ACKNOWLEDGEMENT

I would like to express my deep sense of obligations

to the management of HINDUSTAN AERONAUTICS

LIMITED. ENGINE DIVISION, KORAPUT for a conducive

working environment and a professional training which is

going to help me a lot in my future.

I feel extremely exhilarated to have completed the

project under the inspiring guidance of Mr. SRIKANT

MOHAPATRA {SR.MANAGER} (FINANCE SECTION) . I am highly

indebted to him for making me available all facilities for

completing this project.

TAPAN KUMAR SETHI MBA-FINANCESRUSTI ACADEMY OF MANAGEMENT BHUBANESWAR

Declaration

I, Mr. TAPAN KUMAR SETHI hereby declare that this summer

project report titled “WORKING CAPITAL MANAGEMENT IN HAL

LTD. ENGINE DIVISION, KORAPUT ” is the result of my own effort

in the training which I did as a part of the curriculum, for the

fulfillment of MASTER DEGREE IN BUSINESS ADMINSTRATION. It

has not been duplicated from any other earlier works and all

information provided in this report is genuine.

This report is submitted for the partial

fulfillments of MBA program. It has not been submitted to any

other university or for any other degree.

TAPAN KUMAR SETHI DATE.

MBA-FINANCE

SRUSTI ACADEMY OF MANAGEMENT,

BHUBANESWAR

CONTENT

CHAPTER

TOPIC

PAGE NO.

1. INTRODUCTION

Background of the StudyObjective of the studyNeed of the studyScope of the studyMethodology of the studyLimitation of the study

2. COMPANY PROFILE

3. LITERATURE REVIEW

4. DATA ANALYSIS & INTERPRETATION

5. FINDINGS, SUGGETION & CONCLUSION

Findingssuggestionconclusion

BIBLOGRAPHYANNEXURE

INTRODUCTION

INTRODUCTION

Working capital management is concerned with the raising of and dealing with short-term resources (called current liabilities) needed by the business on a revolving basis and

there after putting them to productive use of the fixed assets like (plant, machinery etc) inducted into the business the business and in this process to achieve the different facets of business activity planned. Working capital turns static long-term blocks, assets into dynamic operational facilities to generate continuous cycle of productive activity like manufacturing and trading or service providing. While long term investment is raised one time initially and invested at once to procure the block assets needed to translate business goals into reality.

Working capital management serves as the effective drive that enables the operative use of the uninterrupted process of business activity. This leads to the revenue generation on a continuing and on going basis. While investment finance is concerned with raising long term funds to be utilized in fixed assets and investments, working capital is concerned with raising current liabilities to current assets.

OBJECTIVES OF THE STUDY:

To study the components, determinants of working capital.

To determine the amount of working capital.

To calculate various ratios among various components of working capital.

To find out operating cycle of concerned company.

To prepare & analyze cash flow statement.

To prepare net operating cycle of 2007-08, 2008-09,2009-10.

NEED OF THE STUDY

To provide a handy reference in understanding Nalco’s financial policy and To provide an insight into various sources available for financing the working capital and its utilization.

To provide economic information to the investors and to judge the management on its stewardship of the resources of the enterprise and achievement of corporate objectives.

To provide information about the economic activity of JSL to several group who otherwise has no access to such information.

SCOPE OF THE STUDY

1.To study the purchases schedule of raw material stores &spares of Hal

2.To study the production expenses such as wages & salaries.

3.To study the credit sales pattern of finish product of HAL.

DATA AND METHODOLOGY:

The data that are present in this report have been taken from

secondary sources. The data of HINDUSTAN AERONAUTICS

LIMITED, Engine Division, Koraput, for the year 2007-08,2008-

09&2009-10 used in this report have been taken from financial

statements i.e., the PROFIT AND LOSS ACOUNT, BALANCE

SHEET for the relevant years. The procedural details have been

collected from the respective manuals, booklets etc. For

analyzing the performance of working capital management, simple

mathematical tools like percentage, average , ratio have been used

in this project work. To know the financial performances of this

division, calculation of operation cycle, Earning before interest &

taxes have been calculated .

LIMITATION OF THE STUDY:

Most of the information is collected from the secondary

sources.

If the working capital is not properly maintained and managed

then it may result in unnecessary blocking scarce resources of

the firm.

There is a gap between the theoretical analysis & its practical

and real life application. The data available is limited to the

Koraput Division. The overall data of HAL is not available.

The actually working figure may slightly differ from the study.

The accuracy in the data, which could not be avoided, imposed

some more restriction on the study.

There is not sufficient time for analyzing the financial status

of HAL.

COMPANY PROFILE

COMPANY PROFILE

HAL was formed on 1 s t October 1964 by the merger of Hindustan Aircraft limited and aeronautics India limited.

The late Shri “ WALCHAND HIRACHAND “ set up Hindustan Aircraft limited at Bangalore in Karnataka in December 1940, in

association with the government of Mysore, as a private limited company, in June 1942. The government of India purchased the interest of the company and took over its management. The HARLOW TRAINER AND CURTISS HAWK FIGHTER AIR CRAFT LIMITED and they were successfully flown in 1942.

In 1948, with the impetus given by the prime minister of India, late Sri Jawaharlal Nehru the policy of manufacture as well as design and development of Aircraft was taken over by the government of India. In august 1962, government of India entered into a collaboration agreement with the Soviet Union for the manufacturing of MIG-21 FL AIR CRAFT including its engine and avionics HINDUSTAN AERONAUTICS LIMITED was formed to undertake the manufacture and overhaul of the airframes / assembling of the air craft, Koraput in ORISSA, for the manufacturing and overhaul of aero engines and at Hyderabad in Andhra Pradesh for the avionics for the MIG Aircraft.

Hindustan Aircraft limited and aeronautics India limited were merging red in October 1964 to form the present Hindustan aeronautics limited. In July 1970 a helicopter division was established as a part of BANGALORE complex for the manufacture of “CHETAK” and “CHEETAH” helicopters under license from FRANCE.

“To become a globally competitive aerospace industry while working as an instrument for achieving self reliance in design manufacture and maintenance of aerospace defence equipment and diversifying to related areas managing the business on commercial lines in a climate of growing professional competence’’

Over the first five decades HAL has spread its wings to cover various activies in the area of design, development, manufacture and maintenance of Light aircraft, piston and jet engine of imported category was delivered to HAL, Nasik division in the year 1978-79. A total of 300 engines are to be delivered under this project. Against this task, the division has already delivered 88 engines of

different imported categories. The first raw-materials engine is scheduled for delivery during the year 1982-83.

In august1966 an agreement was signed with Soviet Union to set up overhaul project in this division and the government sanction was accord in 1967.Thefactory started overhaul of RF-300 series-III, R11F series 9&10& R11F2s/F2SK series engine. The division till the end of March 1982 has overhauled a total of 1067 engines.

The division is currently engaged in setting of facilities for taking up the overhaul of R25 series engines for the year 1982-83 onwards. With the signing of internal governmental agreement for the manufacture of MIG-27M Aircraft on 19th March 1982, this division would be involved in the manufacture of 285 numbers of the engines from the year 1984 to 85 onwards. In order to attend the self sufficiency & to avoid difficulties regarding the supply of the raw materials & other bought out items from USSR, it was decided to provide indigenous support to spare manufacturing for the overhaul/maintenance of the MIG fleet. The government approval for undertaking the task was received during 1977-78 & indigenous plan was formed to tackle.

MISSION

To become a globally competitive aerospace industry while working

as an instrument for achieving self-reliance in design, manufacture

and maintenance of aerospace defense equipment and diversifying

to related areas, managing the business on commercial lines in a

climate of growing professional competence.

VISION

To make HAL a dynamic, vibrant, value-based learning To make HAL a dynamic, vibrant, value-based learning

organization with human resources exceptionally skilled, highly organization with human resources exceptionally skilled, highly

motivated and committed to meet the current and future challenges. motivated and committed to meet the current and future challenges.

This will be driven by core values of the Company fully embedded This will be driven by core values of the Company fully embedded

in the culture of the Organization.in the culture of the Organization.

VALUES

CUSTOMER SATISFACTION

COMMITMENT TO TOTAL QUALITY

COST AND TIME CONSCIOUSNESS

INNOVATION AND CREATIVITY

TRUST AND TEAM SPIRIT

RESPECT FOR THE INDIVIDUAL

INTEGRITY

INDUSTRY SCENARIO

HAL DIVISIONS:

COMPLEXES :

Bangalore complex

MIG Complex Accessories

complexes Design comple

1. BANGALORE COMPLEX

(A) Aircraft Division -Manufacturing Jaguar Aircrafts

(B) Engine Division - Manufacturing Jaguar engines

(C) Helicopter Division - Manufacturing helicopters

(D) Forge And Foundry Division - Manufacturing high precision casting and forging

(E) Overhaul Division -overhaul of jaguar and other engines.

(F) Space Division - Manufacturing of launching of pads and common satellites.

(G) Service division -for common service to all division

2.MIG COMPLEX

(A) Nasik Division Manufacturing and overhaul of Air Frames.

(B) Koraput Division Manufacturing and Overhaul of MiG Engines & Su-307

3. ACCESSORIES COMPLEX

(A) Hyderabad Division - Manufacturing of electronics and navigational

Equipment

(B) Kanpur Division manufacturing of passenger Aircraft & Gliders.

(C) Lucknow Division - Manufacturing of hydraulic pumps, fuel

pumpsand statorGenerator

(D) Korwa Division Manufacturing of advanced navigational

equipment

4. DESIGN COMPLEX

Bangalore Division - Modification of any component or unit of an

engine.

Products manufactured at HAL (KD):

Sl No. Aircraft Engine Indigenous Name

1 MIG-21 FL R-11 F2 BADAL

2 MIG-21M/MF R-11-F26/F2SK TRISHUL

3 MIG 21 BIS R-25 VIKRAM

4 MIG 23-BN R-29B VIJAYA

5 MIG 23-MF R-29 RAKSHAK

6 MIG-25 R-29B GARUD

7 MIG-27 R-29B BAHADUR

8 MIG-29 RD-33 VAJ

9 AL31-FP SU-30 SUKHOI

CUSTOMER OF HAL

The main customer of the organization of the HAL, KD is India Air Force. But after the new economic policy was introduced HAL is exporting its products to

Republic of Yemen (Department of defence) Republic of Vietnam Republic of Laos Republic of France Republic of Government Syrea Mitsubishi Department of space government India BHEL MHI, Japan Government of Iraq Supply of spares to other HAL Division India Coast guard

International Customers Domestic Customers

Airbus Industries, France APPH Bolton, UK BAE Systems, UK Chelton, UK Coast Guard, Maurit ius Corporate Air, Phil ippines Cosmic Air, Nepal Dassault Aviation, France Dowty Aerospace

Hydraulics, UK EADS, France ELTA, Israel Gorkha Airl ines, Nepal Hampson, UK Honeywell International,

USA Island Aviation Services,

Maldives Israel Aircraft Industries,

Israel Messier Dowty Ltd. , UK Mitsubishi Heavy

Industries, Japan MOOG, USA Namibian Air Force,

Namibia Peruvian Air Force , Peru Rolls Royce Plc, UK Royal Air Force, Oman Royal Malaysian Air Force,

Malaysia Royal Nepal Army, Nepal Royal Thai Air Force,

Air India Air Sahara Airports Authority of India Bharat Electronics Border Security Force Coal India Defence Research & Development

Organization Govt. of Andhra Pradesh Govt. of Jammu & Kashmir Govt. of Karnataka Govt. of Maharastra Govt. of Rajasthan Govt. of Uttar Pradesh Govt. of West Bengal Indian Air force Indian Airl ines Indian Army Indian Coast Guard Indian Navy Indian Space Research Organization Jet Airways Kudremukh Iron ore Company l td. NALCO Oil & Natural Gas Corporation Ltd. Ordnance Factories Reliance Industries

Thailand Smiths Industries, UK Snecma, France Strong field Technologies,

UK The Boeing Aircraft

Company, USA Transworld Aviation, UAE Vietnam Air Force,

Vietnam

FUNCTIONAL PROFILE

ADMINISTRATVE CHART OF HAL (KORAPUT DIVISION)

EXECUTIVE DIRECTOR

GENERAL MANAGER

MANAGER (P&A)ESTT. MANAGER LEGAL

SENIOR MANGER TRAINING

SENIOR MANAGER (P&A)

MANAGER INDUSTRIAL RELATIONS

ASST.

LEGAL OFFICER

MANAGER TRAINING

ASST. TRAINING OFFICER

SECRETARIAT

PERSONNEL OFFICER (POLICY&STATISTIC)

INDUSTRIAL RELATIONS OFFICER

OFFICIAL LANGUAGE CELL

DEPUTY PERSONEL (RECRUITMENT) PRINTING PRESS

PERSONNEL OFFICER (ESTABLISHMENT)

ASST. INDUSTRIAL RELATIONS

ENGINEER TRNSFER

PERSONNEL OFFICER (RECRUITMEN

CHIEF MANAGER

FINANCE AND ACCOUNTING FUNCTIONS IN HAL,

KORAPUT DIVISION

Finance and Accounting both play an important role in any business organizational setup. The main function of any Finance and Accounting of an organization are funds management, cost monitoring, cost reduction and financial appraisal.

Money is a very scarce resource & is the most sought after commodity because all the transaction of human society are settled in terms of money. Money & Finance are of not one & the same things. Money stored in vaults, or kept in the shape of gold bars, or an ornament is not finance. Money is a static value expressed in currency of the country, where as, finance is an expression of dynamic function of money.

Depending upon the requirements & close monitoring of expenditure HAL, Koraput Division has formed the following

AAO OFFICER (HACCS)

MANAGER TOWNSHIP

ASST. PROSONNEL (DISCIPLINAARY)) ASST.PERSONN

EL OFFICER (ESTABLISHMENT)

AAO RUSSIAN ENCLAVE

AAO GUEST HOUSE

section for smooth running of the finance & accounts departments & to maintain the liquidity position of the company.

A. Bills Payable SectionB. Payroll SectionC. Provident Fund Section D. Cash Office Section E. Finance SectionF. Material SectionG. Costing SectionH. Bills Receivable SectionI. Book-Keeping Section

1. BILLS PAYABLE SECTION

This section is mainly divided in three-sub division. Such as:

a) Bills Payable (Inland): - This section deals with the payment & accounting of supplies & services rendered to the company.

b) Bills Payable (Civil work): - This section deals with the service rendered by the contractor of the company.

c) Bills Payable (Foreign): - This section deals with the payment & accounting of supplies & services rendered by foreign collaborators to the company.

2. PAYROLL SECTION

The main functions of the Payroll cover the following:

a) Placement of time punching cards in the card rack for the recording attendance.

Receipt of approval leave application, over time authorization, attendance .

b) Receipt of approval leave application, over time authorization, attendance sheets & employees gate pass etc.

c) Maintenance of leaves records & feeding of attendance data to computer.

d) Disbursement of salary & wages.e) Payment & recovery of advances.f) Recovery of dues from employees.g) Accounting of all Payroll transactions.h) Maintenance of employees punching cards etc.

3. PROVIDENT FUND SECTION

This section mainly deals with the transaction preparing to PF such as:

a) Account of Provident Fund transaction.b) Remittance of amounts recovered from employee to a fund

called provident fund trust fund.c) Providing refundable & nonrefundable loan & adjustment

thereof.

4. CASH OFFICE

This section is responsible for all receipt & payment of cash/cheque & accounting of the same in the book. The main functions are as follows:

a) Receipt of cash, cheque, bank draft & issue of official receipt for the same.

b) Banking of all receipt.c) Drawl of cash from bank to cater for daily needs.d) Payment of vouchers by cash/cheque.e) Writing cash/bank books.f) Preparation of Bank Reconciliation Statement.g) Safe Custody of cash, cheque books, bank guarantees, fixed

deposits receipts & other investments etc.5. FINANCE SECTION

The main functions are: Security & financial concurrent as per the delegation of power of proposal for:

a) Capital expenditureb) Revenue expenditurec) Purchase of Material, stores tools & other servicesd) Manpower requirementse) Incentivesf) Write off-of lossesg) Cases involving relaxation of rulesh) Sales of company assetsi) Contracts enter into with suppliers/ collaboration/

subcontractors.j) Estimates & errors of contracts in respect of Civil/ Electrical/

Plant Order.

6. MATERIALS SECTION

This section covers the following:

a) Maintenance of material ledger cards for all materials held in stores.

b) Accounting of receipts of all materials by various classes & issue of all materials draws on work order & expenses accounts.

c) Reconciliation of balances with general ledger.d) Quality reconciliation of Bin Card balances with with

Materials ledge balances.

7. COSTING SECTION

The main functions of this section are:

Fixation of fixed cost quotation.

a) Fixation of standard man-hour rate.b) Preparation of operating statement.c) Accounting & adjustment of differed revenue expenditure.d) Accounting of non-production of overhead.e) Preparation of man-hour rate.

8. BILLS RECEIVABLE SECTION

This section is responsible for preparation & submission of invoices to customer for the supplier made & services rendered & follow up for recovery of the amounts & accounting of the same.

9. BOOKKEEPING SECTION

This section is the section in which the financial position of the organization can be reflected through the preparation of profit & loss account and balance sheet. It is the apex section of the finance & accounts department, which cover the following important function

a) Co-ordination of all section for relevant information.b) Maintenance of Journal & general ledger.c) Preparation of Trial balance, Profit & Loss Account, Balance

sheet.d) Maintenance of Capital Asset Ledger.e) Preparation of Fixed Asset & Depreciation schedule.f) Furnishing of data for determining of income tax liability.

ACCOUNTING POLICY FOLLOWED BY HAL:

1. ACCOUNTING METHOD

The financial accounts are prepared under the accrual basis & at historical cost unless otherwise stated.

1.FIXED ASSETS:

i. Land received from the state Government till 31st March 1969 has not been valued. Such land which have been taken over by the company after 1st April 1969, have been valued at estimated fair price ruling on the date of taking possession. Land other than above has been capitalized at cost to the company and no account has been taken of the cost borne by the state Govt. Expenditure on development is shown under land.

ii. Fixed assets acquired with financial assistance/subsidy from outside agencies either wholly or partly is capitalized at net cost of the company.

iii. Minor Civil work including addition, alterations etc. costing individually Rs.50000/- and below not resulting in additional floor space are charged to revenue.

iv. Where the actual costs of the fixed/current assets are not readily ascertainable, they are accounted initially on provisional basis but adjusted subsequently to cost when ascertained.

v. Assets declared surplus/discarded are retained in the books at cost and depreciation provided till the end of the month, proceeding the month in which they are disposed off. Proceeds from sales of assets in excess of net book value are credited to profit and loss account.

vi. Expenditure on reconditioning, resetting and relay out of machinery and equipments which does not increase the future benefits from the existing assets beyond the previously assessed.

vii. Standard of performance based on the technical assessment is not capitalized.

viii. Cost of the initial pack of spares procures with plant, machinery and equipment is capitalized and depreciated in the same manner as plant machinery and equipment.

2.TOOLS AND EQUIPMENTS:

Expenditure on special purpose tools, jigs and fixture including those specific to project/product is initially capitalizes for

amortization over production on technical assessment and to the extent not amortized is carried forward as on assets. Expenditure on maintenance, rework, reconditioning, periodical inspection, referencing of tooling, replenishing of cutting tools and work of similar nature is charged to revenue act at the time of issue.

3.RESEARCH AND DEVELOPMENT:

Research and development is built up by the appropriation from profit. Research and development expenditure is debited to the Profit and Loss account. To the extent the expenditure are meet out of the research and development reserve amounts to that extent are transferred from the research and development reserve to the profit and loss account.

4.DEFERRED REVENUE EXPENDITURE:

Expenditure on training personnel/foreign technical fees and expenses, pre-production expenses, etc. specific to projects/products is amortized over production on technical estimates and to the extent not amortized is carried forward

5.DEFERRED DEBTS:

Unpaid installment payments under deferred payment terms for the cost of imported material and tooling content of the equipment/products sold are accounted as deferred debt from the customers and are recovered as and when the installment are paid.

6.SUNDRY DEBTORS:

Disputed/time barred debts from the Government Departments are generally not treated as doubtful debts.

7.INVENTORY:

i. Raw material, components, stores and spare parts are value at cost.

ii. Work-in-progress/stock in trade is valued at lower of cost on realizable value.

iii. Adjustment is not made for under/over observation of cost on jobs, if the extent of under/over observation in a year does not exceed 0.5% of the net operating expenses.

iv. Customs duty where applicable is loaded to cost of goods when cleared and passed through customs.

v. Stationary, uniform, medical and canteen, stores are charged to revenue at the time of receipt.

vi. Semi-perishable, welfare and Miscellaneous equipments (other then fixed assets) Costing individually Rs.20000/- and below are charged to revenue at the time of issue and those costing above.Rs.20000/- is written off to revenue in two years including the year of issue.

vii. Provision for redundancy is maintained at a suitable percentage/level of the value of closing inventory of Raw Materials and Components, Stores and Spares parts and construction material less the value of inventory to be borne by the customer and the value of the inventory for the initial phase of the new projects. Besides, where necessary, adequate provision is made for redundancy of such materials in respect of completed/specific project and other surplus/redundant material pending transfer to salvage stores. Stores declared surplus/unserviceable/redundant are charged to revenue.

viii. Material issued from main stores and lying unused at the end of the year is not reckoned as inventory.

8.INDIRECT EXPENSES ON EXPANSIONS:

Expenses on administration and supervision in respect of expansion facilities/new projects at the existing operating division are charged to revenue.

9.SALES:

Sales are set up on completion of contracted work on the basis of signaling out/acceptance by the customer’s inspection of the product. Where sale price are not established, sales are set up on provisional basis at price likely to be realized. Research and development expenditure financed by the customer is billed and accounted as sales.

10.RETIREMENT BENEFITS:

i. Liabilities towards gratuity provided on yearly actuarial valuation in respect of all employees is remitted to a trust progressively.

ii. Provision for vocation leave is made on accrual basis and un-utilized leave at the year-end is restated as if such benefits is payable at the close of the year.

iii. Employers contribution of provident fund for the year is provided for at the Govt. stipulated rate and are remitted to the trust.

11. INTEREST:

Interest on loan/borrowing for different projects is charged to revenue.

12.DEPRECIATION

Depreciation on fixed assets is charged on ‘straight line method’. The rate of depreciation on assets acquired on prior to 01.04.1989 is on the basis of estimated life. The rate of depreciation is as prescribed in scheduled XIV to the companies Act 1956 for assets capitalized after 01.04.1989 (except for assets separately listed in notes to Balance Sheet). However, prorate depreciation charge to the assets from the first day of the month of addition. Fixed assets costing Rs.10000/- and below are depreciated fully in the year of purchase. Where cost of internal partitions exceeds Rs.50000/- they are depreciated with in a period of 5years or the lease period of premises which ever is less.

13. FOREIGN CURRENCY TRANSACTION:

Foreign Currency transaction are recorded and reported as per requirement of Accounting Standard-II of ICAI except in respect of liability for deferred payments on supplies/services from the Russian federation arising in terms of inter Govt. agreement entered into between Govt. of India and USSR Govt. of Russian federation. The liability is set up on the transaction date at the rate of exchange notified by the Reserve Bank of India (R.B.I) for deferred payments under the protocol arrangements between the Government The different arising out of the re-calculation of Rubles into Rupee in terms of protocol arrangement is charged to the revenue at the time of payment and is realized from the customs.

LITERATURE REVIEW

LITERATURE REVIEW

“As no man can live without food and no vehicle can run without fuel like that no organization can run without finance.”

Finance is the lifeblood of any business. Financial analysis is the process of identifying the financial strengths and weakness of the firm by properly establishing the relationship between the items of balance sheet which summarizes the assets, liabilities and the owner’s equity and Profit & Loss account which summarizes the income and expenditure of the firm over a particular period of time. This process of analysis is carried out by establishing different types of relationships among different items of the financial statements of the firm as these statements prepared as such won’t help the firm very much unless it is analyzed and interpreted.

THEORETICAL ASPECTS OF THE “CONCEPT’’

Working capital is very important for business. Working capital management is concerned with the problems that arise in attempting to manage the current asset, the current liabilities and the inter- relation solvency of a concern. The main goal of working capital management is to manage the firm’s current assets and current liabilities in such a way that a satisfactory level of working capital maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolent and may be forced into bankruptcy. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each of the current assets must be managed efficiently in order to maintain the liquidity of the firm while not keeping too high a level of any one of them. Each of the short-term sources of financing must be continuously managed to ensure that they are obtained and used in the best possible way. The interaction between current assets and current liabilities in therefore, the main theme of the theory of working capital management.

The working capital management refers to management of the working capital, or to be more precise, the management of current assets. A firm’s working capital consists of its investment in current assets, which include short-term assets such as cash & bank balance, inventories, receivables (including debtors & bills), and marketable securities. So, the working capital management refers to management of the level of all these individual current assets. The need for working capital management arises from two considerations. First, existence of working capital is imperative in any firm. The fixed asserts which usually require a large chunk of total funds, can be used at an optimum level only if supported by sufficient working capital & second, the working capital involves investment of funds of the firm.

The working capital management includes the management of the level of individual current assets as well as the management of total working capital. However, each individual current asset has unique characteristics, which the financial manager must consider in deciding how much money should be invested in the each of these current assets.

Types of working capital:

There are two concepts of working capital:

Gross working capital Net working capital

1. Gross working capital (or Total working capital): The gross working capital refers to the firm’s investment

in all the current assets taken together. The total of investments in all the individual current assets is the gross working capital.

2. Net working capital:

The term net working capital may be defined as the excess of current assets over total current liabilities. It may be noted that to those liabilities which are payable within a period of one year. The extent, to which the payments to these current liabilities are delayed, the firm gets the availability of funds for that period. So a

part of the funds required to maintain current assets is provided by the current liabilities & the firm will be required to invest the funds in only those current assets which are not financed by the current liabilities.

In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Thus the gross working capital is the capital in rested in total current assets of the enterprise current assets are those assets which in ordinary of business can be converted into cash neither a short period of normally one accounting year.

In narrow sense the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities i.e.;

Net working capital = Current Assets – Current Liabilities.

Net working capital may be positive or negative , when the current assets exceed the current liabilities the working capital is positive or the negative working capital results when the current liabilities are more than current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets or the income of the business.

The following are examples of current assets and current liabilities:

CURRENT ASSETS

1) Cash in hand and bank balance

2) Bills receivable

3) Sundry debtors

4) Short term loans and advances

5) Inventories of stocks as:

Raw material Work-in-progress Stores and spares Finished goods

6) Temporary investment of surplus funds

7) Prepaid Expenses

8) Accrued incomes

CURRENT LIABILITIES

1) Bills payable

2) Sundry creditors or Account payable

3) Accrued or Outstanding Expenses

4) Short term loans, advances and deposits

5) Dividends payable

6) Bank Overdraft

7) Provision for taxation if it does not amount to appropriation of profits.

Net working capital refers to the amount of funds that must be invested by the firm, more or less, regularly in current assets. The remaining portion of current assets being financed by the current liabilities. The net working capital also denotes the net liquidity being maintained by the firm. This also gives an idea of buffer available to the current liabilities.

Thus both concepts of working capital i.e. the gross working capital & the net working capital have their own relevance & a

Financial Manager should give due attention to both of these. The cash inflows & outflows for any firm are seldom synchronized and so, some working capital is necessary. The cash outflows occurring from the existence of the current liabilities are more easily & correctly predictable but the cash flows from current assets are difficult to be accurately predicted. The more predictable, these cash flows are, the less the net working capital required by the firm. The firm with more & more uncertain cash inflows must maintain higher &higher level of current assets adequate to cover the current liabilities.

THE OPERATING CYCLE & WORKING CAPITAL NEEDS

The working capital requirement of a firm depends, to a great extent upon the operating cycle of the firm. The operating cycle may be defined as the time duration starting from the procurement of goods or raw materials & ending with the sales realization. The length & nature of the operating cycle may differ from one firm to another depending upon the size & nature of the firm.

In a trading concern, there is a series of activities starting from procurement of goods & ending with the realization of sales revenue. Similarly in case of manufacturing concern, this series starts from procurement of raw materials & ending with the realization of finished goods. In both the cases, however, there is a time gap between the happening of the first event and happening of the last event. This time gap is called the Operating Cycle .

Thus, the operating cycle of a firm consists of the time required for the completion of the chronological sequence of some or all of the following:

Procurement of raw materials & services. Conversion of raw materials into work-in-progress.

Conversion of work-in-progress into finished goods. Sales of finished goods (Cash or Credit) Conversion of receivables into cash

WORKING CAPITAL CYCLE

FACTORS DETERMINING WORKING CAPITAL REQUIREMENT:

The working capitals needs of a firm are determined& influenced by various factors. A wide variety of considerations may affect the quantum of working capital required and these

RAW MATERIAL

DEBTORS

WORK IN PROGRESS

FINISHED GOODS

CASH

CASH SALES

CREDIT SALES

considerations may vary from time to time. The working capital needed at one point of time may not be good enough for some other situation. The determination of working capital requirement is a continues process & must be undertaken on a regular basis in the light of the changing situations. Following are some of the factors, which are relevant in determining the working capital needs of the firm

1. Basic Nature of Business:

The working capital requirement is closely related to the nature of the business of the firm. The trading concerns usually have smaller needs of working capital, however, in certain cases, large inventories of goods may be required & consequently working capital may be large. In case of financial concerns, there may not be stock of goods but these firms do have to maintain sufficient liquidity all the times.

In case of manufacturing concerns, different types of production processes are performed. One unit of raw material introduced in the production schedule may take a long period before it is available as finished goods for sale. The operating cycle is usually a longer one & sales are made generally on credit terms. So, in case of manufacturing concerns, there is a requirement of substantial working capital.

2. Business Cycle Fluctuations:

Different phases of business cycle i.e. boom, recession, recovery etc. also affect the working capital requirement. In case of boom conditions, inflationary pressure appears & business activities expand. As a result, the overall need for cash, inventories etc. increases resulting in more & more funds blocked in these current assets. In case of recession period however, there is usually dullness in business activities and there will be a fall in inventories & cash requirement.

3. Seasonal Operations:

If a firm is operating in goods & services having seasonal fluctuations in demand, then the working capital requirement will

also fluctuate with every change. If the operations are smooth & even through out the year then the working capital requirement will be constant & will not be affected by the seasonal factors.

4. Market Competitiveness:

The market competitiveness has an important bearing on the working capital needs of a firm. In view of the competitive conditions prevailing in the market. The firm may have to offer liberal credit terms to the customers resulting in the higher debtors. The working capital tends to be high as a result of greater investment in inventories & receivables.

5. Credit Policy:

The credit policy means the totality of term & conditions on which goods are sold & purchased. A firm has to interact with two types of credit polices at a time.

a. The policy of the superior of raw materials, goods etcb. The credit policy relating to credit which it extends to its

customers.

In both the cases, however the firm while deciding its credit policy has to take care of the credit policy of the market.

6. Supply Conditions:

The time taken by a supplier of raw materials, goods etc. after placing an order, also determines the working capital requirement. If goods are received as soon as or in a short period after placing an order, then the purchaser will not like to maintain a high level of inventory of that good.

NEED FOR ADEQUATE WORKING CAPITAL:

The need & importance of adequate working capital for day-to-day operations can hardly be underestimated. Every firm must maintain a sound working capital position otherwise; its business activities may be adversely affected. The objective of financial management i.e. to maximize the wealth of the shareholder cannot

be attained if the operations of the firm are not optimized. Thus every firm must have adequate working capital. It should have neither the excessive working capital nor inadequate working capital. Both situations are risky & may have dangerous outcome. The excessive working capital, when the investment in working capital is more than the required level, may result in

a. Unnecessary accumulation of inventories resulting in waste, theft, damage etc.

b. Delays in collection of receivables resulting in more liberal credit terms to customers than warranted by the market conditions.

c. Adverse influence on the performance of the management.

On the other hand, inadequate working capital situation, when the firm does not have sufficient working capital to support its operation, is also not good for the firm, such a situation may have following consequences:

The fixed assets may not be optimally used. Firm’s growth may stagnate. Interruptions in production schedule may occur

ultimately resulting in lowering of the profit of the firm. The firm may not be able to take benefit of an

opportunity. Firm’s goodwill in the market is affected if it is not in a

position to meet its liabilities on time.

OBJECTS OF WORKING CAPITAL MANAGEMENT

The need for working capital cannot be over emphasized. Every business needs some amount of working capital. So management of working capital is necessary. Thus working capital is needed for the the following purpose:

1. For the purchase of raw materials, components and spares2. To pay wages and salaries3. To inure day-to-day expenses and overhead costs such as fuel

power and office expenses etc.4. To meet the selling costs as packing, advertising etc.5. To provide credit facilities to the customers6. To maintain the inventories of raw materials, work-in-

progress, spares and finished stock

KINDS OF WORKING CAPITALS:

The categorization of Working capital can be made either best on its concept or the need to maintain current assets either permanently and/or temporarily.

KINDS OF WORKING CAPITALS

ON THE BASIS OF TIMEON THE BASIS OF CONCEPT

Permanent working capital

Permanent working capital is the minimum investment kept in the form of inventory of raw materials; work in process, finished goods, stores & spares, and book debts to facilitate uninterrupted operation in a firm. Though this investment is stable in short run, it certainly varies in long run depending upon the expansion programmes undertaken by a firm. It may increase or decrease over a period of time. The minimum level of current assets maintained in a firm is usually known as permanentor regular working capital.

Temporary Working capital

A firm is required to maintain an additional current assets temporarily over and above permanent working capital to satisfy cyclical demands. Any additional working capital apart from permanent working capital required to support the changing production and sales activities is reffered to as temporary or variable working capital. In other words, an amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital.

TEMPORARY

WORKING

NET WORKING

CAPITAL

GROSS WORKING CAPITAL

PERMANENT

WORKING CAPITAL

SPECIAL

WORKING CAPITAL

SEASONAL WORKING CAPITALREGULAR

WORKING CAPITAL

RESERVE WORKING CAPITAL

COMPNENTS OF WORKING CAPITAL MANAGEMENT

A) THEORITICAL REVIEW:

The following are the three components of working capital management:

1. Management of Cash2. Management of Accounts Receivables3. Management of Inventory

MANAGEMENT OF CASH

INTRODUCTION

Cash is the important current asset for the operations of the business. Cash is the basic input needed to keep the business running on a continues basis. It is also the ultimate output expected to be realized by selling the services or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firms manufacturing operations while excessive cash will

simply remain idle, without contributing anything towards the firm’s profitability. Efficient cash management is crucial to the solvency of the business because in a very important sense cash is the focal point of fund flows in a business. In view of its importance, it is generally referred to as the “LIFE BLOOD OF A BUSINESS ENTERPRISE.”

MAIN OBJECTIVES OF CASH MANAGEMENT:

Cash Management is concerned with the managing of:

1) Cash flows into & out of the firm2) Cash flows within the firm3) Cash balances held by the firm at a point of time by

financing deficit or investing surplus cash.

CASH MANAGEMENT IN HAL:

Cash is the most liquidity part of current asset and by which all the operations of the organization are carried on. So it needs to be managed as over of balance or under balance can cause a lot of disturbance to the organization. Shortage of cash will stop the operation where as the excess of cash will create idle fund if not properly used. The later is hard case in the part of HAL. As its main source of getting fund its main customer IAF which gives 65% cash in advance and balance on the delivery. So in HAL one case may hamper the operation/production. So the credit days allowed by HAL should be as minimum as possible. For the collection of cash HAL uses DD for customers like IAF and PSU’s but for export orders it uses LC (Letter of credit).

MANAGEMENT OF INVENTORY IN HAL:

Management of inventory gives a way to understand the procurement system of HAL. The procurement system adopted by HAL is of two types:

1. Re order level system

2. Periodic review system

The first method is called as indigenious procurement system as it is made for Indian materials.

But for second method it is called as Russian procurement or Foreign Procurement system as it is made for foreign imported from Russia & UK.

Before switching on to the system of procurement it will be better to know the MRP (Material Requirement Planning).

MRP: What does it mean ?

MRP refers to material requirement planning. That means for the future the amount of material required with the help of forecast safe at present. In earlier days HAL had been adopting MRP-I, which refers to how much materials required with keeping in view the future sales. This can be illustrated as:

Suppose a material named A is to be produced for the year 2008-2009 of 100 units the compents of ‘A’ are x, y, z.

So, the materials required are:

X*100=100x

Y*100=100y

Z*100=100z

But this may lead to over stocking as some of the materials may in pipeline, some may in stores as finished goods and some may as WIP. So to overcome this HAL later adopted MRP-II.The following is the procedure:

First the estimated sales or forecast sales are conveyed to the production-engineering department. Then they will determine the machinery requirements, the infrastructure for this, the raw materials required. Then the process in transferred to the manufacturing department. Keeping in view of the stock of finished goods in

stores, in pipelines etc, also some amount is kept as provision to meet the future contingencies. It varies from 5% to 10%. So MRP-II is calculated as:

Net requirement for 2005-2006=Total requirement + provision for contingencies – in pipelines – finished items in stores – WIP

The MRP-II for the Russian procurement is 15 months where as for indigenous procurement it is 9 months. That means if you are planning for April 2009 than you have to forecast the sales on the month oh January 2008 for Russia and on July 2008.

This implies you have to order for raw materials in January2008 for Russian procurement where as July for indigenous procurement.

Particulars Indigenous (in months)

Russian (in months)

1) Minimum level period

3 3

2) Lead 6 12

3) Re-order period 9 15-24

4) Danger level period

1 2

5) Safety stock period

3 3

RECEIVABLE MANAGEMENT IN HAL

HAL’s main customer is IFA, which covers 90-95% of HAL’s products. For receivable there is an order book, which shows the order book, which shows the order made by IAF. For this IAF pays 65% as stage payment (advance) and other 35% at the time of delivery which depends upon the availability of funds with the hand of government. But before this one should know how the price rupees quoted for HAL products.

There are two methods to calculate the price of products. For manufacturing overhead routable, they are adopting FPG (fixed price quotation) with an additional of profit. For labour cost the profit is 9.94% and for material cost it is 10% that means they are charging overall 9.97%. But for spares and sometimes also for routable they are adopting or referring priced catalogue, which include a profit of 10%.

The fixed price quotation is subject to fluctuate and for this some escalation cost is added to the base year price. The order is called RMS order (Repair, Maintenance and Supply). The 35% is collected after the approval of DAD. There are two clauses for the late delivery payment either of raw materials or money (35% balances) respectively two clauses are LD clauses and interest on deferred liability.

DATA ANALYSYS & INTERPREATION

ANALYSIS OF COMPONETS OF WORKING CAPTITAL

(1) Management of Cash (2) Management of Accounts Rece

(3) Management of Inventory

MANAGEMENT OF CASH

Cash is the most important liquid current assets of the business. Any firm should keep sufficient cash for day today operation, cash shortage signifies solvency of the company.

Thus it is vital to maintain sufficient cash position. Cash management is concerned with the management of:

i. Cash inflow and outflow monitoring.ii. Quick/timely realization of receivables.

iii. Cash balances to be held by the firm at any point of time to meet financial deficit.

iv. Better inventory management.

Now let us analysis the percentage of cash and bank balances maintained

organization towards current asset.

TABLE-1

CALCULATION OF PERCENTAGGE OF CASH AND BANK BAALANCE TO THE CURRENT ASSETS ( IN LAKHS)

PARTICULAR

2007-08

2008-09 2009-10

A. Cash and bank balance (Rs)

11.95 16.88

B. Current Assets (Rs)

152518.97258006.

95375667.

75

C. % of Cash and Bank Balance to Current Assets (A/B*100)

0.004 0.004

INTERPRETATION:

By analyzing the statements, it is observed that 0.013, 0.004 and 0.004 of current assets were held as cash in hand and cash at bank during the years 2007-2008, 2008-2009, 2009-2010, respectively. The cash management in HAL is centerlized and managed by the corporate office.

On the basis of yearly budgets and performance of the division, the corporate office has fixed certain measures for smooth running of the business.

They are:

1. Fixing the drawl limits : After analysis of budget and forecast given by the division, the corporate office has fixed drawl limit not exceeding 12 crores per month. This ceiling does not include drawing the salaries and wage of the staff

2. Fixing the letter of credit : the limit for opening the fore cast irrevocable letter of credit is up to Rs 12 crores. If any urgency arises prior approval of the corporate office it may go beyond the limit.

By fixing these types of limits, the corporate office is in position to monitor its divisions, fund requirements and collections. By this process divisions are not in a position to withhold/block cash at their disposal because the net balance has to be transferred to the central account at the corporate office at daily basis. Even though we extract the information that will not signify the real norms.

ACCOUNTS RECEIVABLE:

Account Receivable of HAL, Koraput Division consists of sales to India air force (IAF) and very minor amount of foreign parties in real sense there is no such credit sales to Indian air force.

The debts are pending for collecting due ton want of clarification/documentation or some other reason. The arrangement between India Air Force and HAL regarding payment based on the Fixed Price Quotation (FPQ). Initially the IAF & HAL have entered into an agreement for payment like Advance Payment depending on progress of the work & balance amount is to be paid after completion of work.

TABLE – 2

CALCULATION OF PERCENTAGE OF ACCOUNTS RECEIVABLE TO THE CURRENT ASSETS (IN LAKHS)

INTERPRETATION:

The above comparison shares that:

The investment in Accounts receivables is more during 2009-2010 . The increase in ratio indicates that the management wants to push off the accumulated stocks & go for fresh production. However the resultant credit period extended to the customer is to be received.

The percentages of accounts received to current assets are 5.61%& 6.36% in the year 2007-08 & 2009-10.

It had a gradually increase in current assets.

PARTICULARS 2007-08 2008-09 2009-10

A. Accounts

Receivable (Rs.)

5883.47 14655.86 23918.95

B. Current assets (Rs.)

152518.97 258006.95

375667.75

C.% of Account Receivable to Current Assets (A/B*100)

3.85 5.61 6.36

The percentages of accounts receivable to current assets has been3.85, 5.61 and6.36 respectively.

TABLE – 3

CALCULATION OF AVERAGE COLLECTION PERIOD (IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Debtors 5883.47 14655.86 23918.95

B. Sales 140816.78 140991.83 132641.68

C. Average collection period (A/B*360 days)

15 days 37days 65days

INTERPRETATION:

The above table analyzes that:

The Average Collection Period (ACP) for the year 2007-08,2008-09,2009-10, are 15 days,37days and 65 days.

Normally 50-60 days is the lead-time for realizing the debtors for the enterprise like HAL.

The Average Collection Period for these years is much than required.

The Average Collection Period shows the extent of time period & the efficiency in the Collection of debtors.

Thus to improve the efficiency of HAL unit at Koraput has to shorten the Average Collection Period. Thus reduce the liberal term to the debtors.

Average Collection Period below would be better for HAL. As more than 95% of Collections are from Government there is no risk of bad debts.

INVENTORY MANAGEMENT IN HAL

There is a centralized stores department functioning in this division in co-ordination with stores department, purchase department & material control department. The responsibilities of each department have been laid down clearly by the management. TABLE – 4

CALCULATION OF PERCENTAGE OF INVENTORY TO CURRENT ASSETS (IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Inventories 94998.36 154197.27 256533.47

B. Current Assets

152518.97 258006.95 375667.75

C. Percentage of Inventory to Current Assets (A/B*100)

62.28 59.76 68.28

INTERPRETATION:

The holding of inventory is 62-68% of current assets. This percentage has been decreased in2008-09 than 2007-08 and 2009 -10. The main cause for the accumulation of inventory

is to maintain sufficient space/raw materials to meet the emergency like war. Maximum material of HAL, Koraput Division is imported from Russia, there for it is possible to decrease cost of transportation & also large-scale order will enable HAL to bargain for cost.

The percentages of inventory to the current assets are 62.28 %,59.76%and62.28% inyear2007-08,2008-09 and 2009-10.

In 2008-09 the percentages of 59.76%of current assets were occupied by inventory where as the percentage has decrease.

The present system of procurement by HAL in just-in –time. At present the inventory held is huge as compared to the

standard norms.

INVENTORY ANALYSIS & SELECTIVE CONTROLS:

If inventory analysis HAL, Koraput Division follows ABC,VED,ADF & HMI Analysis then the inventory management of the organization functioning smoothly. Among all the analysis, ABC analysis is widely used in this Division. The procedures & categorization of this analysis followed by this Division are as follows:

The annual usage in units is to be calculated for each item based on forecast estimates.

The annual usage in units is to be multiplied with the unit cost to get the annual usage in rupees of each item.

The items are to be ranked from the highest annual rupee usage in the descending order to the lowest annual rupee usage an assign category.

CATAGORISATION OF ITEMS IN THE HAL, KORAPUT DIVISION

ITEM OF VALUE % OF ITEMS % OF AGE OF USAGE

A 10% 70%

B 20% 20%

C 70% 10%

TABLE – 5

CALCULATION OF RAW MATERIAL CONVERSION PERIOD (IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Closing Raw Material

46818.85 77615.98 104032.77

B. Raw material consumed

64227.00 123733.77 139591.47

C. Raw material conversion period (A/B*360 Days)

262days 226days 268days

INTERPRETATION :

Raw material conversion period is 262 days in 2007-08, 226 days in 2008-09, 268 days in 2009-10.

The raw material conversion period is very high during 2009-10 as compared to other year.

Therefore, from the above discussion it is cleared that the raw material level does not affect the raw material conversion period.

The raw material conversion period for the year 2009-10 is 268 days. This was so high because of manufacturing of a new product the Engine SU – 30.

TABLE – 6

CALCULATION OF WORKING IN PROGRESS CONVERSION PERIOD (IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Closing WIP (Rs.) 24277.54 72537.85 135267.46

B. Cost of production (Rs.)

121263.75 177735.54

195371.29

C. WIP Conversion period (A/B*360)

72days 147days 249days

WORKING FORMULA :

Cost of production = Sales + Closing balance of WIP – Opening balance of WIP + Closing

balance of SIT – Opening balance of SIT.

NOTE:

WIP - Work in Progress

SIT - Stock in Trade

INTERPRETATION :

WIP conversion period is 72 days ,147 day & 249 days in 2007-08,2008-09,2009-10 respectively.

The company has shown an efficient management labour force & efficient utilization of materials by maintaining a less work in progress conversion period in year 2007-08.

Further to improve , it has to reduce the work in progress conversion period though aviation industry requires much time in work in progress.

Due to manufacturing of the new product SU – 30 the work in progress conversion has consumed more time in the

2008-09onwards i.e.,147 days, 249days as compared to2007-08

TABLE – 7

CALCULATION OF FINISHED GOODS CONVERSION PERIOD (IN LAKHS)

WORKING FORMULA :

Cost of Goods Sold = Sales - Profit

INTERPRETATION :

Finished goods conversion period is 319 days, 325 days& 322 days in 2007-08,2008-09,2009-10 respectively.

The time period consumed by the company to the convert the finished in goods in to sales is very long.

PARTICULARS 2007-08 2008-09 2009-10

A. Closing Finished Goods.

113906.21 116322.85 107983.07

B. Cost of Goods Sold.

128186.49 129022.97 120606.85

C. Finished Goods Conversion period (A/B*360 Days)

319days 325days 322days

For this reason the finished goods conversion period has been high except the period 2008-09.

TABLE – 8

CALCULATION PAYABLE DEFERRAL PERIOD (IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Creditors 23474.48

32264.15 27001.20

B. Credit Purchase 100969.56 160746.35 172636.22

C. Payable Deferral period (A/B*360 Days)

84days 72days 52days

INTERPRETATION :

From the above table it is seen that:

The payable deferral period i.e. the credit period allowed by the creditors during the years 2007-08,2008-09& 2009-14 is 89 days, 72 days, & 52 days.

This means that the amount payable to creditors was paid after a long period of credit purchase.

Where as in 2009-10 the payable deferral period was the shortest i.e. only 52 days, which means that creditors were paid with in a very short span of time.

The payable procedure in HAL is though banks or the letter of Credit.

But in some cases, the payment was made after receipt & acceptance of goods.

TABLE – 10

CALCULATION OF AMOUNT OF WORKING CAPITAL (IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Current Assets (Gross)

152518.97 258006.95 375667.75

B. F. A (Less :Depreciation)

26612.87 36930.41 39693.96

C.Total Assets (A+B) 179131.84 294936.41 415361.71

D. Current Liabilities 405550.85 431084.28 534733.62

E. Sales 140816.78 140991.83 133541.46

F. EBIT 12636.29 11968.86 12934.88

G. Rate of return (F/C*100)

7.05 4.05 3.11

H. Net working capital (A-D)

-253031.88 -173077.33 -159065.87

I. Current Ratio (A/D) 0.37 0.60 0.70

INTERPRETATION :

From the above table it is observed that:

There was gradually increase in current assets from 2007-08 to 2009-10.

The net working capital, shows the liquidity position of the company, the position is negative in all the years. This is because the govt of india advance shown in the head office account ,where as the correspondary.

The negative amount of net working capital i.e. if the current liabilities are more than current assets, it does not means that the bad profitability position of the company it happens sometimes that the net working capital may be negative.

The EBIT shows the profitability position of the year, 2007-08,2008-09and2009-10.

The liability shown in current liability , by in the govt of advance in current assets the current ratio will be 2 for all the years . hence the liquidity position is good for all year.

FINDING SUGGESTION &CONCLUSION

FINDINGS

1.HAL NPAT is increasing from last year and the growth is remarkable .

2. HAL has shown that it is very strong completion in AIR CRAFT sector in India.

3. Overall ratio of the company are good and company need to work with more efficiency.

4. The additional capacity of Sair AIR craft production at ORISSA will create new milestones for HAL ltd.

5 .HAL investment policies are very much reliable.

6. Position of stock is increasing per year that is good sign to face the competition coming ahead.

7. Highest ever net profit of RS 378 Cores. SUGGETIONS

Suggestion of remedial measures to improve the working capital position of the company.

The working capital of an organization has a great importance in their day-today’s activities .If the working capital is not properly met than the organization met than the organization met suffer from serious crisis.

The organization must take necessary steps to raise the interest on loans and advances in order to increase the revenue sources of HAL.

To maintain a good current ratio, it must try to increase the amount of current assets.

As the analysis reveals, the division is facing a problem of liquidity due to the reason that the payment to be received from the debtors is not realized in the time.

That is the collection period is much more than the required. So, the HAL, Engine Division, koraput has to be strict to its

debtors by reducing the credit period allowed so as to improve its efficiency by managing the working.

CONCLUSION

Working capital of a business reflects the short-term use of funds. These are cash short-term securities, amount receivable, and inventories of raw materials, work in progress & finished goods.

It is also referred as to the funds required for operations of the business. It follows a cyclic process of conversion of cash into inventory, inventory into receivables & receivable into cash.

The determinates of working capital are nature of business manufacturing cycles, credit policy, availability of raw material, availability of credit, growth & expansion activities & other factors.

The working is an organization mainly depends on the analysis of the management of receivable, cash & inventory & finally the organization profit & loss account, balance sheet highlights the working capital status whether it is healthy or not.

PROFIT & LOSS A/C for the year ended 31 s t March 2008-09of Hindustan Aeronautics Limited, Koraput Division (Rs. In Lakhs).

PARTICULARS 2009 2008

INCOME

Gross Sales

Less;Excise Duty

Net Sales

Transfer to inter divisional unit

Changes in WIP/SIT/SCRAP

Other income

Changes received onInter divisional transfer

Transfer from R&D Reserve

140991.83

0

140991.83

754.03

36766.73

4748.82

75.04

0

140816.78

0

140816.78

312.82

-9121.13

2406.65

31.28

0

Total 183336.81 134446.40

EXPENDITURE

Consumption of Raw Material,

Components

Amortization&other charges

Salaries & Wages

Other Expenses

Charges paid on Inter Divisional Transfers

Interest

Depreciation

Provisions

Inter Services/ Common Services

123733.77

15214.51

21104.93

8461.99

3.30

1.41

3686.46

9218.99

1585.90

0

64227.00

11164.18

14095.42

7697.32

2.04

4.06

2369.55

11459.64

1116.81

16110.25

Transfer of IDT

Total 183011.26 128246.37

Less: Expenditure relating to capital A/C & Others

Net Expenditure

11643.31

171367.95

6430.26

121816.11

Profit for the year

Less: Provision for current taxation ( MAT )

Provision for deferred taxation

Provision for taxation of earlier years no longer required withdrawn

11968.86

0

0

0

0

12630.29

0

0

0

0

Profit after Tax 11968.86 12630.29

Balance brought forward from last year 0 0

Profit available for appropriation 11968.86 12630.29

APPROPRIATION

Debenture redemption reserve

Research & Development reserve

0

0

0

0

Proposed dividend

Tax on distributed profits

General Reserve

Balance carried to balance sheet

0

0

0

11968.86

0

0

0

12630.29

Total of appropriation 11968.86 12630.29

Balance Sheet as on 31 s t March of year 2008-09 of Hindustan Aeronautics Limited, Koraput Division (Rs. In Lakhs).

PARTICULARS 2009 2008

SOURCES OF FUNDS

Share holders Funds:

Head office control A/C

Reserve & Surplus

4712.75

11968.86

-89880.19

12630.29

16681.61 -77249.90

Loan Funds:

Secured Loans

Unsecured Loans

259.75

-

468.56

-

Deferred Liabilities (Net)

Deferred Tax Liabilities

259.75 468.56

0.44

-

0,74

-

Total sources of funds 16941.80 -76780.61

APPLICATION OF FUNDS

Fixed Assets:

Gross Block

Less :Depreciation

60432.55

23502.14

46430.09

19817.23

Net Block 36930.41 26612.86

Capital work in progress 7143.75 9145.97

44074.16 35758.83

Special tools & equipments 113380.82 110774.82

Investments

Deferred Tax assets

0

0

0

0

Current Assets, Loan & Advances:

Inventories

Sundry Debtors

Cash & Bank balances

Loan & advances

154197.27

14655.86

11.95

89141.87

94998.36

5883.47

19.98

51617.16

258006.95 152598.97

Less: Current liabilities & Provisions

Liabilities

Provisions

408546.14

22538.14

387792.35

17758.50

431084.28 405550.55

Net current Assets -173077.33 -253031.88

Intangible Assets:

Gross carrying amount

Less :Cumulative Amortization & Impairment loss

44467.53

11903.38

38257.78

8540.16

Net carrying amount 32546.15 29717.62

Total Application of Funds 16941.80 -76780.62

PROFIT & LOSS A/C for the year ended 31 s t March 2010 of Hindustan Aeronautics Limited, Koraput Division (Rs. In Lakhs).

PARTICULARS 2010

INCOME

Sales 133541.46

Transfer to Inter Divisional Units

Charges in WIP/SIT/Scrap

Other income

Charges received on Inter Divisional Transfer

58.47

62722.61

4337.46

5.85

Total 200665.85

EXPENDITURE

Consumption of Raw material, Components

Amortization

Salaries & Wages

Other Expenses

Charges paid on Inter Divisional Transfers

Interest

Depreciation

Provisions

Inter services / Common Services

Transfer of IDT

139591.47

14942.84

18003.49

9367.95

18.46

0.12

4242.48

5914.89

940.12

-

Total 193021.82

Less: Expenditure relating to Capital A/C & Others

Net Expenditure

5290.85

187730.97

Profit for the year

Less: Provision for current taxation (MAT)

Provision for deferred taxation

Provision for taxation of earlier years no longer required withdrawn

12934.88

-

-

-

-

Profit after Tax 12934.88

Balance brought forward from last year -

Profit available for appropriation 12934.88

APPROPRIATION

Debenture redemption reserve

Research & Development reserve

Proposed dividend

Tax on distributed profits

General Reserve

Balance carried to balance sheet

-

-

-

-

-

12934.88

Total of appropriation 12934.88

Balance Sheet as on 31 s t March of year 2010of Hindustan

Limited, Koraput Division (Rs. In Lakhs).

PARTICULARS 2010

SOURCES OF FUNDS

Share holders Funds:

Head office control A/C

Reserve & Surplus

16992.37

12934.88

29927.25

Loan Funds:

Secured Loans

Unsecured Loans

364.54

-

364.54

Deferred Liabilities (Net)

Deferred Tax Liabilities

Total sources of funds

0.12

-

30291.91

APPLICATION OF FUNDS

Fixed Assets:

Gross Block

Less: Depreciation

67432.44

27738.48

Net Block 39693.96

Capital work in progress 3147.59

42841.55

Special tools & equipments

Investments

Deferred Tax assets

115159.33

-

-

Current Assets, Loan & Advances:

Inventories

Sundry Debtors

Cash & Bank balances

Loan & advances

256533.47

23918.95

16.88

95198.45

375667.75

Less: Current liabilities & Provisions

Liabilities

Provisions

508682.10

26051.52

534733.62

Net current Assets -159065.87

Intangible Assets:

Gross carrying amount 46904.69

Less : Cumulative Amortization & Impairment loss

15547.79

Net carrying amount 31356.90

Total Application of Funds 3029.91

BIBILOGRAPHY

MANAGEMENT ACCOUNTANCY - SHARMA & GUPTA

ADVANCE ACCOUNTANCY – S.P.JAIN & K.L. NARANG

ESSENTIALS OF BUSINESS FINANCE – R.M.SRIVASTAV

FINANCIAL MANAGEMENT – I.M.PANDEY

WEB SITE:

www.hal.com

www.google.com