ACKNOWLEDGEMENT

I would like to express my deep sense of obligations

to the management of HINDUSTAN AERONAUTICS
LIMITED. ENGINE DIVISION, KORAPUT for a conducive
working environment and a professional training which is
going to help me a lot in my future.

I feel extremely exhilarated to have completed the

project under the inspiring guidance of Mr. SRIKANT
MOHAPATRA {SR.MANAGER} (FINANCE SECTION) . I am highly
indebted to him for making me available all facilities for
completing this project.

TAPAN KUMAR SETHI

MBA-FINANCE
SRUSTI ACADEMY OF MANAGEMENT
BHUBANESWAR
 Declaration

I, Mr. TAPAN KUMAR SETHI hereby declare that this summer

project report titled “WORKING CAPITAL MANAGEMENT IN HAL
LTD. ENGINE DIVISION, KORAPUT ” is the result of my own effort
in the training which I did as a part of the curriculum, for the
fulfillment of MASTER DEGREE IN BUSINESS ADMINSTRATION. It
has not been duplicated from any other earlier works and all
information provided in this report is genuine.

This report is submitted for the partial

fulfillments of MBA program. It has not been submitted to any
other university or for any other degree.

TAPAN KUMAR SETHI

DATE.
MBA-FINANCE
SRUSTI ACADEMY OF MANAGEMENT,
BHUBANESWAR

CONTENT
 TOPIC PAGE
CHAPTER NO.
1. INTRODUCTION
Background of
the Study
Objective of
the study
Need of the
study
Scope of the
study
Methodology
of the study
Limitation of
the study
2. COMPANY
PROFILE
3. LITERATURE
REVIEW
4. DATA ANALYSIS
&
INTERPRETATIO
N

5. FINDINGS,
SUGGETION &
CONCLUSION
Findings
suggestion
conclusion
BIBLOGRAPHY
ANNEXURE
 INTRODUCTION

INTRODUCTION

Working capital management is concerned with the raising

of and dealing with short-term resources (called current
liabilities) needed by the business on a revolving basis and
there after putting them to productive use of the fixed assets
like (plant, machinery etc) inducted into the business the
business and in this process to achieve the different facets of
business activity planned. Working capital turns static long-
term blocks, assets into dynamic operational facilities to
generate continuous cycle of productive activity like
manufacturing and trading or service providing. While long
term investment is raised one time initially and invested at
once to procure the block assets needed to translate business
goals into reality.
Working capital management serves as the effective
drive that enables the operative use of the uninterrupted
process of business activity. This leads to the revenue
generation on a continuing and on going basis. While
investment finance is concerned with raising long term funds
to be utilized in fixed assets and investments, working
capital is concerned with raising current liabilities to current
assets.

OBJECTIVES OF THE STUDY:

 To study the components, determinants of working

capital.
  To determine the amount of working capital.

 To calculate various ratios among various components

of working capital.

 To find out operating cycle of concerned company.

 To prepare & analyze cash flow statement.

 To prepare net operating cycle of 2007-08, 2008-

09,2009-10.

NEED OF THE STUDY

 To provide a handy reference in understanding Nalco’s
financial policy and To provide an insight into various
sources available for financing the working capital and
its utilization.

 To provide economic information to the investors and

to judge the management on its stewardship of the
resources of the enterprise and achievement of
corporate objectives.

 To provide information about the economic activity of

JSL to several group who otherwise has no access to
such information.

SCOPE OF THE STUDY

1. To study the purchases schedule of raw material

stores &spares of Hal
2. To study the production expenses such as wages
& salaries.
3. To study the credit sales pattern of finish product
of HAL.

DATA AND METHODOLOGY:

The data that are present in this report have been taken from
secondary sources. The data of HINDUSTAN AERONAUTICS
LIMITED, Engine Division, Koraput, for the year 2007-08,2008-
09&2009-10 used in this report have been taken from financial
statements i.e., the PROFIT AND LOSS ACOUNT, BALANCE
SHEET for the relevant years. The procedural details have been
collected from the respective manuals, booklets etc. For
analyzing the performance of working capital management, simple
mathematical tools like percentage, average , ratio have been used
in this project work. To know the financial performances of this
division, calculation of operation cycle, Earning before interest &
taxes have been calculated .

LIMITATION OF THE STUDY:

 Most of the information is collected from the secondary

sources.
 If the working capital is not properly maintained and managed
then it may result in unnecessary blocking scarce resources of
the firm.

 There is a gap between the theoretical analysis & its practical

and real life application. The data available is limited to the
Koraput Division. The overall data of HAL is not available.
The actually working figure may slightly differ from the study.
The accuracy in the data, which could not be avoided, imposed
some more restriction on the study.

 There is not sufficient time for analyzing the financial status

of HAL.
 COMPANY PROFILE

COMPANY PROFILE

HAL was formed on 1 s t October 1964 by the merger of

Hindustan Aircraft limited and aeronautics India limited.

The late Shri “ WALCHAND HIRACHAND “ set up Hindustan

Aircraft limited at Bangalore in Karnataka in December 1940, in
association with the government of Mysore, as a private limited
company, in June 1942. The government of India purchased
the interest of the company and took over its management.
The HARLOW TRAINER AND CURTISS HAWK FIGHTER
AIR CRAFT LIMITED and they were successfully flown in
1942.

In 1948, with the impetus given by the prime minister

of India, late Sri Jawaharlal Nehru the policy of manufacture
as well as design and development of Aircraft was taken over by the
government of India. In august 1962, government of India entered
into a collaboration agreement with the Soviet Union for the
manufacturing of MIG-21 FL AIR CRAFT including its engine and
avionics HINDUSTAN AERONAUTICS LIMITED was formed to
undertake the manufacture and overhaul of the airframes /
assembling of the air craft, Koraput in ORISSA, for the
manufacturing and overhaul of aero engines and at Hyderabad in
Andhra Pradesh for the avionics for the MIG Aircraft.

Hindustan Aircraft limited and aeronautics India limited were

merging red in October 1964 to form the present Hindustan
aeronautics limited. In July 1970 a helicopter division was
established as a part of BANGALORE complex for the manufacture
of “CHETAK” and “CHEETAH” helicopters under license from
FRANCE.

“To become a globally competitive aerospace industry while

working as an instrument for achieving self reliance in design
manufacture and maintenance of aerospace defence equipment
and diversifying to related areas managing the business on
commercial lines in a climate of growing professional competence’’
Over the first five decades HAL has spread its wings to cover
various activies in the area of design, development, manufacture
and maintenance of Light aircraft, piston and jet engine of imported
category was delivered to HAL, Nasik division in the year 1978-79.
A total of 300 engines are to be delivered under this project.
Against this task, the division has already delivered 88 engines of
different imported categories. The first raw-materials engine is
scheduled for delivery during the year 1982-83.

In august1966 an agreement was signed with Soviet Union to

set up overhaul project in this division and the government sanction
was accord in 1967.Thefactory started overhaul of RF-300 series-
III, R11F series 9&10& R11F2s/F2SK series engine. The division
till the end of March 1982 has overhauled a total of 1067 engines.

The division is currently engaged in setting of facilities for

taking up the overhaul of R25 series engines for the year 1982-83
onwards. With the signing of internal governmental agreement for
the manufacture of MIG-27M Aircraft on 19th March 1982, this
division would be involved in the manufacture of 285 numbers of
the engines from the year 1984 to 85 onwards. In order to attend the
self sufficiency & to avoid difficulties regarding the supply of the
raw materials & other bought out items from USSR, it was decided
to provide indigenous support to spare manufacturing for the
overhaul/maintenance of the MIG fleet. The government approval
for undertaking the task was received during 1977-78 &
indigenous plan was formed to tackle.

MISSION

To become a globally competitive aerospace industry while working

as an instrument for achieving self-reliance in design, manufacture
and maintenance of aerospace defense equipment and diversifying
to related areas, managing the business on commercial lines in a
climate of growing professional competence.

VISION
 To make HAL a dynamic, vibrant, value-based learning
organization with human resources exceptionally skilled, highly
motivated and committed to meet the current and future challenges.
This will be driven by core values of the Company fully embedded
in the culture of the Organization.

VALUES
 CUSTOMER SATISFACTION

 COMMITMENT TO TOTAL QUALITY

 COST AND TIME CONSCIOUSNESS

 INNOVATION AND CREATIVITY

 TRUST AND TEAM SPIRIT

 RESPECT FOR THE INDIVIDUAL

 INTEGRITY
INDUSTRY SCENARIO

HAL DIVISIONS:
COMPLEXES :
 Bangalore
complex
  MIG Complex
 Accessories
complexes
 Design comple

1. BANGALORE COMPLEX

(A) Aircraft Division -Manufacturing Jaguar Aircrafts

(B) Engine Division - Manufacturing Jaguar engines

(C) Helicopter Division - Manufacturing helicopters

(D) Forge And Foundry Division - Manufacturing high precision casting and
forging

(E) Overhaul Division -overhaul of jaguar and other engines.

(F) Space Division - Manufacturing of launching of pads

and common satellites.

(G) Service division -for common service to all division

2.MIG COMPLEX

(A) Nasik Division Manufacturing and overhaul of Air Frames.

 (B) Koraput Division Manufacturing and Overhaul of MiG Engines &
Su-307

3. ACCESSORIES COMPLEX

(A) Hyderabad Division - Manufacturing of electronics and navigational

Equipment

(B) Kanpur Division manufacturing of passenger Aircraft & Gliders.

 (C) Lucknow Division - Manufacturing of hydraulic pumps, fuel
pumpsand statorGenerator

(D) Korwa Division Manufacturing of advanced navigational

equipment

4. DESIGN COMPLEX

Bangalore Division - Modification of any component or unit of an

engine.
Products manufactured at HAL (KD):

Sl No. Aircraft Engine Indigenous Name

1 MIG-21 FL R-11 F2 BADAL

2 MIG-21M/MF R-11-F26/F2SK TRISHUL

3 MIG 21 BIS R-25 VIKRAM

4 MIG 23-BN R-29B VIJAYA

5 MIG 23-MF R-29 RAKSHAK

6 MIG-25 R-29B GARUD

7 MIG-27 R-29B BAHADUR

8 MIG-29 RD-33 VAJ

9 AL31-FP SU-30 SUKHOI

CUSTOMER OF HAL
 The main customer of the organization of the HAL, KD is India Air
Force. But after the new economic policy was introduced HAL is exporting
its products to

 Republic of Yemen (Department of defence)

 Republic of Vietnam
 Republic of Laos
 Republic of France
 Republic of Government Syrea
 Mitsubishi
 Department of space government India
 BHEL
 MHI, Japan
 Government of Iraq
 Supply of spares to other HAL Division
 India Coast guard
International Customers Domestic Customers
 Airbus Industries, France  Air India
 APPH Bolton, UK  Air Sahara
 BAE Systems, UK  Airports Authority of India
 Chelton, UK  Bharat Electronics
 Coast Guard, Mauritius  Border Security Force
 Corporate Air, Philippines  Coal India
 Cosmic Air, Nepal  Defence Research & Development
 Dassault Aviation, France Organization
 Dowty Aerospace  Govt. of Andhra Pradesh
Hydraulics, UK  Govt. of Jammu & Kashmir
 EADS, France  Govt. of Karnataka
 ELTA, Israel  Govt. of Maharastra
 Gorkha Airlines, Nepal  Govt. of Rajasthan
 Hampson, UK  Govt. of Uttar Pradesh
 Honeywell International,  Govt. of West Bengal
USA  Indian Air force
 Island Aviation Services,  Indian Airlines
Maldives  Indian Army
 Israel Aircraft Industries,  Indian Coast Guard
Israel  Indian Navy
 Messier Dowty Ltd., UK  Indian Space Research Organization
 Mitsubishi Heavy  Jet Airways
Industries, Japan  Kudremukh Iron ore Company ltd.
 MOOG, USA  NALCO
 Namibian Air Force,  Oil & Natural Gas Corporation Ltd.
Namibia  Ordnance Factories
 Peruvian Air Force , Peru  Reliance Industries
 Rolls Royce Plc, UK
 Royal Air Force, Oman
 Royal Malaysian Air Force,
Malaysia
 Royal Nepal Army, Nepal
 Royal Thai Air Force,
 Thailand
 Smiths Industries, UK
 Snecma, France
 Strong field Technologies,
UK
 The Boeing Aircraft
Company, USA
 Transworld Aviation, UAE
 Vietnam Air Force,
Vietnam

FUNCTIONAL PROFILE
 ADMINISTRATVE CHART OF HAL (KORAPUT DIVISION)

EXECUTIVE DIRECTOR

GENERAL MANAGER

CHIEF MANAGER

SENIOR MANAGER SENIOR MANGER

TRAINING MANAGER
(P&A)
(P&A)ESTT. MANAGER LEGAL

MANAGER
MANAGER ASST. TRAINING ASST. INDUSTRIAL
TRAINING OFFICER RELATIONS
LEGAL OFFICER

SECRETARIAT

OFFICIAL
LANGUAGE CELL
PERSONNEL INDUSTRIAL
OFFICER RELATIONS
DEPUTY (POLICY&STATIS OFFICER
PERSONEL TIC)
(RECRUITMENT) PRINTING PRESS

PERSONNEL
ENGINEER OFFICER PERSONNEL ASST.
TRNSFER (RECRUITMENT)) OFFICER INDUSTRIAL
(ESTABLISHMEN RELATIONS
T)
 ASST. PROSONNEL
MANAGER (DISCIPLINAARY))
TOWNSHIP
ASST.PERSONNE
L OFFICER AAO OFFICER
(ESTABLISHMENT (HACCS)
)

AAO GUEST AAO RUSSIAN

HOUSE ENCLAVE

FINANCE AND ACCOUNTING FUNCTIONS IN HAL,

KORAPUT DIVISION

Finance and Accounting both play an important role in any

business organizational setup. The main function of any Finance and
Accounting of an organization are funds management, cost
monitoring, cost reduction and financial appraisal.

Money is a very scarce resource & is the most sought after

commodity because all the transaction of human society are settled
in terms of money. Money & Finance are of not one & the same
things. Money stored in vaults, or kept in the shape of gold bars, or
an ornament is not finance. Money is a static value expressed in
currency of the country, where as, finance is an expression of
dynamic function of money.
 Depending upon the requirements & close monitoring of
expenditure HAL, Koraput Division has formed the following
section for smooth running of the finance & accounts departments &
to maintain the liquidity position of the company.

A. Bills Payable Section

B. Payroll Section
C. Provident Fund Section
D. Cash Office Section
E. Finance Section
F. Material Section
G. Costing Section
H. Bills Receivable Section
I. Book-Keeping Section

1. BILLS PAYABLE SECTION

This section is mainly divided in three-sub division. Such as:

a) Bills Payable (Inland): - This section deals with the payment

& accounting of supplies & services rendered to the company.
b) Bills Payable (Civil work): - This section deals with the
service rendered by the contractor of the company.
c) Bills Payable (Foreign): - This section deals with the payment
& accounting of supplies & services rendered by foreign
collaborators to the company.

2. PAYROLL SECTION

The main functions of the Payroll cover the following:

a) Placement of time punching cards in the card rack for the

recording attendance.
Receipt of approval leave application, over time
authorization, attendance .
 b) Receipt of approval leave application, over time authorization,
attendance sheets & employees gate pass etc.
c) Maintenance of leaves records & feeding of attendance data to
computer.
d) Disbursement of salary & wages.
e) Payment & recovery of advances.
f) Recovery of dues from employees.
g) Accounting of all Payroll transactions.
h) Maintenance of employees punching cards etc.

3. PROVIDENT FUND SECTION

This section mainly deals with the transaction preparing to PF

such as:

a) Account of Provident Fund transaction.

b) Remittance of amounts recovered from employee to a fund
called provident fund trust fund.
c) Providing refundable & nonrefundable loan & adjustment
thereof.

4. CASH OFFICE

This section is responsible for all receipt & payment of

cash/cheque & accounting of the same in the book. The main
functions are as follows:

a) Receipt of cash, cheque, bank draft & issue of official receipt

for the same.
b) Banking of all receipt.
c) Drawl of cash from bank to cater for daily needs.
d) Payment of vouchers by cash/cheque.
e) Writing cash/bank books.
f) Preparation of Bank Reconciliation Statement.
g) Safe Custody of cash, cheque books, bank guarantees, fixed
deposits receipts & other investments etc.
5. FINANCE SECTION
 The main functions are: Security & financial concurrent as per
the delegation of power of proposal for:

a) Capital expenditure
b) Revenue expenditure
c) Purchase of Material, stores tools & other services
d) Manpower requirements
e) Incentives
f) Write off-of losses
g) Cases involving relaxation of rules
h) Sales of company assets
i) Contracts enter into with suppliers/ collaboration/
subcontractors.
j) Estimates & errors of contracts in respect of Civil/ Electrical/
Plant Order.

6. MATERIALS SECTION

This section covers the following:

a) Maintenance of material ledger cards for all materials held in

stores.
b) Accounting of receipts of all materials by various classes &
issue of all materials draws on work order & expenses
accounts.
c) Reconciliation of balances with general ledger.
d) Quality reconciliation of Bin Card balances with with
Materials ledge balances.

7. COSTING SECTION

The main functions of this section are:

Fixation of fixed cost quotation.

a) Fixation of standard man-hour rate.

b) Preparation of operating statement.
c) Accounting & adjustment of differed revenue expenditure.
 d) Accounting of non-production of overhead.
e) Preparation of man-hour rate.

8. BILLS RECEIVABLE SECTION

This section is responsible for preparation & submission of

invoices to customer for the supplier made & services rendered &
follow up for recovery of the amounts & accounting of the same.

9. BOOKKEEPING SECTION

This section is the section in which the financial position of

the organization can be reflected through the preparation of profit &
loss account and balance sheet. It is the apex section of the finance
& accounts department, which cover the following important
function

a) Co-ordination of all section for relevant information.

b) Maintenance of Journal & general ledger.
c) Preparation of Trial balance, Profit & Loss Account, Balance
sheet.
d) Maintenance of Capital Asset Ledger.
e) Preparation of Fixed Asset & Depreciation schedule.
f) Furnishing of data for determining of income tax liability.

ACCOUNTING POLICY FOLLOWED BY HAL:

1. ACCOUNTING METHOD

The financial accounts are prepared under the accrual

basis & at historical cost unless otherwise stated.

1.FIXED ASSETS:

i. Land received from the state Government till 31st March 1969
has not been valued. Such land which have been taken over by
the company after 1st April 1969, have been valued at
estimated fair price ruling on the date of taking possession.
Land other than above has been capitalized at cost to the
company and no account has been taken of the cost borne by
 the state Govt. Expenditure on development is shown under
land.

ii. Fixed assets acquired with financial assistance/subsidy from

outside agencies either wholly or partly is capitalized at net
cost of the company.

iii. Minor Civil work including addition, alterations etc. costing

individually Rs.50000/- and below not resulting in additional
floor space are charged to revenue.

iv. Where the actual costs of the fixed/current assets are not
readily ascertainable, they are accounted initially on
provisional basis but adjusted subsequently to cost when
ascertained.

v. Assets declared surplus/discarded are retained in the books at

cost and depreciation provided till the end of the month,
proceeding the month in which they are disposed off. Proceeds
from sales of assets in excess of net book value are credited to
profit and loss account.

vi. Expenditure on reconditioning, resetting and relay out of

machinery and equipments which does not increase the future
benefits from the existing assets beyond the previously
assessed.

vii. Standard of performance based on the technical assessment is

not capitalized.

viii. Cost of the initial pack of spares procures with plant,

machinery and equipment is capitalized and depreciated in the
same manner as plant machinery and equipment.

2.TOOLS AND EQUIPMENTS:

 Expenditure on special purpose tools, jigs and fixture
including those specific to project/product is initially capitalizes for
amortization over production on technical assessment and to the
extent not amortized is carried forward as on assets. Expenditure on
maintenance, rework, reconditioning, periodical inspection,
referencing of tooling, replenishing of cutting tools and work of
similar nature is charged to revenue act at the time of issue.

3.RESEARCH AND DEVELOPMENT:

Research and development is built up by the appropriation

from profit. Research and development expenditure is debited to the
Profit and Loss account. To the extent the expenditure are meet out
of the research and development reserve amounts to that extent are
transferred from the research and development reserve to the profit
and loss account.

4.DEFERRED REVENUE EXPENDITURE:

Expenditure on training personnel/foreign technical fees and

expenses, pre-production expenses, etc. specific to projects/products
is amortized over production on technical estimates and to the
extent not amortized is carried forward

5.DEFERRED DEBTS:

Unpaid installment payments under deferred payment terms for

the cost of imported material and tooling content of the
equipment/products sold are accounted as deferred debt from the
customers and are recovered as and when the installment are paid.
 6.SUNDRY DEBTORS:
Disputed/time barred debts from the Government Departments are
generally not treated as doubtful debts.

7.INVENTORY:

i. Raw material, components, stores and spare parts are value at

cost.

ii. Work-in-progress/stock in trade is valued at lower of cost on

realizable value.

iii. Adjustment is not made for under/over observation of cost on

jobs, if the extent of under/over observation in a year does not
exceed 0.5% of the net operating expenses.

iv. Customs duty where applicable is loaded to cost of goods

when cleared and passed through customs.

v. Stationary, uniform, medical and canteen, stores are charged

to revenue at the time of receipt.
vi. Semi-perishable, welfare and Miscellaneous equipments (other
then fixed assets) Costing individually Rs.20000/- and below
are charged to revenue at the time of issue and those costing
above.Rs.20000/- is written off to revenue in two years
including the year of issue.

vii. Provision for redundancy is maintained at a suitable

percentage/level of the value of closing inventory of Raw
Materials and Components, Stores and Spares parts and
construction material less the value of inventory to be borne
by the customer and the value of the inventory for the initial
phase of the new projects. Besides, where necessary, adequate
provision is made for redundancy of such materials in respect
of completed/specific project and other surplus/redundant
 material pending transfer to salvage stores. Stores declared
surplus/unserviceable/redundant are charged to revenue.

viii. Material issued from main stores and lying unused at the end
of the year is not reckoned as inventory.

8.INDIRECT EXPENSES ON EXPANSIONS:

Expenses on administration and supervision in respect of
expansion facilities/new projects at the existing operating division
are charged to revenue.

9.SALES:

Sales are set up on completion of contracted work on the basis

of signaling out/acceptance by the customer’s inspection of the
product. Where sale price are not established, sales are set up on
provisional basis at price likely to be realized. Research and
development expenditure financed by the customer is billed and
accounted as sales.

10.RETIREMENT BENEFITS:

i. Liabilities towards gratuity provided on yearly actuarial

valuation in respect of all employees is remitted to a trust
progressively.

ii. Provision for vocation leave is made on accrual basis and un-
utilized leave at the year-end is restated as if such benefits is
payable at the close of the year.

iii. Employers contribution of provident fund for the year is provided

for at the Govt. stipulated rate and are remitted to the trust.
11. INTEREST:

Interest on loan/borrowing for different projects is charged to

revenue.

12.DEPRECIATION

Depreciation on fixed assets is charged on ‘straight line

method’. The rate of depreciation on assets acquired on prior to
01.04.1989 is on the basis of estimated life. The rate of depreciation
is as prescribed in scheduled XIV to the companies Act 1956 for
assets capitalized after 01.04.1989 (except for assets separately
listed in notes to Balance Sheet). However, prorate depreciation
charge to the assets from the first day of the month of addition.
Fixed assets costing Rs.10000/- and below are depreciated fully in
the year of purchase. Where cost of internal partitions exceeds
Rs.50000/- they are depreciated with in a period of 5years or the
lease period of premises which ever is less.

13. FOREIGN CURRENCY TRANSACTION:

Foreign Currency transaction are recorded and reported as per

requirement of Accounting Standard-II of ICAI except in respect of
liability for deferred payments on supplies/services from the
Russian federation arising in terms of inter Govt. agreement entered
into between Govt. of India and USSR Govt. of Russian federation.
The liability is set up on the transaction date at the rate of exchange
notified by the Reserve Bank of India (R.B.I) for deferred payments
under the protocol arrangements between the Government The
different arising out of the re-calculation of Rubles into Rupee in
terms of protocol arrangement is charged to the revenue at the time
of payment and is realized from the customs.
 LITERATURE REVIEW

LITERATURE REVIEW
 “As no man can live without food and no vehicle can run
without fuel like that no organization can run without finance.”

Finance is the lifeblood of any business. Financial analysis is

the process of identifying the financial strengths and weakness of
the firm by properly establishing the relationship between the items
of balance sheet which summarizes the assets, liabilities and the
owner’s equity and Profit & Loss account which summarizes the
income and expenditure of the firm over a particular period of time.
This process of analysis is carried out by establishing different
types of relationships among different items of the financial
statements of the firm as these statements prepared as such won’t
help the firm very much unless it is analyzed and interpreted.

THEORETICAL ASPECTS OF THE “CONCEPT’’

Working capital is very important for business. Working capital

management is concerned with the problems that arise in attempting
to manage the current asset, the current liabilities and the inter-
relation solvency of a concern. The main goal of working capital
management is to manage the firm’s current assets and current
liabilities in such a way that a satisfactory level of working capital
maintained. This is so because if the firm cannot maintain a
satisfactory level of working capital, it is likely to become insolent
and may be forced into bankruptcy. The current assets should be
large enough to cover its current liabilities in order to ensure a
reasonable margin of safety. Each of the current assets must be
managed efficiently in order to maintain the liquidity of the firm
while not keeping too high a level of any one of them. Each of the
short-term sources of financing must be continuously managed to
ensure that they are obtained and used in the best possible way. The
interaction between current assets and current liabilities in
therefore, the main theme of the theory of working capital
management.
 The working capital management refers to management of the
working capital, or to be more precise, the management of current
assets. A firm’s working capital consists of its investment in current
assets, which include short-term assets such as cash & bank balance,
inventories, receivables (including debtors & bills), and marketable
securities. So, the working capital management refers to
management of the level of all these individual current assets. The
need for working capital management arises from two
considerations. First, existence of working capital is imperative in
any firm. The fixed asserts which usually require a large chunk of
total funds, can be used at an optimum level only if supported by
sufficient working capital & second, the working capital involves
investment of funds of the firm.

The working capital management includes the management of the

level of individual current assets as well as the management of total
working capital. However, each individual current asset has unique
characteristics, which the financial manager must consider in
deciding how much money should be invested in the each of these
current assets.

Types of working capital:

There are two concepts of working capital:

 Gross working capital

 Net working capital
1. Gross working capital (or Total working capital):
The gross working capital refers to the firm’s investment
in all the current assets taken together. The total of investments in
all the individual current assets is the gross working capital.

2. Net working capital:

The term net working capital may be defined as the excess of

current assets over total current liabilities. It may be noted that to
those liabilities which are payable within a period of one year. The
extent, to which the payments to these current liabilities are
delayed, the firm gets the availability of funds for that period. So a
part of the funds required to maintain current assets is provided by
the current liabilities & the firm will be required to invest the funds
in only those current assets which are not financed by the current
liabilities.

In the broad sense, the term working capital refers to the gross
working capital and represents the amount of funds invested in
current assets. Thus the gross working capital is the capital in rested
in total current assets of the enterprise current assets are those
assets which in ordinary of business can be converted into cash
neither a short period of normally one accounting year.

In narrow sense the term working capital refers to the net

working capital. Net working capital is the excess of current assets
over current liabilities i.e.;

Net working capital = Current Assets – Current Liabilities.

Net working capital may be positive or negative , when the

current assets exceed the current liabilities the working capital is
positive or the negative working capital results when the current
liabilities are more than 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 or the income of the business.

The following are examples of current assets and current

liabilities:

CURRENT ASSETS

1) Cash in hand and bank balance

2) Bills receivable
 3) Sundry debtors

4) Short term loans and advances

5) Inventories of stocks as:

 Raw material
 Work-in-progress
 Stores and spares
 Finished goods
6) Temporary investment of surplus funds

7) Prepaid Expenses

8) Accrued incomes

CURRENT LIABILITIES

1) Bills payable

2) Sundry creditors or Account payable

3) Accrued or Outstanding Expenses

4) Short term loans, advances and deposits

5) Dividends payable

6) Bank Overdraft

7) Provision for taxation if it does not amount to

appropriation of profits.

Net working capital refers to the amount of funds that must be

invested by the firm, more or less, regularly in current assets. The
remaining portion of current assets being financed by the current
liabilities. The net working capital also denotes the net liquidity
being maintained by the firm. This also gives an idea of buffer
available to the current liabilities.
 Thus both concepts of working capital i.e. the gross working
capital & the net working capital have their own relevance & a
Financial Manager should give due attention to both of these. The
cash inflows & outflows for any firm are seldom synchronized and
so, some working capital is necessary. The cash outflows occurring
from the existence of the current liabilities are more easily &
correctly predictable but the cash flows from current assets are
difficult to be accurately predicted. The more predictable, these
cash flows are, the less the net working capital required by the firm.
The firm with more & more uncertain cash inflows must maintain
higher &higher level of current assets adequate to cover the current
liabilities.

THE OPERATING CYCLE & WORKING CAPITAL NEEDS

The working capital requirement of a firm depends, to a great

extent upon the operating cycle of the firm. The operating cycle
may be defined as the time duration starting from the procurement
of goods or raw materials & ending with the sales realization. The
length & nature of the operating cycle may differ from one firm to
another depending upon the size & nature of the firm.

In a trading concern, there is a series of activities starting

from procurement of goods & ending with the realization of sales
revenue. Similarly in case of manufacturing concern, this series
starts from procurement of raw materials & ending with the
realization of finished goods. In both the cases, however, there is a
time gap between the happening of the first event and happening of
the last event. This time gap is called the Operating Cycle .

Thus, the operating cycle of a firm consists of the time required for
the completion of the chronological sequence of some or all of the
following:
  Procurement of raw materials & services.
 Conversion of raw materials into work-in-progress.

 Conversion of work-in-progress into finished goods.

 Sales of finished goods (Cash or Credit)
 Conversion of receivables into cash

WORKING CAPITAL CYCLE

CASH

DEBTORS

RAW MATERIAL

CASH SALES

WORK IN PROGRESS CREDIT SALES

FINISHED GOODS

FACTORS DETERMINING WORKING CAPITAL

REQUIREMENT:
 The working capitals needs of a firm are determined&
influenced by various factors. A wide variety of considerations may
affect the quantum of working capital required and these
considerations may vary from time to time. The working capital
needed at one point of time may not be good enough for some other
situation. The determination of working capital requirement is a
continues process & must be undertaken on a regular basis in the
light of the changing situations. Following are some of the factors,
which are relevant in determining the working capital needs of the
firm

1. Basic Nature of Business:

The working capital requirement is closely related to the

nature of the business of the firm. The trading concerns usually
have smaller needs of working capital, however, in certain cases,
large inventories of goods may be required & consequently working
capital may be large. In case of financial concerns, there may not be
stock of goods but these firms do have to maintain sufficient
liquidity all the times.

In case of manufacturing concerns, different types of

production processes are performed. One unit of raw material
introduced in the production schedule may take a long period before
it is available as finished goods for sale. The operating cycle is
usually a longer one & sales are made generally on credit terms. So,
in case of manufacturing concerns, there is a requirement of
substantial working capital.

2. Business Cycle Fluctuations:

Different phases of business cycle i.e. boom, recession,

recovery etc. also affect the working capital requirement. In case of
boom conditions, inflationary pressure appears & business activities
expand. As a result, the overall need for cash, inventories etc.
increases resulting in more & more funds blocked in these current
assets. In case of recession period however, there is usually dullness
in business activities and there will be a fall in inventories & cash
requirement.
3. Seasonal Operations:

If a firm is operating in goods & services having seasonal

fluctuations in demand, then the working capital requirement will
also fluctuate with every change. If the operations are smooth &
even through out the year then the working capital requirement will
be constant & will not be affected by the seasonal factors.

4. Market Competitiveness:

The market competitiveness has an important bearing on the

working capital needs of a firm. In view of the competitive
conditions prevailing in the market. The firm may have to offer
liberal credit terms to the customers resulting in the higher debtors.
The working capital tends to be high as a result of greater
investment in inventories & receivables.

5. Credit Policy:

The credit policy means the totality of term & conditions on

which goods are sold & purchased. A firm has to interact with two
types of credit polices at a time.

a. The policy of the superior of raw materials, goods etc

b. The credit policy relating to credit which it extends to its
customers.

In both the cases, however the firm while deciding its credit
policy has to take care of the credit policy of the market.

6. Supply Conditions:

The time taken by a supplier of raw materials, goods etc. after

placing an order, also determines the working capital requirement.
If goods are received as soon as or in a short period after placing an
order, then the purchaser will not like to maintain a high level of
inventory of that good.

NEED FOR ADEQUATE WORKING CAPITAL:

The need & importance of adequate working capital for day-

to-day operations can hardly be underestimated. Every firm must
maintain a sound working capital position otherwise; its business
activities may be adversely affected. The objective of financial
management i.e. to maximize the wealth of the shareholder cannot
be attained if the operations of the firm are not optimized. Thus
every firm must have adequate working capital. It should have
neither the excessive working capital nor inadequate working
capital. Both situations are risky & may have dangerous outcome.
The excessive working capital, when the investment in working
capital is more than the required level, may result in

a. Unnecessary accumulation of inventories resulting in waste,

theft, damage etc.
b. Delays in collection of receivables resulting in more liberal
credit terms to customers than warranted by the market
conditions.
c. Adverse influence on the performance of the management.

On the other hand, inadequate working capital situation, when the

firm does not have sufficient working capital to support its
operation, is also not good for the firm, such a situation may
have following consequences:

 The fixed assets may not be optimally used.

 Firm’s growth may stagnate.
 Interruptions in production schedule may occur
ultimately resulting in lowering of the profit of the firm.
 The firm may not be able to take benefit of an
opportunity.
 Firm’s goodwill in the market is affected if it is not in a
position to meet its liabilities on time.

OBJECTS OF WORKING CAPITAL MANAGEMENT

 The need for working capital cannot be over emphasized.
Every business needs some amount of working capital. So
management of working capital is necessary. Thus working capital
is needed for the the following purpose:

1. For the purchase of raw materials, components and spares

2. To pay wages and salaries
3. To inure day-to-day expenses and overhead costs such as fuel
power and office expenses etc.
4. To meet the selling costs as packing, advertising etc.
5. To provide credit facilities to the customers
6. To maintain the inventories of raw materials, work-in-
progress, spares and finished stock

KINDS OF WORKING CAPITALS:

The categorization of Working capital can be made either best

on its concept or the need to maintain current assets either
permanently and/or temporarily.

KINDS OF WORKING CAPITALS

 ON THE BASIS OF CONCEPT ON THE BASIS OF TIME

GROSS NET PERMANENT TEMPORARY

WORKING WORKING
WORKING WORKING
CAPITAL
CAPITAL CAPITAL

SEASONAL SPECIAL
WORKING
REGULAR RESERVE WORKING
CAPITAL
WORKING WORKING CAPITAL
CAPITAL CAPITAL

Permanent working capital

Permanent working capital is the minimum investment kept in

the form of inventory of raw materials; work in process, finished
goods, stores & spares, and book debts to facilitate uninterrupted
operation in a firm. Though this investment is stable in short run, it
certainly varies in long run depending upon the expansion
programmes undertaken by a firm. It may increase or decrease over
a period of time. The minimum level of current assets maintained in
a firm is usually known as permanentor regular working capital.

Temporary Working capital

A firm is required to maintain an additional current assets

temporarily over and above permanent working capital to satisfy
cyclical demands. Any additional working capital apart from
permanent working capital required to support the changing
production and sales activities is reffered to as temporary or
variable working capital. In other words, an amount over and above
the permanent level of working capital is temporary, fluctuating or
variable working capital.

COMPNENTS OF WORKING CAPITAL MANAGEMENT

A) THEORITICAL REVIEW:

The following are the three components of working capital

management:

1. Management of Cash
2. Management of Accounts Receivables
3. Management of Inventory

MANAGEMENT OF CASH

INTRODUCTION

Cash is the important current asset for the operations of the

business. Cash is the basic input needed to keep the business
running on a continues basis. It is also the ultimate output expected
to be realized by selling the services or product manufactured by the
firm. The firm should keep sufficient cash, neither more nor less.
Cash shortage will disrupt the firms manufacturing operations while
excessive cash will

simply remain idle, without contributing anything towards the

firm’s profitability. Efficient cash management is crucial to the
solvency of the business because in a very important sense cash is
the focal point of fund flows in a business. In view of its
importance, it is generally referred to as the “LIFE BLOOD OF A
BUSINESS ENTERPRISE.”

MAIN OBJECTIVES OF CASH MANAGEMENT:

Cash Management is concerned with the managing of:

1) Cash flows into & out of the firm

2) Cash flows within the firm
3) Cash balances held by the firm at a point of time by
financing deficit or investing surplus cash.

CASH MANAGEMENT IN HAL:

Cash is the most liquidity part of current asset and by which

all the operations of the organization are carried on. So it needs to
be managed as over of balance or under balance can cause a lot of
disturbance to the organization. Shortage of cash will stop the
operation where as the excess of cash will create idle fund if not
properly used. The later is hard case in the part of HAL. As its main
source of getting fund its main customer IAF which gives 65% cash
in advance and balance on the delivery. So in HAL one case may
hamper the operation/production. So the credit days allowed by
HAL should be as minimum as possible. For the collection of cash
HAL uses DD for customers like IAF and PSU’s but for export
orders it uses LC (Letter of credit).

MANAGEMENT OF INVENTORY IN HAL:

 Management of inventory gives a way to understand the
procurement system of HAL. The procurement system adopted by
HAL is of two types:

1. Re order level system

2. Periodic review system

The first method is called as indigenious procurement system

as it is made for Indian materials.

But for second method it is called as Russian procurement or

Foreign Procurement system as it is made for foreign imported from
Russia & UK.

Before switching on to the system of procurement it will be

better to know the MRP (Material Requirement Planning).

MRP: What does it mean ?

MRP refers to material requirement planning. That means for

the future the amount of material required with the help of forecast
safe at present. In earlier days HAL had been adopting MRP-I,
which refers to how much materials required with keeping in view
the future sales. This can be illustrated as:

Suppose a material named A is to be produced for the year

2008-2009 of 100 units the compents of ‘A’ are x, y, z.

So, the materials required are:

X*100=100x

Y*100=100y

Z*100=100z

But this may lead to over stocking as some of the materials may in
pipeline, some may in stores as finished goods and some may as
WIP. So to overcome this HAL later adopted MRP-II.The following
is the procedure:

First the estimated sales or forecast sales are conveyed to the

production-engineering department. Then they will determine the
machinery requirements, the infrastructure for this, the raw
materials required. Then the process in transferred to the
manufacturing department. Keeping in view of the stock of finished
goods in

stores, in pipelines etc, also some amount is kept as provision to

meet the future contingencies. It varies from 5% to 10%. So MRP-
II is calculated as:

Net requirement for 2005-2006=Total requirement + provision for

contingencies – in pipelines – finished items in stores – WIP

The MRP-II for the Russian procurement is 15 months where

as for indigenous procurement it is 9 months. That means if you are
planning for April 2009 than you have to forecast the sales on the
month oh January 2008 for Russia and on July 2008.

This implies you have to order for raw materials in

January2008 for Russian procurement where as July for indigenous
procurement.

Particulars Indigenous (in Russian (in

months) months)
1) Minimum level 3 3
period
2) Lead 6 12
3) Re-order period 9 15-24
4) Danger level 1 2
period
5) Safety stock 3 3
period

RECEIVABLE MANAGEMENT IN HAL

HAL’s main customer is IFA, which covers 90-95% of HAL’s

products. For receivable there is an order book, which shows the
order book, which shows the order made by IAF. For this IAF pays
65% as stage payment (advance) and other 35% at the time of
delivery which depends upon the availability of funds with the hand
of government. But before this one should know how the price
rupees quoted for HAL products.

There are two methods to calculate the price of products. For

manufacturing overhead routable, they are adopting FPG (fixed
price quotation) with an additional of profit. For labour cost the
profit is 9.94% and for material cost it is 10% that means they are
charging overall 9.97%. But for spares and sometimes also for
routable they are adopting or referring priced catalogue, which
include a profit of 10%.

The fixed price quotation is subject to fluctuate and for this some
escalation cost is added to the base year price. The order is called
RMS order (Repair, Maintenance and Supply). The 35% is collected
after the approval of DAD. There are two clauses for the late
delivery payment either of raw materials or money (35% balances)
respectively two clauses are LD clauses and interest on deferred
liability.
 DATA ANALYSYS &
INTERPREATION

ANALYSIS OF COMPONETS OF WORKING CAPTITAL

 (1) Management of Cash
(2) Management of Accounts Rece

(3) Management of Inventory

MANAGEMENT OF CASH

Cash is the most important liquid current assets of the

business. Any firm should keep sufficient cash for day today
operation, cash shortage signifies solvency of the company.

Thus it is vital to maintain sufficient cash position. Cash

management is concerned with the management of:

i. Cash inflow and outflow monitoring.

ii. Quick/timely realization of receivables.
iii. Cash balances to be held by the firm at any point of
time to meet financial deficit.
iv. Better inventory management.

Now let us analysis the percentage of cash and bank balances

maintained

organization towards current asset.

TABLE-1
CALCULATION OF PERCENTAGGE OF CASH AND BANK
BAALANCE TO THE CURRENT ASSETS ( IN LAKHS)

PARTIC 2007- 2008-09 2009-10

ULAR 08
A. Cash 11.95 16.88
and bank
balance
(Rs)
B. 258006. 375667.
Current 152518.97 95 75
Assets
(Rs)
C. % of 0.004 0.004
Cash and
Bank
Balance
to
Current
Assets
(A/B*10
0)

INTERPRETATION:

By analyzing the statements, it is observed that 0.013, 0.004

and 0.004 of current assets were held as cash in hand and cash at
bank during the years 2007-2008, 2008-2009, 2009-2010,
respectively. The cash management in HAL is centerlized and
managed by the corporate office.
 On the basis of yearly budgets and performance of the
division, the corporate office has fixed certain measures for smooth
running of the business.

They are:

1. Fixing the drawl limits: After analysis of budget and forecast

given by the division, the corporate
office has fixed drawl limit not exceeding 12 crores per month.
This ceiling does not include drawing the salaries and wage of the
staff

2. Fixing the letter of credit : the limit for opening the fore cast
irrevocable letter of credit is up to Rs 12 crores. If any urgency
arises prior approval of the corporate office it may go beyond the
limit.

By fixing these types of limits, the corporate office is in

position to monitor its divisions, fund requirements and collections.
By this process divisions are not in a position to withhold/block
cash at their disposal because the net balance has to be transferred
to the central account at the corporate office at daily basis. Even
though we extract the information that will not signify the real
norms.

ACCOUNTS RECEIVABLE:

Account Receivable of HAL, Koraput Division consists of

sales to India air force (IAF) and very minor amount of foreign
parties in real sense there is no such credit sales to Indian air force.

The debts are pending for collecting due ton want of

clarification/documentation or some other reason. The arrangement
between India Air Force and HAL regarding payment based on the
Fixed Price Quotation (FPQ). Initially the IAF & HAL have entered
into an agreement for payment like Advance Payment depending on
progress of the work & balance amount is to be paid after
completion of work.
 TABLE – 2

CALCULATION OF PERCENTAGE OF ACCOUNTS

RECEIVABLE TO THE CURRENT ASSETS (IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Accounts 5883.47 14655.86 23918.95

Receivable (Rs.)
B. Current assets 152518.97 258006. 375667.75
(Rs.) 95
C.% of 3.85 5.61 6.36
Account
Receivable to
Current Assets
(A/B*100)

INTERPRETATION:

The above comparison shares that:

 The investment in Accounts receivables is more during

2009-2010 . The increase in ratio indicates that the
management wants to push off the accumulated stocks & go
for fresh production. However the resultant credit period
extended to the customer is to be received.
 The percentages of accounts received to current assets are
5.61%& 6.36% in the year 2007-08 & 2009-10.
 It had a gradually increase in current assets.
 The percentages of accounts receivable to current assets has
been3.85, 5.61 and6.36 respectively.
 TABLE – 3

 CALCULATION OF AVERAGE COLLECTION PERIOD

(IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Debtors 5883.47 14655.86 23918.95

B. Sales 140816.78 140991.83 132641.68

C. Average 15 days 37days 65days

collection period
(A/B*360 days)

INTERPRETATION:

The above table analyzes that:

 The Average Collection Period (ACP) for the year 2007-

08,2008-09,2009-10, are 15 days,37days and 65 days.
 Normally 50-60 days is the lead-time for realizing the
debtors for the enterprise like HAL.
 The Average Collection Period for these years is much than
required.
 The Average Collection Period shows the extent of time
period & the efficiency in the Collection of debtors.
  Thus to improve the efficiency of HAL unit at Koraput has
to shorten the Average Collection Period. Thus reduce the
liberal term to the debtors.
 Average Collection Period below would be better for HAL.
As more than 95% of Collections are from Government
there is no risk of bad debts.

INVENTORY MANAGEMENT IN HAL

There is a centralized stores department functioning in this

division in co-ordination with stores department, purchase
department & material control department. The
responsibilities of each department have been laid down
clearly by the management.
TABLE – 4

CALCULATION OF PERCENTAGE OF INVENTORY TO

CURRENT ASSETS (IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Inventories 94998.36 154197.27 256533.47

B. Current 152518.97 258006.95 375667.75

Assets
C. Percentage of 62.28 59.76 68.28
Inventory to
Current Assets
(A/B*100)

INTERPRETATION:

 The holding of inventory is 62-68% of current assets. This

percentage has been decreased in2008-09 than 2007-08 and
2009 -10. The main cause for the accumulation of inventory
 is to maintain sufficient space/raw materials to meet the
emergency like war. Maximum material of HAL, Koraput
Division is imported from Russia, there for it is possible to
decrease cost of transportation & also large-scale order will
enable HAL to bargain for cost.
 The percentages of inventory to the current assets are 62.28
%,59.76%and62.28% inyear2007-08,2008-09 and 2009-10.
 In 2008-09 the percentages of 59.76%of current assets were
occupied by inventory where as the percentage has
decrease.
 The present system of procurement by HAL in just-in –time.
 At present the inventory held is huge as compared to the
standard norms.

INVENTORY ANALYSIS & SELECTIVE CONTROLS:

If inventory analysis HAL, Koraput Division follows

ABC,VED,ADF & HMI Analysis then the inventory management of
the organization functioning smoothly. Among all the analysis, ABC
analysis is widely used in this Division. The procedures &
categorization of this analysis followed by this Division are as
follows:

 The annual usage in units is to be calculated for each item

based on forecast estimates.
 The annual usage in units is to be multiplied with the unit
cost to get the annual usage in rupees of each item.
 The items are to be ranked from the highest annual rupee
usage in the descending order to the lowest annual rupee
usage an assign category.
 CATAGORISATION OF ITEMS IN THE HAL, KORAPUT
DIVISION

ITEM OF VALUE % OF ITEMS % OF AGE OF

USAGE

A 10% 70%
B 20% 20%
 C 70% 10%

TABLE – 5

CALCULATION OF RAW MATERIAL CONVERSION PERIOD

(IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Closing Raw 46818.85 77615.98 104032.77

Material
B. Raw material 64227.00 123733.77 139591.47
consumed
C. Raw material 262days 226days 268days
conversion period
(A/B*360 Days)

INTERPRETATION :

 Raw material conversion period is 262 days in 2007-08, 226

days in 2008-09, 268 days in 2009-10.
 The raw material conversion period is very high during
2009-10 as compared to other year.
 Therefore, from the above discussion it is cleared that the
raw material level does not affect the raw material
conversion period.
 The raw material conversion period for the year 2009-10 is
268 days. This was so high because of manufacturing of a
new product the Engine SU – 30.
 TABLE – 6

CALCULATION OF WORKING IN PROGRESS CONVERSION

PERIOD (IN LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Closing WIP (Rs.) 24277.54 72537.85 135267.46

B. Cost of production 121263.75 195371.29
(Rs.) 177735.54

C. WIP Conversion 72days 147days 249days

period (A/B*360)

WORKING FORMULA :

Cost of production = Sales + Closing balance of WIP – Opening

balance of WIP + Closing

balance of SIT –
Opening balance of SIT.

NOTE:

WIP - Work in Progress

SIT - Stock in Trade

INTERPRETATION :

 WIP conversion period is 72 days ,147 day & 249 days in

2007-08,2008-09,2009-10 respectively.
 The company has shown an efficient management labour
force & efficient utilization of materials by maintaining a
less work in progress conversion period in year 2007-08.
 Further to improve , it has to reduce the work in progress
conversion period though aviation industry requires much
time in work in progress.
 Due to manufacturing of the new product SU – 30 the work
in progress conversion has consumed more time in the
 2008-09onwards i.e.,147 days, 249days as compared
to2007-08

TABLE – 7

CALCULATION OF FINISHED GOODS CONVERSION PERIOD (IN

LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Closing 113906.21 116322.85
Finished Goods. 107983.07

B. Cost of 128186.49 129022.97

Goods Sold. 120606.85

C. Finished 319days 325days 322days

Goods
Conversion
period (A/B*360
Days)

WORKING FORMULA :

Cost of Goods Sold = Sales - Profit

INTERPRETATION :

 Finished goods conversion period is 319 days, 325 days&

322 days in 2007-08,2008-09,2009-10 respectively.
 The time period consumed by the company to the convert
the finished in goods in to sales is very long.
  For this reason the finished goods conversion period has
been high except the period 2008-09.

TABLE – 8

CALCULATION PAYABLE DEFERRAL PERIOD (IN

LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Creditors 32264.15 27001.20

23474.48
B. Credit Purchase 100969.56 160746.35 172636.22

C. Payable 84days 72days 52days

Deferral period
(A/B*360 Days)
INTERPRETATION :

From the above table it is seen that:

 The payable deferral period i.e. the credit period allowed by

the creditors during the years 2007-08,2008-09& 2009-14 is
89 days, 72 days, & 52 days.
 This means that the amount payable to creditors was paid
after a long period of credit purchase.
 Where as in 2009-10 the payable deferral period was the
shortest i.e. only 52 days, which means that creditors were
paid with in a very short span of time.
 The payable procedure in HAL is though banks or the letter
of Credit.
 But in some cases, the payment was made after receipt &
acceptance of goods.

TABLE – 10
CALCULATION OF AMOUNT OF WORKING CAPITAL (IN
LAKHS)

PARTICULARS 2007-08 2008-09 2009-10

A. Current Assets 152518.97 258006.95 375667.75
(Gross)
B. F. A (Less 26612.87 36930.41 39693.96
:Depreciation)
C.Total Assets (A+B) 179131.84 294936.41 415361.71
D. Current Liabilities 405550.85 431084.28 534733.62
E. Sales 140816.78 140991.83 133541.46
F. EBIT 12636.29 11968.86 12934.88
G. Rate of return 7.05 4.05 3.11
(F/C*100)
H. Net working -253031.88 -173077.33 -159065.87
capital (A-D)
I. Current Ratio (A/D) 0.37 0.60 0.70

INTERPRETATION :

From the above table it is observed that:

 There was gradually increase in current assets from 2007-08

to 2009-10.
 The net working capital, shows the liquidity position of the
company, the position is negative in all the years. This is
because the govt of india advance shown in the head
office account ,where as the correspondary.
 The negative amount of net working capital i.e. if the
current liabilities are more than current assets, it does not
means that the bad profitability position of the company it
happens sometimes that the net working capital may be
negative.
 The EBIT shows the profitability position of the year, 2007-
08,2008-09and2009-10.
 The liability shown in current liability , by in
the govt of advance in current assets the current ratio
will be 2 for all the years . hence the liquidity
position is good for all year.
 FINDING SUGGESTION
&CONCLUSION

FINDINGS
1.HAL NPAT is increasing from last year and the growth is
remarkable .

2. HAL has shown that it is very strong completion in AIR CRAFT

sector in India.

3. Overall ratio of the company are good and company need to work
with more efficiency.

4. The additional capacity of Sair AIR craft production at ORISSA

will create new milestones for HAL ltd.

5 .HAL investment policies are very much reliable.

6. Position of stock is increasing per year that is good sign to face

the competition coming ahead.

7. Highest ever net profit of RS 378 Cores.

SUGGETIONS
 Suggestion of remedial measures to improve the working
capital position of the company.
 The working capital of an organization has a great importance
in their day-today’s activities .If the working capital is not
properly met than the organization met than the organization
met suffer from serious crisis.
 The organization must take necessary steps to raise the interest
on loans and advances in order to increase the revenue sources
of HAL.
 To maintain a good current ratio, it must try to increase the
amount of current assets.
 As the analysis reveals, the division is facing a problem of
liquidity due to the reason that the payment to be received
from the debtors is not realized in the time.
 That is the collection period is much more than the required.
 So, the HAL, Engine Division, koraput has to be strict to its
debtors by reducing the credit period allowed so as to improve
its efficiency by managing the working.

CONCLUSION
 Working capital of a business reflects the short-term use of
funds. These are cash short-term securities, amount receivable, and
inventories of raw materials, work in progress & finished goods.

It is also referred as to the funds required for operations of the

business. It follows a cyclic process of conversion of cash into
inventory, inventory into receivables & receivable into cash.

The determinates of working capital are nature of business

manufacturing cycles, credit policy, availability of raw material,
availability of credit, growth & expansion activities & other factors.

The working is an organization mainly depends on the

analysis of the management of receivable, cash & inventory &
finally the organization profit & loss account, balance sheet
highlights the working capital status whether it is healthy or not.
PROFIT & LOSS A/C for the year ended 31 s t March 2008-09of Hindustan
Aeronautics Limited, Koraput Division (Rs. In Lakhs).
 PARTICULARS 2009 2008

INCOME

Gross Sales 140991.83 140816.78

Less;Excise Duty 0 0

Net Sales 140816.78

140991.83
Transfer to inter divisional unit 312.82

Changes in WIP/SIT/SCRAP 754.03 -9121.13

Other income 2406.65

Changes received onInter divisional 36766.73 31.28

transfer
0
4748.82
Transfer from R&D Reserve

75.04

Total 183336.81 134446.40

EXPENDITURE
123733.77
Consumption of Raw Material, 64227.00

Components 15214.51 11164.18

Amortization&other charges 21104.93 14095.42

Salaries & Wages 8461.99 7697.32

Other Expenses 3.30 2.04

Charges paid on Inter Divisional 1.41 4.06

Transfers
3686.46 2369.55
Interest
9218.99 11459.64
Depreciation
1585.90 1116.81
Provisions
0 16110.25
Inter Services/ Common Services
Transfer of IDT

Total 183011.26 128246.37

Less: Expenditure relating to capital 11643.31 6430.26

A/C & Others
171367.95
Net Expenditure 121816.11

Profit for the year 11968.86 12630.29

Less: Provision for current taxation 0 0

( MAT )
0 0
Provision for deferred taxation
0 0
Provision for taxation of earlier
years no longer required 0 0
withdrawn

Profit after Tax 11968.86 12630.29

Balance brought forward from last year 0 0

Profit available for appropriation 11968.86 12630.29

APPROPRIATION

Debenture redemption reserve 0 0

Research & Development reserve 0 0

Proposed dividend 0 0

Tax on distributed profits 0 0

General Reserve 0 0

Balance carried to balance sheet 11968.86 12630.29

Total of appropriation 11968.86 12630.29

Balance Sheet as on 31 s t March of year 2008-09 of Hindustan Aeronautics
Limited, Koraput Division (Rs. In Lakhs).

PARTICULARS 2009 2008

SOURCES OF FUNDS

Share holders Funds: 4712.75 -89880.19

Head office control A/C 11968.86 12630.29

Reserve & Surplus

16681.61 -77249.90

Loan Funds:

Secured Loans 259.75 468.56

Unsecured Loans - -

259.75 468.56

Deferred Liabilities (Net) 0.44 0,74

Deferred Tax Liabilities - -

Total sources of funds 16941.80 -76780.61

APPLICATION OF FUNDS

Fixed Assets:

Gross Block 60432.55 46430.09

Less :Depreciation 23502.14 19817.23

Net Block 36930.41 26612.86

Capital work in progress 7143.75 9145.97

44074.16 35758.83

Special tools & equipments 113380.82 110774.82

Investments 0 0
 Deferred Tax assets 0 0

Current Assets, Loan & Advances:

Inventories 154197.27 94998.36

Sundry Debtors 14655.86 5883.47

Cash & Bank balances 11.95 19.98

Loan & advances 89141.87 51617.16

258006.95 152598.97

Less: Current liabilities & Provisions

Liabilities 408546.14 387792.35

Provisions 22538.14 17758.50

431084.28 405550.55

Net current Assets -173077.33 -253031.88

Intangible Assets:

Gross carrying amount 44467.53 38257.78

Less :Cumulative Amortization & 11903.38 8540.16

Impairment loss

Net carrying amount 32546.15 29717.62

Total Application of Funds 16941.80 -76780.62

PROFIT & LOSS A/C for the year ended 31 s t March 2010 of Hindustan
Aeronautics Limited, Koraput Division (Rs. In Lakhs).

PARTICULARS 2010

INCOME

Sales 133541.46

Transfer to Inter Divisional Units 58.47

Charges in WIP/SIT/Scrap 62722.61

 Other income 4337.46

Charges received on Inter Divisional 5.85

Transfer

Total 200665.85

EXPENDITURE

Consumption of Raw material, Components 139591.47

Amortization 14942.84

Salaries & Wages 18003.49

Other Expenses 9367.95

Charges paid on Inter Divisional Transfers 18.46

Interest 0.12

Depreciation 4242.48

Provisions 5914.89

Inter services / Common Services 940.12

Transfer of IDT -

Total 193021.82

Less: Expenditure relating to Capital A/C & 5290.85

Others
187730.97
Net Expenditure

Profit for the year 12934.88

Less: Provision for current taxation (MAT) -

Provision for deferred taxation -

Provision for taxation of earlier years no -

longer required withdrawn
-

Profit after Tax 12934.88

Balance brought forward from last year -

 Profit available for appropriation 12934.88

APPROPRIATION -

Debenture redemption reserve -

Research & Development reserve -

Proposed dividend

Tax on distributed profits -

General Reserve -

Balance carried to balance sheet 12934.88

Total of appropriation 12934.88

Balance Sheet as on 31 s t March of year 2010of Hindustan

Limited, Koraput Division (Rs. In Lakhs).

PARTICULARS 2010

SOURCES OF FUNDS

Share holders Funds: 16992.37

Head office control A/C 12934.88

Reserve & Surplus 29927.25

Loan Funds:

Secured Loans 364.54

Unsecured Loans -

364.54

Deferred Liabilities (Net) 0.12

Deferred Tax Liabilities -

Total sources of funds 30291.91

APPLICATION OF FUNDS
Fixed Assets:

Gross Block 67432.44

Less: Depreciation 27738.48

Net Block 39693.96

Capital work in progress 3147.59

42841.55

Special tools & equipments 115159.33

Investments -

Deferred Tax assets -

Current Assets, Loan & Advances:

Inventories 256533.47

Sundry Debtors 23918.95

Cash & Bank balances 16.88

Loan & advances 95198.45

375667.75

Less: Current liabilities & Provisions

Liabilities 508682.10

Provisions 26051.52

534733.62

Net current Assets -159065.87

Intangible Assets:

Gross carrying amount 46904.69

Less : Cumulative Amortization & 15547.79

Impairment loss

Net carrying amount 31356.90

Total Application of Funds 3029.91

 BIBILOGRAPHY

 MANAGEMENT ACCOUNTANCY - SHARMA & GUPTA

 ADVANCE ACCOUNTANCY – S.P.JAIN & K.L. NARANG

 ESSENTIALS OF BUSINESS FINANCE –

R.M.SRIVASTAV

 FINANCIAL MANAGEMENT – I.M.PANDEY

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