HAL

ACKNOWLEDGEMENT The report entitled “WORKING CAPITAL MANAGEMENT” a study in Hindustan Aeronautic Limited represents the guidance and co-operation of a few individuals, to whom I would like to express my deep sense of gratitude. I wish to express my sincere thanks to Mr. Suresh Jain (Chairman), Mr. Manish Jain (Vice Chairman), Dr. A. K. Garg (Executive Director), M.P. Singh (HOD), Dr. Sonia Gupta (Course coordinator & project in charge, MBA), and other faculty members for their consistent advice, encouragement and inspiration throughout the project. I would also like to thank Miss Kanika Jain (internal guide) for helping me in completing this project report. I also express my sense of gratitude to Mr. Arun Narula, Manager (Budget), HAL, Accessories Division, Lucknow. I thank him for his constructive help & valuable suggestions. At last but not the least I would like to thank my family members and my friends for their help in completing this project.

AKSHAY SRIVASTAVA

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EXECUTIVES SUMMARY Finance as a subject of study, has received wide-spread support from both academic and business segment people. The topic “WORKING CAPITAL MANAGEMENT” in HAL was selected as to understand the financial need and importance with special reference to HAL, Accessories Division, Lucknow. As the working capital refers to the administration of all the analysis of working capital, ratios and sources and application of funds and the company by studying, interpreting various financial statements using various techniques such as comparative statements analysis, funds flow statement analysis etc. Even efforts have been made to collect the relevant information about the topic. The present study about WORKING CAPITAL MANAGEMENT in HAL Accessories Division, Lucknow it based on my six week project study in FINANCE AND ACCOUNT DEPARTMENT in HAL. This training gives me an opportunity to make a study and analysis the system adopted by the organization. It enables me to build the practical knowledge acquired during the class study with practical training received during my project.

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Table of Contents a)

Introduction of topic.

b) Objective of the study. c) Scope & importance. d) Company profile. e) Literature review. f) Research Methodology. g) Data Analysis & Interpretation. h) Findings. i) Suggestions. j) Limitations. k) Conclusions. Working Capital Management

l) Bibliography. m)

Annexure.

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Introduction of topic This project has given me the opportunity to get aware with the HAL, its environment and functioning of the Finance & Accounts Department. This project report is divided into three different parts. First part of the includes information about the organization like vision and mission of HAL, its values, financial position, achievements, product line etc is given. The second part of the report focused on the whole Finance & Accounts Department. This includes objectives & functioning of the various sections of Finance & Accounts Department of the Accessories Division of HAL Last part of the report focuses on the budgetary system. This includes detailed analysis of working capital, ratios and sources and application of funds and the company by studying, interpreting various financial statements using various techniques such as comparative statements analysis, funds flow statement analysis etc.

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OBJECTIVE OF THE STUDY This training as per scheduled under syllabi has been emphasis on getting aware with the practical environment of an organization and specifically with the concerned department related to the specialization. There are certain objectives stated as under: 1. To get aware with the procedure of financial department. 2. To know how the functions passes through other departments in relation to financial departments. 3. To become familiar with the formats of different documents and their meaning. 4. To know each departments decision effect on finance department and viceversa. 5. To know organizational structure and specifically financial department.

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SCOPE & IMPORTANCE Keeping the magnitude of the work in mind the scope of the study has been determined. It covers the outset, a description of the role played by the corporation in improving financial strength of organization. The study has emphasized working capital and its application in different enterprises. ∗ To study the components, determinants of working capital. ∗ To study how to keep the capital that is tied up in the working capital cycle at a minimum and maximizing profit. ∗ To study how HAL finances working capital requirements of the firms. ∗ Interpreting, analyzing based on the various ratios, the liquidity position of HAL. ∗ To ascertain the amount of working capital.

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2.1 GENERAL PROFILE Hindustan Aeronautics Limited (HAL) based in Bangalore, India, is one of Asia's largest aerospace companies. Under the management of the Indian Ministry of Defence, this public sector company is mainly involved in aerospace industry, which includes manufacturing and assembling aircraft, navigation and related communication equipment, as well as operating airports. HAL built the first military aircraft in South Asia and is currently involved in the design, fabrication and assembly of aircraft, jet engines, helicopters and their components and spares. It has several facilities throughout India including Nasik, Korwa, Kanpur, Koraput, Lucknow, and Hyderabad. The German engineer Kurt Tank designed the HF-24 Marut fighter-bomber, the first fighter aircraft made in India. 2.2 HISTORY OF THE COMPANY Hindustan Aeronautics has a long history of collaboration with several other international and domestic aerospace agencies such as the Airbus Industries, Boeing, Sukhoi Aviation Corporation, Israel Aircraft Industries, RSK MiG, BAE Systems, Rolls-Royce plc, Dassault Aviation, Dornier Flugzeugwerke, Aeronautical Development Agency and Indian Space Research Organization. HAL was established as Hindustan Aircraft in Bangalore in 1940 by Walchand Hirachand to produce military aircraft for the Royal Indian Air Force. The initiative was actively encouraged by the Kingdom of Mysore, especially by the Diwan, Sir Mirza Ismail. The British Government bought a one-third stake in the company by April 1941 as it believed this to be a strategic imperative. Later in April 1942, it bought out the stakes of Walchand Hirachand himself and Working Capital Management

other promoters so that it can act freely. The decision by United Kingdom was primarily motivated to boost British military hardware supplies in Asia to counter the increasing threat posed by Imperial Japan during Second World War. However, the Mysore Kingdom refused to sell its stake in the company but yielded the management control over to the British Government. Thus, within 2 years of establishment, it was nationalized. Hindustan Aeronautics Limited (HAL) came into existence on 1st October 1964. HAL was set up as a amalgamation of Hindustan Aircraft Limited along with Aeronautics India Limited and Aircraft Manufacturing Depot located in Kanpur, India. Hindustan Aeronautics Limited has it headquarter located at Bangalore, India. HAL is one of the largest aerospace company which is run by the Ministry of Defense. The principal activities of HAL involve manufacturing aircraft, aerospace, navigation, and instruments for communication purposes. Apart from these, few other activities performed by HAL are designing, manufacturing, and collecting aircraft, jet engines, helicopters, along with their elements and spares. Hindustan Aircraft Limited which located at Bangalore was incorporated by the industrialist the late Seth Walchand Hirachand in December 1940. The Government of India became a stakeholder of the company in 1941 and seized the management department in 1942. HAL has 19 Production Units and 9 Research and Design Centers in 7 locations in India. The Company has an impressive product track record - 12 types of aircraft manufactured with in-house R & D and 14 types produced under license. HAL has manufactured over 3550 aircraft, 3600 engines and overhauled over 8150 aircraft and 27300 engines. HAL has been successful in numerous R & D programs developed for both Defense and Civil Aviation sectors. HAL has made substantial progress in its current projects: ∗ ∗

Dhruv, which is Advanced Light Helicopter (ALH) Tejas - Light Combat Aircraft (LCA)

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∗ Intermediate Jet Trainer (IJT) ∗ Various military and civil upgrades. Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast Guard in March 2002, in the very first year of its production, a unique achievement. HAL has played a significant role for India's space programs by participating in the manufacture of structures for Satellite Launch Vehicles like ∗ PSLV (Polar Satellite Launch Vehicle) ∗ GSLV (Geo-synchronous Satellite Launch Vehicle) ∗ IRS (Indian Remote Satellite)I ∗ NSAT (Indian National Satellite) HAL has formed the following Joint Ventures (JVs) : BAeHAL Software Limited ∗ Indo-Russian Aviation Limited (IRAL) ∗ Snecma HAL Aerospace Pvt. Ltd. ∗ SAMTEL HAL Display System Limited ∗ HALBIT Avionics Pvt. Ltd. ∗ HAL-Edgewood Technologies Pvt. Ltd. ∗ NFOTECH HAL Ltd Apart from these seven, other major diversification projects are Industrial Marine Gas Turbine and Airport Services. Several Co-production and Joint Ventures with international participation are under consideration. ∗

HAL's supplies / services are mainly to Indian Defence Services, Coast Guards and Border Security Forces. Transport Aircraft and Helicopters have also been supplied to Airlines as well as State Governments of India. The Company has also achieved a foothold in export in more than 30 countries, having demonstrated its quality and price competitiveness. ∗ HAL has won several International & National Awards for achievements in R&D, Technology, Managerial Performance, Exports, Energy Conservation, Quality and Fulfillment of Social Responsibilities. Working Capital Management

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HAL was awarded the “INTERNATIONAL GOLD MEDAL AWARD” for Corporate Achievement in Quality and Efficiency at the International Summit (Global Rating Leaders 2003), London, UK by M/s Global Rating, UK in conjunction with the International Information and Marketing Centre (IIMC).

∗

HAL was presented the International - “ARCH OF EUROPE” Award in Gold Category in recognition for its commitment to Quality, Leadership, Technology and Innovation.

∗ At the National level, HAL won the "GOLD TROPHY" for excellence in Public Sector Management, instituted by the Standing Conference of Public Enterprises (SCOPE). 2.3 PRODUCTS OF HAL

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PRODUCTS IN CURRENT MANUFACTURING RANGE Su 30 MKI Twin-seater, Multi-role, Long range Fighter / Bomber / Air Superiority Aircraft.

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MiG-27 M Single-seater Tactical Fighter / Bomber with variable sweep wings. MiG-21 VARIANTS Single-seater Front line Tactical Interceptor/ Fighter Aircraft. METALLIC DROP TANKS The Division manufactures different types of metallic drop (Jettisonable) tanks with capacity of 490 and 800 litres UNDERCARRIAGE The Division has facilities and expertise in the manufacture and overhaul of Undercarriages of both MiG-27M and MiG-21 variants. The landing gears are of a conventional tricycle type and consist of one steerable Nose wheel leg and two Main wheel legs to roll the aircraft in motion, on the ground, during take-off run and landing run. The Landing Gear legs have Pneumatic shock absorbers. EJECTION-SEAT The Ejection Seat is installed to provide safe escape to the Pilot from the Aircraft while catapuling is effected with the help of a combined Ejection Gun. The Division has the facilities and expertise in the manufacture and overhaul of ejection seats for both MiG-27M and MiG-21 variants. Working Capital Management

FLEXIBLE RUBBER FUEL TANKS The Division manufactures and supplies all types of Rubber Fuel Tanks required for MiG-21 Variants. The Rubber Fuel Tanks are provided with special protection coating against Ozone/heat and adverse climatic conditions. The Division has exported a large number of Rubber Fuel Tanks.

CANOPY The Division manufactures and overhauls canopies of MiG-21 variants and MiG-27M Aircraft. AEROSPACE FASTENERS The Division has a separate complex for manufacturing of Aerospace Fasteners, approximately 7000 types under 400 different standards. Some of the typical items are nuts, bolts, screws, washers, and rivets of various configurations, studs, dowels, pins, plugs, JO Bolts, pipe connections and springs. AIRCRAFT WESTERN ORIGIN JAGUAR INTERNATIONAL HAL commenced production of Jaguar International - deep penetration strike and battlefield tactical Support Aircraft in 1979 under license from British Aerospace, including the engine, accessories and avionics. Jaguar aircraft is designed with 7 hard points ( 4 under wing, 2 over

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wing and 1 under fuselage) capable of carrying a huge load of various of weapons in different combinations to meet the Customers needs. DHRUV (ADVANCED LIGHT HELICOPTER) With a proven track record and established technology for manufacture of helicopters and its components, the Helicopter Division commenced series production of Dhruv (Advanced Light Helicopter) in 2000 - 2001. The ALH is a multi-role, multi-mission helicopter in 5.5 ton class, fully designed and developed by HAL. Built to FAR 29 specifications, Dhruv is designed to meet the requirement of both military and civil operators. CHETAK The Helicopter Division manufactures the versatile and multi-purpose Chetek Helicopters for Civil and Military applications both for Domestic and International customers. CHEETAH The Helicopter Division manufactures the versatile and multi-purpose Cheetah Helicopters for Civil and Military applications both for Domestic and International customers. LANCER The Lancer Helicopter is a light attack helicopter developed by Hindustan Aeronautics Limited as a cost-effective airmobile area weapon system. The

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basic structure of the Lancer is derived from the reliable and proven Cheetah Helicopter.

2.4 OBJECTIVES OF HAL ∗

To ensure availability of Total Quality People to meet the Organizational Goals and Objectives

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To have a continuous improvement in Knowledge, Skill and Competence (Managerial, Behavioral and Technical)

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To promote a Culture of Achievement and Excellence with emphasis on Integrity, Credibility and Quality

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To maintain a motivated workforce through empowerment of Individual and Team- building

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To enhance Organizational Learning

∗ To play a pivotal role directly and significantly to enhance Productivity, Profitability and improve the Quality of Work Life 2.5 STRATEGY OF HAL ∗ To be in total alignment with Corporate Strategy. ∗ Maintain Human Resource at optimum level to meet the objectives and goals of the Company. ∗ Be competent in Mapping, Analysis and Upgradation of Knowledge and Skills including Training, Re-training, Multi-skilling etc. ∗ Cultivate Leadership with Shared Vision at various levels in the Organization. ∗ Focus on Development of Core Competence in High-Tech areas. Working Capital Management

∗ Build Cross-functional Teams. ∗ Create awareness of Mission, Values and Organizational Goals through out the Company. ∗ Introduce / Implement personnel policies based on performance that would ensure growth, Rewards, Recognition and Motivation. 2.6 VISION "To make HAL a dynamic, vibrant, value-based learning organisation 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". 2.6.1 MISSION Enable all those working for HAL to give their best to ensure their allround growth as well as that of the organization. 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. "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." 2.6.2 VALUES ∗ CUSTOMER SATISFACTION

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We are dedicated to building a relationship with our customers where we become partners in fulfilling their mission. We strive to understand our customers ' needs and to deliver products and services that fulfill and exceed all their requirements. ∗ COMMITMENT TO TOTAL QUALITY We are committed to continuous improvement of all our activities. We will supply products and services that conform to highest standards of design, manufacture, reliability, maintainability and fitness for use as desired by our customers. ∗ COST AND TIME CONSCIOUSNESS We believe that our success depends on our ability to continually reduce the cost and shorten the delivery period of our products and services. We will achieve this by eliminating waste in all activities and continuously improving all processes in every area of our work. ∗ INNOVATION AND CREATIVITY We believe in striving for improvement in every activity involved in our business by pursuing and encouraging risk-taking, experimentation and learning at all levels within the company with a view to achieving excellence and competitiveness. ∗ TRUST AND TEAM SPIRIT We believe in achieving harmony in work life through mutual trust, transparency, co-operation, and a sense of belonging. We will strive for building empowered teams to work towards achieving organisational goals. ∗ RESPECT FOR THE INDIVIDUAL

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We value our people. We will treat each other with dignity and respect and strive for individual growth and realization of everyone's full potential. ∗ INTEGRITY We believe in a commitment to be honest, trustworthy, and fair in all our dealings. We commit to be loyal and devoted to our organization. We will practice self discipline and own responsibility for our actions. We will comply with all requirements so as to ensure that our organization is always worthy of trust.

2.7 INTERNATIONAL AND DOMESTIC DEALS (I) INTERNATIONAL DEALS ∗

The US$10 billion fifth-generation fighter jet program with the Sukhoi Corporation of Russia.

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US$1 billion contract to manufacture aircraft parts for Boeing.

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Multi-role transport aircraft project with Ilyushin of Russia worth US$600 million.

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120 RD-33MK turbofan engines to be manufactured for MiG-29K by HAL for US$250 million.

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Contract to manufacture 1,000 TPE331 aircraft engines for Honeywell worth US$200,000 each (estimates put total value of deal at US$200 million).

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US$120 million deal to manufacture Dornier 228 for RUAG of Switzerland.

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Manufacture of aircraft parts for Airbus Industries worth US$150 million.

∗ US$100 million contract to export composite materials to Israel Aircraft Industries. ∗

US$65 million joint-research facility with Honeywell and planned production of Garrett TPE331 engines.

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US$50.7 million contract to supply Advanced Light Helicopter to Ecuadorian Air Force.[11] HAL will also open a maintenance base in the country.

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US$30 million contract to supply avionics for Malaysian Su-30MKM.

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US$20 million contract to supply ambulance version of HAL Dhruv to Peru.

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Contract of 3 HAL Dhruv helicopters to Turkey in a deal worth US$20 million.

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Supply of HAL Dhruv helicopters to Mauritius' National Police in a deal worth US$7 million.

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Unmanned helicopter development project with Israel Aircraft Industries.

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(II) DOMESTIC DEALS ∗

180 Sukhoi Su-30MKI being manufactured at HAL's facilities in Nasik and Bangalore. The total contract, which also involves Russia's Sukhoi Aerospace, is worth US$3.2 billion.

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200 HAL Light Combat Helicopters for Indian Air Force and 500 HAL Dhruv helicopters worth US$5.83 billion.

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US$900 million aerospace hub in Andhra Pradesh.

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US$57 million upgrade of SEPECAT Jaguar fleet of the Indian Air Force.

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US$55 million fighter training school in Bangalore in collaboration with Canada's CAE.

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64 MiG-29s to be upgraded by HAL and Russia's MiG Corporation in a program worth US$960 million. Licensed production of 82 BAe Hawk 132.

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2.8 CU ST O M ER S

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International Customers ∗

∗ ∗ ∗

∗ ∗ ∗ ∗ ∗

∗ ∗ ∗ ∗

∗ ∗ ∗ ∗ ∗

∗ ∗ ∗ ∗ ∗ ∗ ∗ ∗ ∗ ∗ ∗

∗ ∗

∗

Airbus Industrie, France APPH Bolton, UK BAE Systems, UK Chelton, UK Coast Guard, Mauritius Corporate Air, Philippines Cosmic Air, Nepal Dassault Aviation, France Dowty Aerospace Hydraulics, UK EADS, France ELTA, Israel Gorkha Airlines, Nepal Hampson, UK Honeywell International, USA Island Aviation Services, Maldives Israel Aircraft Industries, Israel Messier Dowty Ltd., UK Mistubishi Heavy Industries, Japan MOOG, USA Namibian Air Force, Namibia Peruvian Air Force , Peru 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 Strongfield Technologies, UK The Boeing Aircraft Company, USA Transworld Aviation, UAE Vietnam Air Force, Vietnam

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Domestic Customers ∗ ∗ ∗ ∗ ∗ ∗ ∗

∗ ∗ ∗ ∗ ∗ ∗ ∗ ∗

∗ ∗ ∗ ∗ ∗

∗ ∗

∗ ∗ ∗ ∗ ∗

Air India Air Sahara Airports Authority of India Bharat Electronics Border Security Force Coal India Defence Research & Development Organisation Govt. of Andhra Pradesh Govt. of Jammu & Kashmir Govt. of Karnataka Govt. of Maharashtra Govt. of Rajasthan Govt. of Uttar Pradesh Govt. of West Bengal Indian Airforce Indian Airlines Indian Army Indian Coast Guard Indian Navy Indian Space Research Organisation Jet Airways Kudremukh Iron ore Company ltd. NALCO Oil & Natural Gas Corporation Ltd. Ordnance Factories Reliance Industries United Breweries

2.9 OTHER HINDUSTAN AERONAUTICS LIMITED PROGRAMS Apart from the aforementioned upgrades, DRDO has also assisted Hindustan Aeronautics with its programs. These include the HAL Dhruv helicopter and the HAL HJT-36. Over a hundred LRU (Line Replaceable Unit)'s in the HJT-36 have come directly from the LCA program. Other duties have included assisting the Indian Air Force with indigenization of spares and equipment. These include both mandatory as well as other items. 2.10 EVOLUTION AND GROWTH OF THE COMPANY The Company's steady organisational growth over the years with consolidation and enlargement of its operational base by creating sophisticated facilities for manufacture of aircraft / helicopters, aeroengines, accessories and avionics is illustrated below.

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2.11 SERVICES

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2.12 DIVISIONS OF HAL

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2.13 EXPORTS OF HAL

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2.14 FINANCIAL HIGHLIGHTS OF HINDUSTAN AERONAUTICS LTD. Hindustan Aeronautics Limited (HAL) has achieved sales turnover of Rs.11,457 crores during the Financial Year 2009-10. The profit of the Company (Profit Before Tax) soared to Rs.2,688 crores. The highlights are given below:

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Rupees in Crores

2008-09

2009-10

Growth over Previous Year

Sales

10373

11457

10.45%

VOP

11811

13490

14.22%

Profit before tax

2335

2688

15.12%

Profit after tax

1740

1967

13.05%

Gross Block

2638

2934

11.22%

Particulars

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ACCESSORIES DIVISION LUCKNOW

Accessories Division of HAL was established in 1970 with the primary objective of manufacturing systems and accessories for various aircraft and engines and attains self sufficiency in this area. Its facilities are spread over 94,000 sqm of built area set in sylvan surroundings. At present it is turning out over 1100 different types of accessories. The Division started with manufacturing various Systems and Accessories viz, Hydraulics, Engine Fuel System, Air-conditioning and Pressurization, Gyro & Barometric Instruments, Electrical System items, Undercarriages, Electronic items all under one roof to meet the requirements of the aircraft, helicopters and engines being produced by HAL. This was followed up with manufacturing the same range of accessories for MiG series of aircraft, International Jaguar and repair / overhaul of Mirage2000 & Sea-Harrier accessories. In addition the Division manufactures systems for Civil Aircraft i.e. Avro, Dornier and AN-32 & cheetah, chetak & Advanced Light Helicopters.

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The Division, right from the beginning, laid a lot of emphasis on developing indigenous capability for Design and Development of various System and Accessories. This capability has culminated in indigenous design and development of a variety of systems and accessories for the Light Combat Aircraft (LCA) and Advanced Light Helicopter (all versions i.e. Army, Airforce, Navy & Civil) - two prestigious aircraft programs in the country and IJT (Intermediate Jet Trainer). The Division has also developed and has made successful strides into the area of Microprocessor based control systems for the LCA Engine as well as other systems.

The Division diversified not only in other defense applications like tanks and armored vehicles for Army, it l oks commercial applications of hydraulic items. Gyroscopic Equipment, Special Purpose Test Equipment & Group Support Equipment and successfully supplied in the market. The Division has been in the forefront of accessories development and supply not only to Indian Force but to Army, Navy and various Defense Laboratories as well as for Space applications.

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PRODUCTS PRODUCTS IN MANUFACTURING RANGE

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INSTRUMENTS, SENSORS, GYROS Flight instruments, Electrical Indicators, Fuel Gauging Probes, Gyros, Sensors and Switches

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ELECTRICAL POWER GENERATION AND CONTROL AC/DC Generator, Control and Protection Units, Inverters, Transformer Rectifier Unit, AC/DC Electrical Systems, Actuators

• • • •

LAND NAVIGATION SYSTEM MICROPROCESSOR CONTROLLER UNDERCARRIAGE, WHEELS AND BRAKES HYDRAULIC SYSTEM AND POWER CONTROL Pumps, Accumulators, Actuators, Electro-selectors, Bootstrap Reservoirs and various types of valves

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ENVIRONMENTAL CONTROL SYSTEM Pneumatics and Oxygen System, Cold Air Unit, Water Extractors, Valve - various types

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EJECTION SYSTEM Ejection Seats, Release Units etc.

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ENGINE FUEL CONTROL SYSTEM Booster Pumps, Main and Reheat Fuel Systems, Nozzle Actuators

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GROUND SUPPORT EQUIPMENT AND TEST RIGS Ground Power Unit, Hydraulic Trolley and {Power Packs, Dedicated Test Rigs, custom-built Fuel/Hydraulic Test Rigs

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EXPORT PRODUCTS •

Supply of Rotables and Spares of Jaguar International and Cheetah (Lama) / Chetak (Alouette) Helicopters

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Repair / Overhaul of aircraft accessories of MiG series Aircraft, Jaguar International Aircraft, Cheetah (Lama) / Chetak (Alouette) Helicopters and Dornier Multi-role Aircraft

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Supply of Ground Support Equipment for Aircraft such as MiG-23 / 27 / 29, Mirage-2000, Jaguar, Light Combat Aircraft (LCA) Su-30 MKI, Sea Harrier, Dornier DO-228, Avro HS748 (Specific Version), Cheetah (Lama) / Chetak (Alouette lll), Ml - 17, Advanced Light Helicopter (ALH).

SERVICES

REPAIRS, MAJOR SERVICING AND SUPPLY OF SPARES The Division carries out Repair and Overhaul of Accessories, with minimum turn-around-time. Site Repair facilities are offered by the Division by deputing team of expert Engineers / Technicians. Services provided for Military Aircraft •

MiG Series

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Jaguar

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Mirage-2000

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Sea - Harrier

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AN-32

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•

Kiran MK- I / MK- II

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HPT - 32

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SU-30 MKI

Civil Aircraft

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Dornier-22B

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AVRO HS-748

Helicopters

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Chetak (Alouette)

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Cheetah (Lama)

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ALH (IAF / NAVY / COAST GUARD / CIVIL)

Sub-contract Capabilities

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The Division has comprehensive manufacturing capabilities for various Hi-tech components, Equipment and Systems to customer's specifications and ensures high quality, reliability and cost effectiveness.

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The Division has over 25 years of experience in producing aeronautical accessories making it an ideal partner for the International Aero Engineering Industry.

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The Division also manufactures and supplies complete range of components of Cheetah (Lama) & Chetak (Alouette) Helicopters, Jaguar and MiG series Aircraft to Domestic and International Customers to support their fleet.

FUTURE PLANS HAL have perspective plan to have minimum growth of 400% (in respect of turnover , PBT, value added and other financial parameters) up to 2016-2017 over current year and minimum turnover from non-defense customers is to be 40%of total turnover(currently 4.43%) by 2016-2017. In addition to the participation is almost all the aircraft manufacturing / servicing programs at sister divisions ADL is also providing after sales service for supporting the maintenance activities of IAF, Army, Navy, Coast Guard by supplying various accessories against RMSOs and undertaking Working Capital Management

repair and overhaul of rotables against R/OH task directly for these customers. The quantum of such work is of the order of Rs. 100 crore / year of repair / overhaul and Rs. 32 crore / year for spare supplies, which is likely to grow to twice this level by the end of the plan period i.e. 2016-2017.

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HAL – FINANCIAL PERSPECTIVE HAL is manufacturing organization and its main customer is Indian Air Force, which HAL various orders for manufacturing, repairs and overhauls, design and development etc and provides 90% amount of ordering in advance and rest 10% after receiving the complete order. So in this way HAL realizes 90% ordering amount before start of the order and only 10% of the amount is blocked. Therefore need of working capital in case of HAL is not much high in respect to the other manufacturing organization. The organization has its corporate office in Bangalore; all the financial activities are controlled from the head office. Since it is a major manufacturing company of the government therefore no investment policy is being followed by its Lucknow Division. The head office controls all the financial policies of different divisions.

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FINANCE AND ACCOUNT DEPARTMENT The finance and accounts department occupies a very important position in any organization as it has a role to play in almost the activities right from conceptualization of a project till its successful implementation for smooth running and thereafter.

FUNCTIONS & RESPONSIBILITIES:The Department is entrusted with the following functions and responsibilities:

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To ensure financial discipline as per guidelines of company.

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To advise management for all matters having financial implications including financial co-ordination before commitments are made.

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Regulation of Payments for supply and services including Salaries, Wages and other payments required for furthering legitimate objectives of the company.

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Compilation of Accounts and getting the same audited by statutory and Govt. Auditors.

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Compilation and co-ordination of Fixed Price Quotation for sale of company’s product and services as per the norms of the company.

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Collecting dues on behalf of the company from the customers as well as other agencies.

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Financial Appraisal of the projects.

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To prepare Budgets and to exercise budgetary control for the utilization of available resources in the best possible manner.

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Interaction with various operating levels in the Division.

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Co-ordination and interaction with the Managing Director and Corporate office.

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To have an effective M.I.S. for prompt reporting to the higher management for decision making.

SECTIONS IN THE DEPARTMENT

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Bills Payable –

Inland Bills

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Foreign Bills

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Services And Civil Works

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Finance

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Payroll

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Cash Office

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Bills Receivable

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Cost Accounts

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Material Accounts

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Book Keeping

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Budget & M.I.S.

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Time Office

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Provident Fund

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BILLS PAYABLE

OBJECTIVES

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To regulate the payments to suppliers and service providers as per the terms and conditions of the Purchase order/Agreement.

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To ensure that he payment to different parties are made promptly so that supplies and services to the divisions maintained uninterruptedly in furthering the objects of the Organization.

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To ensure that proper accounting is done as per the requirement of statute/standing instructions from the H .O.

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To ensure that all statutory deductions e.g. T.D.S. etc, are made from the Bills of suppliers / services providers and Deposited timely with the appropriate authority.

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BILLS PAYABLE (INLAND)

FUNCTIONS The following are the functions of Bills Payable (Inland) sections: •

Payment of Advance to suppliers as stipulated in the Purchase order.

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Payment of Final Bills.

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Bank dealings with relation to suppliers e.g. Opening of Letter of Credit, Bank Guarantee and payment to bank on the due dates.

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Accounting and pricing of R.D.R.(Receiving cum discrepancy report).

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Maintenance of Commitment Register for Budgetary purpose.

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Payment of Misc. Advances / imprest approved by the competent authority.

FLOW OF WORK 1. All the purchase received is first entered in P.O. register before putting the same in separate file. 2. If the P.O. stipulate for payment of Advance to vendor , an Advance payment is given 3. .After receipt of the goods, suppliers invoice duly linked with relevant R.D.R. are

received from the Purchase Department which are scrutinized with reference to relevant Purchase order and then passed for payment after making adjustments for Advance Payments already made. Remittance vouchers are prepared based on the passed invoices and are forwarded to cash section for issuance of cheque.

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4. In respect of P.O. where payment is stipulated as “Through Bank” the BPI section, after intimation from the bank through Purchase Department, makes entry in the purchase department, makes entry in the Register and after checking the documents with the P.O. passes the invoice and sends the remittance voucher to the cash section to arrange payment and collection of document from the bank by the Purchase Department. 5. In respect of local purchases made on “cheque against delivery basis” the performs

invoice is linked with the relevant Purchase Order and the payment is authorized and Remittance voucher is sent to the cash section for making payment. 6. Pending the receipt of R.D.R. from the transit in respect of material received but not

taken on charge due to delay in inspection / commissioning / rejections the payment made to suppliers as advance on receipt of goods through Bank Documents / cheque against delivery basis are put in G.I.T. i.e. goods in Transit Account at the year end. 7. In respect to that P.O. where material has been received but the payment has not been

released, the appropriate liability is provided for at the year end so as to account for all expenses. 8. Follow up with I.M.M. department for release of R.D.R. in respect of those P.O’s. where advance payment has been made so as to clear advances. 9. In respect of rejected materials, follow-up is to be made with I.M.M. department to get those rejected materials replaced from the vendor so as to clear G.I.T.

Working Capital Management

BILLS PAYABLE (FOREIGN)

FUNCTIONS •

Payment and accounting of: –

Advances to suppliers as per the terms & conditions of purchase order.

–

License fees, Royalty etc as per the License agreement with the foreign collaborators.

•

–

Customs duty, Freight bills

–

Final bills

Opening of Letter of Credit on the advice of I.M.M. department and liaisoning with Bank for Foreign Exchange release and payment on maturity date.

•

Maintenance of commitment registers for budgetary purpose.

•

Maintenance of Deferred liabilities accounts.

•

Pricing of R.D.R. with P.O. rates and loading of customs duty, Freight and insurance charges.

•

Priced R.D.R. is sent to Material Accounts Section / E.D.P. for punching in batch mode for processing of Material Ledger.

FLOW OF WORK 1. All Purchase orders / contracts received are entered in the registers before opening of

separate file for each P.O.

Working Capital Management

2. All the L.C. opened in favour of Foreign Suppliers as per the terms of Purchase Order

are entered in Register to record the particulars about their extension, revalidation and utilization. On maturity of L.C. the Bank advice and sent to cash section for adjustment. Particulars of payments are also noted in the relevant P.O. 3. Where purchase terms provide for “documents through Bank” the Bills Payable section after checking the documents with the purchase order passes the invoice and issues Letter Authority to the Bank for arranging payment. 4. All the Contractual payments in respect of royalty, license fee and technical assistance fees area made as per the license / collaboration agreement after obtaining Foreign Exchange release from the Ministry, R.B.I. and producing N.O.C. from the Income Tax Department. 5. Bills of entry received from the I.M.M. department are entered in the register to record value of goods assessed, amount duly paid to ensure that the duty levied is correct and the amount of duty paid is loaded to the inventory accounts correctly. A copy of B/B is sent to the bank for forwarding the same to R.B.I. 6. After receipt of goods the Stores Department sends the RDR to the Foreign Bills pricing and making necessary accounting. 7. Pending the pricing of RDR, the payments made to the foreign vendors through L.C. / sight drafts are put temporarily in Goods in Transit Accounts. 8. In respect to Material dispatched by the vendor against P.O. raised by us, the liability is provided in our books of accounts if payments have not been made for such supplies. 9. Follow-up with I.M.M. Department for timely release of RDR so as to clear the G.I.T. 10. Co-ordination with the I.M.M. for the replacement of rejected materials so as to clear G.I.T.

Working Capital Management

Working Capital Management

BILLS PAYABLE (SERVICES) FUNCTIONS •

Payment and accounting of advances.

•

Payment and accounting of running bills of the contractors.

•

Payment and accounting of final bills.

•

Adjustment and recovery of advances.

•

Accounting and adjustment of earnest money and security deposits.

•

Capitalization of buildings.

•

Payment of all services bills e.g. Telephone, Electricity, Water, Canteen, Transportation and sanitation etc.

•

Payment of all consultants e.g. Architects, Advocates, Part Time Doctors etc.

•

Payment of Misc. Advances / Imprest approved by the competent financial authority and their adjustments.

•

Payment of all casual employees.

FLOW OF WORK

1. Advances to contractors are given as per the acceptance letter given to the contractors which are recovered with the interest by way of deduction from on account payment bills in suitable percentage in relation to the progress of work so as to recover all sums advanced by the time 80% of the contract is completed.

Working Capital Management

2. Material advances to the extent of 75% of the value of materials bought by the contractors and lying at the site are given on certification of the Engineer in charge and are recovered from running / final bills. 3. in respect of running bills the works accounts section links the bill, submitted by

contractor duly certified by Engineers-In-charge, with the contract / acceptance letter / work order etc. and arranges payment after deducting Income Tax., balance security deposit and other advances if any and retaining the prescribed percentage of the bill towards the retention money. However, where the contractor has given bank guarantee towards retention money no deduction is to be made on this account. 4. Similarly, the final bill submitted by the contractor is checked with the measurement

book and the gross amount payable is determined. The amount settled against running bills, advances if any, penalty for delay in completion of work, recovery towards consumption of material, T.D.S. etc is deducted from the gross amount payable. One half of the security deposit refundable to he contractor is retained as Defect liability deposit. 5. Capitalization the building and other capital works done on receipt of the completion certificate and final bills and the classification of the building is done in accordance with the rules in force. 6. Payment of bills for services e.g. Electricity, Telephone, Water etc. received from the plant maintenance department/ concerned users duly verified by them and approved by the competent authority are made. 7. Payment in respect of other services received by the company is made after it is duly approved by the competent authority.

Working Capital Management

FINANCE SECTION OBJECTIVES •

To ensure that the financial discipline is maintained in the division.

•

To ensure that all expenditure is incurred with due regard to principles of financial propriety.

•

To ensure that financial proposals are routed to the competent authority as per delegation / sub-delegation of powers so as to ensure compliance of the provisions of the Companies Act, the Memorandum and Articles of Association of the company and the relevant rules and regulations of the company and the guidelines issued by the company.

•

To ensure that the funds are available in the approved Capital & Performance Budget so as to cover the relevant proposals.

•

To submit MIS reports to Corporate Office monthly.

FUNCTIONS •

To scrutinize and give financial concurrence as per delegation of power for each proposal involving : –

Capital expenditure

–

Revenue expenditure

–

Purchase of materials/ stores / tools and other services

–

Manpower requirement

–

Waiver of dues / write off of losses

–

Cases involving relaxation of rules etc.as per delegation of powers.

–

Sale, lease, alienation or disposal of company’s asset.

Working Capital Management

–

Contracts entered into with suppliers / collaborators / sub-contractors.

–

Award of contract in respect of civil / electrical works / other works / plant orders.

– •

Project Reports.

Certification for availability of funds with reference to Capital & Performance Budgets and appropriation of funds.

PAYROLL SECTION OBJECTIVES •

To regulate salaries and wages of all employees as per terms of employment.

•

To regulate payment of welfare facilities extended by the management e.g. Medical, Interest subsidy, school fee etc.

•

Payment and recovery of various natures of advances such as Travel advances, LTC advance, conveyance advance and timely adjustment thereof.

•

To ensure timely remittance of amounts recovered from employees to various agencies like LIC, UPICA, HDFC, etc.

•

To ensure that all-statutory deductions e.g., PF etc are made from the salaries of the employees and deposited timely with the appropriate authority.

•

To ensure proper accounting is done as per the requirement of the statue and corporate office guidelines.

•

To adhere to the provisions laid down in the Personnel Manual relevant to the above functions.

FUNCTIONS

Working Capital Management

•

Based on the appointment / transfer notification from Personnel department, individual files are opened in the payroll section to record the particulars of the employees such as grade / group date of appointment / transfer, department code, P.B. No. , scale of pay, quarter details.

•

The payroll record is updated from time to time entering therein increment drawn, promotion, transfers etc.

•

The master data in regard to all officers / employee is sent to the computer department in respect of basic pay, DA, HRA, CCA etc. and this data is updated every month depending upon the changes.

•

The deductions to be made are fed to the computer department by means of deduction statement. Computer department in turn prints out the deduction statement in the form of check list by the 25th of every month. Payroll section corrects the same with reference to the various documents and recovery register and sends it back to the computer department for the final adoption by 26th/27th of the month.

•

The computer department prints the payroll in the duplication in which one copy is maintained in the payroll section for the record purpose and the original is distributed to the employee concerned.

•

Disbursement of salary & wages Payment of salary of officers is made through Bank based on the payroll received from the computer department. In case of non-supervisory personnel the payment is made by cash by various groups except few cases where the payment is made through P.N.B. H.A.L. Branch. Cash is drawn two days in advance i.e. last day of the month and filled in the employee and these employees are kept in the safe custody in cash office for disbursement on 1st of next month.

•

Remittance of Recoveries

Working Capital Management

Various recoveries made from employees in respect of LIC premium, HDFC loan, Income Tax etc are remitted to the various agencies within the stipulated date by means of cheque. •

Payment of advances and adjustment thereof and reimbursement of expenses Various types of advances such as Car / Scooter advance, contingency advance, TA/DA etc are paid and adjusted/ recovered as per the rules of the company. Also reimbursement of expenses like medical, school fee, conveyance, etc is made as per the rules of the company.

•

Accounting procedures Monthly payroll journal entry is made both for supervisory and non-supervisory personnel and sent to the book keeping section for adoption. For payment made to persons from other divisions, proper accounting is done to ensure that necessary advice is raised to the concerned division.

CASH SECTION OBJECTIVES •

To ensure timely and accurate receipts and payments of cash and cheques.

•

To ensure accounting of cash/ bank transactions is done as per the statute/ corporate office guidelines.

•

To ensure safe custody of cash, cheque books, bank guarantees, deposit receipts etc.

Working Capital Management

•

To ensure timely drawls of cash from bank to cater to the daily needs of the payments of cash vouchers.

FUNCTIONS •

All amounts collected by different sections either from employees or from external agencies is sent to the Cash Office through Cash Credit Vouchers.

•

Cash received in excess of the requirement, cheques, bank drafts, postal orders are deposited into the company’s Bank account the same day for realization

•

.Payment to the employees such as medical reimbursement, TA / DA advance, Misc. advance etc. are made through payment vouchers which are punched into the computer through online system. The cash office in turn after proper identification makes the payment through cash teller.

•

For payment to outside parties cheques are made on the basis of remittance voucher sent by different section. These cheques are handed over to the Purchase department for taking necessary action / sent to central registry for dispatch to the concerned party.

•

Entries are made every day on the basis of Cash Credit vouchers and remittance voucher and the cash balance is arrived at which is certified by the In-charge of cash office.

•

Based on the analysis of the payment and receipt transactions computerized monthly Journal Voucher is prepared and send to the Book Keeping section for the adoption.

•

Preparation of the monthly Bank Reconciliation statements and the liaisoning with the bank authorities to check any discrepancy.

•

Periodical physical verification of cash is done by systems audit representatives and by the internal auditors on the last day of the financial year.

Working Capital Management

BILLS RECEIVABLE SECTION OBJECTIVES •

To ensure that dues from the customers in respect of Goods supplied and services rendered are recovered timely as per the Fixed Price Quotation / Price Catalogue approved by the Ministry in accordance with the Government letter issued by the Ministry of defense dated 24th Aug., 1995.

•

To ensure that invoices in respect of advances, stage payment, final deliveries are raised timely in order to have smooth cash flow position.

•

To ensure that proper accounting is done as per the requirement of statute and accounting instructions laid down by the corporate office.

•

To ensure that all statutory payments e.g. Sales Tax, Excise Duty, Custom duty is received from the customer and is deposited timely with the appropriate authority.

FUNCTIONS The following are the functions of the Bills Receivable section; •

Preparation and rendering of the invoices to I.A.F. in respect of the following activities in accordance with the guidelines laid down in the Government letter dated 30th Sept., 1997. -Manufacturing activities - Repair and overhaul -Supply of the spares against R.M.S. -Deferred revenue expenditure

Working Capital Management

The following documents shall be produced in support of the invoices rendered: * Initial advances are recovered on the basis of Customer order: i. Firm / forecast task given by the Air Force ; ii. C.R.I. coordinated I.D.T.O. for the divisional task; iii. R.M.S. order *Subsequent stages / final payment are claimed on the basis of the milestones achieved, dispatch advices, acknowledgement received from the Air Force in the form Q423, Inspection Note certified by the C.R.I. about the progress of the work done in respect of the repairs and overhaul work the payment is strictly regulated based on the nature of work carried out e.g. Functional Test, Defect Investigation, and Zero Hour Servicing, Repaired, Overhauled. •

To prepare and render invoices to Non-IAF customers in respect of the following activities :

•

–

Sales for Customer Financed Projected

–

Development Supplies and services rendered to civil customers

–

Supplies against R.M.S. orders from the Army, Navy.

To raise the debit on the other divisions as S.I.T. in respect of parts/ accessories supplied for the fulfillment in Engines/ Aircraft/ Helicopters manufactured by them for supply to customers.

•

To claim payment from AO (DAD) on the basis of fitment details received from the user divisions.

•

To submit invoices for reimbursement of royalty from Air Force and setup Sales for these claims and create claims receivable.

•

To follow up with AO (DAD) and other customers for collecting the payment against the invoice raised.

Working Capital Management

•

To provide details to the budget section for compliance of sales budget on the basis of the sales order, firm / forecast task, I.D.T.O. for the Budget estimates, Revised estimates, F.C.

•

To collect Sales Tax from the customers and deposit the same.

•

To compile Sales Tax returns and submit the same to the IMM department for onwards submission to Sales tax authorities for Assessment.

COST ACCOUNTS SECTION OBJECTIVES •

To establish a costing system in line with the activities and product range of the division.

•

To determine the price releasable from the customer for the products manufactured / repaired / overhauled / serviced / supplied by the division.

FUNCTIONS •

To determine the rate of absorption / recovery of the labour and other overheads for recovering labour cost on the different jobs undertaken i.e. Man-Hour rate computation.

•

To accumulate the labour and overheads content of each activity Project-wise based on the evaluated L.T.B. generated by E.D.P. from the Work Orders / Time Dockets.

•

To keep track of different jobs completed and jobs lying incompetent in different stages over a reasonable period of time and to co-ordinate with the concerned Production Controllers for justification for jobs lying unfinished beyond a reasonable period of time and to ensure their early disposition

Working Capital Management

•

To review work orders on which no material / labour cost has been recorded and finding out the reasons for the same.

•

To get the W.I.P. statement as on 31st March from E.D.P. for all manufacturing components , sub-assembly W.I.P., assembly W.I.P. for physical verification by the concerned production shops.

•

To ensure that the valuation of W.I.P. has been done correctly keeping in view the percentage of completion of the job.

•

To keep track of S.I.T. transactions with the different divisions.

•

To keep record of all I.D.T.O. received and issued.

•

To send debit advices to other divisions for the items dispatched against I.D.T.O. received from them.

•

To accept the debit raised by other divisions for items received by division in respect of requirement raised by H.A.L. through I.D.T.O.

•

To evaluate P.C. Memo for S.I.T. Issues, Russian consumption for overhaul and amortization of D.R.E.

•

To work out the cost of sales and to reconcile the same with the Design Department for various Customer Financed Projects.

•

To work out the royalty payable to different Licensors as per the License Agreement.

•

The Liaise with AO (DAD) for verification of claims in respect of lobour booking on production and D.R.E. items and other issues like wage arrears, idle hours atc.

•

To prepare Fixed Price Quotation / Price Catalogue for the different items manufactured / repaired / overhauled / serviced / supplied by the division and to get the same approved by the AHQ.

•

To submit quotation in respect of enquiries received from Non-IAF and Civil customers.

Working Capital Management

MATERIAL ACCOUNTS SECTION OBJECTIVES •

To ensure that all the receipts and issues of materials from stores are recorded and accounted for properly.

•

To ensure that all non-moving / slow moving materials are identified as “surplus” by the I.M.M. and a suitable redundancy provision is made against them and are disposed off.

•

To ensure that Bin Card balances are reconciled with the Material Ledger balances in co-ordination with I.M.M. and the balances of material ledger tallies with the General Ledger.

FUNCTIONS •

To send the priced R.D.R. received from the Bills Payable section to E.D.P. for punching in the Batch Mode and thus all the receipts are recorded and control is exercised over all the purchase value-wise.

•

To generate exception list the missing R.D.R. and getting it resolved with Bills Payable section.

•

All the materials drawn excess when returned are credited to stores through Stores Returned voucher.

•

The E.D.P. after processing of all M.R. / Issue Voucher prints the material Issue analysis statements monthly indicated :–

The cost of material drawn against various job Orders, Expense accounts;

–

The cost of material issued to contractors and others;

–

The cost of tools issued to various tool cribs from Main Tool Stores;

Working Capital Management

Based on the above statements accounting for issue of materials is done by debit to Work-in-progress / expense / contractors account and credit to relevant inventory account. •

On the basis of list of materials / transfers reclassification indicating the material code NO. / Quantity and value, necessary Journal entries are passed by debit / credit to relevant inventory account.

•

On the basis of stock verification sheet indicating stock verification no. material code no. , shortages / overages , necessary Journal entries are passed after obtaining clarification from stores department by debit / credit to stock adjustment account and credit / debit to relevant inventory account after taking approval of C.F.A. wherever required for adjustment / write-off of stores.

•

A list of material not moved for over 5 years is given by E.D.P. which is received by stores / concerned programming department materials not required for production or for other purposes are identified and suitable section is taken by I.M.M. for finding their usage in other divisions or is auctioned.

•

Redundancy provisions is made in he books of accounts at the rate of 100% for non moving inventory and for closed projects as special provisions on th basis of list given by E.D.P. Further a normal provision at 1.5% is made on the balance inventory.

Working Capital Management

BOOK KEEPING SECTION OBJECTIVES •

To compile the accounts of the company are prepared as per the requirement of the statute / corporate office guidelines.

•

To assess the performance of the company in the financial terms such as sales, debtors, profit, value of production, value-added etc.

•

To furnish data/ information in respect of Income Tax Assessment done at corporate office.

•

To get the accounts of the company audited by the internal, statutory and government auditors as prescribed by law.

FUNCTIONS •

Journal entries originated by the various sections of the Finance and Account Department are sent to the book keeping section. These entries are serially numbered and punched into the computer and thereby posted to the general ledger.

•

Preparation of the trial Balance, Profit & Loss account and Balance Sheet. Accounts are computerized and are drawn for every quarter as on 30th June, 30th Sept, 31st December, and final accounts as on 31st March of each financial year.

•

Maintenance of Fixed Asset register and depreciation schedule. i. For all capital items purchases, RDR are furnished by the bills payable section like details of assets like building etc capitalized are also furnished by civil works section to the book keeping section. The maintenance of Asset Ledger is computerized in which the details like date of purchase, nature of items, P.O. no. location of asset etc are recorded.

Working Capital Management

ii. Depreciation on capital asset in calculated as per the policy of the company and is reckoned accordingly as an operating expense of the division. •

Inter Divisional Transaction are accounted through control account adjustment advices which are reconciled twice in a year at the clearing house.

•

Physical verification of fixed asset is done as per the guidelines of the corporate office.

•

To provide support to other sections of accounts in their reconciliation and control function.

BUDGET SECTION OBJECTIVES •

To layout a comprehensive plan of action expressed in financial and physical terms and to achieve the targets of the company against the available resources.

•

It is a tool in the hands of the management to establish goals, objectives, and targets of the company and measures the performance against the above targets.

•

To ensure the overall control over expenditure, it is necessary that all expenditures (except that of contingent nature) are authorized.

FUNCTION •

To ensure that capital facility is made available in time to meet the production requirement. The proposal are classified under three categories i.e. plant and machinery, civil works and others.

•

Presenting estimates and expenditure in terms of function, programs activities and project with their financial and physical aspects closely interwoven.

Working Capital Management

•

The targets set are critically reviewed from the point of view of availability of resources and their optimal utilization and to achieve cost reduction.

•

Analysis of variance and to find out the reasons of such variances and take suitable remedial measures.

•

All the important budgets like production, sales, profit and loss, working capital etc after the approval of the Board are broken into the monthly budgets to ensure uniform production from month to month.

TIME OFFICE SECTION OBJECTIVES •

Maintenance of leave records and feeding of attendance records to computer department.

•

Maintenance of attendance record of Casual Mails, Project Engineer and Contract Diploma Technicians.

•

Receipt of approved leave application.

•

To provide data for the vacation leave provisions to be made in the books of Account.

FUNCTIONS •

To issue the leave cards for the Calendar Year to all the employees / officers of the division.

Working Capital Management

•

To maintain the leave ledger PB No. wise for all the personnel. Credit is given to each account according to his entitlement as per the guidelines laid down by the corporate office and the posting is done simultaneously from the attendance reports received from the concerned department.

•

To verify the applications of V.L. encashment and advice accordingly to payroll section.

•

To make calculations for payment of attendance bonus to Group A to Group D employees.

•

To make the calculations for provisions of vacation leave to be accounted for in final accounts.

•

To verify the applications for advanced vacation leave approved through P/A Department and making adjustment thereof in subsequent time period.

•

To maintain night duty roaster of officers deputed on night duty and to ensure that time off claimed in lieu of such duty is not availed beyond 90 days.

•

To verify the time off claimed in the lieu of extra work done/ Sunday / sports duty / scout duty etc.

•

To advice the payroll section for payment of ex-gratia in accident cases.

•

To provide data to payroll section for payment of single wages in lieu of work done on general holidays and double wages in lieu of work done on National holidays.

•

To provide data for gratuity payment in case of final settlement.

•

To provide data to payroll section for deduction of time losson the basis of late arrival report received from security department.

Working Capital Management

PROVIDENT FUND SECTION OBJECTIVES •

To ensure timely collection of Provident fund money recovered from members every month by the employer.

•

To invest the provident fund accumulations improved securities as stipulated by statute.

•

To make payment of loans to members as per the rules/ guidelines/ bye-laws.

•

To prepare Income and Expenditure account and Balance Sheet of the Fund and getting the same duly audited and approved by Trustees.

•

To file the returns of Provident fund to RPFC.

FUNCTIONS •

The PF subscription of members is deducted monthly from salary. The amount so deducted (which is 12% of Basic pay and DA) along with Company’s contribution is collected from the Payroll section before 10th of each month and credited to Fund’s account.

•

Payment of loans (Refundable and Non-Refundable) to members as per the rules of the company, subject to availability of funds.

•

The investment of Provident Find money is made in the approved securities and details of investment is approved by the Board of trustees.

•

To watch timely recovery of interest ad keep watch on securities.

•

Interest is credited to the account of each member at such rate as may be determined by the Board of Trustees, taking into account the income of the Trust during ach Financial Year.

Working Capital Management

•

To maintain Family Pension Account of each member and remittance to RPFC at the stipulated dates and file monthly and yearly returns.

•

To remit the amount of PF deductions for contractual / casual workers by cheque to RPFC and file the return in respect of the same.

•

To distribute the annual statement of Pf to all the members in the format prescribed by RPFC.

•

To make final payment of Pf due to a member on his retirement/resignation or to the nominee in the case of death of a member as per rules.

•

To maintain accounts of Provident Fund Transactions and get audited by the statutory auditors of the company and approved by the Board of Trustees.

•

To file the monthly returns in the prescribed formats and submit to RPFC by 25th of each month in respect of Provident Fund and Family Pension Fund.

•

To forward insurance claims to LIC Bangalore in respect of deceased member.

Working Capital Management

FLOW OF WORK IN FINANCE & ACCOUNTS DEPARTMENT Functioning of the Finance & Account Department is divided into two parts:1. Personal Section 2. Official Section

PERSONAL

TIME SECTION

PAYROLL SECTION

CASH OFFICE

Working Capital Management

In Personal Section there are three departments Time Office, Payroll Section, Cash Office. Functioning of Personal Section starts with the Time Office. This section is responsible for calculating the attendance of employee and maintains records of it. Payroll section is concerned with salary, wages, and incentives correspondence with the Time Office. In Cash Office LTC reimbursement, encashment of leaves, medical payment is done by cash and cheque. During the service period certain amount is deducted from the salary of the employee for the future security of employee known as Provident Fund and Pension Fund.

OFFICIAL FINANCE & BUDGET (File Approval)

IMM (Commercial Deptt.)

PURCHASE DEPTT. (Purchase Order)

BILLS PAYABLE

Working Capital Management

(Payment)

COSTING & MATERIAL A/C

(Accounting Process)

BOOK KEEPING (Book Entry)

BILLS RECEIVABLE (Sales)

In Official section there are eight departments. First of all in Budget Department budget is made for different Projects according to the order received. After that in Finance Section scrutinizing function is performed this has a major role to play in capital and revenue expenditure decision in regard to purchase of material / stores / tools and other services. Then IMM gives the final approval and issues the purchase order. On the basis of this purchase order Bills Payment department do the payment to the suppliers of raw material, machinery and tools etc. when the raw material is transformed into the finished goods then the Costing & Material account do the costing of it to find the final cost of the finished product. This data is stored in the Book Keeping Section to know the financial position of the organization. When these finished products are sold to the customers Bills Receivable section receive the amount from customers. At last on the basis of outflows and inflows financial position of the organization, profit and Loss of the organization is counted.

Working Capital Management

Working Capital Management

3.1 INTRODUCTION Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM). Working capital, also known as net working capital, is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming Working Capital Management

operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash. 3.2NATURE AND TYPES OF WORKING CAPITAL The term working capital refers to current assets which may be defined as (i) those which are convertible into cash or equivalents within a period of one year and (ii) those which are required to meet day to day operations. The fixed asset as well as the current assets, both requires investment of funds. The very basics of fixed assets decision process (i.e. the capital budgeting) & the working capital decision processes are different. The fixed assets involve long period perspective & therefore, the concept of time value of money is applied in order to discount the future cash flows: whereas in working capital considered. The fixed assets affect the long-term profitability of the firm while the current assets affect the short-term liquidity position. So in the working capital management there are some decisions to be taken, as 1. What should be the total investments in working capital of the firm? 2. What should be the level of individual current assets? 3. What should be the relative proportion of different sources to finance the working capital requirements? Thus, the working capital management may be defined as the management of firm’s sources and uses of working capital in order to maximize the wealth of the shareholders. The proper working capital requires both the medium term planning and also the immediate adaptations to changes arising due to fluctuations in operating levels of the firm. The term working capital may be used in two different ways,

Working Capital Management

∗ 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. 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

Working Capital Management

assets. 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. 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 good 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.

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 Working Capital Management

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. Before analyzing working capital management, one needs to know what working capital is. Working capital is simply the difference between current assets and current liabilities. For example, if current assets = $1,000 and if current liabilities = $400, then working capital is equal to $600. Working capital is an indicator of a firm's ability to take advantage of opportunities.

TYPES OF WORKING CAPITAL Working capital Can be divided into two categories on the basis of time: -

Working Capital Management

PERMANENT WORKING CAPITAL:This refers to that minimum amount of investment in all current assets which is required at all times to carry out minimum level of business activities. It represents the current assets required on a continuing basis over the entire year. Permanent working capital is permanently needed for the business and therefore it should be financed out of long-term funds. This is the reason why the current ratio has to be substantially more than ‘1’ TEMPORARY OR VARIABLE WORKING CAPITAL:The amount of such working capital keeps on fluctuating from time to time on the basis of business activities. In other words, it represents additional current assets required at different times during the operating year. Amount of working Temporary Capital (Rs.) permanent Time (D#2 Source: Dr. S N Maheshwari, Financial Management.)

Temporary

Working Capital Management

Amount of working

permanent

Capital (Rs.) Time (D#3

Source: Dr. S N Maheshwari, Financial Management.)

3.3 MANAGEMENT OF WORKING CAPITAL Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable. ∗ Cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. ∗ Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow; see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic production quantity ∗ Debtors’ management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances. ∗ Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring". 3.3.1 ESTIMATING WORKING CAPITAL REQUIREMENTS

Working Capital Management

In order to determine the amount of working capital needed by a firm, a number of factors viz. production policies, nature of business, length of manufacturing process, rapidity of turnover, seasonal fluctuations, etc. are to be considered by the finance manager. 3.3.2 TECHNIQUES FOR ASSESSMENT OF WORKING CAPITAL REQUIREMENTS ∗ ESTIMATION OF COMPONENTS OF WORKING CAPITAL METHOD Since working capital is the excess of current assets over current liabilities, an assessment of the working capital requirements can be made by estimating the amounts of different constituents of working capital e.g., inventories, accounts receivable, cash, accounts payable, etc. ∗

PERCENT OF SALES APPROACH

This is a traditional and simple method of estimating working capital requirements. According to this method, on the basis of past experience between sales and working capital requirements, a ratio can be determined for estimating the working capital requirements in future. ∗ WORKING CAPITAL CYCLE Cash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit

Working Capital Management

to customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans.

Each component of working capital (namely inventory, receivables and payables) has two dimensions ........TIME ......... and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales. Symbolically the duration of the working capital cycle can be put as follows: O=R+W+F+D–C Where, O=Duration of operating cycle;

Working Capital Management

R=Raw materials and stores storage period; W=Work-in-progress period; F=Finished stock storage period; D=Debtors collection period; C=Creditors payment period. Each of the components of the operating cycle can be calculated as follows:Average stock of raw materials and stores R=

Average raw materials and stores consumptions per day Average work-in-progress inventory

W=

Average cost of production per day Average book debts

D=

Average credit sales per day Average trade creditors

C=

Average credit purchases per day

After computing the period of one operating cycle, the total number of operating cycles that can be computed during a year can be computed by dividing 365 days with number of operating days in a cycle. The total expenditure in the year when year when divided by the number of operating

Working Capital Management

cycles in a year will give the average amount of the working capital requirement. 3.4 REASONS FOR ADEQUATE WORKING CAPITAL A firm must have adequate working capital, i.e., as much as needed by the firm. It should neither have excessive nor inadequate. Both situations are dangerous. Excessive working capital means the firm has idle funds, which earn no profit for the firm. Inadequate working capital means the firm does not have sufficient funds for running its operations, which ultimately results in production interruptions, and lowering down the profitability. It will be interesting to understand the relation between working capital, risk and return. In a manufacturing concern, it is generally accepted that higher levels of working capital decrease the risk and decrease the profitability too. While lower levels of working capital increase the risk but have the potentiality of increasing the profitability also. This principle is based on the following assumptions: ∗ There is direct relationship between risk and profitability --higher is the risk, higher is the profitability, while lower is the risk, lower is the profitability. ∗ Current assets are less profitable than fixed assets. ∗ Short-term funds are less expensive than long-term funds. 3.5 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. Working capital is needed for the following purpose: ∗ For the purchase of raw materials, components and spares ∗ To pay wages and salaries Working Capital Management

∗ To inure day-to-day expenses and overhead costs such as fuel power and office expenses etc. ∗ To meet the selling costs as packing, advertising etc. ∗ To provide credit facilities to the customers ∗ To maintain the inventories of raw materials, work-in-progress, spares and finished stock. A finance manager should therefore, chalk out appropriate working capital management policies in respect of each of the components of working capital so as to ensure higher profitability, proper liquidity and sound structural health of the organization. In order to achieve this objective the finance manager has to perform basically following two functions: ∗ Estimating the amount of working capital. ∗ Sources from which these funds have to be raised. 3.6 SOURCES OF WORKING CAPITAL The working capital requirements should be met both from short-term as well long-term sources of funds. It will be appropriate to meet at least 2/3rd (if not the whole) of the permanent working capital requirements from long-term sources and only for the period needed. The financing of working capital through short-term sources of funds has the benefits of lower cost and establishing close relationship with the banks. Financing of working capital from long-term resources provides the following benefits: ∗ ∗

It reduces risk, since the need to repay loans at frequent intervals is eliminated. It increases liquidity since the firm has not to worry about the payment of these funds in the near future.

Working Capital Management

RESEARCH METHODOLOGY The purpose of methodology is to describe the process involved is the research work. This includes the overall research design, the data collection method sampling procedure, and the field survey method & analysis procedures. Meaning of Research:According to Redman & Mory: “Research as a systematized effort to gains new knowledge”. PLACE OF THE RESERCH:The research was conducted in Finance departments in HAL Accessories Division Lucknow. RESEARCH DESIGN:Research Design is a conceptual structure with research conducted. There is no unique method, which can entirely eliminate the elements of under taking. But Research methodology more than any other procedure can minimize

Working Capital Management

the degree of uncertainty, Thus it reduces the profit ability of making a wrong choice amongst alternative causes of actions. This is particularly significant in the light of increasing competitions & growing size, which makes the task of choosing the best course of action difficult for any business enterprise. It is imperative that any type of organization in the present information coupled with tools of analysis for making sound decisions which involved minimum risk. The present study is based upon primary and secondary data.

The

sources of primary data are the official records and discussion with the officers in the finance dept. of the organization. The secondary sources of the data include various publications of the organization and annual reports and audited financial statements. The data, which are presented in this report, have been taken from secondary sources. The data of Hindustan Aeronautics Limited, Accessories Division, Lucknow, for the year 2008-09 and 2009-10 used in these report have been taken from financial statements i.e., the Profit & Loss Account, Balance Sheet for the relevant years.

TECHNIQUES OF DATA COLLECTION Working capital management policy has a great effect on firm’s profitability, liquidity and its structural health. For analyzing the performance of working capital management, simple mathematical tools like Percentages, Averages, and Ratios have been used in

Working Capital Management

this project work. To know the financial performances of this division, calculation of Operation Cycle, Earning before Interest & Taxes have been calculated. ∗

Primary data: Was collected through the discussion with the concerned executives.

∗

Secondary data: Was collected through the official records, various publications of the organization, annual report and audited financial statements.

DATA ANALYSIS AND INTERPRETETION TABLE- 1 CALCULATION OF PERCENTAGE OF CASH AND BANK BALANCE TO THE CURRENT ASSETS (IN LAKHS) PARTICULAR A. Cash and bank balance (Rs) B. Current Assets (Rs)

Working Capital Management

2008-2009

2009-2010

19.98

11.95

152518.97

260862.93

C. % of Cash and Bank

0.013

0.004

Balance to Current Assets (A/B*100)

CASH AND BANK BALANCE TO THE CURRENT ASSETS

INTERPRETATION By analyzing the statements, it is observed that 0.013, 0.004 of current assets were held as cash in hand and cash at bank during the years 2008-2009 2009-2010 respectively. The cash management in HAL is centralized 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: ∗

∗

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 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

Working Capital Management

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 to 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

2008-09

2009-10

A. Account receivable

5883.47

14655.86

152518.97

260862.93

3.85

5.61

B. Current assets C.% of accounts receivable to current assets (A/B*100)

ACCOUNTS RECEIVABLE TO THE CURRENT ASSETS

INTERPRETATION

Working Capital Management

The above comparison shares that: The investment in Accounts receivables is more during 2009-2010. By increasing more credit the sales have increased proportion. If more & more block of working capital. 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. ∗ It had a sudden decrease in 2008-09 due to a sudden increase in current assets. ∗ The percentages of accounts receivable to current assets has been 3.85% and 5.61% respectively. ∗

TABLE – 3 CALCULATION OF AVERAGE COLLECTION PERIOD (IN LAKHS) PARTICULAR

2008-09

2009-10

A. Debtors

5883.47

14655.86

140816.78

140991.83

16 days

38 days

B. Sales C. Average collection period (A/B*360 days)

AVERAGE COLLECTION PERIOD INTERPRETATION From the above table we can analyze that: ∗

The Average Collection Period (ACP) for the year 2008-09 & 2009-10 are 16 days and 38 days.

Working Capital Management

∗ 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 Lucknow 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 coordination 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

2008-09

2009-10

A. Inventories

94998.36

153860.31

Working Capital Management

B. Current Assets C. Percentage of Inventory to Current Assets

152518.97

260862.93

62.28

58.98

(A/B*100)

PERCENTAGE OF INVENTORY TO CURRENT ASSETS

INTERPRETATION The holding of inventory is 13-62% of current assets. This percentage has been substantially increased from 2008-09 onwards but decreased in 200910. 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, Lucknow 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 main cause for the accumulation of inventory is to maintain sufficient space/raw materials to meet the emergency like war to safeguard the system & depositing/utilizing the nonmoving/slow moving items. ∗ The percentages of inventory to the current assets are 62.28 and 58.98 in the year 2008-09 and 2009-10 respectively. ∗ In 2008-09 the percentages of 62.28% of current assets were occupied by inventory where as the percentage has gone down. ∗ The present system of procurement by HAL in just-in –time & no enterprise is willing to block its funds in terms of inventory as it is a sleeping investment. ∗ At present the inventory held is huge as compared to the standard norms. INVENTORY ANALYSIS & SELECTIVE CONTROLS:

Working Capital Management

If inventory analysis HAL, Lucknow 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, LUCKNOW DIVISION ITEM OF VALUE

% OF ITEMS

% OF AGE OF USAGE

A

05-10

70-80

B

15-20

15-20

C

70-80

05-10

TABLE – 5

Working Capital Management

CALCULATION OF RAW MATERIAL CONVERSION PERIOD (IN LAKHS) PARTICULARS

2008-09

2009-10

A. Closing Raw Material

46818.85

77615.98

64227

123733.45

263 days

226 days

B. Raw material consumed C. Raw material conversion period (A/B*360 Days)

RAW MATERIAL CONVERSION PERIOD

INTERPRETATION: There is significance increases in raw material conversion period. The reason is most of the raw materials are produced from Russia. They are ordered in bulk and hence at the closing of the period stock of raw material more. As bulk orders will reduce the most of procuring division orders large amounts at a time. Increase in raw materials does not affect the raw material conversion period seriously. Raw material conversion period is263 days in 2008-09, 226 days in 200910. ∗ The raw material conversion period is very high during 2008-09 as compared to 2009-10. ∗ 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 2008-09 is 263 days. This was so high because of manufacturing of a new product the Engine SU – 30. ∗

Working Capital Management

TABLE – 6 CALCULATION OF WORK IN PROGRESS CONVERSION PERIOD (IN LAKHS) PARTICULARS A. Closing WIP (Rs.) B. Cost of production (Rs.) C. WIP Conversion period (A/B*360)

2008-09 35794.14 145324.85 89 days

2009-10 72537.85 177735.54 147 days

WORK IN PROGRESS CONVERSION PERIOD NOTE: Cost of production = Sales +Closing balance of WIP–Opening balance of WIP +Closing balance of SIT–Opening balance of SIT. Where, WIP - Work in Progress SIT - Stock in Trade INTERPRETATION WIP conversion period are 89 days and 147 days in 2008-09 and 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 2008-09 as compared to2009-10. ∗ Further to improve , it has to reduce the work in progress conversion period though aviation industry requires much time in work in progress, still constant vigil over reducing work in progress is appreciable. ∗ Due to manufacturing of the new product SU – 30 the work in progress conversion has consumed more time in the 2009-10 i.e.147 days as compared to 2008-09. TABLE – 7 ∗

Working Capital Management

CALCULATION OF FINISHED GOODS CONVERSION PERIOD (IN LAKHS) PARTICULARS A. Closing Finished Goods. B. Cost of Goods Sold. C. Finished Goods Conversion period (A/B*360 Days)

2008-09

2009-10

108719

116322.85

127809

128945.87

307 days

325days

FINISHED GOODS CONVERSION PERIOD NOTE: Cost of Goods Sold = Sales – Profit INTERPRETATION: Finished goods conversion period is 307 days and 325 days in 2008-09 and 2009-10 respectively. ∗ The time period consumed by the company to the convert the finished in goods in to sales is very long. ∗

TABLE – 8 CALCULATION PAYABLE DEFERRAL PERIOD (IN LAKHS)

Working Capital Management

PARTICULARS A. Creditors

2008-09 23474.48

2009-10

25846.90

B. Credit Purchase

132207.91

207532.20

C. Payable Deferral period (A/B*360 Days)

64 days

45 days

PAYABLE DEFERRAL PERIOD

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 2008-09 and 2009-10 is 64 days and 45 days respectively. ∗ 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 45 days, which means that creditors were paid within a very short span of time as compare to 2008-09. ∗ 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 – 9 Working Capital Management

SUMMARY OF OPERATING CYCLE CALCULATION (IN LAKHS) PARTICULARS

2008-09

2009-10

263 days

226 days

89 days

147 days

307 days

325 days

659 days

698 days

B. Debtors Conversion Period

16 days

38 days

C. Gross operating Cycle (A+B)

675 days

736 days

D. Payment Deferral Period

64 days

45 days

E. Net Operating Cycle (CD)

611 days

691 days

A. Inventory conversion period i. Raw Material Conversion period ii. WIP Conversion Period iii. Finished goods Conversion period

Total

INTERPRETATION ∗ During last two years the Gross operating cycle varies from 675 days to 736 days. Working Capital Management

∗ There is no specific rule or formula to know the optimum period of operating cycle. ∗ Usually the period is of one year. ∗ It depends upon the time gap between two consecutive procurements. ∗ Due to the manufacturing of the new product the Engine SU – 30, the gross operating cycle in the year 2008-09 onwards it is going higher. TABLE – 10 CALCULATION OF AMOUNT OF WORKING CAPITAL (IN LAKHS) PARTICULARS A. Current Assets (Gross)

2008-09 152518.97

2009-10 260862.93

B. Fixed Assets

26612.87

36578.15

C. Total Assets (A+B)

179131.84

297441.08

D. Current Liabilities

405550.85

433890.42

E. Sales

140816.78

140991.83

F. EBIT

12630.29

12045.96

G. Rate of return (F/C*100)

7.05

4.04

H. Net working capital (A-D)

-253031.88

-173027.49

I. Current Ratio (A/D)

0.37

0.60

(Less :Depreciation)

WORKING CAPITAL

INTERPRETATION Working Capital Management

From the above table it is observed that: There was gradually increase in current assets from 2008-09 to 2009-10. ∗ The net working capital, shows the liquidity position of the company, the position is negative in all the years. ∗ 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 2008-09 and 200910. The profitability position had a gradual decrease from 12630.29 lakhs to 12045.96 lakhs. ∗

Working Capital Management

Th e sal es of H A L A cc es so rie FINDINGS s Di vi si on , Lu ck no w ar e in cr ea si ng ye ar by SUGGESTIONS ye ar, w ∗ Organization must take necessary steps to raise the interest on loans hi and advances in order to increase the revenue sources of HAL. ch ∗ To maintain a good current ratio, it must try to increase the amount is of current assets. a ∗ As the analysis reveals, the division is facing a problem of liquidity po due to the reason that the payment to be received from the debtors is sit not realized in the time. iv ∗ That is the collection period is more than the required. e ∗ So, the HAL Accessories Division, Lucknow has to be strict to its in debtors by reducing the credit period allowed, so as to improve its di efficiency in managing work. ca tio n Working Capital Management of gr o wt h

LIMITATION The study of the solely depends upon reliability of the data and information collected from the secondary sources, it is not possible to collect information on all activities taken over the years, thus the study incorporates on limitation that are inherent in the available publish information. ∗ As usual Most of the information is collected from the secondary sources.

Working Capital Management

There is a gap between the theoretical analysis & its practical and real life application. The data available is limited to the Accessories Division, Lucknow. The overall data of HAL is not available. ∗ Even if all the factors are taken in consideration, factors like motivation are not considered. ∗ As HAL comes under Defense sector of central govt. there are some limitations upon getting the data. ∗ The analysis is purely mathematical in nature and ignores management C factors like motivation. O ∗ The overall performance is taken into consideration without taking into N account the individual values. C ∗ The study is purely based on the data in the form of annual reports and appraisal reports. ∗

L U S I O N C a s h i s t h e

l i fWorking Capital Management e b l

BIBILOGRAPHY REFERENCE BOOKS MANAGEMENT ACCOUNTING – S.P.JAIN & K.L.NARANG FINANCIAL MANAGEMENT- R.P.RUSTAGI FINANCIAL MANAGEMENT - DR. S N MAHESHWARI

REPORTS BALANCE SHEET OF HAL PROFIT AND LOSS ACCOUNT OF HAL ANNUAL BOOK REPORT OF HAL

WEBSITES www.google.com www.hal-india.com

Working Capital Management

Working Capital Management

Working Capital Management

HINDUSTAN AERONAUTICS LIMITED PROFIT AND LOSS ACCOUNT For the year ended 31st March 2009 INCOME Gross Sales Less Excise Duty Net Sales Transfer to inter divisional units Changes in WIP/SIT/Scrap Other Income Chances received on iter divisional transfers

DIVISION:

(Rs. in Lakhs) 140991.83

140991.83 754.03 36766.73 4748.82 75.4

Transfer from R&D reserves 183336.81 EXPENDITURE Consumption of Raw Material, Components, etc Amortization &Other charges Salaries and Wages Other Expenses Charges paid on its divisional Transfer Interest Depreciation Provisions Inter services/common services Transfer of IDT Deduct :Expenditure relating to Capital & Other Accounts Net Expenditure Profit for the Year Less : Provision For Taxation (Net) Provision For Fringe Benefit Tax

Working Capital Management

123733.45 15214.51 21104.93 8412.15 3.3 1.41 3659.52 9218.99 1585.9 182934.16 11643.31 171290.85 12045.96

Provision For Deferred Taxation (Net) Profit After Tax Profit Available For Appropriations APPROPRIATIONS Interim Dividend Proposed Final Dividend Debenture redemption reserve General Reserve Balance carried to balance sheet Total of Appropriations

HINDUSTAN AERONAUTICS LIMITED BALANCE SHEET As at 31st March 2009 SOURCES OF FUNDS Shareholders' Funds Head office control account Reserves and Surplus

12045.96

12045.96 DIVISION:KORAPU T (Rs in Lakhs) 31st March 2009

4712.43 12045.96 16758.39

Loan Funds Secured Loans Unsecured Loans

259.75 0 259.75 0.44

Deferred Liabilities (Net) Deferred Tax Liabilities (Net)

17018.58 APPLICATION OF FUNDS Fixed Assets Gross block Less : Depreciation Less :impairment loss Net Block Capital Work-in-progress

60053.35 23475.2 36578.15 7522.95 44101.1

Working Capital Management

Special Tools and Equipments Investments Deffered tax assets CURRENT ASSETS, LOANS & ADVANCES Inventories Sundry debtors Cash & Bank balance Loans & advances

113380.82

153860.31 14655.86 11.95 92334.81 260862.93

Less: current liabilities & provisions Liabilities Provisions Net current assets INTANGIBLE ASSETS Gross carrying amount Less: cumulative amortization & impairment loss NET CARRYING AMOUNT

Working Capital Management

411352.28 22538.14 433890.42 -173027.49 44467.53 11903.38 32564.15 17018.58

DIVISION:LUCKNO W BALANCE SHEET As at 31st March 2008 SOURCES OF FUNDS Shareholders' Funds Head office control account Reserves and Surplus

(Rs in Lakhs) 31st March 2008

-89880.19 12630.29 -77249.9

Loan Funds Secured Loans

468.56

Unsecured Loans 468.56 0.74

Deferred Liabilities (Net) Deferred Tax Liabilities (Net)

-76780.6 APPLICATION OF FUNDS Fixed Assets Gross block Less : Depreciation Less :impairment loss Net Block

46430.09 19817.22 26612.87 9145.97

Capital Work-in-progress Special Tools and Equipments Investments Deffered tax assets Current Assets, Loans & Advances Inventories Sundry debtors Cash & Bank balance Loans & advances

35758.84 110774.82

94998.36 5883.47 19.98 51617.16 152518.97

Less: current liabilities & provisions Liabilities Provisions

Working Capital Management

387792.34 17758.51

Working Capital Management

DIVISION:LUCKNO W HINDUSTAN AERONAUTICS LIMITED PROFIT AND LOSS ACCOUNT For the year ended 31st March 2008 INCOME Gross Sales Less Excise Duty Net Sales Transfer to inter divisional units Changes in WIP/SIT/Scrap Other Income Chances received on iter divisional transfers

(Rs. in Lakhs) 140816.78 140816.78 312.82 -9121.13 2406.65 31.28

Transfer from R&D reserves 134446.4 EXPENDITURE Consumption of Raw Material, Components, etc Amortization &Other charges Salaries and Wages Other Expenses Charges paid on its divisional Transfer Interest Depreciation Provisions Inter services/common services Transfer of IDT Deduct :Expenditure relating to Capital & Other Accounts Net Expenditure Profit for the Year Less : Provision For Taxation (Net) Provision For Fringe Benefit Tax Provision For Deferred Taxation (Net) Profit After Tax

Working Capital Management

64227.08 11164.18 7697.32 8412.15 2.04 4.06 2369.55 1116.81 16110.35 128246.37 6430.26 121816.11 12630.29

12630.29