working capital management in hcl infosystems limited

8/12/2019 Working Capital Management in Hcl Infosystems Limited

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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%


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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)


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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+


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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


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"inan#ial graphs

!on#luding analsis

Suggestions and re#ommendations

Bibliograph

=) Appendi#es


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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)


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INTROD"CTION


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The problems

Purpose of stud

Resear#h methodolog

S#ope of the stud

1ata sour#es

2imitations


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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


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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)


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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)


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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)


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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)


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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/


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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)


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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+)


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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)


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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


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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


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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$


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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


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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


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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)


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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)


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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)


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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)


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CLASSIFICATION OF WORKING CAPITAL

9or+ing #apital #an be #lassified as follo's:

On the basis of time

On the basis of #on#ept


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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


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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)


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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)


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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)


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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


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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)


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WORKING CAPITAL CYCLE


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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)


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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)


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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


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WORKING CAPITAL POSITION #

!CRRENT ASSET 6 TOTA2 ASSET


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PARTIC"LARS :44? :443 :44@ :449 :44:!CRRENT

ASSETS

0KKFGK L0


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!APTA2 N!REASE

SA2ES

N!REASE

0F)08 3F)


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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


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:443 3


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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


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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)


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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


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#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 &aring '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< =


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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 =


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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)


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Con*e's%on Pe'%ods

R+. M+te'%+,


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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


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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


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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)


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working capital management in hcl infosystems limited

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