FM - Dor Oliver

7/27/2019 FM - Dor Oliver

1/86

K.K. Parekh Institute of Management Studies 1

A

Project Report

On

At

HINDUSTAN DORR OLIVER LTD, Ahmedabad

Institution

Submitted to

Gujarat Technological University - Ahmedabad

Prepared By:

Rashmi C Limbola


2/86


M.B.A. Sem. II, Seat No. B 013905


3/86


Company Certificate


4/86


K. K. Parekh Institute of Management Student Amreli

Dr. Jivraj Mehta Vidhya Vihar Campus Lathi road Amreli

Ph: (02792) 223509 fax: (02792) 223509

E-mail: [email protected]

Web: kkpimsamreli.com

DIRECTORS RECOMMENDATION

TO,

The Registrar

Gujarat Technological University

Ahmedabad

Subject: MBA Summer Training Project Report

Respected Sir,

I am recommending the Summer Training Project entitled WORKING CAPITAL

MANAGEMENT AND COMPARATIVE ANALYSIS prepared by RASHMI C LIMBOLA at

HINDUSTAN DORR OLIVER LIMITED, AHMEDABAD as the partiaI fulfilment of the

University requirement for the award of MBA degree of Gujarat Technology University

Ahmedabad.

Date: - Thanking You,

Place: - Amreli Yours Faithfully

Director


5/86


S T U D E N T D E C L A R A T I O N

I the undersigned student MS RASHMI C LIMBOLA of K. K. Parekh Institute of

Management Studies Amreli M.B.A. II Semester, hereby declare that, the project on

WORKING CAPITAL MANAGEMENT AND COMPARATIVE ANALYSIS is my own work.

In the partial fulfillment of Master Degree of Business Administration, I had undergone projectwork at HINDUSTAN DORR OLIVER LIMITED under the guidance of - K. K. Parekh Institute

of Management Studies Amreli and submitted to Gujarat Technological University,

Ahmedabad.

This project work is my original work and has not been submitted to any where earlier.


6/86


ACKNOWLEDGEMENT

With immense pleasure I pay my gratitude to the people for their wholehearted

co-operation & guidance throughout my project.

First and foremost I would like to express gratitude to HOD Mr. Vishal

Patidar for giving me an opportunity to prepare this project and other staff for their

support and guidance in the project work.

I would like to express my sincere gratitude to Mr. K.N.NARONEY for their

encouragement and also for the advices and guidance which enlighten my way

towards the completion of this project. It was their co-operation and direction at every

moment, without their help this project report would not have been seen the light of

the day for which I am extremely grateful to them.

I am indebted to Ms. Arpita Vahgela,Mr.Vishal patidar, Mr. MAHENDRA

PAREKH and Mr. K.C.POKHARANA especially because of their help we have

been able to carry out this work successfully.

I appreciate the efforts of those who volunteered the tone and energy and critic

before my project went to its final print. And last but not the list, my heartfelt thanks

are to all those people who have lent a hand to me directly or indirectly in making my

project. By doing this project I have really gained a rich experience.

Place: _____________________ Submitted by:

K.K.P.I.M.S. Rashmi C. Limbola

Amreli


7/86


Preface

(Theory without practice has no fruit.

Practice without theory has no root.)

Experience is the best teacher. This saying plays a guiding role in our lives

and also in project reports those are an integral part of our MBA Curriculum

Today s age is an age of management. Management is the backbone of any

organization or any activity done. The real success of management lies in applying the

professional management techniques in all managerial act ivities. As we move into an

era of intense competition and high performance expectations, it is important that we

develop the winning edge.

Practical study is eminent, and plays vital role for the students of management,

because classroom coaching and theoretical study alone are not enough. To survive in

this highly competitive world, practicality outweighs theoretic. Students are supposed

to learn the various principles of business administration conceptually but accuracy

and efficiency in their implementation is possible only through exposure to practical

environment.

Hence, to attain this objective and to have the outlook of all intricacies of

corporate world, we have undertaken the summer internship Training at HDO LTD.

It s all about Working Capital Management & Comparative Analysis .We have

tried our best and have applied all our efforts, knowledge and sources available in

summer project report.


8/86


Executive Summary Manufacturing industry play very important role because every products

should required some manufacturing process and to carry out that process company

required working capital to look after day to day or short term manufacturing expenses

for that company should have efficient and adequate working capital management so

that firm profitability increase.

It is very difficult to capture the all the aspects of working capital management

and manufacturing industry in a short period but still I have tried to show some basic

and important issues. Through this report any person who doesn t anything about

working Capital management and the industry can easily understands and makes

decision on his own.

In this report I have tried to show the comparative trend analysis and ratio

analysis of HDO LTD. with other top companies which show the company s

position in terms of liquidity, profitability, and solvency. I have tried to show the

inventory flow of the company which is again very important topic in working capital

management.

In future, I will try to understand the whole structure of manufacturing

industry, the factors that affect it, its advantages, future overview of the industry. As

well as I will try to understand the cash management of the comp any HDO LTD.and its net operating cycle.


9/86


TABLE OF CONTENT

SR. NO PARTICULARS PAGENO.

1 Industry Profile 12 Company Profile 6

2.1 Introduction to HDO LTD. 72.2 Mission 82.3 Vision 82.4 Manufacturing Facility 9

2.5 Product Range 92.6 Certificate & Approvals 102.7 Board of Directors 102.8 Organization Chart of HDO LTD. 122.9 Man power at HDO LTD. 122.10 Product Range of HDO LTD. 132.11 Customers of HDO LTD. 13

3 Study of four functional area 153.1 Finance 16

3.1.1 Objective of Finance Department at HDO Ltd. 173.1.2 Function of Finance Department at HDO Ltd. 183.2 Human Resource 19

3.2.1 Training and Development 203.2.2 Objective of Human Resource at HDO Ltd. 213.2.3 Function Of Human Resource Department at

HDO Ltd.21

3.3 Marketing 223.3.1 Marketing Strategy at HDO Ltd. 23

3.3.2 Distribution channel at HDO Ltd. 243.4 Production 253.4.1 Objective of Production Department at HDO

Ltd.26

3.4.2 Element of Production Department at HDOLtd.

27

4 Research Methodology 284.1 Introduction 294.2 Problem of Study 29

4.3 Objective of the study 304.4 Rational of the study 30


10/86


4.5 Scope 314.6 Limitations of the study 314.7 Type Data Collection 32

4.8 Data analysis & Interpretation 334.7.1 Working Capital level and analysis 334.7.2 Working Capital Ratio analysis 454.7.3 Working Capital management 544.7.4 Working Capital Finance and Estimation 64

4.9 Findings 704.10 Suggestion 714.11 Conclusion 714.12 Bibliography 72

5 Annexure 735.1 Balance sheet of HDO LTD. 745.2 Profit and Loss account of HDO LTD. 75


11/86



12/86


A leading provider of Engineering focused turnkey EPC projects and solutions. Our

impressive track record over the past few years has seen our credibility grow in the market

and enabled our clients to see us a valued partner rather than a vendor. Today, its regarded a

forerunner in its areas of operation and is raising the bar for others in the sector. We are able

to provide our clients the best and most cost effective integrated solutions due to our in-house

Engineering capability through Technologies and Manufacturing capability. We are

continually augmenting our skills to provide a broader range of solution offerings in our core

areas of mining and minerals, water and wastewater, fertilizers and chemicals and pulp &

paper. Our team is working relentlessly and diversifying into new areas like power, nuclear

energy, oil & gas and material handling. We have expanded our footprint in various locations

and see many more opportunities for further expansion. We have had an excellent run over

the past few years and are focused on maintaining the same growth. Their management skills

were in full display during the successful integration and restructuring. It has successfully

transformed itself from an engineering equipment supplier to an Engineering EPC company in

a short span of five years.Our strength squarely lies in the high calibre and dedication of our

people; Committed, professional and passionate individuals who share the same vision of a

progressive India. With sights set high on the future and a penchant to take on new

challenges, we are confident that as India traces on its incredible growth trajectory, we will

continue scale new heights and be a partner in Engineering a Nation.

A leading engineering company is engaged in turnkey projects to serve a diverse range of

industries like environmental engineering, pulp and paper, chemicals and fertilisers. The

company has executed some outstanding phosphatic fertiliser plants, systems for water

management in steel mills, and the petrochemical and oil and gas industries. We are one of

the leaders in Indian infrastructure industry, having core business focus on total Water Management including pumping, conveyance, treatment and distribution, national highways,

roads, buildings, hydro-electric projects, power distribution, desalination, etc. It is also

executing many projects on BOOT basis for various Government Departments of India. It has

over decades established a unique track record and position as an extremely dynamic, totally

reliable and component-engineering company, having a cutting edge of superior technologies

to emerge among leading process equipment and plant engineering companies in India


13/86


Mineral Beneficiation

It has an excellent track record in Mineral Beneficiation, which is one of its core business

sectors. It enjoys leadership in more than 70 different metallic and non-metallic mineral processing industries. With its time tested and proven solid-liquid separation technologies,

Industries has made major contributions in processing of Alumina, Iron-ore, Uranium, Coal,

Copper, Lead, Zinc, Chrome, etc. In-depth knowledge of mineral processing techniques,

reliable field experience gained through more than four decades of operation and whole range

of specialized equipment, makes HDO a consistent performer in Mineral Industry. Industries

has served almost all the customers in Alumina Industry, viz. NALCO, HINDALCO,

BALCO, INDAL, MALCO and VEDANTA, by supplying its core process units, such as

Sand Washing Plant, Conventional Thickeners, Hi-rate Settlers, Cable Torque Thickeners,

Kelly Filters, Disc Filters, Red Mud Filters, Horizontal Pan Filters, Milk of Lime Plants,

etc.HDO has made a major contribution in the field of Uranium Ore Processing and

Extraction Plants in India, and has supplied equipment and system to Uranium Corporation of

India Ltd., for their Jaduguda Project.


14/86


Environmental Management

It is pioneer in Water / Wastewater and Industrial Effluent Treatment Systems and offer

integrated solutions for customer satisfaction. The company has over five decades of experience in India / abroad in terms of executing turnkey projects in this field. Derived from

its core strength, i.e., solid-liquid separation technologies, it can offer wide range of unit

operations and processes for treatment of variety of effluents. Having its strength in

manufacturing of proprietary equipment, it has expanded its horizon to a complete

engineering solution provider from concept to commissioning.

Water Treatment: Wastewater Treatment:

Drinking Water Treatment Domestic Sewage Treatment

Industrial Process Water Treatment Industrial Effluent Treatment

Reverse Osmosis Refineries and Petrochemical

Circulating Water Treatment Pulp and Paper Industries

Dairy Industries

Textile Industries

Fertilizer Industries

Chemical Industries

Tanneries

Fertilizers & Chemicals

It has a unique track record of installing almost 90% of India's phosphatic fertilizer plants on

Turnkey basis. It has been a pioneer in the development of continuous process for

beneficiation of low grade phosphates for manufacture of phosphoric acid by the wet process

and production of high analysis complete NPK and DAP granular phosphatic fertilizers. It has

been an active contributor in chemical industry. Solid-liquid separation units, such as

Thickeners, Clarifiers, Classifiers, Drum Filters, Precoat Filters, Disc Filters, Horizontal Pan

Filters, Horizontal Belt Filters, are some of the equipment, which cater to this segment. It has

also supplied Drum Filters for various Oil Industries for separating steering from olein.


15/86


Pulp and Paper

Its also contribution to the Pulp & Paper Industry can be seen in almost every mill in Indiaand many abroad. In the past fifty years, since its inception in India, it has supplied wide

range of Brown stock and Bleach Washers of different design comprising of wire wound,

perforated and ripple deck design washers to the pulping industry. Its recausticizing plants

for chemical recovery in Pulp & Paper Industry are well known. Most of the mills in India

have sulphate process technology for pulp cooking and without its causticizing plant; this

process is not economically viable.


16/86



17/86


2.1 Introduction of HDO LTD. Hindustan Dorr Oliver Ltd. (HDO) as one of the most established and ideally qualified

manufacturing set up located in western India (state of Gujarat and city of Ahmedabad) for

fabricated process plant equipment, specifically for Oil and Gas, Fertilizer, Refinery,

Petrochemical sector & Power Industry.

We wish to express keenness to work for your esteemed organization. We are sure that your

attention on the below elaboration on credentials and growth of our company will certainly

give you an insight of what the organization and set up has to offer to you.

A leader in the industrial EPC market, Hindustan Dorr-Oliver Limited, has been providingstate-of-art technology solutions to its clients for about 7 decades now. We have come a long

way from our humble beginnings as supplier of proprietary solid-liquid separation equipment

to being a major Engineering EPC player, assimilating new technologies and providing the

best, most cost effective and integrated turnkey solutions. We have a pan India presence, with

offices in every major city in India - Mumbai, Bangalore, Chennai, Kolkota, Delhi and

Ahmedabad.

Our wholly owned Engineering Services arm, HDO Technologies, provides complete range

of engineering services in-house, enabling us to have control over delivery time and quality.

Our manufacturing facility at Vatva, Ahmedabad manufactures pressure vessels, heat

exchangers, storage tanks and other proprietary solid-liquid separation equipments like filters,

classifiers, thickeners, clarifiers etc. We are recognized amongst the top ten manufacturers of

pressure vessels and Heat Exchangers in India by firms like EIL, PDIL etc.

HDO has been involved in major industrial projects in areas of Mining and Minerals, Water

and Wastewater, Fertilizers and Chemicals and Pulp and Paper. We have done water

management and effluent treatment for all major refineries in India in the past five years. We

have an excellent presence in Uranium ore processing from supplying equipment to the first

uranium mill in Jagududa to now providing the complete uranium ore processing plant at

Tummalapalle in Andhra Pradesh. We have excellent presence in Alumina refineries working

on all new Greenfield projects in the last five years. Ninety percents of phosphatic fertilizer

plants were installed by HDO. We have the capability of providing the entire pulp mil l. Our


18/86


focus on quality and excellent project execution skills have brought us repeat business from

our clients sometimes on purely nomination basis.

We are a publically listed company with 55% of stock held by our parent company IVRCLInfrastructures and Projects Limited, 25% held by Foreign Institutional Investors and the rest

by other investors. We are a professionally managed firm with prominent figures from various

industries in our Board.

HDO has a talented workforce of about 1,300 people of which more than ninety percent are

engineers or hold an equivalent degree. At any given point we have about 30 active sites at

various stages of completion and manage over 14,000 site labour force at various projectlocations all over India.

HDO has obtained international certifications for Quality, Safety and Environment

Management Systems. Our manufacturing facility follows international codes and standards

and employs world reputed third party inspection agency. The company is committed to

maintaining the highest standards of Health, Safety and Environment and has a separate HSE

team dedicated to this task.

We are proud to be India's partner in developing some of the world's most modern industry

infrastructure. Our strength remains our people - highly qualified, professional, passionate and

dedicated towards our company's growth.

2.2 Mission

To achieve this we will energise our people with positive culture that rewards innovation

breeds initiative and encourage intelligent risk taking

2.3 Vision

To achieve this we will use the energy of our people develop and implement leading edge

technologies and draw on both to deliver effective WORLD CLASS solution to our customer.


19/86


2.4 Manufacturing Facility

Hindustan Dorr Oliver Ltd. (HDO) as one of the most established and ideally qualified

manufacturing set up located in western India (state of Gujarat and city of Ahmedabad) for fabricated process plant equipment, specifically for Oil and Gas, Fertilizer, Refinery,

Petrochemical sector & Power Industry.

We wish to express keenness to work for your esteemed organization. We are sure that your

attention on the below elaboration on credentials and growth of our company will certainly

give you an insight of what the organization and set up has to offer to you.

Growth in terms of Revenue. We take this opportunity to convey; Equipment, Heat

Exchangers & Pressure Vessel business has grown from USD 8 Million(2007-2008) to USD

15 Million (2008- 2009). The overall HDO s did USD 90 Million.(2008 -09); as against USD

80 Million in the year 2007-08; Growth of more than 50% in terms of sales; this has been

possible under umbrella of fast growing Hyderabad based mega-infrastructure

company IVRCL Infrastructures & Projects Ltd.

2.5 Product Range

Screw Feeder Spiral Classifier Drum Slaker Motorised Assembly

Diesel Product MP Waste Heat Reboiler TAIL Gas Preheater Splitter Thermo Siphon Reboiler

Steam Generator


20/86


2.6 Certifications & Approvals

SO 9001:2000/ISO 14001:2004/ OHSAS 18001:2007 Certification "U" Stamp Certification National Board Certificate IBR Certification Explosives Department certification EIL Registered UDHE India Certification PDIL Certification GNFC Certification ONGC Certification TDC Certification

We are ASME "U" & "R" stamp authorized work shop.HDO is ISO 9001, ISO 14001 & OHSAS 18001 certified company.

HDO is approved with major operating consultant/PMC/EPC in India i. e. EIL, UHDE,TOYO, Jacobs, Samsung, Technip, SNC Lavalin, Lurgi, Bechtel, Foster Wheeler, PDIL,Technimont etc. & have experience in working with them. Various certificates of approval areattached here with.

2.7 Board of Directors

Name Designation

Prabhakar Ram Tripathi Chairman / Chair Person

E Sunil Reddy Managing Director

R Balarami Reddy Director

M L Majumdar Director

E Sudhir Reddy Vice Chairman

S C Sekaran Executive Director

T N Chaturvedi Director

Shiv Dayal Kapoor Additional Director
http://connect.in.com/prabhakar-ram-tripathi/profile.htmlhttp://connect.in.com/e-sunil-reddy/profile-493443.htmlhttp://connect.in.com/r-balarami-reddy/profile-499892.htmlhttp://connect.in.com/m-l-majumdar/profile.htmlhttp://connect.in.com/e-sudhir-reddy/profile-493442.htmlhttp://connect.in.com/s-c-sekaran/profile-501594.htmlhttp://connect.in.com/t-n-chaturvedi/profile-504087.htmlhttp://connect.in.com/shiv-dayal-kapoor/profile-503113.htmlhttp://connect.in.com/shiv-dayal-kapoor/profile-503113.htmlhttp://connect.in.com/t-n-chaturvedi/profile-504087.htmlhttp://connect.in.com/s-c-sekaran/profile-501594.htmlhttp://connect.in.com/e-sudhir-reddy/profile-493442.htmlhttp://connect.in.com/m-l-majumdar/profile.htmlhttp://connect.in.com/r-balarami-reddy/profile-499892.htmlhttp://connect.in.com/e-sunil-reddy/profile-493443.htmlhttp://connect.in.com/prabhakar-ram-tripathi/profile.html


21/86


Registered Office

Dorr-Oliver House

Chakala Andheri (East)

Mumbai-400099

Maharashtra-India

Phone:28359400

Fax:28365659

Email : [email protected]

Auditor

Chaturvedi & Partners

Website

www.hdo.in

Banker

Bank of India

Andhra Bank

Registrar and Transfer Agents

Karvy Computershare Pvt. Limited 46, Avenue 4,

Street No. 1,

Banjara Hills,

Hyderabad 500034
mailto:[email protected]://www.hdo.in/http://www.hdo.in/http://www.hdo.in/mailto:[email protected]


22/86


2.8 Organization chart of HINDUSTAN DORR OLLIVER LTD.

2.9 MAN POWER AT HDO LTD.


23/86


2.10 PRODUCT RANGE OF HDO LTD.

Non-Proprietary (As per ASME) Proprietary Equipments:

Heat Exchanger Horizontal Pan Filters

Pressure Vessels Kelly Filters

Columns Red Mud Component Filters

Reactors Precoat Drum Filters

Tanks Rotary Vacuum Drum Filters

Spheres Brown Stock Washers

Storage Tanks Bleach Washer

Drier, Cooler, Granulator and

Pulveriser for NPK and DAP

Fertilizer plants.

2.11 CUSTOMERS OF HDO LTD.

CUSTOMERS OF HDO IN INDIA


24/86


CUSTOMERS OF HDO Outside India


25/86



26/86



27/86


Businesses need finance for their day-to-day activities and in order to grow and change over

time. Businesses must respond to their external environment i n which the actions of their

competitors, customers, suppliers and other parties influence the decisions they

make. Business finance c omes from a range of sources:

Internal finance comes from owners - shareholders i n the case of private and public

companies.

External finance is provided by banks, and other institutional lenders, as well as

creditors.

Businesses frequently need to grow or to change their structure i n response to changes thatare taking place i n the external environment.

Internal finance therefore can be quite an inflexible way of responding to the changing

environment because profits t ake time to develop, although they can be ploughed into a

reserve fund.

External financing

A quicker way of growing therefore is to raise finance from external sources, typically loans.

However, the danger of borrowing too much externally is that there are

associated interest payments. In ongoing periods the business is saddled with these interest

payments which can curtail future profit making potential.

Finance for internal (organic) expansion typically comes from selling new shares or

ploughing back profits. Finance for external expansion will often come from borrowing.

3.1.1 Objective of Finance Department at HDO Ltd.

Plan the financial operations of the organisation

Direct, control and administer the financial activities of the organization

Provide the Chief Executive and the Board with financial assessments and information

which will ensure planning and budgeting activities meet corporate goals.

Specific accountabilities
http://www.thetimes100.co.uk/theory/glossary--environment-2067.phphttp://www.thetimes100.co.uk/theory/glossary--competitors-1862.phphttp://www.thetimes100.co.uk/theory/glossary--customers-1962.phphttp://www.thetimes100.co.uk/theory/theory/theory--financial-analysis-planning--353.phphttp://www.thetimes100.co.uk/theory/glossary--shareholders-2898.phphttp://www.thetimes100.co.uk/theory/glossary--public-companies-2757.phphttp://www.thetimes100.co.uk/theory/glossary--public-companies-2757.phphttp://www.thetimes100.co.uk/theory/theory/theory--management-change--306.phphttp://www.thetimes100.co.uk/theory/glossary--place-2655.phphttp://www.thetimes100.co.uk/theory/glossary--external-environment-2115.phphttp://www.thetimes100.co.uk/theory/glossary--profits-2744.phphttp://www.thetimes100.co.uk/theory/glossary--interest-2319.phphttp://www.thetimes100.co.uk/theory/glossary--interest-payments-2321.phphttp://www.thetimes100.co.uk/theory/glossary--interest-payments-2321.phphttp://www.thetimes100.co.uk/theory/glossary--interest-payments-2321.phphttp://www.thetimes100.co.uk/theory/glossary--interest-payments-2321.phphttp://www.thetimes100.co.uk/theory/glossary--interest-payments-2321.phphttp://www.thetimes100.co.uk/theory/glossary--interest-2319.phphttp://www.thetimes100.co.uk/theory/glossary--profits-2744.phphttp://www.thetimes100.co.uk/theory/glossary--external-environment-2115.phphttp://www.thetimes100.co.uk/theory/glossary--place-2655.phphttp://www.thetimes100.co.uk/theory/theory/theory--management-change--306.phphttp://www.thetimes100.co.uk/theory/glossary--public-companies-2757.phphttp://www.thetimes100.co.uk/theory/glossary--public-companies-2757.phphttp://www.thetimes100.co.uk/theory/glossary--public-companies-2757.phphttp://www.thetimes100.co.uk/theory/glossary--shareholders-2898.phphttp://www.thetimes100.co.uk/theory/theory/theory--financial-analysis-planning--353.phphttp://www.thetimes100.co.uk/theory/glossary--customers-1962.phphttp://www.thetimes100.co.uk/theory/glossary--competitors-1862.phphttp://www.thetimes100.co.uk/theory/glossary--environment-2067.php


28/86


Provide financial information and interpretations to other management.

In consultation with other senior management, make recommendations and devise

financial policy approach, and strategy.

Direct the collection of financial and accounting information.

The preparation of budgets, reports, forecasts, and consolidated profit and loss reports.

Control activities such as taxation, credit policy, cash flow and investment policy,

costing and expense control, preparation of tenders, audits administrat ion of contracts,

insurance arrangements and property administration.

Represent the organisation in dealings with the organisation's bankers, legal advisers,

major clients and others as required.

3.1.2 Function of finance department at HDO LTD.

Provide strategic financial support for business and operational planning.

Provide day-to-day financial services to the company.

Meet external and internal financial reporting requirements.

Preparation of budget, appropriation of accounts, re-appropriations, surrender and

savings.

Control of expenditure and ways & means position.

Audit and Treasury administration

Administration of Taxes i.e. Sales Tax, Entertainment Tax, Luxury Tax and Entry Tax

etc.

Service Conditions including Freedom Fighters Pensions.

Finance, Small Savings, Credit and Investment.

Financial concurrence and advice.

Contract, recovery and refund of revenue etc.


29/86



30/86


Human resources are the people that work for an organisation, and Human Resource

Management i s concerned with how these people are managed. However, the term Human

Resource Management (HRM) has come to mean more than this because people are different

from the other resources that work for an organisation. People have thoughts and feelings,

aspirations and needs. The term HRM has thus come to refer to an approach, which takes into

account both:

1.The needs of the organisation.

2. The needs of its people.

3.2.1 Training and development

Different individuals have their own needs and aspirations. HRM therefore involves finding

out about the needs and aspirations of individual employees, for example through

the appraisal process and then creating the opportunities within the organisation (e.g.

through job enlargement) and outside the organisation (e.g. through taking up educational

opportunities at local colleges/universities) for employees to improve themselves. HRM

therefore relates to every aspect of the way in which the organisation interacts with its people,

e.g. by providing training and development opportunities, appraisal to find out about

individual needs, training and development needs analysis, etc.

Training - opportunities and courses for individuals to develop skills, knowledge

and attitudes that help the organisation to achieve its objectives. Development - the provision

of opportunities and courses for individuals to develop skills, knowledge and attitudes that

help themselves to achieve personal objectives. Training and development needs analysis - an

analysis of the opportunities and experiences that are required for individuals to train and

develop in order to meet organisational and personal objectives. A training and development

plan can then be created to set out how these needs can be addressed in practical steps.
http://www.thetimes100.co.uk/theory/glossary--human-resource-management-2254.phphttp://www.thetimes100.co.uk/theory/glossary--human-resource-management-2254.phphttp://www.thetimes100.co.uk/theory/glossary--mean-2493.phphttp://www.thetimes100.co.uk/theory/glossary--development-1984.phphttp://www.thetimes100.co.uk/theory/glossary--employees-2049.phphttp://www.thetimes100.co.uk/theory/glossary--appraisal-1660.phphttp://www.thetimes100.co.uk/theory/glossary--job-enlargement-2358.phphttp://www.thetimes100.co.uk/theory/glossary--skills-2906.phphttp://www.thetimes100.co.uk/theory/glossary--attitudes-1674.phphttp://www.thetimes100.co.uk/theory/glossary--attitudes-1674.phphttp://www.thetimes100.co.uk/theory/glossary--skills-2906.phphttp://www.thetimes100.co.uk/theory/glossary--job-enlargement-2358.phphttp://www.thetimes100.co.uk/theory/glossary--appraisal-1660.phphttp://www.thetimes100.co.uk/theory/glossary--employees-2049.phphttp://www.thetimes100.co.uk/theory/glossary--development-1984.phphttp://www.thetimes100.co.uk/theory/glossary--mean-2493.phphttp://www.thetimes100.co.uk/theory/glossary--human-resource-management-2254.phphttp://www.thetimes100.co.uk/theory/glossary--human-resource-management-2254.phphttp://www.thetimes100.co.uk/theory/glossary--human-resource-management-2254.php


31/86


3.2.2 Objective of Human Resource Department at HDO LTD.

The main objective of HR at HDO LTD. is how to achieve the mission and vision of

the company.Control the staff of the company.Establish lines of control and delegate responsibilities to subordinate staff.Provide adequate training to the new employee.Acquire better technology for production.To achieve the goal of the company within stipulated time.Optimum use of the resources available.

3.2.3 Function of Human Resource Department at HDO LTD.

The function of HR at HDO LTD. is to formulate the policy for the company whichguide rules, regulation, and objective used in decision making.To formulate the strategy to coordinate the plan and realize its vision and long termobjective.Recruitment and selection process of the appropriate candidate for the company.Allocate the available resources to the various departments.To distribute the work as per skill of the employee.Checking the progress of the plan.

Motivate the employee in the company toward the goal.


32/86



33/86


Marketing involves a range of processes concerned with finding out what consumers want,

and then providing it for them. This involves four key elements, which are referred to as the

4Ps. A useful starting point therefore is to carry out market research t o find out

about customer requirements in relation to the 4Ps.

There are two main types of market research - quantitative r esearch involving collecting a lot

of information by using techniques such as questionnaires and other forms of

survey. Qualitative research involves working with smaller samples of consumers, often

asking them to discuss products and services while researchers take notes about what they

have to say. The marketing department will usually combine both forms of research

The marketing department will seek to make sure that the company has a marketing focus i n

everything that it does. It will work very closely with production to make sure that new and

existing product development i s tied in closely with the needs and expectations of customers.

Modern market focused organisations will seek to find out what their customers want. For

example, financial service organisations, will want to find out about what sort of accounts

customers want to open and the standard of service they expect to get. Retailers like Argos

and Home base will seek to find out about customer preferences for store layouts and the

range of goods on offer. Airlines will fin d out about the levels of comfort that customer s

desire and the special treatment that they prefer to receive.

A useful definition of marketing is the anticipation and identification of customer needs a nd

requirements so as to be able to meet them, make a profit or other key organisational

objectives.

3.3.1 Marketing Strategy at HDO LTD.

Company marketing strategy to design to maximize revenue and profit.

Company focus toward its target customer only.

Company segmented its market i.e. engineering company.
http://www.thetimes100.co.uk/theory/glossary--market-research-2460.phphttp://www.thetimes100.co.uk/theory/glossary--customer-1947.phphttp://www.thetimes100.co.uk/theory/theory--market-research--315.phphttp://www.thetimes100.co.uk/theory/glossary--quantitative-2782.phphttp://www.thetimes100.co.uk/theory/glossary--qualitative-2771.phphttp://www.thetimes100.co.uk/theory/glossary--samples-2853.phphttp://www.thetimes100.co.uk/theory/glossary--services-2893.phphttp://www.thetimes100.co.uk/theory/theory--aims-marketing-department--181.phphttp://www.thetimes100.co.uk/theory/glossary--company-1849.phphttp://www.thetimes100.co.uk/theory/glossary--marketing-focus-2472.phphttp://www.thetimes100.co.uk/theory/glossary--development-1984.phphttp://www.thetimes100.co.uk/theory/theory--customers-their-expectations--280.phphttp://www.thetimes100.co.uk/theory/glossary--market-focused-2451.phphttp://www.thetimes100.co.uk/theory/glossary--standard-2949.phphttp://www.thetimes100.co.uk/theory/glossary--offer-2587.phphttp://www.thetimes100.co.uk/theory/theory--customers-needs--410.phphttp://www.thetimes100.co.uk/theory/theory--customers-needs--410.phphttp://www.thetimes100.co.uk/theory/glossary--offer-2587.phphttp://www.thetimes100.co.uk/theory/glossary--standard-2949.phphttp://www.thetimes100.co.uk/theory/glossary--market-focused-2451.phphttp://www.thetimes100.co.uk/theory/theory--customers-their-expectations--280.phphttp://www.thetimes100.co.uk/theory/glossary--development-1984.phphttp://www.thetimes100.co.uk/theory/glossary--marketing-focus-2472.phphttp://www.thetimes100.co.uk/theory/glossary--company-1849.phphttp://www.thetimes100.co.uk/theory/theory--aims-marketing-department--181.phphttp://www.thetimes100.co.uk/theory/glossary--services-2893.phphttp://www.thetimes100.co.uk/theory/glossary--samples-2853.phphttp://www.thetimes100.co.uk/theory/glossary--qualitative-2771.phphttp://www.thetimes100.co.uk/theory/glossary--quantitative-2782.phphttp://www.thetimes100.co.uk/theory/theory--market-research--315.phphttp://www.thetimes100.co.uk/theory/glossary--customer-1947.phphttp://www.thetimes100.co.uk/theory/glossary--market-research-2460.php


34/86


3.3.2 Distribution channel at HDO Ltd.

HDO Ltd. directly supply their equipment to their customer without any intermediates

because the equipment is manufactured as per order and for supply of equipment it use road

transportation and sea transport because the company is manufacturing big vessels.


35/86



36/86


The function of the production department is to produce our products on time, to the required

quality levels, at the defined product cost. Of major concern to the production manager is

monthly output. Production managers have monthly targets which they are expected to strive

to meet or exceed. Production can only meet its targets if Sales secure orders. Also production

costs are dependent on the price we pay for components and materials, etc. Securing sales is

outside the direct control of Production, but the relationship between Production & Sales is

intense. If sales are down, production targets cannot be met, on the other hand if Production

fails to meet its target output monthly income is down and customers are likely to complain

about late delivery. There is scope for friction between sales and production personnel.

Component and materials procurement is another factor that strongly influences production,

production targets and delivery. If components cannot be purchased at the target price, profits

are down. If components arrive late at our factory production targets may not be met and

customers may experience late delivery. Purchasing of components and materials is carried

out by the Purchasing section of Production. We shall say more about Purchasing later in this

unit. We may consider the relationship between Production, Sales and Purchasing as some

form of eternal triangle.

3.4.1 Objective of Production department at HDO LTD.

The quality of product is established based upon the customers needs. It is determined by the

cost of the product and the technical characteristics as suited to the specific requirements.

The objective of company is to manufacture the products in right number or quantity.

Timeliness of delivery is one of the important parameter to judge the effectiveness of

production department. So, the production department has to make the optimal utilization of input resources to achieve its objective.

Manufacturing costs are established before the product is actually manufactured.


37/86


3.4.2 Element of Production Department at HDO LTD .

PLANNING : The operations manager defines the objectives for the operations subsystem of

the organization, and the policies, and procedures for achieving the objectives. This stage

includes clarifying the role and focus of operations in the organization s overall strategy. It

also involves product planning, facility designing and using the conversion process.

ORGANIZING: Operation managers establish a structure of roles and the flow of

information within the operations subsystem. They determine the activities required to

achieve the goals and assign authority and responsibility for carrying them out.

CONTROLLING: To ensure that the plans for the operations subsystems are accomplished,

the operations manager exercise control by measuring actual outputs and comparing them to

planned operations management. Controlling costs, quality, and schedules are the important

functions here.


38/86



39/86


4.1 Introduction

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying now research is done systematically. In that various steps,

those are generally adopted by a researcher in studying his problem along with the logic

behind them.

It is important for research to know not only the research method but also know methodology.

The procedures by which researcher go about their work of describing, explaining and

predicting phenomenon are called methodology. Methods comprise the procedures used for

generating, collecting and evaluating data. All this means that it is necessary for theresearcher to design his methodology for his problem as the same may differ from problem to

problem.

Data collection is important step in any project and success of any project will be largely

depend upon now much accurate you will be able to collect and how much time, money and

effort will be required to collect that necessary data, this is also important step.

Data collection plays an important role in research work. Without proper data available for

analysis you cannot do the research work accurately.

4.2 Problem :

The problem related to working capital at HDO LTD. is that company could not able to

maintain their current assets and current liabilities in the ideal ratio.


40/86


4.3 OBJECTIVES OF THE STUDY

Study of the working capital management is important because unless the working capital is

managed effectively, monitored efficiently planed properly and reviewed periodically atregular intervals to remove bottlenecks if any the company cannot earn profits and increase its

turnover. With this primary objective of the study, the following further objectives are framed

for a depth analysis.

1. To study the working capital management of Hindustan Dorr Oliver Ltd.

2. To study the optimum level of current assets and current liabilities of the company.

3. To study the liquidity position through various working capital related ratios.

4. To study the working capital components such as receivables accounts, Cash

management, Inventory position.

5. To study the way and means of working capital finance of the Hindustan Dorr Oliver Ltd.

6. To estimate the working capital requirement of Hindustan Dorr Oliver Ltd.

7. To study the operating and cash cycle of the company .

4.4 Rational of the study

If a company's current assets do not exceed its current liabilities, then it may run into trouble

paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining

working capital ratio over a longer time period could also be a red flag that warrants further

analysis. For example, it could be that the company's sales volumes are decreasing and, as a

result, its accounts receivables number continues to get smaller and smaller.

Working capital also gives investors an idea of the company's underlying operational

efficiency. Money that is tied up in inventory or money that customers st ill owe to the

company cannot be used to pay off any of the company's obligations. So, if a company is not


41/86


operating in the most efficient manner (slow collection), it will show up as an increase in the

working capital. This can be seen by comparing the working capital from one period to

another; slow collection may signal an underlying problem in the company's operation

4.5 SCOPE

The scope of the study is identified after and during the study is conducted. The study

of working capital is based on tools like Trend Analysis, Ratio Analysis, working capital

leverage, operating cycle etc. Further the study is based on last 5 years Annual Reports of

Hindustan Dorr Oliver Ltd. and even factors like comp etitor s analysis, industry analysis were

not considered while preparing this project.

4.6 Limitations of the study

Following limitations were encountered while preparing this project:

Limited data:- This project has completed with annual reports; it just constitutes one

part of data collection i.e. secondary. There were limitations for primary data

collection because of confidentiality.

Limited period:- This project is based on five year annual reports. Conclusions and

Recommendations are based on such limited data. The trend of last five year may or

may not reflect the real working capital position of the company

Limited area:- Also it was difficult to collect the data regarding the competitors and

their financial information. Industry figures were also difficult to get.


42/86


4.7 Types of data collection

There are two types of data collection methods available.

Primary data: - The primary data is that data which is collected fresh or first hand,

and for first time which is original in nature. Primary data can collect through personal

Interview, questionnaire, survey etc. which support the secondary data.

Secondary data collection method: - The secondary data are those which have

already collected and stored. Secondary data easily get those secondary data from

records, journals, annual reports of the company etc. It will save the time, money and

efforts to collect the data. Secondary data also made available through trade

magazines, balance sheets, books etc.

This project is based on secondary data collected through annual report, through head

of accounting department and other concerned staff member of finance department.

Thus project is based on secondary information collected through five years annual

report of the company, supported by various books and internet sides. The data

collection was aimed at study of working capital management of the company Project

is based on

1. Annual report of HDO 2004-05






43/86


4.8 Data Analysis and Interpretation

In my project regarding data analysis and interpretation I had used various tools like tables

and charts.

4.8.1.1 Working Capital level and analysis

The consideration of the level investment in current assets should avoid two danger points

excessive and inadequate investment in current assets. Investment in current assets should

be just adequate, not more or less, to the need of the business firms. Excessive investment

in current assets should be avoided be cause it impairs the firm s profitab ility, as idle

investment earns nothing. On the other hand inadequate amount of working capital can bethreatened solvency of the firms because of its inability to meet its current obligation. It

should be realized that the working capital need of the firms may be fluctuating with

changing business activity. This may cause excess or shortage of working capital

frequently. The management should be prompt to initiate an action and correct imbalance.

Table 4.8.1.1-Size of Working Capital

(Rs. In Lakhs)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

A)Current assets

Inventories 90.45 86.38 122.11 469.1 311.48

Sundry Debtors 378.76 308.87 1025.37 1169.14 1556.19

Cash & Bank Balance 96.93 759.64 410.18 372.02 246.60

Other Assets 419.51 507.78 688.03 1338.44 1955.70

Loan & Advances 93.97 71.51 262.38 389.75 891.87

Total of A (Gross W.C.) 1079.62 1734.18 2508.07 3738.2 4961.84

B) Current liabilities

Current liabilities 629.45 590.62 1551.48 2258.85 3682.30

Provisions 24.68 23.7 36.05 41.13 60.53

Total of B 654.13 614.32 1587.53 2299.98 3742.83

Net W.C.(A-B) 425.49 1119.86 920.54 1438.22 1219.01


44/86


Chart 4.8.1.1- Current assets to Current Liabilities

1079.62

1734.18

2508.07

3738.2

4961.84

654.13614.32

1587.53

2299.98

3742.83

0

1000

2000

3000

4000

5000

6000

2004-05 2005-06 2006-07 2007-08 2008-09

C.A.

C.L.

Interpretation

It was observed that Current Assets show a continuous growth over last five years and it was

grown by approx. 460 % in 2008-09 over 2004-05.The reason behind in increase of current

assets is that company expand its business and consequently the size of current assets also

increase and on the other hand increase in current liabilities also increase with the increase in

the current assets of HDO LTD. In the year 2005-06 C.A. of HDO LTD. Increase but current

liabilities of HDO LTD. Decrease over its previous year after that in next year it show

increasing trend till 2008-09 .

4.8.1.2 Working Capital Trend Analysis

In working capital analysis the direction at changes over a period of time is of crucial

importance. Working capital is one of the important fields of management.

Table 4.8.1.2-Working Capital Size

(Rs. In Lakhs)

Year 2004-05 2005-06 2006-07 2007-08 2008-09

Net W.C.(A-B) 425.49 1119.86 920.54 1438.22 1219.01

W.C. Indices 100.00 263.19 216.35 338.01 286.50

Chart 4.8.1.2- Working Capital Indices


45/86


Interpretation

It was observed that major source of liquidity problem is the mismatch between current payments and current receipts from the Comparison of funds flow statements of HDO for five

years. It was observed that in the year 2005-06 current assets increased by around 60% and

current liabilities decreased only by 7% which affect as working capital increased by 163%.

In the year 2006-07 to 2007-08 net working capital increased to Rs 920.54 to Rs. 1438.22, the

increase in working capital is close to 56%. While current assets increased by 49% and

current liabilities by 56%. It shows that management is using long term funds to short term

requirements. And it has fallen to Rs.1219.01 million in the year 2008-09 because current

assets gone up by only 32%, current liabilities grown by 62%. This two together pushed down

the net working capital to the present level. The fall in working capital is a clear indication

that the company is utilizing its short term resources with efficiency.


46/86


4.8.2.3 Current assets

A balance sheet item which equals the sum of cash and cash equivalents, accounts

receivable, inventory, marketable securities, prepaid expenses, and other assets that could be

converted to cash in less than one year. A company's creditors will often be interested in how

much that company has in current assets, since these assets can be easily liquidated in case the

company goes bankrupt. In addition, current assets are important to most companies as

a source of funds for day-to-day operations

Table 4.8.1.3- Current Assets Size

(Rs. In Lakhs)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Inventories 90.45 86.38 122.11 469.1 311.48

Sundry Debtors 378.76 308.87 1025.37 1169.14 1556.19

Cash&Bank Balance 96.93 759.64 410.18 372.02 246.60

Other Assets 419.51 507.78 688.03 1338.44 1955.70

Loan & Advances 93.97 71.51 262.38 389.75 891.87

Total of C.A. 1079.62 1734.18 2508.07 3738.2 4961.84

C.A. indices 100.00 160.63 232.31 346.25 495.59

Chart 4.8.1.3-Current Assets Indices
http://www.businessdictionary.com/definition/balance-sheet-item.htmlhttp://www.businessdictionary.com/definition/equal.htmlhttp://www.investorwords.com/747/cash.htmlhttp://www.investorwords.com/767/cash_equivalents.htmlhttp://www.investorwords.com/52/accounts_receivable.htmlhttp://www.investorwords.com/52/accounts_receivable.htmlhttp://www.investorwords.com/2589/inventory.htmlhttp://www.investorwords.com/5917/marketable_securities.htmlhttp://www.investorwords.com/6622/prepaid_expense.htmlhttp://www.businessdictionary.com/definition/other-assets.htmlhttp://www.investorwords.com/772/cash_in.htmlhttp://www.investorwords.com/1207/creditor.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.businessdictionary.com/definition/liquidated.htmlhttp://www.investorwords.com/415/bankrupt.htmlhttp://www.businessdictionary.com/definition/addition.htmlhttp://www.investorwords.com/4629/source.htmlhttp://www.investorwords.com/2130/funds.htmlhttp://www.investorwords.com/3467/operation.htmlhttp://www.investorwords.com/3467/operation.htmlhttp://www.investorwords.com/2130/funds.htmlhttp://www.investorwords.com/4629/source.htmlhttp://www.businessdictionary.com/definition/addition.htmlhttp://www.investorwords.com/415/bankrupt.htmlhttp://www.businessdictionary.com/definition/liquidated.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/1207/creditor.htmlhttp://www.investorwords.com/772/cash_in.htmlhttp://www.businessdictionary.com/definition/other-assets.htmlhttp://www.investorwords.com/6622/prepaid_expense.htmlhttp://www.investorwords.com/5917/marketable_securities.htmlhttp://www.investorwords.com/2589/inventory.htmlhttp://www.investorwords.com/52/accounts_receivable.htmlhttp://www.investorwords.com/52/accounts_receivable.htmlhttp://www.investorwords.com/52/accounts_receivable.htmlhttp://www.investorwords.com/767/cash_equivalents.htmlhttp://www.investorwords.com/747/cash.htmlhttp://www.businessdictionary.com/definition/equal.htmlhttp://www.businessdictionary.com/definition/balance-sheet-item.html


47/86


Interpretation

Current Assets grow approx. 61% in 2005-06 over its previous year and in the next year that

is 2006-07 its decline by approx. 16% and over the next year increase in current assets is

nominal i.e. 4% nearly and during the previous financial year it was declined by 16%.Here the

HDO current assets indices show continuous fluctuation due to this company get less credit

from the supplier and it needs to hold more working capital of firm and company cannot

enjoy credit facility.

4.8.3.4 Composition of current assets

Analysis of current assets components enable one to examine in which components the

working capital fund has locked. A large tie up of funds in inventories affects the profitability

of the business or the major portion of current assets is made up cash alone, the profitability

will be decreased because cash is non earning assets .

Table 4.8.1.4 Composition of Current Assets (Rs. In Lakhs)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Inventories 8.38 4.98 4.87 12.55 6.28

Sundry Debtors 35.08 17.81 40.88 31.28 31.36

Cash & Bank Balance 8.98 43.80 16.35 9.95 5.01

Other Assets 38.86 29.28 27.43 35.80 39.41

Loan & Advances 8.70 4.12 10.46 10.42 17.97

Total of C.A. 100.00 100.00 100.00 100.00 100.00

Chart 4.8.1.4-Current Assets Components

2004-0523%

2005-0613%

2006-0713%

2007-0834%

2008-0917%

Current Assets Component in %


48/86


Interpretation

It was observed that the size of current assets is increasing with increases in the sales. The

excess of current assets is showing positive liquidity position of the firm but it is not always

good because excess current assets then required, it may adversely affects on profitability.

Current assets include some funds investments for which company pay interest. The balance

of current assets is highly increased in year 2005-06, because of increase in cash balance.

Cash balance of the company increased in the same year because company got some

encashment of deposits in the schedule Banks as current account Rs.439 million and fixed

deposits (out of ZCCB funds) Rs.1785 million. Current assets components show sundry

debtors are the major part in current assets it indicates that the inefficient collection

management.

4.8.1.5 Current liabilities

Current liabilities mean the liabilities which have to pay in current year. It includes sundry

creditor s means supplier whose payment is due but not paid yet, thus creditors called as

current liabilities.

Table 4.8.1.5-Current Liabilities Size

(Rs. In Lakhs)

Particulars 2005-06 2006-07 2007-08 2008-09


Provisions 24.68 23.7 36.05 41.13 60.53

Total of C.L 654.13 614.32 1587.53 2299.98 3742.83

Indices of C.L. 100.00 93.91 242.69 351.61 572.18


49/86


Chart 4.8.1.5-Current Liabilities Indices

100 93.91

242.69

351.61

572.18

0

100

200

300

400

500

600

700

2004-05 2005-06 2006-07 2007-08 2008-09

C.L.Indices

Interpretation

Current liabilities show fluctuation each year as in 2005-06 its decline by 6% and in to 2006 -

07 it was increased by 164% because company creates the credit in the market by good

transaction. To get maximum credit from supplier which is profitable to the company it

reduces the need of working capital of firm. As a current liability decline in the year 2006-07 by 114 % it reduce the working capital size in the same year. But company enjoyed over

creditors which may include indirect cost of credit terms.


50/86


Table 4.8.1.6 Statement of changes in working capital

(Rs. In Lakhs)

Particulars 2007-08 2008-09 Change in Working Capital

Increase Decrease

A)Current assets

Inventories 469.1 311.48 - 157.62

Sundry Debtors 1169.14 1556.19 387.05 -

Cash & Bank Balance 372.02 246.60 - 125.42

Other Assets 1338.44 1955.70 617.26 -

Loan & Advances 389.75 891.87 502.12 -Total of A (Gross W.C.) 3738.2 4961.84 - -

B) Current liabilities

Current liabilities 2258.85 3682.30 1423.45 -

Provisions 41.13 60.53 19.4 -

Total of B 2299.98 3742.83 - -

Net W.C.(A-B) 1438.22 1219.01 - -

Net Decrease in WorkingCapital

- - - 2666.24

Total - - 2949.28 2949.28

Interpretation

Working capital decreased in the year 2007-08 to 2008-09 because

1. Sales increased by around 68%, where cost of raw material purchased increased by 10%

and manufacturing expenses increased by 68%.

2. Cost of material and manufacturing expanses increased because of inflation, which was

around 8.63% in Feb. 2008-09.


51/86


4.8.1.6 Operating Cycle

The average time between purchasing or acquiring inventory and receiving cash proceeds

from its sale. This time gap is called Operating Cycle or Working Capital Cycle.

Table 4.8.1.7-Calculation of operating cycle

To calculate the operating cycle of HDO used last five year data. Operating cycle of the HDO

vary year to year as changes in policy of management about credit policy and operating

control

(No. of days)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

ADD.

Raw mat. Holding period 70 66 58 54 58

WIP period 2 4 3 2 1

Finished goods holding period 51 58 47 39 36

Receivable collection period 155 133 116 107 109

Gross operating cycle 278 261 224 202 204

LESS.

Creditors payment period 169 178 122 130 130

Net operating cycle 109 83 102 72 74
http://www.investorwords.com/347/average.htmlhttp://www.businessdictionary.com/definition/purchasing.htmlhttp://www.investorwords.com/2589/inventory.htmlhttp://www.businessdictionary.com/definition/receiving.htmlhttp://www.investorwords.com/747/cash.htmlhttp://www.investorwords.com/3870/proceeds.htmlhttp://www.investorwords.com/4363/sale.htmlhttp://www.investorwords.com/4363/sale.htmlhttp://www.investorwords.com/3870/proceeds.htmlhttp://www.investorwords.com/747/cash.htmlhttp://www.businessdictionary.com/definition/receiving.htmlhttp://www.investorwords.com/2589/inventory.htmlhttp://www.businessdictionary.com/definition/purchasing.htmlhttp://www.investorwords.com/347/average.html


52/86


Chart 4.8.1.6-Net Operating Cycle

109

83

102

72

0

20

40

60

80

100

120

Chart 4.8.1.7-Component of Operating Cycle

20406080

100120140160180200

N o

. O

f D a y s

Component of Operatiing Cycle

Interpretation

Operating cycle of HDO shows the numbers of day are decreasing in recent year it is reflect

the efficiency of management. Days of operating cycle shows period of lack of funds in

current assets, if no of day are more than it increases the cost of funds as taken from outside

of the business. In 2004-05 shows the high no. of days because of reduced of creditors

holding period.


53/86


4.8.1.8 Working capital leverage

One of the important objectives of working capital management is by maintaining the

optimum level of investment in current assets and by reducing the level of investment in

current assets and by reducing the level of current liabilities the company can minimize the

investment in the working capital thereby improvement in return on capital employed is

achieved. The term working capital leverage refers to the impact of level of working capital

on company s profitability. The working capital management should improve the productivity

of investment in current assets and ultimately it will increase the return on capital employed.

Higher level of investment in current assets than is actually required means increase in the

cost of Interest charges on short term loans and working capital finance raised from banks etc.

and will result in lower return on capital employed and vice versa. Working capital leverage

measures the responsiveness of ROCE (Return on Capital Employed) for changes in current

assets. It is measures by applying the following formula,

Working capital leverage = % change in ROCE

% change in current assets

EBIT

Return on capital employed = Total assets

The working capital leverage reflects the sensitivity of return on capital employed to changes

in level of current assets. Working capital leverage would be less in the case of capital

intensive capital employed is same working capital leverage expresses the relation of

efficiency of working capital management with the profitability of the company.

Table 4.8.1.8- Calculation of Working Capital Leverages.

(Rs. In Lakhs)

Particulars 2005-06 2006-07 2007-08 2008-09

ROCE % 5.13 16.78 18.12 24.55

% Changes in ROCE 72.15 227.09 7.99 35.49

% Changes in C.A 68.63 44.62 49.5 32.73

W.C. Leverages 1.05 5.09 0.16 1.08


54/86


Chart 4.8.1.8-Working Capital Leverage

1.05

5.09

0.160

1

2

3

4

56

Chart 4.8.1.9-W.C. Leverage component

0

50

100

150

200

250


55/86


Interpretation

Working capital leverage of the company has decreased in the year 2007-08 as compare to the

year 2005-06 reduction in working capital shows the inefficient current assets management.

In the year 2006-07 current assets decline over its previous year and 2007-08 the current

assets has increased by high rate of 35% and 11% respectively. It adversely affects on ROCE,

which increased by only rate of 154% in 2006-07, that resulted in push down the working

capital leverage to 2007-08 and. When investment in current assets is more than requirement

that increases the cost of funds raised from short term sources may be bank loans, which

affected on profitability of the HDO.

4.8.2 Working Capital Ratio Analysis

4.8.2.1 Introduction:- Ratio analysis is the powerful tool of financial statements analysis. A

ratio is define as the indicated quotient of two mathematical expressions and as the

relationship between two or more things. The absolute figures reported in the fi nancial

statement do not provide meaningful understanding of the performance and financial position

of the firm. Ratio helps to summaries large quantities of financial data and to make qualitative

judgment of the firm s financial performance

4.8.2.2 Classification of working capital ratio:- Working capital ratio means ratios which are

related with the working capital management e.g. current assets, current liabilities, liquidity,

profitability and risk turnoff etc. these ratio are classified as follows:

1. Efficiency ratio

The ratios compounded under this group indicate the efficiency of the organization to use the

various kinds of assets by converting them the form of sale. This ratio also called as activity

ratio or assets management ratio. As the assets basically categorized as fixed assets and

current assets and the current assets further classified according to individual components of

current assets viz. investment and receivables or debtors or as net current assets, the important

of efficiency ratio as follow:


56/86


a. Working capital turnover ratio

b. Inventory turnover ratio

c. Receivable turnover ratio

d. Current assets turnover ratio

e. Liquidity ratio

The ratios compounded under this group indicate the short term position of the organization

and also indicate the efficiency with which the working capital is being used. The most

important ratio under this group is follows

I. Current ratio

II. Quick ratio

III. Absolute liquid ratio

Efficiency ratio

Working capital turnover ratio :

Working capital turnover ratio indicates the velocity of the utilization of net working

capital. This ratio represents the number of times the working capital is turned over in the

course of year.

Formula: Working Capital Turnover Ratio = Cost of Sales / Net Working Capital

Table 4.8.2.1- Working Capital Turnover

(Rs. In Lakhs)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Sales 838.10 1414.08 2085.10 3050.70 5133.22

Net W.C. 425.49 1119.86 920.54 1438.22 1219.01

W.C.TOR 1.97 1.26 2.27 2.12 4.21


57/86


Chart 4.8.2.1-Working Capital Turnover

Interpretation

High working capital ratio indicates the capability of the organization to achieve maximum

sales with the minimum investment in working capital. Company s working capital ratio

shows mostly more than or near two, except for the year 2005-06 and because of excess of

cash balance in current assets which occurred due to encashment of deposits. In the year

2008-09 the ratio was more than 4, it indicates that the capability of the company to achieve

maximum sales with the minimum investment in working capital.

b) Inventory turnover ratio

The inventory turnover ratio measures the number of times a company sells its inventory

during the year. A high inventory turnover ratio indicated that the product is selling well.

The inventory turnover ratio should be done by inventory categories or by individual

product.


58/86


Formula: Inventory Turnover Ratio = cost of goods sold / average inventory.

Table 4.8.2.2 Inventory turnover

(Rs. In lakhs)Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Cost of goods sold 643.01 1129.56 1640.49 2423.68 4121.56

Average inventory 90.45 88.42 104.25 295.61 403.79

Inventory TOR 7.11 12.77 15.74 8.20 10.21

Chart 4.8.2.2 Inventory Turnover

Interpretation

It was observed that Inventory turnover ratio indicates maximum sales achieved with theminimum investment in the inventory during. As such, the general rule high inventory

turnover is desirable but high inventory turnover ratio may not necessary indicates the

profitable situat ion. An organization, in order to achieve a large sales volume may sometime

sacrifice on profit, inventory ratio may not result into high amount of profit.


59/86


c) Receivable/Debtors turnover ratio

Debtor s turnover ratio or accounts receivable turnover ratio indicates the velocity of debt

collection of a firm. In simple words it indicates the number of times average debtors

(receivable) are turned over during a year.

Formula: Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors

Table 4.8.2.3- Calculation of debtors turnover ratio (Rs. In Lakhs)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Gross sales 862.73 1456.49 2145.93 3103.52 5222.55

Avg. Debtors 378.76 343.82 667.12 1097.26 1362.67

Receivable TOR 2.28 4.24 3.22 2.83 3.83

Chart 4.8.2.3-Debtors Turnover


60/86


Interpretation

It was observed from debtor s turnover ratio that receivables turned around the sales were

more than 4 times in 2005-06. The actual collection period was more than normal collection

period allowed to customer. It concludes that over investment in the debtors which adversely

affect on requirement of the working capital finance and cost of such finance.

d) Current assets turnover ratio

Ratio that indicates how efficiently a firm is using its current assets to generate revenue. A

higher ratio implies a more efficient use of funds thus high turnover ratio indicate to reduced

the lock up of funds in current assets. An analysis of this ratio over a period of time reflects

working capital management of a firm.

Formula: Fixed Assets Turnover Ratio = Cost of Sales / Net Fixed Assets

Table 4.8.2.4-Calculation of Current Assets Turnover Ratio (Rs. In Lakhs)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Sales 838.10 1414.08 2085.10 3050.70 5133.22

Current assets 1079.62 1734.18 2508.07 3738.2 4961.84

Current assets TOR 0.78 0.82 0.83 0.82 1.03
http://www.businessdictionary.com/definition/ratio.htmlhttp://www.investorwords.com/1967/firm.htmlhttp://www.businessdictionary.com/definition/current-asset.htmlhttp://www.businessdictionary.com/definition/revenue.htmlhttp://www.businessdictionary.com/definition/revenue.htmlhttp://www.businessdictionary.com/definition/current-asset.htmlhttp://www.investorwords.com/1967/firm.htmlhttp://www.businessdictionary.com/definition/ratio.html


61/86


Chart 4.8.2.4- Current Assets TOR

Interpretation

It was observed that current assets turnover ratio does not indicate any trend over the period

of time. Turnover ratio was 0.78 in the year 2004-05 and increase to 082 and 0.83 in the year

2005-06 and 2006-07 respectively, but it decreased in the year 2007-08, because of high cash

balance. Cash did not help to increase in sales volume, as cash is non earning asset. In the

year 2008-09 company increased its sales with increased investment in current assets, thus

current assets turnover ratio increased to 1.03.

e) Liquidity ratio

I) Current ratio:- An indication of a company's ability to meet short-term debtobligations; the higher

the ratio, the more liquid the companyi s. Current ratio is equal to current assets divided by current

liabilities. If the current assets of a company are more than twice the current liabilities, then that

company is generally considered to have good short-term financial strength. If current liablities exceed

current assets, then the company may have problems meeting its short-term obligations

Formula : Current ratio= Current assets / Current Liabilities
http://www.businessdictionary.com/definition/ability.htmlhttp://www.investorwords.com/6670/short_term_debt.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.investorwords.com/2832/liquid.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.businessdictionary.com/definition/current.htmlhttp://www.investorwords.com/1245/current_assets.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/5911/liabilities.htmlhttp://www.investorwords.com/4563/short_term.htmlhttp://www.investorwords.com/5572/financial.htmlhttp://www.businessdictionary.com/definition/strength.htmlhttp://www.businessdictionary.com/definition/problem.htmlhttp://www.businessdictionary.com/definition/meeting.htmlhttp://www.businessdictionary.com/definition/meeting.htmlhttp://www.businessdictionary.com/definition/problem.htmlhttp://www.businessdictionary.com/definition/strength.htmlhttp://www.investorwords.com/5572/financial.htmlhttp://www.investorwords.com/4563/short_term.htmlhttp://www.investorwords.com/5911/liabilities.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/1245/current_assets.htmlhttp://www.businessdictionary.com/definition/current.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/2832/liquid.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.investorwords.com/6670/short_term_debt.htmlhttp://www.investorwords.com/6670/short_term_debt.htmlhttp://www.businessdictionary.com/definition/ability.html


62/86


Table 4.8.2.5-Calculation of Current Ratio

(Rs. In Lakhs)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Current assets 1079.62 1734.18 2508.07 3738.2 4961.84

Current

liabilities

654.13 614.32 1587.53 2299.98 3742.83

Current ratio 1.65 2.82 1.58 1.63 1.33

Chart 4.8.2.5 Current Ratio

1.65

2.82

1.581.63

1.33

0

0.5

1

1.5

2

2.5

3

2004-05 2005-06 2006-07 2007-08 2008-09

Current Ratio

Current Ratio

Interpretation

The current ratio indicates the availability of funds to payment of current liabilities in the

form of current assets. A higher ratio indicates that there were sufficient assets available with

the organization which can be converted in cash, without any reduction in the value. As ideal

current ratio is 2:1, where current ratio of the firm is more than 2:1, it indicates the

unnecessarily investment in the current assets in the form of debtor and cash balance. Ratio is

higher in the year 2005-06 where cash balance is more than requirement which came through

encashment of deposits from bank.


63/86


II) Quick ratio: - A measure of a company's liquidity and ability to meet it sobligations.

Quick ratio, often referred to as acid-test ratio, is obtained by subtracting inventories

from current assets and then dividing by current liabilities. Quick ratio is viewed as a sign of

company's financial strength or weakness (higher number means stronger, lower number

means weaker)

Formula : Quick ratio= Liquid Current assets / Current Liabilities

Table 4.8.2.6-Calculation of Quick Ratio (Rs. In Lakhs)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Liquid current assets 989.17 1647.8 2385.96 3269.1 4650.36


Quick ratio 1.51 2.68 1.42 1.24

Chart 4.8.2.6-Quick Ratio

1.51

2.68

1.5 1.421.24

0

0.5

1

1.5

2

2.5

3

2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation

Quick ratio indicates that the company has sufficient liquid balance for the payment of current

liabilities. The liquid ratio of 1:1 is suppose to be standard or ideal but here ratio is more than

1:1 over the period of time, it indicates that the firm maintains the over liquid assets than

actual requirement of such assets. In the year 2005-06 company had Rs.2.68 cash for every 1

rupee of expenses; such a policy is called conservative policy of finance for working capital,

Rs. 1.68 is the ideal investment which affects on the cost of the fund and returns on the funds.
http://www.businessdictionary.com/definition/measure.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/2837/liquidity.htmlhttp://www.businessdictionary.com/definition/ability.htmlhttp://www.investorwords.com/3373/obligation.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.investorwords.com/78/acid_test_ratio.htmlhttp://www.investorwords.com/1245/current_assets.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.businessdictionary.com/definition/sign.htmlhttp://www.investorwords.com/5572/financial.htmlhttp://www.businessdictionary.com/definition/strength.htmlhttp://www.businessdictionary.com/definition/weakness.htmlhttp://www.businessdictionary.com/definition/mean.htmlhttp://www.businessdictionary.com/definition/mean.htmlhttp://www.businessdictionary.com/definition/weakness.htmlhttp://www.businessdictionary.com/definition/strength.htmlhttp://www.investorwords.com/5572/financial.htmlhttp://www.businessdictionary.com/definition/sign.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/1245/current_assets.htmlhttp://www.investorwords.com/78/acid_test_ratio.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.investorwords.com/3373/obligation.htmlhttp://www.businessdictionary.com/definition/ability.htmlhttp://www.investorwords.com/2837/liquidity.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.businessdictionary.com/definition/measure.html


64/86


III) Absolute liquid ratio:- Liquid ratio is also termed as "Liquidity Ratio", "Acid Test

Ratio" or "Quick Ratio". It is the ratio of liquid assets to current liabilities. The true liquidity

refers to the ability of a firm to pay its short term obligations as and when they become due.

Formula: Liquid Ratio = Liquid Assets / Current Liabilities

Table 4.8.2.7- Calculation of Absolute Liquid Ratio

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Absolute liquid assets 96.93 759.64 410.18 372.02 246.60


Quick ratio 0.0014 1.24 0.26 0.16 0.066

Chart 4.8.2.7-Absolute Liquid Ratio

0500

1000150020002500300035004000

2004-05 2005-06 2006-07 2007-08 2008-09

Cash & Bank TO Current Liabilities

Cash&bank

Curre nt Liabilities

Interpretation

Absolute liquid ratio indicates the availability of cash with company is sufficient because

company also has other current assets to support current liabilities of the company. In the year

2005-06 absolute liquid ratio increased because of company carry more cash balance, as a

cash balance is ideal assets company has to take control on such availability of funds which is

affect on cost of the funds.


65/86


4.8.3 Working Capital management

Working capital management is classified into 3 categories they are as follow:

4.8.3.1 Receivables Management

Money owed by customers (individuals or corporations) to vendors in exchange for goods or

services rendered. Receivables usually come in the form of operating lines of credit and are

usually due within a relatively short period, ranging from a few days to a year. On a balance

sheet, AR often is recorded as an asset because it represents cash legally owed by a customer.

Table 4.8.3.1-Size of Receivables of HDO (Rs. In Lakhs)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Sundry

Debtors

1556.19 1169.14 1025.37 308.87 378.76

Indices 100 75.13 65.89 19.84 24.33


66/86


Chart 4.8.3.1-Receivable Indices

Interpretation

Receivable Indices show fluctuation each year as in 2005-06 its decline by 25% and in to

2005 -06 it was increased by 12% because company gives less credit period to debtors. In

2006-07 the receivable indices increased by 12% it s because company adopted liberalize in

collection period and 2007-08 its decline to get maximum credit from supplier which is profitable to the company it reduces the need of working capital of firm. As a current liability

decline in the year 2006-07 by 114 % it reduce the working capital size in the same year. But

company enjoyed over creditors which may include indirect cost of credit terms.

Average collection period

The approximate amount of time that it takes for a business to receive payments owed, in

terms of receiveables, from its customers and clients.

Calculated as: Average Collection Period = Days X AR

Cr. Sales

Where:

Days=Total amount of days in period.

AR = Average amount of accounts receivables.

Credit Sales = Total amount of net credit sales during period


67/86


Table 4.8.3.2-Average Collection Period (Rs. In Lakhs)

Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Gross sales 862.73 1456.49 2145.93 3103.52 5222.55

Avg. Debtors 378.76 343.82 667.12 1097.26 1362.67

Receiv

FM - Dor Oliver

Documents

Transcript of FM - Dor Oliver