Post on 30-May-2018
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A CASE STUDY ON
ANALYSIS OF OPERATING CYCLEWITH SPECIAL REFERENCE TO
BHARTI TELETECH LTD.
SUMITTED IN PARTIAL FULFILLMENT OF
THE REQUIREMENT OF THE DEGREE OFMASTER OF BUSINESS ADMINISTRATION
UTTARAKHAND TECHNICAL
UNIVERSITY, DEHRADUN
SUBMITTED BY: SUBMITTED TO:
Charu Kejriwal Dr. Pradeep Suri
IMS-Dehradun H.O.D- Management
Roll No.- MB06063 IMS Dehradun
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CERTIFICATE
I have the pleasure in certifying that Ms Charu Kejriwal is a bonafide student of 4 th Semester
of Institute of management studies, Dehradun University Roll no
She has completed her project work entitled. Under my
supervision.
I certify that this is her original effort. It has not been copied from any other source. This
project has not been submitted in any other university for the purpose of award of any degree.
This project fulfills the requirement of the curriculum prescribed by UK. TECH. University,
for the said course. I recommend this project work for evaluation and consideration for the
award of degree to the student.
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ACKNOWLEDGEMENT
Indebted to many people who helped throughout the project work and in the preparation of
this report. First of all I would like to offer my sincere gratitude to Mr. Sanjeev Sehgal,
project director and Deputy finance manager of BHARTI TELETECH LTD and IMS for
giving me the opportunity to undertake this project.
I would also wish to special thank my project guide Mr. Sandeep Jain, project guide in
BHARTI TELETECH LTD for his valuable guidance during the course of the project.
I owe special debt to Fellow professionals at BHARTI TELETECH LTD, Mr. Apoorv
Kumar, Mr. Amarender Jena and Mr. Rajeev Guha for having shared the knowledge for
providing me the constant support and valuable suggestions through the project.
My thanks are also to Dr. Pradeep Suri who has helped in organizing this project.
I am also thankful to all my friends for providing me the much needed the moral support
during the course of this project.
IMS Dehradun Charu Kejriwal
(MBA-IV Sem)
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CONTENTS
Certificate
Acknowledgement
Preface
1. Executive summary
2. Introduction
3. Company Profile
- BHARTI
- BEETEL
4. Review of Literature
- Components of Working Capital
- Working Capital Cycle
- Financing Working Capital
- Financial Ratios
5. Objective of the study
6. Research Methodology
7. Findings & Analysis in BHARTI TELETECH LTD.
- Evaluation of various components of Working Capital
- Working Capital Ratios
- Turnover Ratios
- Working Capital and Capital Employed
- Profit After Sales as a % to sales
8. Case Analysis (Operating Cycle)
9. Suggestions and Recommendations for improving the operating cycle
10. Conclusion
11. Bibliography
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EXECUTIVE
SUMMARY
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EXECUTIVE SUMMARY
India in a large and growing economy with rapidly expanding financial service sector.
Managing working capital is a matter of balance. A company must have sufficient cash on
hand to meet its immediate needs while ensuring that idle cash is invested to the
organizations best possible advantage. To avoid tipping the scale, it is necessary to have clear
and accurate reports on each of the components of working capital and awareness of the
potential impact of outside influences.
WORKING CAPITAL = CURRENT ASSETSCURRENT LIABILITIES
In the analysis for Bharti Teletech Limited, a Bharti Group Company it was found that the
working capital has increased which could be mainly due to increased sales. The Gross
Operating Cycle declined significantly but the reduction was nullified due to the reduction in
inventory conversion period. This is why we see that Net operating Cycle for last two years is
almost identical. The main areas of emphasis were work in progress conversion period andcreditors conversion period. Debtors conversion period reduced but work in progress and
creditors conversion period increased. Few suggestions that are recommended for better
management of working capital are reducing inter-corporate deposits and loans, reducing
finished goods inventory, increment in creditors payment period etc.
The company uses Operating Cycle Method to calculate its Working Capital method.
Thus, good management of working capital is part of good financial management. Effective
use of working capital will contribute to the operational efficiency of a company, optimum
use will help to generate maximum returns.
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WORKING CAPTAL MANAGEMENT
Every business needs investment to procure fixed assets, which remain in use for a long
period. Money invested in these assets is called Long term Funds or Fixed Capital.
Business also needs funds for short-term purposes to finance current operations. Investment in
short term assets like cash, inventories, debtors etc., is called Short-term Funds or Working
Capital.
The Working Capital can be categorized, as funds needed for carrying out day-to-day
operations of the business smoothly.
The management of the working capital is equally important as the management of long-term
financial investment. The goal of Working capital management is to ensure that the firm is
able to continue its operations and that it has sufficient cash flow to satisfy both maturing
short-term debt and upcoming operational expenses.
Every running business needs working capital. Even a business which is fully equipped with
all types of fixed assets required, is bound to collapse without
(i) adequate supply of raw materials for processing;
(ii)cash to pay for wages, power and other costs;
(iii)creating a stock of finished goods to feed the market demand regularly; and,
(iv)the ability to grant credit to its customers.
All these require working capital. Working capital is thus like the lifeblood of a business. The
business will not be able to carry on day-to-day activities without the availability of adequate
working capital.
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Company Profile
-
BHARTI
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BHARTI ENTERPRISE
Bharti Enterprises has successfully focused its strategy on telecom while straddling diverse
fields of business. From the creation of 'Airtel', one of India's finest brands, to becoming the
largest manufacturer and exporter of world class telecom terminals under its 'Beetel' brand,
Bharti has created a significant position for itself in the global telecommunications
sector. Bharti Airtel Limited is today acknowledged as one of India's finest companies, and its
flagship brand 'Airtel', has over 40 million customers across the length and breadth of India.
While a joint venture with TeleTech Inc., USA marked Bhartis successful foray into the
Customer Management Services business, Bharti Enterprises dynamic diversification has
continued with the company venturing into telecom software development. Recently, Bharti
has successfully launched an international venture with EL Rothschild Group owned ELROHoldings India Ltd., to export fresh Agri products exclusively to markets in Europe and USA.
Bharti also has a joint venture - Bharti AXA Life Insurance Company Ltd. - with AXA,
world leader in financial protection and wealth management. Bharti has recently forayed into
retail business under a company called Bharti Retail Pvt. Ltd. It also has a MoU with Wal-
Mart for the cash & carry business.
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Highlights
Bharti Enterprises announced new Apex level Strategic Organization Structure.
Bharti Announced Strategic Roadmap for its Retail Venture
Bharti Group made an arrangement to buy 5.6% direct interest of Vodafone in BhartiAirtel Limited for US$1.6 billion
Sunil B. Mittal has been chosen for this years Padma Bhushan Awards
Bharti Airtel received Letter of Offer to provide 2G and 3G mobile services in Sri
Lanka
Group Structure
http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=204&tx_ttnews%5BbackPid%5D=116&cHash=b24c2bf6bchttp://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=203&tx_ttnews%5BbackPid%5D=116&cHash=8568c4a979http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=200&tx_ttnews%5BbackPid%5D=116&cHash=dc21c300a7http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=199&tx_ttnews%5BbackPid%5D=116&cHash=5fb656b278http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=199&tx_ttnews%5BbackPid%5D=116&cHash=5fb656b278http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=204&tx_ttnews%5BbackPid%5D=116&cHash=b24c2bf6bchttp://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=203&tx_ttnews%5BbackPid%5D=116&cHash=8568c4a979http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=200&tx_ttnews%5BbackPid%5D=116&cHash=dc21c300a7http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=199&tx_ttnews%5BbackPid%5D=116&cHash=5fb656b278http://www.bharti.com/48.html?&tx_ttnews%5Btt_news%5D=199&tx_ttnews%5BbackPid%5D=116&cHash=5fb656b2788/14/2019 Charu Kejriwal Dissertation
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Company profile
-
BEETEL
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BHARTI TELETECH
PROFILE
In 1985, Bharti Teletech entered into a technical
collaboration with Siemens AG, the German
technological giant and set up a plant in
Ludhiana to manufacture telephones.
Come 2005 and Beetel has journeyed across
twenty years of creating history. In 1991, Beetel manufactured phones for
'Sprint', the American telecom mammoth. Shortly after, in 1993-94, came ISO
9001-2000 accreditations for the manufacturing units - by this time two in
numbers, at Gurgaon and Ludhiana. And in a short span of time, Beetel was
already the market leader. Cornering half of the Indian market, Beetel became
'India's Favorite Phone'.
Today Bharti Teletech has two ISO 9000 certified plants with an annual capacity
of 5 million units p.a.
Bharti became the first company to:
1) Manufacture cordless telephone and telephone answering machines in
India.
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2) It is also the first to launch SMS phones on fixed line in the country
thereby heralding a revolution in fixed line SMS telephony.3) In line with customer needs, Bharti was also the first to launch backlit
LED and GSM Interference free phones.
BEETELs products range includes the BASIC Phones, CALLER ID Phones,
CORDLESS Phones, 1.8 GHz DECT, 2.4 GHz phones, VOIP Phones, broadband
(ADSL) equipments like Modems, routers and set top boxes.
4 BTTL is the first Indian company to manufacture 20 million phones. Today, one out ofevery three phones in India is a Beetel. With rapid growth over the years, Bharti Teletech
today is the largest manufacturer of phones in the Globe outside China. Bharti Teletech
commands a lion's share of over 90%, in the extremely competitive BSNL/ MTNL
segment.
5 Bharti became the first company to export phones to Sprint Inc. USA - recognition of
our world class quality. Today, BTTL is present in 30 countries across 5 continents
Exports are a huge thrust area for Bharti. In 1991, Bharti became the first company to
export phones to Sprint Inc. USA recognition of our world class quality. The export
operations have been highly successful over the years. In 2003-04, exports crossed the
half million mark - a quantum jump since we started. Today, we are present in 30
countries across 5 continents despite intense competition from the strongest brands in the
world. Brand building initiatives have also taken fruit in the global arena. The Beetel
brand is present in Vietnam, Iran, Chile, Oman, Bangladesh, Mauritius and Sri Lanka.
This list continues to grow with each passing month and it is a matter of time before
Beetel becomes a truly global brand.
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Bharti Teletech Team is upbeat to create History by crossing a Sales Turnover beyond 2000 cores in FY
2006-07 against the last year's 543 crores.
ACHIEVEMENTS
Trend has won GOLDEN PEACOCK AWARD as the only phone with SIM
card reader. The model Millennium Clip Max (A high end Caller ID and Two
way speaker phone) recently launched in the market WON a GOLDEN
PEACOCK AWARD forINNOVATIVE DESIGN.
Beetel has a range of over 35 models across basic, feature and cordless segments
and continues to add a new model every month. With a current market share of
over 40%, Beetel is the first choice of the Indian consumer. In the growing
private service provider segment, Bharti Teletech commands a lions share of
over 90%. In the extremely competitive BSNL/ MTNL segment, we have crossed
a market share of 50%. BTTL has successfully met the challenge of providing
quality products at competitive prices.
Following are the new products recently introduced in the open market:-
DB 9200 - Caller Id with Speaker
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CB 60000 -2.4 GHz Cordless Phones
CB 61000 -2.4 GHz Cordless Phones with base
dialing
CB 59000 -2.4 GHz Cordless Phones with color
Screen
CB 49000 - Low Priced 2.4 GHz Cordless
Phones
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DF 8800 -Caller Id Phone with large Screen
Display
Following are the new products recently introduced for the DOT market as per
new TEC specifications (GTEL-02/04); all these models are GSM interference
free.
IRIS 2K3
GARNET
PERIDOT (A CLI PHONE)
Beside this company has maintained its leadership in all chosen markets like PSP, DOT,
OPEN MARKET & EXPORT (exporting to 30 countries across five continents world
wide.
DOMESTIC
After years of careful and focused brand-building, Beetel is recognized as a
trusted brand in India and is poised to take on global players in the most
competitive international markets.
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Beetel was the first Indian brand to launch caller ID phones in India and the first
to bring down the price of cordless phones to an affordable range at below Rs.2000.
Beetel has also pioneered SMS phones, the first in India. With this landmark
development, India now has the pride of joining the select set of countries that
offer SMS on and from fixed-line telephony service platform worldwide. For the
consumer in India, Beetel is truly ringing in the future. Indian PTT has accepted
Beetel instruments whole heartedly and the brand has a 60% share in this market.
The private service providers have shown great faith in Beetel's products and
appreciate the company's ability to customize the phones to their specifications.
Beetel has garnered over 95% of this market.
Beetel has remained the No. 1 brand in the Indian retail market, with a market
share of over 50 %.
The company's marketing network encompasses over 580 distributors and over
30,000 dealers, taking Beetel phones to every corner of one of the biggest
markets in the world.
INTERNATIONAL
After years of careful and focused brand-building, Beetel is recognized as a
trusted brand in India and is poised to take on global players in the most
competitive international markets.
Overseas, the company has a richly diversified customer base in over 30
countries across five continents. The markets include the USA, South America,
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Eastern Europe, the Middle East, South East Asia and Africa. Telephone
instruments are supplied to Siemens, Akai, Connair and the Sprint Group in theUSA among many others.
The Electronics and Computer Hardware Export Promotion Council conferred
upon Bharti Teletech, the award for the Top Telephone Instrument Exporter.
The company exemplifies a marketing success story that writes new chapters of
achievement with each passing year.
COMPANYS VISIONS AND VALUES
VISION
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To be a leader in Telecom and allied products
in chosen global market.
VALUES
Customer
We will be responsive to the needs of our
customer
People
We will trust and respect our employees
Learning
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We will continuously improve our products and
services-innovatively and expeditiously
Community & Partners
We will be transparent and sensitive in our
dealing with all stakeholders
QUALITY POLICY
At Bharti Teletech quality has always been among the top priority .
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QUALITY OBJECTIVES
To meet customers' requirements in terms of functionality, safety,
aesthetics, life expectancy and taking effective actions on their feedback's.
To ensure planned results and continual improvements in all operations
(processes and products).
To increase productivity by reducing rejections & non-value adding
activities, and bringing automation.
To effect continuous improvements in Customer Satisfaction Index.
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To ensure training of employees as per defined targets studying needs and
requirements. To ensure that all statuary and regulatory requirements are complied with.
QUALITY CULTURE
Providing training on Quality education system right across the entire
organization to carry out continuous Improvement activity in collaborative
way.
Deployment of Quality policy & Quality Objectives through out the
Organization in a structured way & is headed by CEO as Chairman of
Quality Improvement Team.
Cross-functional Improvement teams to promote Synergy through sharing.
All the employees always carry out an Improvement project, which leads
to improvement in their individual efficiency.
Rewarding/ recognizing the good performers (individual as well as teams)
in monthly / quarterly and yearly functions. Encouraging innovation by way of giving token reward for each
suggestion and running trophy to department giving maximum suggestion
per person per month.
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Encouraging people to work as a team in Small Group Activities (TCAs) and
Quality Improvement Projects (QIPs)
QUALITY ACHIEVEMENTS
Bharti Teletech Limited is a Quality Conscious organization & continuously
Strives for Quality Improvement through Process Management. Some of the
achievements which have come out of company's unstinted faith in investing
for quality are :
Awards
Golden Peacock Innovative Product/Services Award in the
Telecommunication Sector for the year 2002, the Golden Peacock For
Innovative Management for the year 2004 and Most Innovative Product
in 2005.
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Recipient of the ESC Award for Excellence in Exports in
Telecommunication Equipment in 2001-02 and 2002-03. Winner of the Voice & Data Award for "Top Telephone Manufacturer" in
2002-03 and 2003-04.
Won the Consumer World Award for 2004.
Awarded the "Top Fixed Line Phones Company-2006" by Voice and Data
BEETELS GROWTH
Beetel has established itself as a leader in "Modems". Beetel has also entered the "Set
Top Box" market and is on foray in this segment.
Bharti Teletech has joined hands with world leaders in their categories for manufacturing
and Distribution of their products through its Channel.
In addition to being manufactures and Distributors of "GE Phones" in India and selectSAARC countries, today BTTL are National Distributors for-
"Motorola" GSM mobile Handsets and Accessories
"Polycom" Audio and Video Conferencing Systems
"Microsoft X Box" gaming devices .
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REVEIW
OF
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LITRETURE
Approaches to Working capital Management
Working capital management takes place on two levels:
Ratio analysis can be used to monitor overall trends in working capital and to
identify areas requiring closer management.
The individual components of working capital can be effectively managed by
using various techniques and strategies.
When considering these techniques and strategies, companies need to recognize that
each department has a unique mix of working capital components. The emphasis that
needs to be placed on each component varies according to the companies. For
example, some companies have significant inventory levels; others have little if any
inventory.
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Furthermore, working capital management is not an end in itself. It is an integral part
of the companys overall management. The needs of efficient working capitalmanagement must be considered in relation to other aspects of the companys
financial and non-financial performance.
COMPONENTS
The term working capital refers to the amount of capital which is readily available to an
organization. That is, working capital is the difference between resources in cash or
readily convertible into cash (Current Assets) and organizational commitments for which
cash will soon be required (Current Liabilities).
Current Assets are resources which are in cash or will soon be converted into cash in "the
ordinary course of business".
Current Liabilities are commitments which will soon require cash settlement in "the
ordinary course of business".
WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES
In a department's Statement of Financial Position, these components of working capital
are reported under the following headings:
Current Assets
Liquid Assets (cash and bank deposits)
Inventory
Debtors and Receivables
Current Liabilities
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Bank Overdraft Creditors and Payables Other Short Term Liabilities
Component of Working
Capital
Basis of Valuation
i. Stock of raw material Purchase cost of raw
Materials
ii. Stock of work in process At cost or market value,
whichever is lower
iii. Stock of finished goods Cost of production
iv. Debtors Cost of sales or sales
value
v. Cash Working expenses
Working Capital Cycle
Working capital cycle involves conversions and rotation of various
constituents/components of the working capital. Initially cash is converted into raw
materials.
Cash flows in a cycle into, around and out of a business. It is the business's life blood and
every manager's primary task is to help keep it flowing and to use the cash flow to
generate profits. If a business is operating profitably, then it should, in theory, generate
cash surpluses. If it doesn't generate surpluses, the business will eventually run out of
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cash and expire.
The faster a business expands the more cash it will need for working capital and
investment. The cheapest and best sources of cash exist as working capital right within
business. Good management of working capital will generate cash will help improve
profits and reduce risks. The cost of providing credit to customers and holding stocks can
represent a substantial proportion of a firm's total profits.
The usage of fixed assets result in value additions, the raw materials get converted into
work in process and then into finished goods. When sold on credit, the finished goodsassume the form of debtors who give the business cash on due date. Thus cash assumes
its original form again at the end of one such working capital cycle but in the course it
passes through various other forms of current assets too. This is how various components
of current assets keep on changing their forms due to value addition. As a result, they
rotate and business operations continue. Thus, the working capital cycle involves rotation
of various constituents of the working capital. While managing the working capital, two
characteristics of current assets should be kept in mind viz.
(i) short life span, and
(ii) Swift transformation into other form of current asset.
Each constituent of current asset has comparatively very short life span. Investment
remains in a particular form of current asset for a short period. The life span of current
assets depends upon the time required in the activities of procurement; production, sales
and collection and degree of synchronization among them. A very short life span of
current assets results into swift transformation into other form of current assets for a
running business. These characteristics have certain implications:
i Decision regarding management of the working capital has to be taken
frequently and on a repeat basis.
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ii. The various components of the working capital are closely related and
mismanagement of any onecomponent adversely affects the other components too.
iii. The difference between the present value and the book value of profit is not
significant.
If money moves faster around the cycle (e.g. collect monies due from debtors more
quickly) or the amount of money tied up is reduced (e.g. reduce inventory levels relative
to sales), the business will generate more cash or it will need to borrow less money to
fund working capital. As a consequence, the cost of bank interest can be reduced or
additional free money will be available to support additional sales growth or investment.
Similarly, if improved terms with suppliers are negotiated e.g. longer credit or an
increased credit limit, then free finance to help fund future sales can be effectively
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created.
Thus.
If you ....... Then ......
Collect receivables (debtors) faster You release cash from the
cycle
Collect receivables (debtors) slower Your receivables soak up
cash Get better credit (in terms of duration or
amount) from suppliers
You increase your cash
resources
Shift inventory (stocks) faster You free up cash
Move inventory (stocks) slower You consume more cash
MANAGEMENT OF COMPONENTS OF WORKING
CAPITAL
Inventory Management
Inventory includes all types of stocks. For effective working capital management,
inventory needs to be managed effectively. The level of inventory should be such that the
total cost of ordering and holding inventory is the least. Simultaneously, stock out costsshould be minimized. Business, therefore, should fix the minimum safety stock level, re-
order level and ordering quantity so that the inventory cost is reduced and its
management becomes efficient.
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Average stock-holding periods will be influenced by the nature of the business. For
example, a fresh vegetable shop might turn over its entire stock every few days while amotor factor would be much slower as it may carry a wide range of rarely-used spare
parts in case somebody needs them.
many large manufacturers operate on a just-in-time (JIT) basis whereby all the
components to be assembled on a particular today, arrive at the factory early that
morning, no earlier - no later. This helps to minimize manufacturing costs as JIT stocks
take up little space, minimize stock-holding and virtually eliminate the risks of obsolete
or damaged stock. Because JIT manufacturers hold stock for a very short time, they are
able to conserve substantial cash. JIT is a good model to strive for as it embraces all the
principles of prudent stock management.
Factors to be considered when determining optimum stock levels include:
What are the projected sales of each product?
How widely available are raw materials, components etc.?
How long does it take for delivery by suppliers?
Can you remove slow movers from your product range withoutcompromising best sellers?
Debtors Management
The objective of any management policy pertaining to debtors would be to ensure that the
benefits arising due to the debtors are more than the cost incurred for debtors and the gap
between benefits and cost increases profits. An effective control of receivables helps a
great deal in property managing it. Each business should, therefore, try to find out
average credit extended to its client using the below given formula
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Creditors Management
Creditors are a vital part of effective cash management and should be managed carefully
to enhance the cash position. Purchasing initiates cash outflows and an over-zealous
purchasing function can create liquidity problems.
Thus, the following factors should be considered:
i. The purchasing authority in the company and whether it is tightly managed or
spread among a number of people.
ii. The purchase quantities should be geared to demand forecasts.
iii. Order quantities should be used that take into account stock-holding and
purchasing costs.
iv. The cost of carrying stock should be known.
v. Dependency on a single supplier should be avoided and facilities like best
discounts, credit terms etc. should be used from alternative suppliers.
vi. Suppliers returns policy should be considered.
Cash Management
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Cash is the most liquid current asset. It is of vital importance to the daily operations of
business. While the proportion of assets held in the form of cash is very small, itsefficient management is crucial to the solvency of the business. Therefore, planning cash
and controlling its use are very important tasks.
Cash budgeting is a useful device for this purpose.
FINANCIAL RATIO ANALYSIS
Introduction
Financial ratio analysis calculates and compares various ratios of amounts and balances
taken from the financial statements.
The main purposes of working capital ratio analysis are:
to indicate working capital management performance; and
To assist in identifying areas requiring closer management.
Three key points need to be taken into account when analyzing financial ratios:
The results are based on highly summarized information. Consequently, situations
which require control might not be apparent, or situations which do not warrant
significant effort might be unnecessarily highlighted;
Different departments face very different situations. Comparisons between them,
or with global "ideal" ratio values, can be misleading;
Ratio analysis is somewhat one-sided; favorable results mean little, whereas
unfavorable results are usually significant.
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However, financial ratio analysis is valuable because it raises questions and indicates
directions for more detailed investigation.
Working Capital Ratio
Current Ratio
Current Assets divided by Current Liabilities
The working capital ratio (or current ratio) attempts to measure the level of liquidity, thatis, the level of safety provided by the excess of current assets over current liabilities.
Quick Ratio
Liquid Assets divided by Current Liabilities
This is another measure of liquidity. It looks at the number of days that liquid assets (for
example, inventory) could service daily operating expenses (including salaries).
Stock Turnover Ratio
Cost of Sales divided by Average Stock Level
This ratio applies only to finished goods. It indicates the speed with which inventory is
sold-or, to look at it from the other angle, how long inventory items remain on the
shelves. It can be used for the inventory balance as a whole, for classes of inventory, or
for individual inventory items.
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Debtor Turnover Ratio
There is a close relationship between debtors and credit sales to third parties (that is, sales
other than to the Crown). If sales increase, debtors will increase, and conversely, if sales
decrease debtors will decrease.
Credit Sales per Period X Days per period
Average Debtors
The debtor ratio does not solve the collection problem, but it acts as an indicator that anadverse trend is developing. Remedial action can then be instigated.
Creditor Turnover Ratio
It expresses the relationship between credit purchases and the liability to creditors. It can
be stated as the number of days that credit purchases are carried on the books.
Credit Purchases per Period X Days per periodAverage Creditors
Thus
Se.
No.
Ratio Formulae Result Interpretation
Stock
Turnover
(in days)
Average Stock
* 365/
Cost of Goods
Sold
= x days On average, the value of the
entire stock is turned every x
days. There may be a need to
break this down into product
groups for effective stock
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(i)
management.
Obsolete stock, slow movinglines will extend overall stock
turnover days.
Faster production, fewer product
lines, just in time ordering will
reduce average days.
(ii)
Receivables
Ratio
(in days)
Debtors * 365/
Sales= x days
It takes on an average of x daysto collect the due amount of
money. If the official credit
terms are 45 day and it takes 65
days... then why should be
found out?
One or more large or slow debts
can drag out the average days.
Effective debtor management
will minimize the days.
(iii)
Payables Ratio
(in days)
Creditors *
365/
Cost of Sales
(or Purchases)
= x days
On average, the suppliers are
paid every x days. If better
negotiations are done regarding
the credit terms this will
increase.
If paid earlier to the supplier,
say, to get a discount this will
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decline.
If there is a deferment in
payment to the suppliers
(without agreement) this will
also increase - but the reputation,
the quality of service and any
flexibility provided by the
suppliers may suffer.
(iv)Current Ratio
Total Current
Assets/
Total Current
Liabilities
= x times
Current Assets are those assets
that can readily be turn into cash
or can be done so within 12
months in the course of business.
Current Liabilities are those
amounts which are due to pay
within the coming 12 months.
For example, 1.5 times means
that one should be able to lay
his/her hands on $1.50 for every
$1.00 one owe. Less than 1 time
e.g. 0.75 means that one could
have liquidity problems and be
under pressure to generatesufficient cash to meet oncoming
demands.
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OBJECTIVES
OF
THE STUDY
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OBJECTIVES OF THE STUDY
The objective of working capital management is to maintain the optimum balance of each
of the working capital components. This includes making sure that funds are held as cash
in bank deposits for as long as and in the largest amounts possible, thereby maximizing
the interest earned. However, such cash may more appropriately be invested in otherassets or in reducing other liabilities. My objectives of analyzing working capital
management in BEETEL are as follows:
To study how BEETEL can improve its operating cycle.
To study the current discrepancies in their current Working Capital Management
structure and ways to overcome them.
To study the method which BEETEL is using to ascertain its working capital
requirement.
To learn about the sources from which BEETEL is procuring funds to fulfill its
working capital requirements.
To study where the procured funds have been used by BEETEL.
To study whether the company is running effectively with as little money tied up
in current accounts as possible.
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To analyze whether the method being used for ascertainment of working capital
requirement is efficient or not.
To have an appreciation of the financial environment within which business
operates.
RESEARCH
METHEDOLOGY
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METHODOLOGY
The study is based on personal decision, interview schedules, documentary observation;
the data has been collected from the executives of the organization and through the
published sources.
RESEARCH
The research work is restricted only to the BEETEL DISTRIBUTION SYSTEM. The
study is based on the outcomes of personal interviews and documentary observation. But
the extreme care has been taken to involve the constructive suggestion from the
executives. The success of research basically depends upon the method, which is adopted
to solve the research problem i.e.
a) To collect desired information and data in a systematic manner.
b) Appropriate selection of method is necessary.
The first & foremost step in any research procedure is:-
STEP 1: Problem Formulation
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It is a very important step which has to be understood properly and clearly on which the
study is based because it tells the scope of the study and it should not go beyond it norshould execute some irrelevant aspect. In this case the study is based on how BEETEL
manages its Working capital requirements.
STEP 2: Objectives of the Study
After the problem formulation the objectives should be clear through which specific type
of information can be collected. The objective of this is to study about the management of
Working Capital for day to day business transactions.
STEP3: Determine source data
The third step includes the collection of data, which is from the source i.e. primary
secondary data. After the collection of data, it should be organized and analyzed to check
whether the objectives are fulfilled or not.
After analyzing the data investigation of research had worked out with the help of
following steps:
Research design
Tools & techniques
RESEARCH DESIGN:
A research is an arrangement of conditions for the collection & analysis of data in a
manner that aims the research purpose and achievements of goal with economy in
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procedure depending on research problem. The study of Working Capital is generally
based on documentary evidences.
TOOLS AND TECHNIQUES:
In order to conduct the study the following methods were adopted.
1. Personal Discussion: There is certain information related to the subject
which is known to employees of the office so through connecting with the
employees and executives the information is gathered. Like, about the companyprofile, its inception, growth etc.
2. Direct Personal Interviews: The investigator personally approaches the
concerned people and asks them to furnish information, which is of material input
for the enquiry. Therefore these ideas, suggestions views are collected on the
topic through interview.
3. Documentary observation: The investigator consults the secondary sources
like journals, annual reports, magazines, books, unpublished material from
library, internet and the area office.
COLLECTION OF DATA
Primary data: are those that are collected for the first time by the investigator and the
primary data used ad collected for this study are:-
Direct Personal Interview with my project guide at BEETEL
Indirect Oral Investigation auditors and other concerned employees at BEETEL
Information through e-mail about the components of operating cycle from the
BEETEL manufacturing units in Ludiyana and Goa.
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Secondary data: are not collected but obtained from the published and unpublished
sources and the secondary data collected for this study are:-
Published data about BEETEL, through newspapers, magazines, research
institutes, journals and books.
Unpublished data through scholars, libraries, area office in BEETEL.
Company information from their BEETELS official website.
FINDINGS
&
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ANALYSIS
ASSUMPTIONS
All calculations have been done taking 365 days in a year.
All sales are credit sales.
All purchases are credit purchases.
For all the years, opening & closing figures have been taken to calculate average
debtors, creditors, etc.
Wages and salaries are paid at a lag of 1month.
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(Rs 000)
Evaluation of various components of Working Capital
Major components of Working capital as % of Capital Employed are as follows:
Inventories -
217.67%
Debtors -51.60%
Cash & Bank -
21.45%
Particulars 31st March,2005 31st March, 2006 31stMarch,2007
CURRENT ASSETS, LOANS &ADVANCES
Inventories 2,49,252 14,59,500 51,48,650
Sundry Debtors 2,36,657 4,96,560 12,20,450
Cash & Bank Balances 77,069 3,89,130 5,07,380
Other Current Assets 11,461 7,820 2,830
Loans & Advances 3,73,321 4,11,800 5,76,470
Total Current Assets 9,47,760 27,64,810 74,55,780
Less CURRENT LIABILITIES &
PROVISIONS
Liabilities 1,55,038 14,40,230 56,40,720
Provisions 17,844 75,170 1,64,420
Total Current Liabilities 1,72,882 15,15,400 58,05,140
Working Capital 7,74,878 12,49,410 16,50,640
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Loans & Advances -
24.36%
Total Current Assets -
315.20%
Liabilities -
238.47%
Provisions - 6.95%
Total Current Liabilities -245.42%
Working Capital Ratios
Current Ratio
The Current Ratio is decreasing over the period i.e for 2005 it was 5.48:1, it went down
to 1.82:1 in 2006 and has now come down to 1.28:1 in 2007 which is very close to the
ideal ratio of 1.33:1. This indicates that there is a perfect balance between current assets
& current liabilities that the company owns. The major reasons for improvement in
current ratio are:
(i) The total % of debtors in the Current assets of 2007 has decreased to 16.37% from
17.96% in 2005.
(ii) Moreover, the percentage of money blocked in cash & bank balance has got
reduced from 14.07% in 2006 to 6.80% in 2007.
(iii) The liabilities in 2007 have increased as compared to liabilities in 2006 & 2005.
This means that the company is now trading at creditors worth.
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20052006
2007
Quick Ratio
Current Ratio
5.48
1.82
1.28
4.04
0.860.390
1
2
3
4
5
6
Year
Working Capital Ratios
Quick Ratio
The quick ratio showed a drastic improvement in 2006 as compared to 2005, but it went
below the ideal quick ratio of 1:1 and in 2007 it went further down to 0.39:1. The major
reasons for changes in Quick ratio are:
(i) The company is blocking huge amount of money in maintaining their inventories i.e
69% of their total investment in current assets.
(ii) Provisions have decreased from 4.9% in 2006 to 2.8% in 2007.
Stock Turnover Ratio
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Stock Turnover Rati
6.87
4.85
9.14
0
1
2
3
4
5
6
7
8
9
10
2004 2005 2006 2007 2
Year
T
imes
Stock Turnover Ratio had changed drastically from 9.14 times in 2005 to 4.85 times in
2006, but still it was way below the ideal of 6 to 7 times, which it achieved in 2007 by
coming at 6.87 times.
The major reason for improvement in Stock Turnover Ratio is that the sales have
increased because of the trading business as the company has entered in the fields of
MOTOROLA, XBOX, GE, BLACKBERRY.
Debtors Turnover Ratio
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Debtors Turnover Ratio
28.34
13.82
11.15
0
5
10
15
20
25
30
2004 2005 2006 2007 2
Year
Times
The Debtors Turnover Ratio has increased drastically from 13.82 times in 2006 to 28.34
times in 2007.
The major reason for change in Debtors Turnover Ratio is that the company has
entered into the trading business of MOTOROLA products and accessories. As the
company is purchasing the products from the MOTOROLA company in cash and
distributing the same, with the help of their TDs, by providing a credit of 30 days.
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Creditors Turnover Ratio
Creditors Turnover Ratio
7.59
11.4
6.83
0
2
4
6
8
10
12
2004 2005 2006 2007 2
Year
Times
The creditors Turnover Ratio has decreased drastically from 11.4 times in 2005 to 6.83
times in 2006. This shows that the company has been paying off its debts earlier than
before. The ratio has increased to 7.59 times in 2007.
The major reason for change in Creditors Turnover Ratio is that the MOTOROLA
company is not providing any kind o credit to BEETEL for distributing the MOTOROLA
handsets.
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Working Capital as a % of Capital Employed
Working Capital as a % of Capital
Employed
58.96%
63.98%
69.78%
58.00%
60.00%
62.00%
64.00%
66.00%
68.00%
70.00%
72.00%
2004 2005 2006 2007 2008
Year
Percen
Working Capital as a % of Capital Employed has increased from 58.96% in 2005 to
63.98% in 2006. It further increased to 69.78% in 2007. Even if we compare the figure of
working capital in these years then it is observed that working capital has increased from
Rs. 7, 74,878 in 2005 to Rs. 12, 49,410 in 2006 to Rs. 16, 50,640 in 2007. Thus this
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increase of 32.11% in working capital of 2007 had effect on the overall profitability of
the company.
Profit After Sales as a % to Sales
PAT as a % to Sales
1.19%
6.42%
6.89%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
2004 2005 2006 2007 20
Year
Perc
ent
Profit After Tax as a % to sales increased from 6.42% in 2005 to 6.89% in 2006. But it
showed a drastic fall in 2007 and came down to 1.19%.
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The major reason for change in PAT as % of sales is that the sales of basic and
cordless sets, manufactured by BEETEL has not increased but the balance sheet of thecompany shows an increment of 96.45% on expenditure over raw materials.
BHARTI TELETECH LIMITED
BALANCE SHEET AS AT 31ST MARCH 2007
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
SOURCES OF FUNDS
SHAREHOLDERS' FUND
Share Capital 1 50,700,070
Reserve & Surplus 2 1,746,223,282 1,796,923,352
LOAN FUNDS
Secured Loan 3 560,099,122
Unsecured Loan 4 8,350,486 568,449,608
Deferred Tax Liability -
TOTAL >> 2,365,372,960
APPLICATION OF FUNDS
FIXED ASSETS 5
Gross Block 513,406,244Less : Depreciation/Amortisation 231,900,454
Net Block 281,505,790
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Capital Work in Process 140,591,016
INVESTMENTS 6 245,221,290
DEFERRED TAX ASSETS 46,924,182
CURRENT ASSETS, LOANS & ADVANCES 7
Inventories 5,148,654,309
Sundry Debtors 1,220,447,390
Cash & Bank Balances 507,383,049
Other Current Assets 2,830,564
Loans & Advances 576,465,133
7,455,780,445
Less CURRENT LIABILITIES & PROVISIONS 8
Liabilities 5,640,727,557
Provisions 164,408,934
5,805,136,491
NET CURRENT ASSETS 1,650,643,954
MISCELLANEOUS EXPENDITURE 9 486,729
TOTAL >> 2,365,372,960
SIGNIFICANT ACCOUNTING POLICIES 16 0
NOTES TO ACCOUNTS 17
BHARTI TELETECH LIMITED
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2007
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
INCOME
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PROFIT AVAILABLE FOR APPROPRIATION 1,115,770,702
APPROPRIATIONS 1,115,770,702
Proposed Dividend -
Provision for Dividend Tax -
Dividend Tax for Earlier Years -
Transfer to General Reserve -
Profit Carried Forward 1,115,770,702
1,115,770,702
EARNING PER SHARE (BASIC & DILUTED) 57.52
Significant Accounting Policies 16
Notes to Accounts 17
BHARTI TELETECH LIMITED
SCHEDULES TO ACCOUNTS
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
SHARE CAPITAL 1
Authorised
55,00,000 Equity Shares (Previous Year 55,00,000) of Rs. 10each 55,000,000
Issued Subscribed and Paid up
50,70,007 (Previous Year 50,70,007) Equity Shares of Rs.10/-each
{ (Of the above Equity Shares :i) 5,070,000 shares are alloted as 'fully paid up pursuant to
scheme
of arrangement without payment being received in cash)
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ii) 3615529 Shares are held by Holding Company - BhartiEnterprises
(Holdings) Private Limited } 50,700,070
RESERVES AND SURPLUS 2
CAPITAL RESERVE
As per last Balance Sheet 132,191,500
SHARE PREMIUM ACCOUNT
As per last Balance Sheet 400,289,221
GENERAL RESERVE
As per last Balance Sheet97,971,85
9
Add: Transferred from Profit & Loss Account - 97,971,859
Surplus in Profit & Loss Account 1,115,770,702
1,746,223,282
SECURED LOANS 3
From Banks #
Cash Credit & Foreign Currency Working Capital Loan 560,099,122
UNSECURED LOANS 4
Short Term Loans and Advances
From Holding Company7,250,00
0
Interest accured and due thereon1,100,48
6 8,350,486
Footnote:# Secured against the hypothecation of Stocks & Bookdebts of the company and Firstcharge on the all the Fixed Assets of the company except Land and Building at Gurgaon & therelated fixed assets.
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BHARTI TELETECH LIMITED
SCHEDULES TO ACCOUNTS
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
INVESTMENTS AT COST 6
LONG TERM INVESTMENTS
In Shares of companies (Fully Paid Up)
TRADE UNQUOTED
(a) In Subsidary Companies400,000 Equity Shares (Previous Year 400,000 Equity Shares) ofGoaTelecommunication & Systems Limited of Rs. 10/-each fully paidup
22,820,693
b) In Other Company
Nil Equity Shares (Previous Year 16,528,404 Equity Shares) ofTeletech
Services (India) Limited of Rs. 10/- each -
22,820,69
CURRENT INVESTMENTS
(Refer Note No. 7 of Schedule 16 &Note No. 10 of Schedule
17)
OTHER THAN TRADE
In Mutual Funds (Unquoted) 95,470,580
In Equity Shares of Companies (Quoted) 126,930,017 222,400,597
245,221,29
0
Aggregated value of quoted investment 126,930,017
Aggregated value of unquoted investment 118,291,273
Market Value of Quoted Investments 147,210,594
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BHARTI TELETECH LIMITEDSCHEDULE TO ACCOUNTS
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
CURRENT ASSETS,LOANS AND ADVANCES 7
INVENTORIES
(As Taken,Valued & Certified by the Management)
Raw Material63,032,80
0
Finished Goods5,056,387,255
Work-in- Progress13,840,51
5
Stores and Spare Parts15,393,73
9 5,148,654,309
(Raw Material amounting to Rs.21,398 thousand (PY Rs. 9,271thousand), FinishedGoods amounting to Rs.1,370,420 thousand (PY Rs. 126,106thousand) & Stores &Spare parts amounting to Rs. Nil (PY Rs 128 thousand ) were intransit at year end.)
SUNDRY DEBTORS
Debts outstanding for a period exceeding Six Months :
Considered Good3,258,95
0
Considered Doubtful25,610,83
1
28,869,781
Less : Provision for Doubtful Debts ,610,831
3,258,950
Others Debts :
Considered Good1,217,188,440
Considered Doubtful12,684,85
8
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Less Provision For Doubtful Advances4,865,53
073,556,76
2
Security Deposits:
Considered Good10,845,59
9
Considered Doubtful180,00
0
11,025,599
Less Provision For Doubtful Deposits180,00
0 10,845,599
Advance Tax (Net) -
Loans and Inter Corporate Deposits 268,626,625
Balance with Custom & Excise Authorities 9,203,187
Due from Subsidiary Company 214,232,960
576,465,133
Footnote: * Net of Provision for Taxation Rs. Nil thousand (Previous Year Rs.227,902thousand)
BHARTI TELETECH LIMITED
SCHEDULE TO ACCOUNTS
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
CURRENT LIABILITIES & PROVISIONS
CURRENT LIABILITIES 8
Trade & Other Creditors # 5,517,087,922
Advance from Customers 61,433,538
Security Deposit 58,910,543
Due to Holding Company 283,170Investor Education & Protection Fund :
(Not due as at the year end)
- Unclaimed Dividend 241,910
Due to Directors 1,665,987
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Interest Accured but not due 1,104,487 5,640,727,55
# Includes Rs. 7301 thousand (Previous Year 4,730) due toSSI Creditors.
PROVISIONS
Proposed Dividend -
Dividend Tax -
Retirement Benefits 24,477,266
Warranty 31,018,204
Sales Tax/Excise /Service Tax 23,441,527
Sales Incentive 4,615,680
Others 46,457,437
Provision for Income Tax* 34,398,820 164,408,93
* Net of Advance Tax Rs. 388,084 thousand (Previous Yearended Rs Nil)
MISCELLANEOUS EXPENDITURE 9
(To the extent Not written off or adjusted)
Voluntary Seperation Scheme
Opening Balance 3,159,858
Less : Charged during the year 2,673,129 486,72
b) OTHER INCOME 10
Interest (Gross) 35,672,671(Tax deducted at source Rs. 7,994 thousand (Previous Year6,293 thousand)
Profit on Sale of Investments:
Other than Trade - Current Investments 46,861,764
Miscellaneous Income 23,125,245(Tax deducted at source Rs. 73 thousand (Previous Year 238thousand)
Exchange Rate Difference 4,874,040Dividend Received (Gross) (Current Investment - Other thanTrade) 6,798,910
Liabilities/Provisions Written Back 10,789,530
Rent Received 38,616,540
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(Tax deducted at source Rs. 8,666 thousand (Previous Year5,308 thousand)) 166,738,69
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
COST OF MATERIALS 11
Raw Material Consumed
Opening Stock 44,687,988Add. Purchases 1,228,695,852
1,273,383,840
Less Closing Stock 63,032,800 1,210,351,040
Trading
Purchase of Trading Goods 25,170,393,280
Decrease/(Increase) in Work-in-progress
and Finished goods
Opening Stock
Work-in-Progress 12,121,848
Finished Goods 1,394,350,632
1,406,472,480
Less Closing Stock
Work-in-Progress 13,840,515
Finished Goods 5,056,387,255
5,070,227,770 (3,663,755,290)
Excise Duty on account of Increase/(Decrease) in Stock
of Finished Goods 2,080,659
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Cost of Materials 22,719,069,689
BHARTI TELETECH LIMITED
SCHEDULE TO ACCOUNTS
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
Manufacturing Expenses 12
Power & Fuel 13,597,049
Consumption of Stores and Spares 5,468,171
Electric Repairs 354,250
Testing Fees 254,663
Job Charges Paid 12,090,996
Machinery Repair 2,836,592 34,601,721
Personnel, Administration & Selling Expenses 13
Personnel Expenses
Salaries, Wages & Bonus 245,210,028
Contribution to Provident & Other Funds 22,002,529Workman & Staff Welfare Expenses 9,882,792
Recruitment Expenses 12,623,766 289,719,115
Administration Expenses
Rent 12,149,283
Rates & Taxes 14,106,609
Insurance Charges 30,118,281
Travelling & Conveyance 65,975,682
Postage,Telephone & Telex 19,313,585Repair & Maintenance:
a) Building 1,802,664
b) Others 1
Amount/Debtors Written Off 30,159,901
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Miscellaneous Expenses 39,319,917
Auditors Remuneration 3,131,425Loss on Sale of Fixed Assets # 1,271,828Loss on Sale/Redemption of Investments (Current- otherthan Trade) 8,549,643Diminution in Value of Investment (Current- Other thanTrade) 8,669,949
Provision for Obsolete Stock -
Electricity & Water Charges 4,149,601
Board Meeting Fees & Expenses 306,702
Provision for Doubtful Debts, Advances & Claims ## 72,936,740
Research & Development 2,307,277
Exchange Rate Fluctuations - 331,978,354
Selling Expenses
Freight & Cartage 114,989,395
Advertisement & Publicity 210,024,534
Business Promotion 27,720,508
Rebate & Discount 120,660,004
Commission 5,461,866
Service Charges C & F 12,897,251
Warranty Cost 45,267,244
Spares Consumed 31,181,623 568,202,424
1,189,899,894
Less: Share of Centrailsed Expenses to SubsidiaryCompany -Less: Share of Centrailsed Expenses to AssociateCompanies -
-
1,189,899,894Footnote: # Net of Profit on Sale of Fixed Assets Rs. 329 thousand (previous year 172thousand).
## Net of Provision of Doubtful Debts & Advances Written Back amounting to Rs.327 thousand (previous year Rs. 1,623 thousand).
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BHARTI TELETECH LIMITEDSCHEDULE TO ACCOUNTS
PARTICULARS Sch- As at
dule 31.03.2007 (Rs.)
FINANCIAL EXPENSES 14
Interest :
- On Fixed Loan 1,562,050
- Others 42,524,081 44,086,131Other Finance Charges 24,240,686
68,326,817
EXTRA-ORDINARY AND PRIOR PERIOD 15
ADJUSTMENTS
a) Extra Ordinary Items: Income/(Expenditure)
Voluantary Separation Scheme (2,673,129
Provision for Sales Tax Liability -Profit on Sale of Long Term Trade Investment 43,800,263
b) Prior Period Adjustments (Net) Income/(Expenditure)
Prior Period Expenses
Bank Charges (59,562)
Loss on Sale of Fixed Assets (5,649)
Rates & Taxes -
Advertisement & Publicity -
Other Finance Charges -
Contribution to Provident & Other Funds -
Postage, Telephone & Telex -
Freight & Cartage -
Salaries , Wages & Bonus -
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Miscellaneous Expenses (21,781)
Travelling & Conveyance -Total Prior Period Expenses (86,992)
Prior Period Income (including Reversal of Expenses)
Profit on Sale of Fixed Assets 20,932
Rent Received -
Sales -
Rates & Taxes -
Recruitment Expenses -
Depreciation/Amortisation 131,074
Miscellaneous Expenses -
Total Prior Period Income 152,006
Prior Period Adjustments (Net) 65,014
Extra Ordinary & Prior Period Adjustments 41,192,148
CASE
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STUDY
Operating Cycles in BEETEL over the last 3 years
Particulars 2005 2006 2007
Working Capital (Rs 000) 7,74,878 12,49,410 16,50,640
Raw Material Conversion Period 11.15 days 35 days 40 days
Work-in- Progress Conversion Period 2.94 days 7 days 10 days
Finished Goods Conversion Period 37.74 days 26.27 days 17 days
Debtors Conversion Period 56.66 days 26.4 days 12.87 days
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Gross Operating Days 96.4 days 82.67 days 79.87 days
Creditors Conversion Period 46.17 days 45.84 days 45 days
Net Operating Days 50.23 days 37.13 days 34.87 days
No. of Operating Cycles in a Year. 7.26 9.83 10.47
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O p e r a t i n g C
0
1 0
2 0
3 0
4 0
5 0
6 0
7 0
8 0
9 0
1 0 0
2 0 0 5 2 0 0 6 2 0 0 7
Y e a
Days
R a w M a t e r ia l C o
P e r i o d
W o r k - in - P r o g r e s
C o n v e r s io n P e r i
F i n is h e d G o o d s
C o n v e r s io n P e r i
D e b t o r s C o n v e r
P e r i o d
G r o s s O p e r a t in g
C r e d i t o r s C o n v eP e r i o d
N e t O p e r a t in g C y
C a s h C o n v e r s io
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Additional information is as follows:
Se
No.
Particulars 2004-05 2005-06 2006-07
1. Lead time taken by the suppliers for
actual delivery
5 days 11 days 13 days
2. Minimum stock level held in stores 1,86,000
units
2,60,000
units
2,76,500
units
3. Quantity of material purchased in a single
order
2,96,500
units
2,90,000
units
2,89,500
units
4. Time spent on each process and subprocess
22 minutes/process
18 minutes/process
21 minutes/process
5. Delivery time of the finished product to
the actual buyer of the product
2.5 days 2 days 1 days
6. Credit period allowed to customers 8 days 9 days 10 days
7. Time taken by BEETEL for depositing the
cheques received from debtors in the
bank
0, max 1,1,1 0, max 1,1,1 0, max 1,1,1
8. Credit period allowed by the suppliers for
the material purchased
19 days 16 days 14 days
9. Cash and trade discounts given to the customers and received by the customers
depends upon the amount of the customers.
10. The company has adopted decentralization method for receiving cheques from
its debtors.
11. The company shifted from assembly line to manufacturing some components in
the year 2005-2006 due to which the number of processes increased from 3 to 8.
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Analysis of the above situation and the reasons for the
same
Raw Material Conversion Period:
Increased from 11.15 days in 2005 to 25 days in 2006 and then it further increased to 40
days in 2007, which is not a good sign. A constant increment will lead to higher working
capital requirement.
Reasons for the increase in the raw material conversion period are:
1) Lead Time:
)i It has increased because BEETEL has stared procuring a major part of its raw
material from international (25%) suppliers, earlier the company was
procuring from domestic (75%) suppliers.
)ii Moreover, for its spare parts and components also the company has shifted
from domestic (16%) suppliers to international (84%) suppliers.
2) Minimum Stock Level:
)i As the company is buying its raw material from foreign suppliers so it has to
maintain higher level of minimum stock as compared to previous years.
)ii The company increased its installed capacity from 20,00,000 units in 2004-
2005 to 40,00,00 units in 2005-06 with a corresponding increase in its
production from 3,92,678 units to 32,20,612 units.
)iii The installed capacity was again increased to 45,00,000 units in 2006-07 with
a corresponding increase in production to 37,59835 units.
3) Quantity of Material purchased in a single order:
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i) This is because the company is now buying from international buyers and and
is maintaining a higher level of lead time so it is ordering less in each order.
Work in Progress Conversion Period:
Increased from 2.94 days in 2005 to 5 days in 2006 and again further increased 10 days in
2007, which is again not a good sign. This means that the goods are not worked uponefficiently and there is increment in the time taken to process goods.
Reasons for the increase in the Work in Progress Conversion Period are:
1) Time Spent on each Process:
i) Till 2004-05 the company had 3 processes in all and was into assembling.After the year 2004-05, the company entered into backward integration andstared manufacturing its products with 8 processes, which includes:
Processes
Process 1: Manufacturing Outer Plastic Body
Process 2: Manufacturing Handset Microphone & Button Speaker installingProcess 3: Manufacturing of Hook Switch------To check if the handset is picker ornot.
Process 4: Manufacturing Rubber/Plastic Keypad--------For DialingProcess 5: Manufacturing LCD screen-------If the phone has facilities like
Caller ID or name-number storage.Process 6: ManufacturingInternal 4.3 ohm speaker for ring tone generationProcess 7: Manufacturing Reed Switch for Tone-Pulse selectionProcess 8: Manufacturing Electronic Circuit Integration on PCB-----with
following components:Sub Processes under process 8:
i) Opto-Coupler-----To check if the phone if off Hookii) 8086 Based 4 ICsiii) A number of Resistors and Capacitorsiv) LED(s) for Ring and dialv) Telephone Jack Interface
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vi) Copper Plated keypad interfacevii) EEPROM for data storage
viii) DTMF encoder and decoder(decoder only if Caller Id present)
ii) The company has installed better technology for manufacturing.
Finished Goods Conversion Period:
This has decreased from 37.74 days in 2006 to 26.27 days in 2006 and further decreased
to 17 days in 2007, which is a very good indicator. Thus, we see that the negative effects
due to high raw material conversion period and high work in progress conversion period
are almost wiped off.
Reasons for the decrease in the Finished Goods Conversion Period are:
1) Better advertisements
2) Better transportation facilities, reducing the time in delivery of goods from the
manufacturing unit to the buyers.
Debtors Conversion Period:
Decreased from 56.67 days in 2005 to 26.40 days in 2006 and 12.87 days in 2007, which
means that the company is collecting its debt more efficiently. A lower debtor conversion
period together with increased sales is a good sign for the company.
Reasons for the decrease in the Debtors conversion period Conversion Period are:
1) Credit Period allowed to customers:i) The company shifted from centralization to decentralization method for
collection of payments from its debtors and on the other hand to benefit its
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customers the company increased its credit collection period and hence the
steps positively affected the debtors collection period.
Gross Operating Cycle:
Decreased from 96.40 days in 2005 to 82.67 days in 2006 and 79.87 days in 2007, which
is mainly due to the reduction in debtor conversion period. A reduction in gross operating
cycle means reduced need of funds for day to day working. But the company should look
for the improvement in inventory conversion period.
Creditor Conversion Period:
Decreased from 46.17 days in 2005 to 45.54 days in 2006 and 45 days in 2007, which
means that the company is paying off its creditors earlier then before. The company
needs to delay payment to its creditors without loosing its reputation i.e. availing more
credit from its creditors to finance its working capital needs.
Reasons for the decrease in the Creditors conversion period Conversion Period are:
1) Credit Period allowed by the suppliers:
i) The company is building up its goodwill and paying back its debts on time.
ii) As the major suppliers of the company are international suppliers, hence the
company faced a credit policy change from their side.
iii)Due to 8 times increase in production capacity, the company is procuring
more quantity of raw material and hence on an average the credit time allowed
by its suppliers is being reduced , so the company has to pay back early.
Net Operating cycle:
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RECOMMENDATIONS
Recommendations
The management of the working capital is equally important as the management of long-
term financial investment. The goal of Working capital management is to ensure that the
firm is able to continue its operationsand that it has sufficient cash flow to satisfy both
maturing short-term debt and upcoming operational expenses.
The various possible steps that BEETEL may take to improve its working capital
management are as follows:
The company should look indigenous suppliers for its raw material and spareparts requirements and reduce its lead time.
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BIBLIOGRAPHY
Bibliography
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I.M. Pandey, Financial Management, 8th Edition
www.bharti-teletech.com
www.treasury.govt.nz/publicsector/workingcapital/further.asp
www.planware.org/workingcapital.htm
www.wikipedia.org
http://www.treasury.govt.nz/publicsector/workingcapital/further.asphttp://www.planware.org/workingcapital.htmhttp://www.treasury.govt.nz/publicsector/workingcapital/further.asphttp://www.planware.org/workingcapital.htm