Charu Kejriwal Dissertation

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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.

    http://en.wikipedia.org/wiki/Operations_managementhttp://en.wikipedia.org/wiki/Operations_managementhttp://en.wikipedia.org/wiki/Operations_management
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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=5fb656b278
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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.

    http://en.wikipedia.org/wiki/Operations_managementhttp://en.wikipedia.org/wiki/Operations_managementhttp://en.wikipedia.org/wiki/Operations_management
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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