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Working Capital Management Paper



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    [pic] [pic] [pic] This is to certify that the study entitled “Working Capital Management”in the context of H. E. E. P. BHEL being submitted byNISHTHA MALIK in the partial fulfilment of the requirement by the DEPARTMENT OF BUSINESS MANAGEMENT HNB GARHWAL UNIVERSITY. The study was conducted at Finance Department, H. E. E. P. BHEL. The matter embodied in this project report has not been submitted to any other University or Institution . Mr. SUSHIL ARYA SR. ACCOUNTS OFFICPAYROLL SECTION (FINANCE) ACKNOWLEDGEMENT

    I express my sincere thanks to the Management of ‘HEEP(Heavy Electrical Equipment Plant) of BHEL, Ranipur, Haridwar Unit for giving me an opportunity to gain exposure on matter related to Project under the esteem guidance of Mr. SUSHIL ARYA(Sr. Accounts Payroll section) I hereby take this opportunity to put on records my sincere thanks to Shri SUSHIL ARYA under the light of whose able guidance I could complete this project in an effective and successful manner. I am also indebted to MR. VIVEK GOYAL(Sr. Accounts officer Books&budget), Mr. INDER KUMAR(Sr. A/O),Mr.

    SUJIT KUMAR(Sr. A/O) ,Smt Usha Verma (Accounts officer) for their valuable information’s and inputs, which added dimensions and meaning to my project. I am also thankful to the rest of the staff of the SALES section for their valuable suggestion and coperation to achive the task. With sincere thanks SAKSHI MEHROTRA H. N. B GARHWAL UNIVERSITY SRINAGAR [pic] ? BHEL AN OVERVIEW ? WORKING CAPITAL MANAGEMENT 1. MEANING 2. NEED 3. OBJECTIVE 4. WORKING CAPITAL MANAGEMENT IN BHEL ? MANAGEMENT OF DIFFERENT COMPONENTS OF WORKING CAPITAL 1. DEBTOR MANAGEMENT 2.

    INVENTORY MANAGEMENT 3. CASH MANAGEMENT BHARAT HEAVY ELECTRICAL LIMITED- A CORPORATE GIANT BHEL is the largest engineering and manufacturing enterprise in India in the energy related/infrastructure sector today. BHEL was established more than 40 years ago when its first plant was set up in Bhopal ushering in the indigenous Heavy Electrical Equipment industry in India, a dream that has been more than realized with a well-recognized track record of performance. The Company’s inherent financial strengths can be seen from its net worth, Debt Equity ratio and cash surplus.

    The Company has a net worth of Rs. 60,270 Million as on 31st March’ 2005. The Company’s cash surplus stood over Rs. 32,000 Million as on 31st March’ 2005. The Debt Equity ratio of the Company is at 0. 09. It has been earning profits continuously since 1971-72 and achieved a sales turnover of Rs. 103,364 Millions with a profit before tax of Rs. 15,816 Millions in year 2004-2005. In line with the excellent performance, an all time high dividend of 80% (including 35% interim dividend) for the financial year 2004-05 has been paid.

    With this BHEL has maintained its track record of paying dividends uninterruptedly for the last 29 years. BHEL caters to core sector of Indian economy viz. Power Generation and Transmission, Industry, Transportation, Telecommunication, Renewal energy defense etc. The wide network of BHEL ‘s, 14 manufacturing divisions, 4 Power sector regional centers, 8 service centers ,18 regional office and a large numbers of project sites spread all over India and abroad enable the company to promptly serve its customer and provide them with suitable products, system and services at competitive prices.

    BHEL has already attained ISO 9000 and all the major units/divisions of BHEL have been upgraded to the latest ISO-9001: 2000 version quality standard certification for quality management. All the major units/divisions of BHEL have been awarded ISO-14001 certification for environmental management systems and OHSAS-18001 certification for occupational health and safety management systems. BHEL occupies an all-important niche as evident by its ranking by CII amongst top eight PSUs based on financial performance.

    Recently in survey conducted by business India, BHEL has been rated as seventh Best Employer in India. International Business BHEL has, over the years, established its references in over 60 countries of the world. These references encompass almost the entire range of BHEL products and services, covering Thermal, Hydro and Gasbased turnkey power projects, substation projects, and rehabilitation projects; besides a wide variety of products like: Transformers, Compressors, Valves and Oil field equipment, Electrostatic Precipitators,Insulators, Heat Exchangers, Switchgears, Castings and Forgings etc.

    Some of the major successes achieved by BHEL have been in Gas-based power projects in Oman, Libya, Malaysia, Saudi Arabia,Iraq, Bangladesh, Sri Lanka, China, Kazakhstan; Thermal Power Projects in Cyprus, Malta, Libya, Egypt, Indonesia, Thailand, Malaysia; Hydro power plants in New Zealand, Malaysia, Azerbaijan, Bhutan, Nepal,Taiwan and Substation projects & equipment in various countries. Execution of these overseas projects has also provided BHEL the experience of working with world-renowned Consulting Organizations and Inspection Agencies.

    The Company has been successful in meeting demanding requirements International markets, in terms of complexity of the works as well as technological, quality and other requirements viz. HSE requirement,financing package, associated O&M services to name a few. BHEL has proved its capability to undertake projects on fast-track basis. BHEL has also established its versatility to successfully meet the other varying needs of various sectors, be it captive power, utility power generation or for the oil flexibility to exhibited adaptability by manufacturing and supplying intermediate products. VISION


    RECENT ACHIEVEMENTS OF BHEL 1. BHEL’s R&D ops contribute Rs 1,151 cr to turnover in 2005-06 [May 19 2006]NEW DELHI: Bharat Heavy Electricals Ltd on May 18 said the company has achieved a turnover of Rs 1,151 crore during 2005-06 through products developed by in-house research and development operations. This revenue was eight per cent of its total revenue of Rs 14,410 crore in 2005-06. This was the result of a constant thrust on developing new technologies and products, improving existing products and systems in terms of reliability, cost and quality through in-house R&D efforts.

    The company invested about Rs 150 crore on Research and Development of products and systems during the year, which was among the highest in the country. The company also filed for 84 patents, including three abroad, taking the total number of patents filed till date to 339. Out of this, BHEL has been granted 26 patents and the rest are in various stages of processing. Thirteen copyrights have also been filed. R&D and technology development are of strategic importance to BHEL as it operates in a competitive environment where technology is a major factor. . BHEL to manufacture 800 mw thermal sets [Apr 14 2006]Catching up with the advancement in global technologies, Bharat Heavy Electricals Ltd (BHEL), through the efforts of its corporate research and development division in Hyderabad, is now equipped to manufacture 800 mw super-critical thermal power sets in the country. Much sought-after by several players in power generation, including APGenco, for its fuel efficiency, the super-critical technology has been till now viewed as the sole domain of developed world.

    As part of its effort to emerge as one of the global technology players in power systems and other new technologies, the R&D division of BHEL has started fresh initiatives by setting up centres of excellence for surface engineering (CoE-SE) and intelligent machines and robotics (CIMAR). According to the source, CIMAR would be set up at the Corporate R&D division in Hyderabad at an initial investment of Rs 4. 77 crore. Among the new products, the BHEL Corporate R&D has successfully completed design, supply and commissioning of automated storage and retrieval systems for four of the 13 warehouses at the Central Ordnance Depot, Kanpur. . BHEL inks agreement with IIT Madras for new courses [Apr 25 2006] Chennai: Bharat Heavy Electricals Ltd and the Indian Institute of Technology-Madras have signed a memorandum of understanding for collaborative research in the areas of design of boilers, manufacturing, metallurgical engineering, mechanical engineering, information technology and other areas of mutual interest. With the help of BHEL, Tiruchi, IIT-M will establish a research centre at the BHEL campus for the purpose. IIT-M will select MS/PhD research scholars to work as research associates/project associates.

    BHEL on its part will make available its research facilities and laboratories for the purpose. The collaboration has also given scope for IIT-M to start two new courses one on energy engineering and another on welding engineering. The courses will start from the academic year 2006-07. BHEL, which designs power plant boilers for handling a variety of coals, is also interested in getting into coal research. 4. BHEL secures Rs 80 cr export order from EETC [May 10 2006]NEW DELHI: Bharat Heavy Electricals Ltd (BHEL) has bagged its largest ever export order for transformers worth Rs 80 crore from Egyptian Electricity Transmission Co (EETC).

    BHEL will supply 14 transformers of 125 MVA to the state-run Egyptian company as a part of the order. These transformers would be installed in eight sub-stations at different locations in Egypt. The transformers, to be built at the company’s Jhansi plant, would be installed and commissioned under BHEL supervision. The company had earlier executed a boiler project at Al Arish in Egypt. With the order for transformers, BHEL has also established itself in the transmission market in Egypt. BHEL had earlier reported a six-fold increase in its export orders booking for the fiscal ended March 31 at Rs 3,348 crore.

    These orders contributed to one-fifth of the company’s total orders booked last year. With this BHEL is poised to achieve a quantum growth in its export business driven by consolidation in existing markets and widening its export base through expansion of existing basket of products and services and entering new markets. BHEL net profit up 62 pc(the tribune,3 june 2006)BHEL has posted a net profit of Rs 867. 95 crore for the quarter ended March 31,2006, as compared to Rs 534. 28 crore for the quarter ended March 31, 2005, an increase of 62. 45 pc. Total income has increased from Rs 4,518. 94 crore in Q4 FY 04-05 to Rs 5728. 6 crore for Q4 FY 05-06. It has posted a net profit of Rs 1679. 16 crore for the year ended March 31,2006(FY 05-06) as compared to Rs 953. 40 crore for the uear ended March 31,2005. total income has increased from Rs 9977. 36 crore in FY 04-05 to Rs 13820. 02 crore for FY 05-06. The board of directors has recommended a final dividend of 20 percent of equity of the company, making it to total of 145 percent of the equity share capital of the company for the financial year 2005-06. this includes the interim dividend of 40 percent and special dividend of 85 percent already paid during the year. 5.

    Workers’ participation in management yields savings at BHEL, Hardwar DEHRA DUN, Nov 16: Empowerment of employees through the “quality the areas of import substitution, revamping of old machine tools and safety over the past two decades based on the principle of people-building and mutual development, the “quality circle” was adopted by the BHEL’s Hardwar Plant in the year 1981 and has, since then, yielded savings of nearly Rs five crore, according to Mr Ashwini Dhar, Public Relations Officer of the organisation. The quality circle guides the combined efforts and knowledge of workmen of a particular section.

    There are more than four hundred quality circles actively working to enhance the excellence on the process, quality and delivery fronts, Mr Dhar said. Coordinators and facilitators alongwith other members of the workers’ groups identify problems and think of solutions collectively to prevent defects and maintain overall quality. Mr Dhar said upgrading, renovation and modernisation of hydro sets installed at various power stations equipped with BHEL and non-BHEL equipment was being now undertaken by the Hardwar unit through its research and development efforts.

    The Hardwar unit of BHEL has received an order of Rs eight crore from Power Development Corporation, Jammu and Kashmir, to carry out renovation and modernisation of the lower Jhelum Hydro Electric Project. This project is equipped with turbine and operator equipment supplied by BHEL and the project was commissioned in 1980. Another order, worth Rs thirty crore, was received by the BHEL plant for renovation, modernisation and uprating of the units of Ganguwal and Kotla Hydro Electric Projects under Bhakra Beas . Management Board and will ensure an increased output of the generating units by as much as twenty per cent. Earlier, one unit each of the above machines was renovated and uprated by the BHEL resulting in a similar output increase for these machines. More than a hundred sets of different capacities supplied by BHEL, Hardwar, are commissioned at various power stations all over the country. The hydro sets are tailormade to suit varying hydro electric parameters.

    Mr Dhar said that at the Hardwar Plant, excellent engineering and manufacturing facilities are available to supply kaplan, francis, pelton and reversible hydro turbines alongwith matching generators and associated equipment. (UNI) Contribution of BHEL in various Core Sectors Power Transmission & Distribution Sectors In the T&D sector, BHEL both a leading equipment-manufacture and a system-integrator. BHEL-manufacture T&D products have a proven track record in India and abroad. In the area of T&D systems, BHEL provides turnkey solution of utilities.

    Substations and shunt compensation installation set up by BHEL are in operation all over the country. EHV level series compensation schemes have been installed in KSEB, MSEB, MPSEB and POWERGRID networks. Complete HVDC systems and state-of-the-art Flexible AC Transmission systems (FACTS) can be delivered by BHEL. In the area of power distribution , BHEL provides turnkey solution for improving systems efficiency & reducing losses through RPM of sub-stations, SCADA and Metering Solutions, IT Solutions etc. Industry Sector

    Since its inception in 1982, the Industry Sector business has grown at an impressive rate and today, contributes significantly to BHEL’turnover. BHEL, today supplies all major equipment for the industries:AC/Dc machine, alternators, centrifugal compressors, special reactor columns, heat exchangers, pressure vessels, gas turbine based captive co-generation and combined cycle power plants,DC power plants steam turbine and turbo generator for process industries, diesel engine based power plant, solar water heating system,soalr photovoltaic systems, electrostatic recipitators, fabric ffilters,etc. BHEL also provide solution for water management system, coal&as handling plants. The industries which Transportation sector In the transportation field, BHEL product range covers:AC locomotive, AC/Dc dual-voltage locomotive, diesel-electric shunting locomotive, traction motors and transformers, traction electrics and control for AC,DC and dual voltage EMU’s,diesel-electric multiple unit, diesel power car and diesel-electric locomotive, battery powered vehicles and solution for urban transportation system including electric trolley buses,LRT&MRTs.

    A high percentage of trains operated by Indian railways are equipped with traction equipment and controls manufactured and supplied by BHEL. Human Resource Development Institute BHEL has envisioned becoming “A World Class Engineering Enterprise committed to enhancing stakeholder value”. Force behind realization of this vision and the source of our competitive advantage is the energy and ideas of our 44,000 strong highly skilled and motivated people.

    The Human Resource Development Institute situated in NOIDA, a corner-stone of BHEL learning infrastructure, along with Advanced Technical Education Centre (ATEC) in Hyderabad and the Human Resource Development Centre at the manufacturing Units, through various organizational developmental efforts ensure that the prime resource of the organization – the Human Capital is “Always in a state of Readiness”, to meet the dynamic challenges posed by a fast changing environment.

    It is their constant endeavour to take the HRD activities to the strategic level of becoming active partner to the (organizational) pursuits of achieving the organizational goals. [pic] The Heavy Electrical Equipment Plant (HEEP) located in Haridwar, is one of the major manufacturing plants of BHEL. The core business of HEEP includes design and manufacture of large steam and gas turbines, turbo generators, hydro turbines and generators, hydro turbines and generators, large AC/DC motors and so on.

    Heavy Electrical Equipment Plant, Hardwar of this Multi-unit corporation with 7467 strong highly skilled technicians, engineers, specialists and professional experts is the symbol of Indo Soviet and Indo German Collaboration. It is one of the four major manufacturing units of the BHEL. With turnover of 140697 lacs and PBT of Rs. 22961 lacs HEEP added 3000 MW of power to the National grid during 2004-05. HEEP is engaged in the manufacture of Thermal and Nuclear Sets up to 1000MW, Hydro Sets up to HT Runner dia 6300mm, associated Apparatus Control gears, AC& DC Electrical machines and large size Gas Turbine of 60-200 MW.

    HEEP Hardwar contributes about 44% of India’s total installed capacity for power generation with total capacity of Thermal, Nuclear & Hydro Sets of over 45000MW currently working at a Plant Load Factor of 76% and Operational Availability of 86%. Inspite of acute recession in economy, BHEL Hardwar received recent orders for Mejia-5&6,Sipat, Bhatinda, Chandrapura, Bakreshwar, Santaldih, Bhilai, Dholpur. HISTORICAL PROFILE: The construction of heavy electrical equipment Plant commenced in Oct. ”1963”after indo- soviet technical co-operation agreement in Sept. 1959”The first product to roll out from the plant was an electric motor in January 1967. This was followed by first 100 MW Steam Turbine in Dec. 1969and first 100MW Turbo Generator in August 1971. The plant’s “break even” was achieved in March 1974. BHEL went in for technical collaboration with M/s Siemens, Germany to undertake design and manufacture to large size thermal sets upto a unit rating of 1000 MW in the year 1976. First 200 MWTG set was commissioned at Obra in 1977. The continuum of technological advancement subsequently saw the commissioning of 500 MW TG Set in 1984 .

    The technical cooperation of Gas Turbine manufacture was also signed with M/s Siemens Germany. First 150 MW ISO rating gas Turbine was exported to Germany in Feb”1995”. Our 250 MW thermal set up at Dahanu Plant of BSES made a history by continuous operation for over 150 days and notching up a record plant load factor greater than 100%. KEY COMPETITORS: Power Sector Giant of the World viz. Siemens Germany, ABB, General electric of USA etc. are the major competitors of HEEP. All these are the MNC’s and enjoy huge financial and R&D backup. CORPORATE CITIZEN:

    HEEP Hardwars Strategic plans and its policy & strategy are commensurate with BHEL Corporate / strategic Plan . As first PSU to adopt Corporate Planning as a process . Board meetings for long –range development , BHEL has always guided other PSU’s in their Corporate planning process . Board meeting , monthly Management Committee meetings, Annual Revenue Budget exercise , Mid term reviews , Apex TQ council reviews, Personnel Heads Meet, Quality Heads Meet , Technology Meets , Product committees meetings, Inter-Unit Quality Circle Meets etc. are the some of crore strengths of BHEL Corporation’s vast network.

    KEY CUSTOMERS AND SUPPLIERS HEEP’s customer profile ranges from State Electricity Boards,Government Power utilities like NTPC, NPC, NHPC to IPPs like Reliance Energy. HEEP has also supplied Gas Turbine sets to overseas customers in Libya & Iraq. Power Sector Regions of BHEL are its key internal customers. In view of expected market scenario,BHEL has strategically decided that HEEP will concentrate on coal based Higher Rating Thermal Sets for domestic market to fulfil the country’s vision of adding 107,000 MW capacity to achieve ‘Power on Demand’ by 2012.

    Our key customer, NTPC has drawn up plan for capacity addition of 20,000MW by 2012. HEEP has planned for execution of 34,619MW by 2012. FAVOURABLE BUSINESS ENVIRONMENT: Power Sector has to grow over 10% annually to reach the 7% GDP level. Thus, the demand for thermal sets will remain high. Central Electricity Authority (CEA) is the guiding authority for Power Sector strategies in our country. BHEL representatives, along with representatives from various domestic customers, are an integral part of various committees formed by CEA.

    This enables us to guide and understand the market requirements and future challenges. To meet the 11th Five Year Plan target of adding 61,000MW, CEA has planned addition of 23 nos. standardized 500MW sets for faster project execution and cost reduction. BHEL, including HEEP, is a part of this process. CEA has standardized for the next capacity of 800MW sets and has asked BHEL to prepare itself for manufacturing and supply in the 11th Five Year Plan. BHEL has tied up with Siemens for upgradation of technology.

    Further CEA’s stress on R&M of ageing Power Plants is also providing business opportunity to unit. MAJOR CHALLENGES: The favorable business scenario has given the unit a major challenge of establishing Power Infrastructure of the country in close co-ordination with its key customers. HEEP has committed itself to meet the country’s requirements. To cater to the needs of higher rating sets of 800MW, HEEP has collaboration with Siemens. STRATEGIC CHALLENGES • Key Business • Cycle time reduction • State of the art technology • Cost reduction Operational • Timely delivery • Material cost reduction • Productivity improvement • Effective utilization of machines • Human Resource • Motivation of employees • Skill & Knowledge management MAJOR MILE STONES 1975Job Redesign concept launched for FIRST time in India. 1978well documented Suggestion Scheme launched. 1982Launched Productivity Movement & Quality Circle. Concept 1993 of ISO 9001 quality System. 1995Adopted EFQM model of TQM for achieving Business Excellence. 1997 BHEL one of the 9 PSE’s declared “Navratna” by Govt. f India . 1997 National Productivity Award for HEEP by the President of India. 1998 Certificate of Merit by National Productivity Council for Outstandingperformance for 2nd consecutive year. 1998 Accreditation of U stamp. 1999 Accreditation of R Stamp from National Board of Boiler and Pressure Vessel Inspector, USA . 1999 AD-Merkblatt HPO Recertification by RWTUV for Gas Turbine Combustion Chambers 1999 INSAAN Award for Excellence in Suggestion for 9th consecutive year 1999. Launching of 5s concept 999 PCRI recognized as Environmental Lab by Haryana State Board for Prevention and Control of Pollution 1999 Accreditation of ISO 14001-Enviornment management system 2000CII Site Visit for CII-EXIM Business Excellence Award-2000 2001 Top Management TQM Workshop at Rishikesh and HRDC 2001 INSAAN Award for excellence in Suggestion for 11th consecutive year 2001 Launching of QTM & RCA at HEEP Hardwar by CMD 2002 Launching of delivery Index, Turnover Index and Manufacturing Index 2002.

    JBE Workshop of Apex TQM Group at Tehri to evolve Business policy 2003 Commendation for Strong Commitment to Excel in CII-EXIM Bank Award 2004 Commendation for Significant Achievement in CIIEXIM Bank Award. 2005. Award given by Institute of Cost and Works Accountants of India for “Excellent Work in the field of Management Accounting and Cost Concepts”. TOTAL QUALITY FOCUS: To face the increased competition from MNCs (due to liberalization policy of Government) in early 90’s and to enter European market we moved towards ISO 9000 Certification. Concept of Business Excellence through EFQM

    Model was launched in entire BHEL on pilot scale in Oct. ”1995” In 1997 HEEP launched TQM in the entire Plant and since then Self-Assessment is done every year in September. Based on feedback Report of Assessment, critical success factors are identified. and TQ action plans are drawn. The philosophy of ISO 9001, TQM and ISO 14001 has been integrated BHEL Hardwar for ultimately achieving “BUSINESS EXCELLENCE”. HEEP Hardwar plant is accredited for ISO 9001 and ISO 14001 and is now on March towards TQM. 5-S was launched in March 1999 in a big way and now it has become a way of life in the organisation.

    In 2000 HEEP applied for CII-EXIM Business excellence award and site visit was conducted Bu CII team in Seot. ”2000. Cii feedback has gone a log way in carrying out further improvement plans and giving a structured thrust to TQM movement In July 2001, Unit’s TQ Council reviewed the TQ Action Plans 2001-02 for its effectiveness and impact on accelerating the pace of improvement and consequent TQ Score. Executive Director laid the challenge of achieving the TQ score of 650. With an objective to bring awareness about he CII-EXIM Business Excellence Model amongst the Sr.

    Executives, the first ‘Top Management TQM Workshop’s held at Rishikesh during oct. 2001Executive Director who is TQ Assessor also, himself steered the Workshop with assistance from some experienced TQ Assessor of HEEP. It followed by second Top Management TQM Workshop steered again by Ed was held at HRDC on Oct’29,2001. Subsequantly the third Top Management TQM Workshop was held in Nov’2001,where-in Sr. Counsellor,CII deliberate the detail onBest practices of TATA STEEL-the winner of ‘CII-EXIM Business Excellence Award 2000’.

    Simultaneously ,TQ Assessors training program for the select group of young managers(to be developed as Think Tanks)was organized in Nov’2001. To give further boost Apex Group was formed. Apex Group developed “Roadmap to Business Excellence” based on Criteria Linkage of CII-EXIM BusinessModel and the initiatives taken at Hardwar was drawn by the group and it was widely circulated amongst the employees through special issue of Hardwar Current in April 2002. It followed by JBE workshop of Apex TQM Group held at Tehri on June 30 and July 1,02 where-in following business policy and critical actors was evolved. BUSINESS POLICY: “In-line with Company’s Vision, Mission and values, we dedicate ourselves to sustained growth with increasing positive Economic Value Addition and Customer focussed business leadership in the Power and Industry Sector and welfare of soiety. CRITICAL SUCCESS FACTORS: • Strategic outsourcing of process components and assemblies. • Focused drive for all round productivity through employee involvement. • Focus on customer commitments. • •Net saving in direct material and BOI by15 crore • introduction of300-350MW sets and preparedness of 800MW thermal sets • Capacity building of 5250MW manufacturing through implementation of modernization plan • Benchmarking. • Improvement in internal customer-internal supplier satisfaction index by 20%. • •Contribution to the welfare of the society • Effective Contract Management • Technology Upgradation ‘Excellence triangle’ for each Critical Success Factor is now being drawn comprising improvement projects. These projects will be Centrally registered under On-line Central Registration system to be developed for it.

    While CSF Champion will take the total stock of position in the improvement projects undertaken in his respective CSF, progress of individual projects will be reviewed by Area TQ Council (ATQC) and Functional TQ Council (FTQC). One of the major strengths of HEEP Hardwar is its free, open and consistent work culture for making continuous improvement evident from the participation of employees in Suggestions and Quality Circles. To recognize their efforts various productivity drives and competition are organized through out the year and Executive director awards the winners in the special Award Distribution Functions.

    National Award for Excellence in Suggestion Scheme for 11th consecutive year by INSSAN, National Award for excellence in Energy Conservation as an”Energy Efficient unit” by CII, CMD’s Rolling Trophy for 3rd consecutive year Well known Forge Shop “ by Central Boiler Board etc. are some Vir Award 2001” 15 employee honored with “Prime Minister’s shram award” and 133 employees honored with “Vishwakarma Rashtriya Puraskar”during 2004-05, which is a record in the organisation. The journey to excellence is unending . It is a continuous search with commitment and belongings. Sky indeed is not the limit for perfection.

    The transition has strongly experienced a silent internalization with a blend of commitment of the existing human resource for creating benchmarks for excellence. The emergence of role models and clear-cut driving force at the top provide an anvil to unleash the potential, which remain unexplored in search of “Attitude to perform”. The surge has started and is being communicated down the. BHEL today through TQM is on March towards excellence. BHARAT HEAVY ELECTRICAL LIMITED is committed to provide safe and healthy working place to employees as an integral part of business performance through: ?

    Compliance with applicable legislation and regulation and standards ? Designing all product and system safe to use and dispose off,recycable ,wherever techno-economically feasible. ? Adopting approach based on elimination/reduction control for prevention of pollution and occupational health and safety risk in all operational activities. ? ? ? Appropriate structured training to employees and generate awareness amongst customer ,contractor and supplier on environmental and OHS issues. ? Promote activities to minimise waste generation and conserve,reuse ,recycle resources such as raw material,water oil ,power energy fueL pic] STRENGTH (S): – • Low cost producer of quality equipment due to cheap labour and fully depreciated plants. • Flexible manufacturing set up. • Entry barrier due to high replacement cost of its manufacturing facilities. • Comprehensive turnkey experience from product design to commissioning. WEAKNESSES (W): – • High working capital requirement due to its exposure to cash starved SEBs (State electricity boards) and High WIP. • Inability to provide project financing. OPPORTUNITIES (O): – • High-expected growth in power sectors (7000 MW/p. a. needs to be added). • • High growth forecast in India’s index of industrial production would increase demand for industrial equipment such as motors and compressors. THREATS (T): – • Technical suppliers are becoming competitors with the opening up of the Indian economy. • Fall in global power equipment prices can effect profitability. [pic] After recession with my locality member. I choose the project of Working capital management. I discussed the project with my instructor and coordinator Mr. SUSHIL ARYA(Sr. A/0) at H. E. E. P. , BHEL, Hardwar. He approved the project. After that, a simple course of action has been followed for working on this project.

    Entire information and data were gathered from the respective annual report of BHEL, Hardwar. All the figures are taken from their balance sheet, profit & loss account of the respective years and the other internal documents, which were personally shown by the members of company in our interest. AIR PREHEATERS [pic] Auxiliaries play a vital role both in Thermal Power Plants and Process industries. Air Preheaters, a boiler auxiliary is used to recover economically the millions of costly calories normally lost up the stack and to put them back to work in the boiler or process equipment, thereby increasing overall plant efficiency.

    BHEL is manufacturing Regenerative Air Preheaters (RAPH) for the past 30 years. BHEL with its vast experience made many improvements in RAPH to suit high ash Indian coal. More than 500 Air Preheaters manufactured by BHEL are in service performing this vital function of energy conservation in India, Malaysia, Libya and Egypt. BHEL carries out stringent quality control and inspection from raw materials to final assembly in-line with International Standards and Practices. BHEL built Air Preheaters find main application in Power & Utility Boilers.

    BHEL has also designed special- purpose APH applications for ammonia plants and cement plants. The opportunity to use a rotary APH for the ammonia plant arises by the choice of the process technology and is used as a waste heat recovery system in the reformer furnace area of ammonia plant. Ammonia plants at Hazira, Phulphur and Goa in India have been using this system satisfactorily. It is also used as a Rotary Gas Cooler system in Cement Plants. A unique waste heat recovery system for utilizing kiln & clinker exhaust gases is in operation at the 1. million tons per annum cement plant in Rajasthan, India. | | Gas Turbines[pic] | | | | | | | | | | | |[pic] | | | | | | BHEL – the largest Gas Turbine manufacturer in India, with the state-of-art acilities in all areas of Gas Turbine manufacture provide complete engineering in-house for meeting specific customer requirement. With over 100 machines and cumulative fired hours of over four million hours, BHEL has supplied gas turbines for variety of applications in India and abroad. BHEL also has the world’s largest experience of firing highly volatile naphtha fuel on heavy duty gas turbines. [pic] [pic] MEANING OF WORKING CAPITAL Working Capital is commonly defined as the difference between current assets and current liabilities.

    Efficient working capital management requires that firms should operate with some amount of working capital, the exact amount varying from firm to firm and depending, among other things on the nature of industry. Capital required for a business can be classified in two main categories viz. 1) Fixed capital, and 2) Working capital. Every business needs funds for two purposes-for establishment and to carry out its day-to-day operations. Long-term funds are required to create production facilities. Through purchase of fixed assets such as plants and machinery, land, building, furniture, etc.

    Investments in these assets represents that part of firm’s capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purpose for the purchase of raw material, payment of wages and other day-to-day expenses, etc. These funds are known working Capital. In simple words, working capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in current assets keep revolving fast and are being constantly converted into cash and this cash lows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short-term capital. CLASSIFICATION OF WORKING CAPITAL Working Capital may be classified on two basis: – a) On the basis of Concept: – On the basis of concept, working capital can be classified as, • Gross Working Capital • Net Working Capital b) On the basis of Time: – On the basis of time, working capital can be classified as, • Permanent or Fixed Working Capital • Temporary or Variable Working Capital Gross Working Capital: – The Gross Working Capital is the Capital invested in the total current assets of the enterprises.

    Current assets are those assets, which can be converted into cash within a short period, normally an accounting year. Gross Working Capital = Total Current Assets Net Working Capital: – The term Net Working Capital refers to the excess of current assets over current liabilities, or say, Net Working Capital = Current Assets – Current Liabilities Net Working Capital can be positive or negative. When the current assets exceeds the current liabilities the working capital is positive and the negative working capital results when the current liabilities are more than the current assets.

    Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets of the income of the business. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits. The gross concept is sometime preferred to the concept of working capital for the following reasons: – • It enables the enterprise to provide correct amount of working capital at correct time. Every management is more interested in total current assets with which it has to operate then the sources from where it is made available. • It takes into consideration of the fact every increase in the funds of the enterprise would increase its working capital. • The concept is also useful in determining the rate of return on investments in working capital. • The net working capital concept, however, is also important for the following reasons:- • It is a qualitative concept, which indicates the firm’s ability to meet its operating expenses the short-term liabilities. It indicates the margin of protection available to short term creditors. • It is an indicator of financial soundness of enterprise. • It suggests the need of financing a part of working capital requirement out of the permanent sources of funds. Permanent or Fixed Working Capital: – Permanent or fixed capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of current assets is called permanent or fixed working capital as this part of working capital is permanently blocked in current assets.

    As the business, grow the requirement of working capital also increases due to increase in current assets. Temporary or Variable Working Capital: – Temporary or variable working capital is the amount of working capital, which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called the seasonal working capital.

    Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing campaign for conducting research etc. Temporary working capital differ from permanent working capital in the sense that it is required for short periods and cannot be permanently employed gainfully in business Calculate current assets to fixed asset ratio A firm needs current and fixed assets to support a particular level of output. However, to support the same level of output the firm can have different levels of current assets.

    As the firm’s output and sales increases, the need for current asset increases. Generally the current assets do not increase in direct proportion to output ; current assets may increase at a decreasing rate with input. This relationship is based upon the notion that it takes a greater proportional investment in current assets when only a few units of output are produced than it does later on when the firm can use its current assets more efficiently. The level of the current assets can be measured by relating current assets to fixed assets. There are three policies:- ) conservative current assets policy: CA/FA is higher. It implies greater liquidity and lower risk. 2) aggressive current assets policy: CA/FA is lower . it implies higher risk and poor liquidity. 3) moderate current assets policy: CA/FA ratio falls in the middle of conservative and aggressive policies. [pic] In case of BHEL, Haridwar, the ratio of current asset to fixed asset is [pic] Estimating working capital needs 1. Liquidity Vs. Profitability: Risk Return Trade Off. The firm would make just enough investment in current assets if it were possible to estimate working capital needs exactly.

    Under perfect certainity, current assets holdings would be at the minimum level. A larger investment in current assets under certainity would mean a low rate of return of investment for the firm, as excess investment in current assets will not earn enough return. A small invest in current assets, on the other hand, would mean interrupted production and sales, because of frequent stock-cuts and inability to pay to creditors in time due to restrictive policy. As it is not possible to estimate working capital needs accurately, the firm must decide about levels of current assets to be carried. 2.

    The Cost Trade Off: A different way of looking into the risk return trade off is in terms of the cost of maintaining a particular level of current assets. There are two types of cost involved:- I. Cost of liquidity II. cost of illiquidity • –If the firm’s level of current assets is very high , it has excessive liquidity. Its return on assets will be low, as funds tied up in idle cash and stocks earn nothing and high level of debtors reduce profitability. Thus, the cost of liquidity increases with the level of current assets. • –the cost of illiquidity is the cost of holding insufficient current assets.

    The firm will not be in a position to honour its obligations if it carries to little cash. This may force the firm to borrow at high rates of interests. This will also adversely affect the credit-worthiness of the firm and it will face difficulties in obtaining funds in the future. All this may force the firm into insolvency. Similarly, the low levels of stock will result in loss of sales and customers may shift to competitors. Also, low level of debtors may be due to right credit policy which would impair sales further. Thus the low level of current assets involves cost that increase as this level falls. pic] Policies for financing current assets The following policies for financing current assets in HEEP, Haridwar:- LONG TERM FINANCING: The sources of long term financing include ordinary shares capital, preference share capital debentures, long term borrowings from financial institutions and reserves and surplus. The HEEP Haridwar manages its long term financing from capital reserve, share premium A/C , foreign project reserve, bonds redemption reserve and general reserve. SHORT TERM FINANCING: The short term financing is obtained for a period less than one year.

    It is arranged in advance from banks and other suppliers of short term finance include working capital funds from banks, public deposits, commercial paper, factoring of receivables etc. The HEEP, Haridwar manages secured loans as:- 1) Loans and advances from banks 2) Other loans and advances: i) Debebtures/bonds ii) Loans from State Govt. iii) Loans from financial institutions(secured by pledge of PSU bonds and bills accepted guaranteed by banks) 3) Interest accrued and due on loans a) from State Govt. b) from financial institutions bonds and other c) packing credit

    The HEEP, Haridwar manages unsecured loans as:- 1) Public deposits 2) Short term loans and advances: 1) From banks a) Commercial papers 2) From others a) From campanies b) From financial institutions 3) Other loans and advances a) From banks b) From others i) from govt. of India ii) from state govt. iii) from financial institutions iv) from foreign financial institution v) post shipment credit exim bank vi) credit for assets taken on lease 4) Interest accrued and due on a) Post shipment credit b) Govt. credit c) State Govt. loans d) Credits for assets taken on lease e) Financial institutions and others ) Foreign financial institutions g) Public deposits SPONTANEOUS FINANCING:- Spontaneous financing refers to the automatic sources of short term funds arising in the normal course of a business. Trade Credit and outstanding expenses are examples of spontaneous financing. A firm is expected to utilise these sources of finances to the fullest extent. The real choice of financing current assets, once the spontaneous sources of financing have been fully utilized, is between the long term and short term sources of finances. What should be the mix of short and long term sources in financing current assets ?

    Depending on the mix of short and long term financing, the approach followed by a company may be referred to as : 1. matching approach 2. conservative approach 3. aggressive approach Matching approach The firm can adopt a financial plan which matches the expected life of assets with the expected life of the source of funds raised to finance assets. Thus, a ten year loan may be raised to finance a plant with an expected life of ten year; stock of goods to be sold in thirty days may be financed with a thirty day commercial paper or a bank loan.

    The justification for the exact matching is that, since the purpose of financing is to pay for assets, the source of financing and the asset should be relinquished simultaneously. Using long term financing for short term assets is expensive as funds will not be utilized for the full period. Similarly, financing long term assets with short term financing is costly as well as inconvenient as arrangement for the new short term financing will have to be made on a continuing basis.

    When the firm follows matching approach (also known as hedging approach) long term financing will be used to finance fixed assets and permanent current assets and short term financing to finance temporary or variable current assets. How ever, it should be realized that exact matching is not possible because of the uncertainty about the expected lives of assets. The firm fixed assets and permanent current assets are financed with long term funds and as the level of these assets in increases, the long term financing level also increases.

    The temporary or variable current assets are financed with short term funds and as their level increases, the level of short term financing also increases. Under matching plan, no short term financing will be used if the firm has a fixed current assets need only. [pic] Conservative approach A firm in practice may adopt a conservative approach in financing its current and fixed assets. The financing policy of the firm is said to be conservative when it depends more on long term funds for financing needs. Under a conservative plan, the firm finances its permanent assets and also a part of temporary current assets with long term financing.

    In the period when the firm has no need for temporary current assets, the idle long term funds can be invested in the tradable securities to conserve liquidity. The conservative plan relies heavily on long term financing and, therefore, the firm has less risk of facing the problem of shortage of funds. The conservative financing policy is shown below. Note that when the firm has no temporary current assets, the long term funds released can be invested in marketable securities to build up the liquidity position of the firm. [pic] Aggressive Approach A firm may be aggressive in financing its assets.

    An aggressive policy is said to be followed by the firm when it uses more short term financing than warranted by the matching plan. Under an aggressive policy, the firm finances a part of its permanent current assets with short term financing. Some extremely aggressive firms may even finance a part of their fixed assets with short term financing. The relatively more use of short term financing makes the firm more risky. The aggressive financing is Illustrated in fig below. [pic] [pic] NEEDS AND OBJECTIVES FOR WORKING CAPITAL Every business needs some amount of working capital.

    The needs for working capital, arises due to time gap between production and realization of cash from sales. There is an operating cycle involved in sales and realization of cash. There are time gaps in purchase of raw material and production, production and sales, and realization of cash. Thus, working capital is needed for the following purposes: – • For the purchase of raw material, component and spares. • To pay wages and salaries. • To incur day- to- day expenses and overhead costs such as fuel, power and office expenses etc. • To meet the selling costs such as packing, advertising etc. To provide credit facilities to the customers. • To maintain the inventories of raw material, work in progress, store, spares, and finished stock . For studying the need of working capital in a business, one has to study the business under varying circumstances such as new concern, as a growing and one, which has attained maturity. A new concern requires a lot of funds to meets its initial requirement such as promotion and formation etc. These expenses are called preliminary expenses and are capitalized. The amount needed for working capital depends upon the size of the company and the ambition of its promoters.

    Greater the size of the business unit, generally will be the requirement of the working capital. The requirement of the working capital goes on increasing with the growth and expansion of the business until its gains maturity. At maturity, the amount of working capital required is called normal working capital. Importance of working capital 1. Time devoted to working capital management:- The largest portion of financial manager ‘s time is devoted to day to day internal operation the firm. This may be appropriately sum up under the heading “WORKING CAPITAL MANAGEMENT”. 2. Investment in current assets :- urrent assets represent more than half of the total assets of a business firm. Because they represent largest investment and because this investment tends to relatively volatile,current assets are worthy for the financial manager’s careful attention. 3. Importance for small firm:- current assets are similarly important for the financial manager’s of small firm. Further small firm are relatively limited access to the long term markets,it must necessarily rely on the trade credit and short term bank loan , both of net effect on net working capital by increased current liabilities.

    FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENT 1. NATURE OF BUSINESS :- The requirement of working capital is very limited in public utility undertaking such as Electricity, Water Supply and Railways because they offer cash sales only and supply services not products and no funds are tied up in inventories and receivables. On the other hand, the trading and financial firm requires less investment in fixed assets but have to invest large amounts in current assets. The manufacturing undertaking requires sizable amount of working capital along with fixed investments. 2. PRODUCTION POLICY :-

    The determination of working capital needs depends upon the production policy of the business. The demand for certain products is seasonal i. e. ; such products are purchased in certain months of a year. For such industries, two types of production policy can be followed. Firstly they can produce the goods in the months of demand or secondly, they produce for the whole year. If the second alternative were followed, it would mean that until the time of demand finishes, product would have to be kept in stock. It would require additional working capital. 3. LENGTH OF PRODUCTION CYCLE :-

    The longer the manufacturing time, the raw material and other supplies have to be carried for a longer time in the process with progressive increment of labor and service costs before the final product is obtained. Therefore, working capital is directly proportional to the length of the manufacturing process. 4. RATE OF STOCK TURNOVER :- There is an inverse co-relationship between the quantum of working capital and the velocity or speed with which the sales are effected. A firm having a higher rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover.

    CREDIT POLICY :- Credit policy affects the working capital requirements in two ways: a) Terms of credit allowed by customer to the firm, b) Terms of credit available to the firm. A concern that purchases its requirements on credit and sells its product/services on cash requires lesser amount of working capital and vice-versa. 5. WORKING CAPITAL CYCLE :- The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital. [pic] | | | Each component of working capital (namely inventory, receivables and payables) has two dimensions …….. TIME ……… and MONEY. When it comes to managing working capital – TIME IS MONEY. If you can get money to move faster around the cycle (e. g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e. . 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, you could reduce the cost of bank interest or you’ll have additional free money available to support additional sales growth or investment. Similarly. if you can negotiate improved terms with suppliers e. g. get longer credit or an increased credit limit, you effectively create free finance to help fund future sales | |Then …… | |If you ……. | |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) |You increase your cash resources | |from suppliers | | 6. RATE OF GROWTH AND EXPANSION OF BUSINESS: – The larger size businesses require more permanent and variable working capital in comparison to small business. If a company is growing, its working capital requirements will also go on increasing.

    Thus, the growing concerns require more working capital as compared to the stable industries. 7. SEASONAL VARIATION: – Generally, during the busy season, a firm requires larger working capital than in the slack season. 8. BUSINESS FLUCTUATION: – In period of boom, when the business is prosperous, there is a need for larger amount of working capital due to rise in sales, rise in prices, optimistic expansion of business etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtors and the firm may have a large amount of working capital idle. 0. EARNING CAPACITY AND DIVIND POLICY :- Some firms have more earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also effects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profit needs more working capital than the firm that retain larger part of its profits and does not pay so high rate of cash dividend. 9. PRICE LEVEL CHANGES: – Price level changes also affect working capital needs.

    If the prices of different goods increase, to maintain same level of production, more working capital is needed. 10. AVAILABILITY OF RAW MATERIAL: – Availability of raw material on the continuos basis affects the requirement of working capital. There are certain types of raw materials, which are not available regularly. In such a situation firm requires greater working capital to meet the requirements of production. Some raw materials are available in particular season only for example wool, cotton, oil seeds, etc. They have to keep greater working capital. – 13.

    MAGNITUDE OF PROFIT :- Magnitude of profit is different for different businesses. Nature of product, control on the market and ability of managers etc. determine the quantum of profit. If the profit margin is high, it will help to arrange funds internally, which will also increase the working capital. 14. OTHER FACTOR: – Operating efficiency a) Management ability b) Irregularities of supply c) Import policy d) Asset structure e) Importance of labor MANAGEMENT OF WORKING CAPITAL Management of working capital means management of all aspects of current assets and current liabilities.

    Basically, Working capital management is concerned with the problems that arise in attempting to manage the current assets, current liabilities and the inter relationship that exist between them. Financial management should determine the quantum and structure of current assets. It should also see that current assets are financed from the proper sources. Management should also see that current liabilities are paid in time, while managing the working capital. The main objective of working capital management is to manage current assets and current liabilities in a manner so that working capital can be kept in a satisfactory level.

    It is also taken in to account that the working capital should be neither excessive nor inadequate. The amount of current assets should be adequate to pay the current liabilities in time and adequate security margin can be maintained. Accordingly, proper balance among the different constituents of current assets is maintained so that no current has more than require amount invested in it. Management of working capital affects profitability, risk and liquidity of the business significantly. Management should, therefore, maintain proper balance among these factors while managing working capital.

    If the quantum of working capital is more, it will increase liquidity, but decrease profitability and risk. If working capital relatively declines, it will decrease liquidity but cause an increase in profitability and risk. If business wants to earn more profit, it will have to bear higher risk. Risk means inability of the firm to pay current liabilities in time. working capital management is three dimensional in nature: – 1) It concerned with the formulation. It of policies with regard to profitability, liquidity and risk. 2) It is concerned with the decisions about the composition and level of current assets. ) It is concerned with the decisions about the composition and level of current liabilities. Policies regarding to Profitability, Liquidity and Risk. Composition of level of Composcompositionof level of current liabilities current assets Dimensions of working capital. EXISTING SYSTEM OF WORKING CAPITAL IN BHEL, HARDWAR To maintain the optimum level of working capital in such a big organization is really a challenging task. The three basic components that determine the level of working capital in any organization are: – Cash • Debtors B/R • Inventory.

    On the basis of our research in the BHEL Hardwar, these basic components are managed in the organisation, in the under mentioned manner. TABLE OF WORKING CAPITAL (Rs. in Lacs) |PARTICULARS |YEARS | | |2000-01 |20010-02 |2002-03 |2003-04 |2004-05 |2005-06 | | |ACTUAL |ACTUAL |ACTUAL |ACTUAL |ACTUAL |PROV. |Current Assets | | | | | | | |Debtors |54076 |50904 |41417 |55866 |48552 |64709 | |Inventory |47369 |43461 |32370 |39214 |58976 |69798 | |Cash |17 |23 |527 |10 |9 |9 | |Loan and Advaces |13367 |6573 |5730 |5581 |5299 |5152 | |Total |114829 |100962 |80044 |100671 |112836 |139668 | |Current Liabilities | | | | | | | |Sundry Creditors |15701 |15753 |18630 |19718 |15562 |16674 | |Adv. from Customers |31634 |26695 |27107 |33275 |29360 |61889 |Other liabilities |1687 |826 |2665 |1966 |1980 |12370 | |Provisions |19129 |17002 |15963 |16682 |14473 |19990 | |Total |68151 |60276 |64365 |71641 |14473 |110923 | |Net Working Capital |24794 |40327 |50463 |29320 |18668 |28745 | |Turnover |97100 |81498 |71799 |108811 |101335 | | |Working Capital to Turnover |256(D) |98(D) |67(D) |69(D) |34(D) | | Working capital to turnover=net working capital/turnover*365 D stands for no. of days Graphical presentation of current assets of the company Focusing on liquidity management Net working capital is a qualitative concept.

    It indicates the liquidity position of the firm and suggest the extent to which working capital needs may be financed by permanent sources of funds. Current assets should be sufficiently in excess of current liabilities to constitute a margin or buffer for maturing obligations within the ordinary operating cycle of a business. In order to protect their interests, short-term creditors always like a company to maintain currnet assets at a higher level than current liabilities. It is a conventional rule to maintain the level of currnet assets twice the level of current liabilities. However, the quality of current assets should be considered in determining the level of current assets vis-a –vis current liabilities.

    A weak liquidity position poses a threat to the solvency of the company and makes it unsafe and unsound. A negative working capital means a negative liquidity and may prove to be harmful for the company’s reputation. Excessive liquidity is also bad. It may be due to mismanagement of current assets. Therefore prompt and timely action should be taken by management to improve and correct imbalances in the liquidity position of the firm. Net working capital concept also covers the question of judicious mix of long-ter

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