Working Capital
Working Capital
Working Capital
S.No. Topic
1. Chapter – 1 INTRODUCTION
4. Chapter – 4 OBJECTIVE
5. Chapter – 5 METHODOLOGY
6. Chapter – 6 RESULTS
7. Chapter – 7 RECOMMENDATIONS
9. Chapter -9 BIBLIOGRAPHY
Chapter – 1
INTRODUCTION
WORKING CAPITAL - OVERALL VIEW
Working Capital management is the management of assets that are current in nature.
Current assets, by accounting definition are the assets normally converted in to cash in
a period of one year. Hence working capital management can be considered as the
management of cash, market securities receivable, inventories and current liabilities.
In fact, the management of current assets is similar to that of fixed assets the sense
that is both in cases the firm analyses their effect on its profitability and risk factors,
H differ on three major aspects.
1. In managing fixed assets, time is an important factor discounting and
compounding aspects of time play an important role in capital budgeting and a
minor part in the management of current assets.
2. The large holdings of current assets, especially cash, may strengthen the firm’s
liquidity position, but is bound to reduce profitability of the firm as ideal car
yield nothing.
3. The level of fixed assets as well as current assets depends upon the expected
sales, but it is only current assets that are ad the fluctuation in the short run u a
business.
To understand working capital better we should have basic knowledge about the
various aspects of working capital. To start with, there are two concepts of working
capital:
Gross Working Capital
Net working Capital
Gross Working Capital: Gross working capital, which is also simply known as
working capital, refers to the firm’s investment in current assets: Another aspect of
gross working capital points out the need of arranging funds to finance the current
assets. The gross working capital concept focuses attention on two aspects of current
assets management, firstly optimum investment in current assets and secondly in
financing the current assets. These two aspects will help in remaining away from the
two danger points of excessive or inadequate investment in current assets. Whenever
a need of working capital funds arises due to increase in level of business activity or
for any other reason the arrangement should be made quickly, and similarly if some
surpluses are available, they should not be allowed to lie ideal but should be put to
some effective use.
Net Working Capital: The term net working capital refers to the difference between
the current assets and current liabilities. Net working capital can be positive as well as
negative. Positive working capital refers to the situation where current assets exceed
current liabilities and negative working capital refers to the situation where current
liabilities exceeds current assets. The net working capital helps in comparing the
liquidity of the same firm over time. For purposes of the working capital
management, therefore Working Capital can be said to measure the liquidity of the
firm. In other words, the goal of working capital management is to manage the current
assets and liabilities in such a way that a acceptable level of net working capital is
maintained.
Importance of working capital management:
Management of working capital is very much important for the success of the
business. It has been emphasized that a business should maintain sound working
capital position and also that there should not be an excessive level of investment in
the working capital components. As pointed out by Ralph Kennedy and Stewart MC
muller, “the inadequacy or mis-management of working capital is one of a few
leading causes of business failure.
As of March 31, 2012, the Company has cash and cash equivalents of Rs.
20,300 Mn and short term investments of Rs. 18,132 Mn. During the year
ended March 31, 2012, the Company generated operating free cash flow of
Rs. 101,319 Mn. The net debt - EBITDA ratio as on March 31, 2012 was at
and the net debt - equity ratio was at 1.29. The net debt in USD
terms decreased from USD 13,427 Mn as on March 31, 2011 to USD 12,714
Mn as on March 31, 2012.
Particulars Amount
Assets 31 March 2013 31 March 2012
Gross Block 71911.80 63885.40
(-) Acc. Depreciation 28729.20 23444.60
Net Block 43182.60 40440.80
Capital Work in Progress 1030.80 4466.50
Investments 28199.10 12337.80
Sundry Debtors 2246.80 2134.50
Cash and Bank 362.70 481.20
Loans and Advances 12859.10 20430.80
Total Current Assets 15470.70 23078.60
COMPANY PROFILE
Bharti Airtel Limited
New Delhi June 25, 2011 : Bharti Airtel, India’s leading private telecom services
provider would observe a 'Silent Period' from the close of business on June 30, 2011
(Wednesday), till the declaration of results for the first quarter ending June 30, 2011,
as a commitment towards highest level of corporate governance.
Details about the quarterly and annual results announcement and the earnings call will
be made available on the website.
The practice of silent period does not refrain the company and its representatives from
any press conference & public dissemination of information. The observation of silent
period is only a practice and hence does not imply any legal obligation for the
company under any circumstances.
About Bharti Airtel Limited: Bharti Airtel Limited, a group company of Bharti
Enterprises, is among Asia’s leading integrated telecom services providers with
operations in India, Sri Lanka and Bangladesh. The company has an aggregate of
around 138 million customers across its operations. Bharti Airtel has been ranked
among the six best performing technology companies in the world by Business Week.
Bharti Airtel is structured as four strategic business units - Mobile, Telemedia,
Enterprise and Digital TV. The mobile business offers services in India, Sri Lanka
and Bangladesh. The Telemedia business provides broadband, IPTV and telephone
services in 89 Indian cities. The Enterprise business provides end-to-end telecom
solutions to corporate customers and national and international long distance services
to carriers. The Digital TV business provides DTH Airtel’s national high-speed optic
fiber network currently spans over 126,357 Rkms across India. Airtel's international
network infrastructure includes ownership of the i2i submarine cable system and
consortium ownership in five global undersea cable systems, SEA-ME-WE 4, EIG, I-
ME-WE, AAG and Unity. For more information, visit www.airtel.in
Bharti Airtel
Airtel comes to you from Bharti Airtel Limited, one of Asia’s leading integrated
telecom services providers with operations in 19 countries across Asia and Africa.
Bharti Airtel since its inception, has been at the forefront of technology and has
pioneered several innovations in the telecom sector.
The company is structured into four strategic business units - Mobile, Telemedia,
Enterprise and Digital TV. The mobile business offers services in India, Sri Lanka
and Bangladesh. The Telemedia business provides broadband, IPTV and telephone
services in 89 Indian cities. The Digital TV business provides Direct-to-Home TV
services across India. The Enterprise business provides end-to-end telecom solutions
to corporate customers and national and international long distance services to telcos.
Vision and Values
Our vision
By 2020 we will build India's finest conglomerate by:
Airtel Prepaid
Strong Network Coverage
Other Services
Voice Mail
SMS (Short Messaging Service)
Subscription Alerts
Airtel Live!
Airtel Live! WAP Services: Airtel Live! Voice Services:
Airtel Live! SIM Services.
Airtel Live! SMS Services
Hello Tunes
121@airtelindia.com.
Airtel Postpaid
Easy Billing
Easy Payment Options. Anytime Anywhere
Long Distance Calling Facility
Widest Roaming - National and International
GPRS - Roaming
Say it. In more than just words, with Services from Airtel
Conference call
Missed call alert
Subscription Alerts
Airtel Live!
GPRS (General Packet Radio Services)
Get the EDGE
Business Divisions
Bharti Airtel offers GSM mobile services in all the 23-telecom circles of India and is
the largest mobile service provider in the country, based on the number of customers.
The group focuses on delivering telecommunications services as an integrated
offering including mobile, broadband & telephone, national and international long
distance and data connectivity services to corporate, small and medium scale
enterprises.
The group offers high speed broadband internet with a best in class network. With
Landline services in 94 cities we help you stay in touch with your friends & family
and the world.
The Company compliments its mobile and broadband & telephone services with
national and international long distance services. It has over 35,016 route kilometers
of optic fibre on its national long distance network. For international connectivity to
east, it has a submarine cable landing station at.
Bharti Airtel Limited
(A Bharti Enterprise)
Bharti Airtel is one of India's leading private sector providers of telecommunications
services based on an aggregate of 42,685,530 customers as on May 31, 2009,
consisting of 40,743,725 GSM mobile and 1,941,805 broadband & telephone
customers.
The businesses at Bharti Airtel have been structured into three individual strategic
business units (SBU’s) - mobile services, broadband & telephone services (B&T) &
enterprise services. The mobile services group provides GSM mobile services across
India in 23 telecom circles, while the B&T business group provides broadband &
telephone services in 94 cities. The enterprise services group has two sub-units -
carriers (long distance services) and services to corporates. All these services are
provided under the Airtel brand.
Company shares are listed on The Stock Exchange, Mumbai (BSE) and The National
Stock Exchange of India Limited (NSE).
Partners
The company has a strategic alliance with SingTel. The investment made by SingTel
is one of the largest investments made in the world outside Singapore, in the
company.
The company’s mobile network equipment partners include Ericsson and Nokia. In
the case of the broadband and telephone services and enterprise services (carriers),
equipment suppliers include Siemens, Nortel, Corning, among others. The Company
also has an information technology alliance with IBM for its group-wide information
technology requirements and with Nortel for call center technology requirements. The
call center operations for the mobile services have been outsourced to IBM Daksh,
Hinduja TMT, Teletech & Mphasis.
Chapter – 3
LITERATURE REVIEW
CIRCULATION SYSTEM OF WORKING CAPITAL
In the beginning the funds are obtained from the issue of shares, often supplemented
by long term borrowings. Much of these collected funds are used in purchasing fixed
assets and remaining funds are used for day to day operation as pay for raw material,
wages overhead expenses. After this finished goods are ready for sale and by selling
the finished goods either account receivable are created and cash is received. In this
process profit is earned. This account of profit is used for paying taxes, dividend and
the balance is ploughed in the business.
Working capital is considered to efficiently circulate when it turns over quickly. As
circulation increases, the investment in current assets will decrease. Current assets
turnover ratio speaks about the efficiency of Airtel in the utilization of current assets.
Fast turnover current assets results in a better rate on investment.
Table showing Current assets turnover ratio
1
0.74
0.5 Ratio (in times)
0
2011‐12 2012‐13
BHARTI AIRTEL SERVICES LTD.
In the year 2012-13 cash from operation is more from previous years. The
company should take appropriate steps in order to continue the trend.
In the 2012-13 company has major spending in terms of spending in form of
Acquisition/subscription/investment in subsidiaries.
Out of total cash flow from operating activites there has been increase in trade and
other payables.
Operating cycle
A direct result of our interest in both liquidity and activity ratios in the concept of a
firm’s operating cycle. A firm’s operating cycle is the length of time from the
commitment of cash for purchases until the collection of receivables resulting from
the sale of goods or services. It is as if we start a stop watch when the purchase raw
material and stop the watch only when we receive cash after the finished goods have
been sold. The time appearing on our watch (usually in days) is the firm’s operating
cycle.
The need for working capital (gross) or current assets can not be over emphasized. As
the objective of financial decision making is to maximize the shareholder’s wealth, it
is necessary to generate sufficient profits. The extent to which profits can be earned
will naturally depend upon the magnitude of the sales, among other things. A
successful sales program is, in other words, necessary for earning profits by any
business enterprise. However, sales do not convert into cash instantly; there is
invariably a time lag between the sale of goods and the receipt of cash. There is,
therefore, a need for working capital in the form of current assets to deal with the
problem arising out of the lack of immediate realisation of cash against goods sold.
Therefore, sufficient working capital is necessary to sustain sales activity.
Technically, this is referred to as the operating or cash-cycle. The operating cycle can
be said to be at the heart of the need for working capital. The continuing flow from
cash to suppliers, to inventory, to accounts receivable and back into cash. The cycle
refers to the length of time necessary to complete the following cycle of events:
1) Conversion of cash into inventory.
2) Conversion of raw materials into work in progress
3) Conversion of work in progress into finished goods
4) Conversion of finished goods into account receivable
5) Conversion of account receivable into cash
“Make no little plans, they have no magic t stir man’s blood.. Make big plans,
aim high in hope and work”
The operating cycle thus, creates the need for current assets (working capital). To
explain this continuing need of current assets, a distinction should be drawn between
permanent and temporary working capital.
The need for current assets arises, as already observed, because of the cash cycle.
Business activity does not come to an end after the realization of cash from the
customer. For a company, the process is continuous and, hence, the need for the
regular supply of working capital. However, the magnitude of working capital
required will not be constant, but will fluctuate. To carry on business a certain
minimum level of working capital is necessary on a continuous and uninterrupted
basis. For all practical purposes, this requirement will have to be met permanently as
with other fixed assets. This requirement is referred to as permanent or fixed working
capital.
Any amount over and above the permanent level of working capital is temporary,
fluctuating or variable working capital. This portion of the required working capital is
needed to meet fluctuations in demand consequent upon changes in production
and sales as a result of seasonal changes. ‘Obstacles are those frightful things you
see when you take your eyes off the goal.”
Both kinds of working capital are necessary to facilitate the sales process through the
operating cycle. Temporary working capital is created to meet liquidity requirements
that are of a purely transient nature.
The sources of finance for working capital may fall into four categories, namely:
1) BANK FINANCE
2) COMMERCIAL PAPER
3) FIXED DEPOSITS
4) INTER CORPORATE DEPOSITS.
The relative importance of these sources from country and from time to time depending on the
environment. In India, the primary sources for financing working capital are trade credit and short
term bank credit. According to an estimate, both these sources together finance about three fourth
of the working capital requirements of the industry:
Chapter-4
OBJECTIVES
The main objective of the study is to have an insight into the current practices
of the company with regards to management of various elements of working
capital.
Apart from the above more specifically the present study is conducted to find
out the following.
To what extent the management of working capital in Airtel, which is one of
the leading concern in the fastener industry contribute to the overall objective
of the firm i.e. Wealth examination.
To study management policies regarding inventory management, whether the
management have applied various inventory control techniques for proper
utilization of resources.
To analysis the nature, effectiveness and style of functioning of various
process of payments.
To make aware the different methods of payments that are available for the
foreign transaction, and
To suggest the best and appropriate method of payment of foreign transaction,
and
Also to keep in mind the other aspects of the methods this can effect the
organization.
Scope of the Study
As we were seen as a liability towards the organization since there was no
contribution from our side towards, nobody actually paid any attention towards
Working Capital.
It was very difficult to actually take out relevant information from the Comparative Study with
Vodafone were very hesitant to let us meet the company.
Chapter-5
METHODOLOGY
MANAGERIAL USEFULNESS OF THE STUDY
This type of analysis helps the management of the company to plan its future polices
according to the external environment. Any sound research must have an proper
design to achieve the required result, this study id constructed on the basis of
descriptive design.
The methodology, I have adopted for my study is the various tools, which basically
analyze critically financial position of to the organization:
I. COMMON-SIZE P/L A/C
II. COMMON-SIZE BALANCE SHEET
III. COMPARTIVE P/L A/C
IV. COMPARTIVE BALANCE SHEET
V. TREND ANALYSIS
VI. RATIO ANALYSIS
The above parameters are used for critical analysis of financial position. With the
evaluation of each component, the financial position from different angles is tried to
be presented in well and systematic manner. By critical analysis with the help of
different tools, it becomes clear how the financial manager handles the finance
matters in profitable manner in the critical challenging atmosphere, the
recommendation are made which would suggest the organization in formulation of a
healthy and strong position financially with proper management system.
I sincerely hope, through the evaluation of various percentage, ratios and
comparative analysis, the organization would be able to conquer its in
efficiencies and makes the desired changes.
FINANCIAL STATEMENTS:
The traditional classification has been on the basis of the financial statement to which
the determination of ratios belongs.
These are:-
Profit & Loss account ratios
Balance Sheet ratios
Composite ratios
RESEARCH DESIGN
For the proper analysis of data simple statistical techniques such as percentage were
use. It helped in making more accurate generalization from the data available.
TOOLS OF ANALYSIS
It is essential to use a systematic research methodology for the assessment of a project
because without the use of a research methodology analysis of any company or
organization will not be possible.
In the present analysis mostly secondary data have been used. Its is worth a white to
mention that I have used the following types of published data:
Balance sheet
Profit & Loss A/c
Schedules
31.03.12 31.03.13
0.38 0.44
0.5
0.44 0.38
0.3
0.4
0.2
31.03.12 31.03.13
0.1
0
Interpretation:-
As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the company for
last three years it has increased from last year. The current ratio of company is more than the ideal
ratio. This depicts that company’s liquidity position is sound. Its current assets are more than its
current liabilities.
2. QUICK RATIO
QUICK RATIO = Liquid Assets/ Current liabilities
31.03.12 31.03.13
0.47 0.44
0.5
0.4 0.47
0.44
0.3
0.2
0.1
31.03.12 31.03.13
0
Interpretation :
A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in
time. The ideal quick ratio is 1:1. Company’s quick ratio is more than ideal ratio. This shows
31.03.12 31.03.13
5 724.61
46.68
800
700
724.61
600
546.78
500
400
300
0
Interpretation: This ratio shows how rapidly the inventory is turning into receivable through sales,
shows that the company’s inventory management technique is more efficient as compare to last year.
31.03.12 31.03.13
12.05 12.35
Interpretation :
This ratio indicates the speed with which debtors are being converted or turnover into sales. The higher the values
or turnover into sales. The higher the values of debtors turnover, the more efficient is the management of credit.
But in the company the debtor turnover ratio is decreasing year to year. This shows that company is not utilizing
its debtors efficiency. Now their credit policy become liberal as compare to previous year.
15
12.05 12.35
10
5
0 31.03.12 31.03.13
31.03.12 31.03.13
360/12.05 360/12.35
30 days 29 days
30
30 29
25
20
Days
15
10
5
2012 20 3
1
0
Interpretation:
The average collection period measures the quality of debtors and it helps inanalyzing the
efficiency of collection efforts. It also helps to analysis the credit policy adopted by company. In
the firm average collection period increasing year to year. It shows that the firm has Liberal Credit
policy. These changes in policy are due to competitor’s credit policy.
In line with the amended statutory guidelines, the Company has adopted IFRS(International Financial
Reporting Standards) for consolidation of accounts from the financial year 2010-11 onwards. Consolidated
and Standalone financial highlights of the operations of the Company are as follows:
Consolidated Financial Highlights
LIQUIDITY
The Company generates healthy operational cash flows and maintains sufficient cash
and financing arrangements to meet its strategic objectives. It deploys a robust cash
management system to ensure timely servicing of its liquidity obligations. The
Company has also been able to arrange for adequate liquidity at an optimized cost to
meet its business requirements and has minimized the amount of funds tied-up in
the current assets.
As of March 31, 2012, the Company has cash and cash equivalents of Rs.
20,300 Mn and short term investments of Rs. 18,132 Mn. During the year
ended March 31, 2012, the Company generated operating free cash flow of
Rs. 101,319 Mn. The net debt - EBITDA ratio as on March 31, 2012 was at
2.56 and the net debt - equity ratio was at 1.29. The net debt in USD
terms decreased from USD 13,427 Mn as on March 31, 2011 to USD 12,714
Mn as on March 31, 2012.
The Company is comfortable with its present liquidity position and foreseeable
liquidity needs. It has adequate facilities in place and robust cash flows to meet
liquidity requirements for executing its business plans and meeting with any evolving
requirements. The Company also enjoys strong access to capital markets across debt,
equity and hybrids.
Chapter -7
RECOMMENDATIONS
The study conducted on working capital management of Bharti Airtel shows the
evaluation of management performance in this regard. Major findings and suggestions
thereon are narrated as under:
Current assets comprise/a significant portion of total investment in assets of
the company. There is fluctuating and rather increasing trend of this ratio
during the period which shows management in-efficiency in managing
working capital in relation to total investment. Further current assets to fixed
assets ratio also shows on fluctuating trend during the study period which
substantiate above mentioned criterion of in-effectiveness in management of
working capital by the company.
Assets turnover ratio for the given years of study shows stagnant trend which
is due to significant increase in sales.
The ratio used for analysis of liquidity position is current ratio and quick ratio.
This ratio reveals that company has sound liquidity position throughout the
period of study. Company should maintain significant balance in terms of
resources to improve these ratios.
Inventory turnover ratio depict the fluctuating trend which indicates the accumulation
of inventory in turn which cause loss to the company by way of deterioration of stock,
interest loss on blockage of stock etc. Further composition of inventory reveals that
portion of individual element of inventory has fluctuating trend which indicates that
management has no policy in respect of inventory management
Debtors Turnover ratio reveals a decreasing trend during the period of study and
average collection period ranges have not improved. It reveals that management has no
specific policy in respect of debtor’s management
Keeping in view of detailed analysis of study and our findings mentioned in above paragraphs,
the following suggestions shall be helpful in increasing the efficiency in working capital
management.
Company should make a policy in respect of investment of excess cash, if any; in
marketable securities and overall cash policy should be introduced
In case of inventory management ABC analysis, FSN technique, VED
technique should be adopted to increase the efficiency of inventory
management. Further a inventory monitoring system should be introduced to
avoid holding of excess inventory.
Management should develop a credit policy and proper self realisation system
from customers so that efficient and effective management of accounts
receivable can be ensured. This will significantly improve the profitability and
liquidity of the company.
Purchase policy regarding raw material, consumables, tools and packing materials etc.
should be introduced which ultimately helps in planning of inventory, availment of
maximum trade! cash discount and availment of maximum credit period from
suppliers.
Chapter-8
Books
Khan M.Y. and Jain P.K., Financial Management
Dalal Street Journal
Annual Report – Bharti Airtel
Financial Express
Seth, A.K., (2003); International Financial Management
Vij, Madhu, (2002); Multinational Financial Management
Apte, P.G., (2003); International Financial Management
Rajwade, A.V., (2003); Foreign Exchange International Finance and Risk
Management
Avadhani, V.E., (2003); Global Business Finance
Majumdar, Bhaskar, (2002); Concept and Practice of Global Finance
Global Trade And Investment Finance – Lawrence Tuller
Corporate Finance IMT Gaziabad
WEBSITE:
www.airtelindia.com
http://www.hinduonnet.com/2004/12/22/stories/2004122202441700.htm
http://bhartiairtel.in/index.php?id=14
http://bhartiairtel.in/index.php?id=264
http://bhartiairtel.in/index.php?id=265
http://bhartiairtel.in/index.php?id=company_profile
http://economictimes.indiatimes.com/bharti-
airtel- ltd/balancesheet/companyid-2718.cms
http://www.moneycontrol.com/annual-report/bhartiairtel/directors-
report/BA08#BA08
http://www.moneycontrol.com/financials/bhartiairtel/financial-
graphs/operating-profit-ebitda-percentage/BA08
http://www.indianotes.com/research-analysis/company/company-
financial.php?cc=MTUyMDAwMjIuM