WORKING CAPITAL AT A GLANCE

 INTRODUCTION  TYPES  FEATURES  DETERMINANTS  COMPONENTS  WORKING CAPITAL CYCLE INTRODUCTION

A successful sales program is necessary for earning profits by any business enterprise. Sales don’t convert into instantly. There is a time lag between the sale of goods and receipt of cash.

Therefore, there is a need for working capital in the form of current to deal with the problem arising out of the lack of immediate realization of cash against goods sold. Therefore sufficient working capital is necessary to sustain sales activity. Defination of Working Capital:-  According to C.W. Gestenbergh- “Working capital is ordinarily defined as the excess of the current assets over current liabilities”.

 According to Lawrence. J. Gitmen

“The most common defination of working capital is the difference of the firm’s current assets and current liabilities.” Defination of working capital management:- “Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term and upcoming operational . The management of working capital involves managing inventories, accounts receivable and payable, and cash.” -From WWW.STUDYFINANCE.COM Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These require managing the current assets - generally cash and cash equivalents, inventories and debtors. There are also a variety of short term financing options which are considered.

• Cash management – identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs • Inventory management - identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials and hence increases cash flow; see Just In Time (JIT) and Economic order quantity (EOQ). • Debtors management - identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased and hence Return on Capital (or vice versa); see Discounts and allowances. • Short term financing - inventory is ideally financed by credit granted by the supplier; dependent on the cash conversion cycle, it may be necessary to utilize a bank (or overdraft), or to "convert debtors to cash" through "factoring". TYPES

Working capital can be classified either on the basis of concept or on the basis of periodicity of its requirement.

1) ON THE BASIS OF CONCEPT On the basis of concept working capital is of 2 types.

A) Gross working capital - Gross working capital is represented by the total Current assets.

Gross working capital = Total current assets

B) Net working capital - Net working capital is the excess of current assets over current liabilities.

Net working capital = Current assets – Current liabilities

2) ON THE BASIS OF REQUIREMENT On the basis of requirement working capital is also of 2 types. A) Permanent working capital - It is that amount of investment which should always be there in the fixes or minimum current assets like inventory, accounts receivables or cash balance etc. to carry out business smoothly. Such an amount cant be reduced if the firms wants to carry on business operations without interruption. B) Variable working capital - The excess the amount of working capital over permanent working capital is known as variable working capital. It may also be subdivided into two parts.

a) Seasonal working capital - Such capital is required to meet out the seasonal demands of busy periods occurring at stated intervals.

b) Special working capital - Such capital is required to meet out the extra-ordinary needs for contingencies. Events like strike, fire, unexpected competition, rising price tendencies, or initiating a big advertisement campaign require such capital.

FEATURES 1) Working capital is regarded as the excess of current assets over current liabilities.

2) Working capital indicates circular flow of funds in the day-to-day activities of business. That’s why it is also called circulating capital.

3) Working capital represents the minimum amount of investment in raw materials, work-in progress, finished goods, stores and spares, accounts receivables and cash balance.

DETERMINANTS 1) Nature of business – The effect of the general nature of the business on working capital requirements can’t be exaggerated. Rail, roads and other public utility services have large fixes investment so they have the lower requirements of current assets. Industrial and manufacturing enterprises, on the other hand, generally require a large amount of working capital. 2) Production policies – if the production is evenly spread over the entire year, working capital requirements are greater, because the inventories will be unnecessarily accumulated during of season period. But if the production schedule favours a varying production plan as per the seasonal requirements, working capital is required to a greater extent during a specified season only. The production policies are affected by so many factors availability of raw materials, labour, stocking facility etc & therefore, whatever the productions policies are, the firm has to arrange its working capital requirements accordingly. 3) Proportion of the cost of raw materials to total cost - In those industries where cost of proportion is a large proportion of total cost of the goods produced, reqirements of working capital will be comparatively large. 4) Length of period of manufacturing – The time which elapses between the commencement and end of the manufacturing process has an important bearing upon the requirements of working capital. The manufacturing cycle may be shorter for certain concerns & longer for others- it depends on the type of the product to be manufactured, work to be done through machine labour & hand labour, degree of rationalization of manufacturing procedures through times, motion & fatigue studies etc. 5) Terms of purchase - If suppliers allow continuous credit, payment can be postponed for some time and can be made out of the sale proceeds of the goods produced. In such a case, the requirements of working capital will be reduced. 6) Dynamic Attitudes – As a company grows, it is logical to expect the large amount of working capital will be required. 7) Business cycles – Requirement of working capital also varies with the business. When the price level is up due to boom conditions, the inflationary conditions create demand for more working capital. During depression also a heavy amount of working capital is needed due to the inventories being locked unsold and book uncollected. 8) Requirement of cash - The working capital requirements of a company are also influenced by the amount of cash required by it for various purposes. The greater the requirement of cash, the higher will be the working capital needs of the company. 9) Dividend policy of concern – If the management follows a conservative dividend policy the needs of working capital can be met with the retained earnings. The relationship between dividend policy and working capital is well established and mostly companies declare dividend after a careful study of their cash requirements 10) Other Factors - Other factors, which affect the requirement of working capital, are lack of co-operation in production and distribution policies, transport and communication facilities, the fiscal and tariff policies of the government etc.

COMPONENTS

Main components of working capital are as follows:

1) Cash – Cash is the most liquid and important component of working capital. Holding cash involves cash in the sense that the present worth of cash held for a year is less than the value of cash on today. During inflationary situations as exist today the cost of holding includes the deterioration in the value of the cash due to inflation. Cash, therefore, results in enhanced liquidity, but lower profitability. Despite in the cost involved it is pertinent to hold cash because it facilitates the attainment of some important motives.

2) Marketable Securities – Though marketable securities provides a such lower yield that the firm’s operation assets. They serve two useful functions. Firstly, they act as a substitute for cash, and secondly, are used as temporary investment. Where these securities are held in lieu of the cash balance, they act as a substitute for transactional or precautionary balances. Normally, these aren’t used as speculative balances, but only as a guard against the possible shortage of bank credit. Marketable securities (as temporary investment) may be held for one of the following reasons:

• Seasonal or cyclical operations • To meet known financial requirements. Construction of an additional plant. • Immediately after the sale of long-term securities. 3) Account Receivable - Though accounts receivable are a vital investment of any business organization, little analytical work as been done to determine credit policies. Maintaining account receivable has its cost implications in that the firm’s monetary resources are tied up. This is of greater significance in the inflationary economy, because of the in the value of money. Basically, this is a two-step account. When goods are shipped, inventories are reduced and accounts receivable is created. When payment is made, this account is reduced and the cash level increases. Accounts receivables are, therefore a function of the volume of credit sales and the average length of time between sales and collections.

4) Inventory – Inventories represent a substantial amount of a firm’s current assets. Management of inventories should be efficiently carried out so that this investment doesn’t become too large, as it would result in blocked capital which could put to productive use elsewhere. On the other hand, having too small an inventory could result in loss of sale or loss of customer . An optimum level of inventory should therefore be maintained.

WORKING CAPITAL CYCLE Working capital cycle indicates the length of time between a firm’s paying for materials entering into stock and receiving the cash from sale of finished goods. In a manufacturing firm, the duration of time required to complete the sequence of events is called operating cycle.

In case of a manufacturing company, the operating cycle is the length of time necessary to complete the following cycle of events: -

1) Conversion of cash into raw materials 2) Conversion of raw materials into work-in-progress 3) Conversion of work-in-progress into finished goods 4) Conversion of finished goods into accounts receivable 5) Conversion of accounts receivable into cash

The above operating cycle is repeated again & again over the period depending upon the nature of the business & type of product etc. the duration of the operating cycle for the purpose of estimating working capital is equal to the sum of duration allowed by the suppliers. Working capital cycle can be expressed as: R+W+F+D-C Where R=Raw Material Storage Period = Avg. Stock of Raw Material / Avg. Cost of Production per day

W=Work in Progress Holding Period = Avg. Work in Progress Inventory /Avg. Cost of Production per day

F=Finished Goods Storage Period = Avg. Stock of Finished Goods / Avg. per day D=Debtors Collection Period = Avg. Book Debts/ Avg. Credit Sales per day

C=Credit Period Availed = Avg. Trade Creditors/Avg. Credit Purchases per day

OPERATING CYCLE OF MANUFACTURING BUSINESS REALIZATION Accounts SALES Receivables

Cash Finished Goods

PURCHASES

PRODUCTION PRODUCTION PROCESS Raw Materials Work-in-Process PROCESS

THEORTICAL ASPECTS OF WORKING CAPITAL MANAGEMANT WORKING CAPITAL MANAGEMENT

NATURE OF WORKING CAPITAL MANAGEMENT

Working capital management is three dimensional in nature-

1) It is concerned with the formulation of policies with regard to profitability, liquidity and risk. 2) It is concerned with the decisions about the composition and level of current assets.

3) It is concerned with the decisions about the composition and level of current liabilities.

Policies regarding to Profitability Liquidity and Risk

Composition of Composition of Level Level of Current of Current Assets Liabilities

GOAL OF WORKING CAPITAL MANAGEMENT

Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them.

The term current assets refer to those assets which is the ordinary course of business can be converted into cash within one year. Major current assets are cash, marketable securities, accounts receivable and inventory.

Current liabilities are those liabilities, which are intended, at their inception, to be paid in the ordinary course of business within a year, out of the current assets or earnings of the concern. Current liabilities are accounts payable, bills payable, bank overdraft, and outstanding expenses.Working capital is that portion of firm’s assets which is financed by long-term funds. Interaction between current assets and current liabilities is the main theme of the theory of working capital management. Goal of working capital management is to manage the firm’s current assets and liabilities in such a way so that a satisfactory level of working capital is maintained. The second important segment of working capital management is deciding the optimum level of investment in various current assets. There are three important current assets cash, accounts receivables and inventory

RECEIVABLES MANAGEMENT

INTRODUCTION

The term receivable is defined as “debt owed to the firm by customers arising from sale of goods or services in the ordinary course of business”. When a firm makes an ordinary sale of goods or services and doesn’t receive payment, the firm grants trade credit accounts receivable, which could be collected in the future. Receivables Management is also called trade credit management.

OBJECTIVE

The objective of receivables management is “to promote sales and profits until that point is reached where the return on investment in further funding receivables is less than the cost of funds raised to finance that additional credit”.

BENEFITS

Investments in receivables involve both benefits and costs. The extension of trade credit has a major impact on sales, costs and profitability. Other things being equal, a relatively liberal policy and, therefore, higher investments in receivables, will produce larger sales. However, costs will be higher with liberal policies than with more stringent measures. Therefore, accounts receivables management should aim at a trade-off between profit (benefit) and risk (cost).

CREDIT POLICY

The credit policy of a firm provides the framework to determine: 1) Credit standards 2) Credit terms 3) Credit Analysis

Credit Standard

The term credit standards represent the basic criteria for the extension of credit to those customers to whom goods could be sold on credit. If a firm has more slow-paying customers, its investment in accounts receivables will increase. The firm will also be exposed to higher risk of default.

Credit Terms Credit terms specify duration of credit and terms of payment by customers. Investment in accounts receivables will be high if customers are allowed extended time period for making payments.

Credit Analysis Credit analysis and investigation is an aspect of credit policies of a firm. Two basic steps are involved in the credit investigation process: Obtaining credit information B. Analysis of credit information It is on the basis of credit analysis that the decisions to grant credit to a customers as well as the quantum of credit would be taken.

INVENTORY MANAGEMENT INTRODUCTION

Inventories constitute the principal item in the working capital of the majority of trading and industrial companies. In inventory we include raw materials, finished goods, work-in-progress, supplies and other accessories. To maintain the continuity in the operations of business enterprises, a minimum stock of inventory is required.

Management of inventory is designed to regulate the volume of investment in goods on hand and the types of goods carried in stock to meet the needs of production and sales while at the same time, the investment in them is to be kept at a reasonable level.

CONCEPT

The inventory management” is used in two ways- Unit Control and Value Control. Production and purchase officials use this word in term of unit control whereas in this word is used in term of value control .Investment in inventory is one the largest item of business enterprises particularly those engaged in manufacturing.

The proper management and control of the capital invested in the inventory should be the prime responsibility of accounting department because resources invested in inventory aren’t earning a return for the company. Rather, on the other hand, they are costing the firm money both in terms of capital costs being incurred and loss of opportunity income that is being foregone. OBJECTIVES

The basic managerial objectives of inventory control are two- 1) The avoidance of over-investment or under-investment in inventories.

2) To provide the right quantity of standard raw material to the production department at the right time.

TECHNIQUES OF INVENTORY CONTROL

1) The Selective Inventory Control or ABC System of Control 2) Maximum Stock Limit 3) Minimum Stock Limit 4) Re-ordering Level 5) Economic Order Quantity

ABC System of Control

The various inventory items are, according to this system, categorized into three classes- I. A II. B III. C

The item included in-group involve the largest investment. Therefore, inventory control should be the most rigorous and intensive and the most sophisticated inventory control techniques should be applied to these items. The C group consists of items of inventory which involve relatively small investments although the numbers of items is fairly large. These items deserve minimum attention. The B group stands midway. It deserves less attention than A but more than C. It can be controlled by employing less sophisticated techniques. Maximum Stock Limit

This represents the quantity if inventory above which it should not be allowed to be kept. The following formula may be applied to calculate the maximum stock-

Maximum Stock = Reorder Level – Minimum Consumption during Minimum Lead Time + Lot Size.

Minimum Stock Limit

This represents the quantity below which stock should not be allowed to fall. The main purpose of this level is to ensure that production isn’t held up due to storage of any material.

Minimum Stock Limit = Re-order Level – Normal storage during Lead Time

Re- Ordering Level

It is the point at which if stock of the material in store reaches, the storekeeper should initiate the purchase requisition for fresh supplies of the material. This level is fixed somewhere between the maximum and minimum levels in such a way that the difference of quantity of the material between the reordering level and the minimum level will be sufficient to meet requirements of production upto the time of fresh supply of the material.

The reorder point = Lead time in days * Average daily usage of

inventory Economic Order Quantity

It is the quantity of inventory, which can be reasonably ordered at a time and purchased economically. It is also known as Standard Order Quantity or Economic Lot Size. By definition “Economic Order Quantity is that size or order at which the total cost of ordering and holding are the minimum.

In determining the economic order quantity the problem is one to set a balance between two opposing costs, namely, namely ordering costs and carrying costs. The ordering costs are basically the costs of getting an item into the firm’s inventory.

Carrying costs, sometimes also known as holding costs are the costs of possessing the materials. These costs are combined known as “Associated Costs”.

Hence, the management tries to reconcile them and this reconciliation point is economic order quantity.

OBJECTIVES OF THE STUDY  To study the various proportions of working capital of HCL industries.

 To find out different ratios related with working capital.

 To check the impact of cash flows on working capital of HCL industries.

 To know the current trend of Assets and Liabilities.

RESEARCH METHODOLOGY

When we talk of research methodology, we not only talk of the research methods but also the comparison of the logic behind the methods, we used in this context of our research study and explain why we are using a particular method or technique and why using the others. Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done systematically. In this, we study the various steps that are generally adopted by researcher in studying his research problem along with the logic behind them. “The present study is based upon the case study method of research to investigate procedures at micro level”. As the study is analyzing probing in nature, thus, entirely based on the secondary data gathered through the annual reports of the industry. Therefore it provides a historical perspective of decisions.

ESEARCH

Research refers to search for knowledge. Research is an original contribution to the existing stock of knowledge making for its advancement. It is the pursuit of truth with the help of study, observation, comparison and experiment. In short, the search for knowledge through objective and systematic method of finding solution of the problem is research. The advance learner’s dictionary of current English gives the meaning of research “a careful investigation or inquiry especially through search for new facts in any branch of knowledge”.

RESEARCH METHODS Research methods may be understood as those methods/techniques that are used for conduction of research. All those methods which are used by the researcher during the course of studying his research problem, are termed as research methods . Keeping in view, the research methods can be put into following three groups:  In the first group we include those methods which are concerned with the collection of data. These methods will be used where the data already available are sufficient to arrive at the required solution.  The second group consists of those statistical techniques which are used to establish relationships between the data and the unknown.  The third group consists of those methods which are used to evaluate the accuracy of the obtained results. COLLECTION OF DATA There are several ways of collecting the appropriate data which differ considerably in context of money, cost, time and other sources at the disposable of the researcher. There are two types of data: • Primary data • Secondary data

Primary data Primary data are those which are collected afresh and for the first time, and thus happen to be original in character. In case of descriptive research, researcher performs survey whether sample survey or census survey, thus we obtain primary data either through • Observation • Direct communication with respondent • Personal interview

Secondary data Secondary data are those which have already been collected by someone else and have already been passed through statistical process.

In this project report, both types of data have been used. Mainly, secondary data is used such as annual reports of last two years of HCL industries. METHODS OF WORKING CAPITAL ANALYSIS

There are so many methods for analysis of financial statements but HCL used the following techniques:-

 Comparative size statements  Trend analysis   Ratio analysis A detail description of these methods is as follows:-

COMPARATIVE SIZE STATEMENTS:- When two or more than two years figures are compared to each other than we called comparative size statements in order to estimate the future progress of the business,it is necessary to look the past performance of the company.These statements show the absolute figures and also show the change from one year to another .

Benefits of this method to the HCL:-

 To indicate the trends,these statements show the change in production, sales, and expenses.

 To make the data simple and more understandable.

TREND ANALYSIS:- To analyse many years financial statements HCL uses this method.This indicates the direction on movement over the long time and help in the financial statements. Procedure for calculating trends:-

1. Previous year is taken as a base year. 2. Figures of the base year are taken 100. 3. Trend % are calculated in relation to base year.

Benefits :-

 It is beneficial to find out the long run changes .

 It is helpful in future forecasting.

CASH FLOW STATEMENT:-

Cash flow statements are the statements of changes in the financial position prepared on the basis of funds defined in cash or cash equivalents. In short cash flow statement summaries the cash inflows and outflows of the firm during a particular period of time.

Benefits for the HCL:-

 To prepare the cash .

 To compare the cash .

 To show the position of the cash and cash equivalents.

RATIO ANALYSIS:-

Ratio analysis is the process of the determining and presenting the relationship of the items and group of items in the statements .According to Batty j. “Ratio can assists management in its basics functions of forecasting ,planning,coordination,control and communication”.

Benefits of ratio analysis to HCL:- 1. Helpful in analysis of financial statements. 2. Helpful in comparitive study. 3. Helpful in locating the weak spots of the HCL. 4. Helpful in forecasting. 5. Estimate about the trend of the business. 6. Fixation of ideal standards. 7. Effective control. 8. Study of financial soundness.

Types of ratio:-

 Liquidity ratio: They indicates the firms ability to meet its current obligation out of current resources.

• Current ratio:- Current assets / Current liabilities • Quick ratio:- Liquid assets / Current liabilities Liquid assets =Current assets – Stock -Prepaid expenses

 Leverage or Capital structure ratio: This ratio discloses the firms ability to meet the interest costs regularly and long term solvency of the firm. • Debt ratio:- Long term / Shareholders funds or net Worth

• Debt to total fund ratio:- Long terms loans/ share holder funds +long term loan

• Proprietary ratio:- Shareholders fund/ shareholders fund+long term loan

 Activity ratio or Turnover ratio:- They indicate the rapidity with which the resources available to the concern are being used to produce sales.

• Stock turnover ratio:- Cost of good sold/Average stock ( cost of good sold= Net sales/ Gross profit, Average stock=Opening stock+closing stock/2)

• Debtors turnover ratio:- Net credit sales/ Average debtors +Average B/R

• Average collection period:- Debtors+B/R /Credit sales perday ( Credit sales per day=Net credit sales of the year/365)

• Creditors Turnover Ratio:- Net credit purchases/ Average Creditors + Average B/P • Average Payment Period :- Creditors + B/P/ Credit purchase er day

• Fixed Assets Turnover ratio:- Cost of goods sold/Net fixed

Assets

( Net Fixed Assets = Fixed Assets – depreciation) • Working Capital Turnover Ratio:- Cost of goods sold/ king Capital (working capital= current assets – ) Profitability Ratios or Income ratios:- The main objective of every business concern is to earn profits. A business must be able to earn adequate profit in relation to the risk and capital invested in it.

• Gross profit ratio:- Gross profit / Net Sales * 100 (Net sales= Sales – Sales return)

• Net profit Ratio:- Net profit / Net sales * 100 (Operating Net Profit= operating net profit/ Net Sales *100 or operating Net profit= gross profit – operating expenses)

• Operating Ratio :- Cost of goods sold + Operating expenses/ Net Sales * 100 (Cost of goods sold = Net Sales – Gross profit , Operating expenses = office & administration expenses + Selling & distribution expenses + discount + bad debts + interest on short term loans)

• Earning per share(E.P.S.) :- Net Profit – dividend on preference share / No. of equity shares • Dividend per share(D.P.S.) :- Dividend paid to equity share Holders / No. of equity shares *100.

• Dividend Payout ratio(D.P.) :- D.P.S. / E.P.S. *100

ANALYSIS FOR HCL INDUSTRY . Current ratio 2009 C.R.=1321.22/969.15=1.36 2010 C.R=1517.69/1266.86=1.20 Comment: As compared to previous year, current ratio has decreased in current year because of increase in current liabilities.

. Quick ratio 2009 Q.R.=570.49/969.15=0.59 2010 Q.R.=693.55/1266.86=0.55

Comment: As compared to previous year, quick ratio has slightly decreased in current year. DEBT EQUITY RATIO:- 2009 D.E.R = 1979.67/4982.08 = 0.40 2010 D.E.R = 2951.56/6230.04 = 0.47 . Interest coverage ratio 2009 I.C.R.=1201.90/103.38=11.67 times 2010 I.C.R.=2189.26/111.84=19.57 times

Comment: Interest coverage ratio is increasing as compared to previous year. This indicates that the firm will be able to pay the interest on long term loans regularly.

. Fixed assets turnover ratio 2009 F.A.T.R.=5159/3004.63=1.72 times 2010 F.A.T.R.=6097/3390.44=1.80 times Comment: • This ratio reveals how efficiently the fixed assets are being utilized. As compared to previous year, this ratio is increasing which indicates that there is better utilization of fixed assets. • DEBT TO TOTAL FUND RATIO:- 2009 D.T.F.R. =1979.67/6961.75 = 0.28 or 28.0% 2010 D.T.F.R.= 2951.56/9181.60 = .32 or32.0% • PROPRIETARY RATIO:- 2009 P.R.= 4982.08/6961.75 = 0.71 or 71.0% 2010 P.R.= 6230.04/9181.60 = 0.67 or 67.0% . Capital turnover ratio 2009 C.T.R.=5159/3356.70=1.54 times 2010 C.T.R.=6097/3641.27=1.67 times

Comment: This ratio reveals how efficiently capital employed is being used. As compared to previous year, this ratio is increasing which indicates that there is better use of capital employed. . Working capital turnover ratio 2009 W.C.T.R.=5159/352.07=14.65 times 2010 W.C.T.R.=6097/250.83=24.3 times Comment: This ratio reveals how efficiently working capital has been utilized in making sales. As compared to previous year, this ratio is increasing which indicates the efficient use of working capital.

. Stock turnover ratio 2009 S.T.R.=5159/715=7.22 times 2010 S.T.R.=6097/784.44=7.77 times Comment: This ratio indicates whether stock has been efficiently used or not. As compared to previous year, there is a slight increase in this ratio • GROSS PROFIT RATIO:- 2009 G.P.R.= 1494/6621*100 = 22.56% 2010 G.P.R.=2507/8604*100 = 29.14% • NET PROFIT RATIO:- 2009 N.P.R.=1202/6621*100 = 18.15% 2010 N.P.R.=2189/8604*100 = 25.44% • OPERATING NET PROFIT RATIO:- 2009 O.N.P.R.= 1590.9/6621*100 = 24.02% 2010 O.N.P.R.=2619/8604*100 = 30.44% • EARNING PER SHARE:- 2009 E.P.S.= 8630000000/91808510 = RS. 94 2010 E.P.S.= 15360000000/91428571 = RS.168 • DIVIDEND PER SHARE:- 2009 D.P.S.=1836176200/91808510 = RS.20 2010 D.P.S.=2514285703/91428571 =RS.27.5 • DIVIDEND PAYOUT RATIO:- 2009 D.P.R.=20/94*100 = 22.0% 2010 D.P.R.=27.5/168*100 =17.0%

Proportion of various sources of working capital in percentage:

Current assests, loans and advances: . Interest accured on investments 2009 1.46/2026.76*100=0.07% 2010 0.70/2342.39*100=0.02%

. Inventories 2009 750.73/2026.76*100=37.04% 2010 824.14/2342.39*100=35.18%

. Sundry debtors 2009 413.45/2026.76*100=20.39% 2010 576.48/2342.39*100=24.64%

. Cash and bank balances 2009 155.58/2026.76*100=7.67% 2010 116.38/2342.39*100=4.96%

. Loans and advances 2009 705.54/2026.76*100=34.83% 2010 824.69/2342.39*100=35.20%

Current liabilities and provisions:

. Current liabilities 2009 969.15/1273.37*100=76.10% 2010 1266/1450.06*100=87.36%

. Provisions 2009 304.22/1273.37*100=23.90% 2010 183.20/1450.06*100=12.63%

COMPARATIVE P&L ACCOUNT (For the year 2009-10)

(Rs. in Crores) FY010 FY07 %change Net turnover 14,095.2 10,224.0 38 Other income 317.7 267.9 19 Total expenditure 10,122.8 8,155.3 24 Operating 4,290.1 2336.6 84 profit(PBIDT) Interest 228.6 218.3 5 Depreciation 610.0 563.1 8 Exceptional Items - 4.1 -

Profit before tax 3,451.5 1,559.3 121 Total tax expenses 1,092.1 402.7 171 Net Profit after Total 2,359.4 1,156.6 104 Tax Minority share 391.9 116.0 238 Net profit 1,967.5 1,040.6 89

Trend Analysis (For liability side of 2009-10) (Rs. in Crores) Particulars 2010 2009 Base Current Trend % Trend %

Current Liability Liability 1,266.86 969.15 100 130.73 Provisions 183.20 304.22 100 60.21 Total(A) 1,450.06 1,273.37 100 113.87

Fixed Liability Share Capital 91.69 91.69 100 100 Reserves & 6,138.35 4,890.39 100 125.5 surplus Loans 2,951.56 1,979.67 100 149.09 Def. Tax liability 582.55 584.38 100 99.68 Total(B) 9,764.15 7,546.13 100 129.39

Total 11,214.21 8,819.50 100 127.15 liability(A+B)

TREND ANALYSIS (For assets side of 2009-10)

(Rs. in Crores) Particulars 2010 2009 Base Current Trend Trend % % Fixed Assets Fixed Assets 4,582.79 3,298.27 100 138.94 Fixed assets held 14.33 12.76 100 112.30 for disposable Investments 4,274.70 3,481.71 100 122.79 Total(A) 8,871.82 6,792.74 100 130.60

Current Assets Stock 824.14 750.7 100 109.77 3 Interest Accrued .70 1.46 100 47.94 Debtors 576.48 413.45 100 139.43 Cash 116.38 155.58 100 74.80 Loans 824.69 705.54 100 116.88 Total(B) 2,342.39 2,026.76 100 115.59

Total 11,214.21 8,819.50 100 127.15 Assets(A+B)

CASH FLOW ANALYSIS (For 2009-10) ( Rs in Crores) FY07 FY06 SOURCES OF CASH Cash from operations(net of taxes) 1816.0 1077.1 Increase in debts 947.6 -- Non operating cash flow 114.0 67.1 Decrease in cash and cash equivalent 39.2 -- Decrease in working capital -- 205.2 2916.8 1349.4 Uses of cash Net increase in investments 647.1 549.2 Net capital expenditure 1598.2 399.5 Decrease in debts -- 53.3 Increase in working capital 83.3 -- Interest 109.4 112.7 Dividend 478.8 165.8 Increase in cash and cash equivalent -- 68.9 2916.8 1349.4

CASH FLOW STATEMENT (For year 2009-10) Interest received (322.8) (255.21) Net Cash from / (used (301.75) (231.24) in) investing activities Cash flow from 19.71 5.65 financing activities Proceeds from (75.41) (792.83) borrowings Repayments of 666.13 53.64 borrowings Interest paid (1294.15) 24.74 Dividends paid 3.37 1.79 Corporate dividend tax 74.29 55.28 Dividend received 39.37 86.32 Net cash from / (used (868.44) (796.65) in) financing activities net increase/decrease (140.78) 117.37 in cash & cash equivalent At Beginning of year 227.48 110.11 At end of year 86.7 227.48 Dividend received(Net)

(PROFIT & LOSS A/C) (For 2009-10) (Rs. in Crores) 2010 2009

INCOME Gross sales 9,607.97 7,638.41 Less: Excise duty 986.29 985.80 Net sales 8,603.59 6,652.61 Interest & dividend 113.27 67.53 Income Other income 168.49 152.41 Increase/Decrease in (16.44) (43.48) stock 8,868.91 6,829.07 EXPENDITURE Raw material 2,219.32 1,822.69 consumed Manufacturing 1,744.33 1,580.34 expenses Purchases of finished 321.16 240.15 &other products Payments to 459.40 407.64 &provisions for employees Selling, distribution, 1,505.69 1,181.33 administration &other expenses Interest 111.84 103.38 Depreciation 317.91 291.64 6,679.65 5,627.17 Profit before tax and 2,189.26 1,201.90 exceptional items Surplus on pre- - 4.13 payment of sales tax loan Write back of 37.10 - provision for diminution Profit before tax 2,226.36 1,206.03 Provision for current (692.38) (369.82) tax Deferred tax 1.83 27.00 Profit after tax 1,535.81 863.21 Debenture redemption 38.56 8.62 reserve no longer required 0.05 0.25 Investment allowance reserve no longer required Balance brought forward from previous 878.37 815.35 year

2,452.79 1,687.43 Profit available for appropriation Appropriations:

Interim dividend 252.10 - Proposed dividend - 183.35 Corporate dividend 35.36 25.41 tax General reserve 1200.00 600.00 Balance carried to 965.33 878.37 2,452.79 1,687.43 ALANCE SHEET (For year 2009-10) (Rs Crore) FY (2009-10) FY (2008-09)

SOURCES OF FUNDS SHARE HOLDERS FUND share capital 91.69 91.69 Reserves and Surplus 6,138.35 4,890.39 Loan funds Secured Loans 2,291.00 1,386.12 Unsecured Loans 660.56 593.55 2,951.56 1,979.67 Deferred tax liabilities 582.55 584.38 TOTAL 9,764.15 7,546.13 APPLICATIONS OF FUNDS Fixed assets Gross Block 6,770.97 6,114.12 Less: Depreciation 3,380.53 3,109.49 Net Block 3,390.44 3,004.63 Capital Work-in- 1,192.35 293.64 Progress 4,582.79 3,298.27 Fixed Assets held for 14.33 12.76 disposal Investments 4,274.70 3,481.71 Current assets, loans & advances Interest accrued on 0.70 1.46 Investments Inventories 824.14 750.73 Sundry Debtors 576.48 413.45 Cash and Bank 116.38 155.58 Balances Loans and Advances 824.69 705.54 2,342.39 2,026.76 Less:

Current liabilities & provisions Liabilities 1,266.86 969.15 Provisions 183.20 304.22 1,450.06 1,273.37 Net Current Assets 892.33 753.39 TOTAL 9,764.15 7,546.13

CONCLUSIONS

• In 2010 there is increase in current assets by 24% than 2009 and there is increase in current liability by 17%, because of greater increase in current assets than in current liabilities, the position of Working capital has improved. • The % of Fixed Assets has come down in 2010 from 2009. • As per current ratio firm is able to pay its current liability. • Quick ratio presents a better test of short term financial position, which shows better working capital position of firm. • Debt equity ratio and debt to total fund ratio presents protection to long term lenders and shows sufficient working capital in the firm. • G.P. and N.P. have increased from previous year. • Cash flow statement indicates outflow of cash in comparison to past year. • Due to better long term and short term financial condition firm’s working capital position is better than that of previous year.

LIMITATIONS

• Based on financial statements these statements suffer from certain limitations. • Affected by window dressing. • Company provides only secondary data, so certain type of bias is in study. • Unsuitable for forecasting.

BIBLIOGRAPHY

. Financial Management By M.Y. Khan & P.K. Jain . Financial Management By D. K. Goyal . Annual Reports of HCL Industries Ltd. 2008-09 2009-10 . www.hcl.com . www.google.co.in