has to be +ept in mind before #oming to a
#on#lusion as to the poli# of the #ompan$ is the fa#t that the firm being
primaril into assembling$ its in&estment in the fi*ed asset segment need not be
high) A loo+ into the #apa#it utili.ation of the plant 'ould reaffirm this point)
t 'ould be ideal for the firm to #ontinue in the same line and not ha&e
e*#essi&e in&estment in the fi*ed asset as the #an easil add onto this part)
!OMPCTER and M!RO PRO!ESSOR BASE1 SYSTEMS
YEAR INSTALLEDCAPACITY ACT"ALPROD"CTION J CAPACITY"TILIATION
:44? 00
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
55/114
:443 3
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
56/114
firm) 4!2 has in#reased its #urrent assets in order to meet the in#reasing sales)
The firm7s le&el of liquidit being high$ 'e need a #he#+ on 'hether it affe#ts
the return on assets)
IN>ENTORY MANAGEMENT
In*ento'%es
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
57/114
n&entories #onstitute the most important part of the #urrent assets of large
ma-orit of #ompanies) On an a&erage the in&entories are appro*imatel =K
of the #urrent assets in publi# limited #ompanies in ndia) Be#ause of the large
si.e of in&entories maintained b the firms$ a #onsiderable amount of funds is
#ommitted to them) t is therefore$ imperati&e to manage the in&entories
effi#ientl and effe#ti&el in order to a&oid unne#essar in&estment)
N+t0'e of In*ento'%es
n&entories are sto#+ of the produ#t of the #ompan is manufa#turing for sale
and #omponents ma+e up of the produ#t) The &arious forms of the in&entoriesin the manufa#turing #ompanies are:
R+. M+te'%+,: t is the basi# input that is #on&erted into the finished
produ#t through the manufa#turing pro#ess) Ra' materials are those
units 'hi#h ha&e been pur#hased and stored for future produ#tion)
Wo'%n&'o-'ess: n&entories are semi/manufa#tured produ#ts) The
represent produ#t that need more 'or+ the be#ome finished produ#ts for
sale)
F%n%s$ed Goods: n&entories are those #ompletel manufa#tured
produ#ts 'hi#h are read for sale) Sto#+s of ra' materials and 'or+/in/
progress fa#ilitate produ#tion$ 'hile sto#+ of finished goods is required
for smooth mar+eting operations) Thus$ in&entories ser&e as a lin+
bet'een the produ#tion and #onsumption of goods)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
58/114
In*ento'y M+n+-ement Te)$n%=0es
n managing in&entories$ the firm7s ob-e#ti&e should be to be in #onsonan#e
'ith the shareholder 'ealth ma*imi.ation prin#iple) To a#hie&e this$ the firm
should determine the optimum le&el of in&entor) Effi#ientl #ontrolled
in&entories ma+e the firm fle*ible) neffi#ient in&entor #ontrol results in
unbalan#ed in&entor and infle*ibilit/the firm ma sometimes run out of sto#+
and sometimes pile up unne#essar sto#+s)
E)onom%) O'de' B0+nt%ty 2EOB
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
59/114
#osts 'ill be relati&el small) Thus$ ordering #osts de#rease 'ith
the in#reasing si.e of in&entor)
C+''y%n- Costs #!osts are in#urred for maintaining a gi&en le&el
of in&entor are #alled #arring #osts) These in#lude the follo'ing
a#ti&ities:
9arehousing !ost
4andling
Administrati&e #ost
nsuran#e
1eterioration and obsoles#en#e
!arring #osts are å 'ith in&entor si.e) This beha&ior is
#ontrar to that of ordering #osts 'hi#h de#line 'ith in#rease in
in&entor si.e) The e#onomi# si.e of in&entor 'ould thus depend
on trade/off bet'een #arring #osts and ordering #ost)
Com&os%t%on :44? :443 :44@
Ra' Material =58F GG8F =03G
Stores and Spares 5G05 3FLG 3=33
"inished ,oods 055G8 G38< =
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
60/114
understandable as be#ause of the nature of the business firm is in&ol&ed
in)
To the question as to 'hether the in#reasing #osts in in&entor are-ustified b the returns from it the ans'er #ould be found in the 4!2
retail e*pansion) 4!2 #aters to the need of the t'o separate segments:
a% nstitutions for 'hi#h the manufa#ture against orders and$
b% Retail segment of the mar+et)
The are more into retail than earlier and at present more than =
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
61/114
most effort in #ontrolling) The firm should be sele#ti&e in approa#h to
#ontrol in&estment in &arious tpes of in&entories) This analti#al
approa#h is #alled ?AB! Analsis) The high/&alue items are #lassified
as ?A items and 'ould be under tightest #ontrol) ?! items represent
relati&el least &alue and 'ould require simple #ontrol) ?B items fall in
bet'een the t'o #ategories and require reasonable attention of
management)
IT: The rele&an#e of T in 4!2 nfo sstem #an be questioned) This
is be#ause the pro#ure materials on the basis of pro-e#tions made at
least t'o or three months before) E&en at the time of pro#urement the
ensure that the pro#ure mu#h more than 'hat a#tuall is required b
the firm that is the hold signifi#ant amount of in&entor as safet sto#+)
This is done to #ounter the threat in&ol&ed in default and a##identalbrea+do'ns) The le&els of safet sto#+ usuall &ar a##ording to the
usage)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
62/114
Con*e's%on Pe'%ods
R+. M+te'%+,
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
63/114
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
64/114
F%n%s$ed Goods
P+'t%)0,+'s :44? :443 :444@
!ost of goods sold 33L0GG 0GL85L)Lation 1)01 1524 124! 1440
A(orti>ation of 6ood9ill and Intanile Assets && && && 41
.E3RECIA'I*- = AM*R'I?A'I*-, '*'A+ 1)01 1524 124! 14)1
@6ain +oss fro( %ale of Asset &04 &1$ 05 0$
@6ain +oss on %ale of Invest(ent &"#$ &)4# &$15 &552
Asset Britedo9n = Restructurin Costs 00 05 && &&
*ther *peratin Activities 2#2) !12 "#$ 2"1)
3rovision = Brite&off of ad .ets 14) 144 "2 #2
Chane in Accounts Receivale &1,5#!4 &1,##!4 &1,"24" &!,15))
Chane in Inventories &42!! &$)#" &1,2022 &!,222"
Chane in Accounts 3ayale 1,4"1) 1,5$1$ 2,"5#5 !,1122
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
112/114
CA% R*M *3ERA'I*-% 1,$140 1,2$"5 2,")$! 2$4"
Capital Ependiture &1)0" &2$") &424! &$"45
%ale of 3roperty, 3lant, and Equip(ent !5 10" )0! 1$
Invest(ents in Mar
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
113/114
L+st @ ye+' In)ome St+tement#
Year o&er ear$ 4!2 nfosstems 2td) has seen re&enues remain relati&el flat
(005)GB to 00=)FB%$ though the #ompan 'as able to gro' net in#ome from 3)LB
to 5)3B) A redu#tion in the per#entage of sales de&oted to #ost of goods sold from
F5)30 to F3)
-
8/12/2019 Working Capital Management in Hcl Infosystems Limited
114/114