Working Capital Management in HCL Infosystems Limited

A REPORT
ON
WORKING CAPITAL MANAGEMENT IN WORKING CAPITAL MANAGEMENT IN
HCL INFOSYSTEMS LIMITED HCL INFOSYSTEMS LIMITED
BY
(Submitted in partial fulfillment of the requirements of
MBA program at
!"A Business S#hool$ !handigarh%
1
ACKOWLEDGEMENT
A#hie&ement is finding out 'hat (ou 'ould be then doing$ 'hat (ou ha&e to
do) The higher the summit$ the harder is the #limb) The goal 'as fi*ed and 'e
began 'ith a determined resol&ed and put in #easeless sustained hard 'or+)
,reater #hallenge$ greater 'as our effort to o&er#ome it)
This pro-e#t 'or+$ 'hi#h is m( first step in the field of professionali.ation$ has
been su##essfull( a##omplished onl( be#ause of m( timel( support of 'ell/
'ishers) 'ould li+e to pa( m( sin#ere regards and than+s to those$ 'ho
dire#ted me at e&er( step in m( pro-e#t 'or+)
'ould also li+e to than+ the fa#ult( members and the staff members of HCL
Infosystems Ltd. for their +ind support and help during the pro-e#t)
2
TABLE OF CONTENTS

A#+no'ledgement
Abstra#t
0) ntrodu#tion
The problems
Purpose of stud(
Resear#h methodolog(
S#ope of the stud(
1ata sour#es
2imitations
3) 4industan !omputers 2imited
5) 4!2 nfos(stems 6 An O&er&ie'
!ompan(7s histor(
4!2 at a glan#e
Allian#es and partnerships
Management team
!orporate information
8) !on#eptual "rame'or+
3
ntrodu#tion to 9or+ing !apital Management
Signifi#an#e of 'or+ing #apital management
2iquidit( &s Profitabilit(: Ris+ 6 Return trade off
!lassifi#ation of 'or+ing #apital
T(pes of 'or+ing #apital needs
"inan#ing of 'or+ing #apital
"a#tors determining 'or+ing #apital requirements
9or+ing #apital #(#le
Sour#es of 'or+ing #apital
4!2 finan#ials
9or+ing #apital position
n&entor( management
!ash management
Re#ei&ables management
Managing pa(ables (!reditors%
"inan#ing #urrent assets
9or+ing #apital ; short/term finan#ing
<) Anal(sis
ndustr( anal(sis
4
"inan#ial graphs
!on#luding anal(sis
Suggestions and re#ommendations
Bibliograph(
=) Appendi#es
5
ABSTRACT
This pro-e#t is based on the stud( of 'or+ing #apital management in 4!2
nfo(stems) An insight &ie' of the pro-e#t 'ill en#ompass 6 'hat it is all
about$ 'hat it aims to a#hie&e$ 'hat is its purpose and s#ope$ the &arious
methods used for #olle#ting data and their sour#es$ in#luding literature sur&e(
done$ further spe#if(ing the limitations of our stud( and in the last$ dra'ing
inferen#es from the learning so far)
4!2 nfos(stems 2imited (4!2%$ is a leading domesti# #omputer hard'are
and hard'are ser&i#es #ompan() 4!2 is engaged in selling manufa#tured ( li+e
P!s$ ser&ers$ monitors and peripherals% and traded hard'are ( li+e noteboo+s$
peripherals% to institutional #lients as 'ell as in retail segment) t also offers
hard'are support ser&i#es to e*isting #lients through annual maintenan#e
#ontra#ts$ net'or+ #onsulting and fa#ilities management)
The 'or+ing #apital management refers to the management of 'or+ing #apital$
or pre#isel( to the management of #urrent assets) A firm7s 'or+ing #apital
#onsists of its in&estments in #urrent assets$ 'hi#h in#ludes short/term assets>
#ash and ban+ balan#e$ in&entories$ re#ei&able and mar+etable se#urities)
This pro-e#t tries to e&aluate ho' the management of 'or+ing #apital is done in
4!2 nfos(stems through in&entor( ratios$ 'or+ing #apital ratios$ trends$
#omputation of #ash$ in&entor( and 'or+ing #apital$ and short term finan#ing)
6
INTRODUCTION
7
8
The problems
Purpose of stud(
Resear#h methodolog(
S#ope of the stud(
1ata sour#es
2imitations
INTRODUCTION:
The pro-e#t underta+en is on ?9OR@N, !APTA2 MANA,EMENT N
4!2 N"OSYSTEMS 2MTE1A)
t des#ribes about ho' the #ompan( manages its 'or+ing #apital and the
&arious steps that are required in the management of 'or+ing #apital)
!ash is the lifeline of a #ompan() f this lifeline deteriorates$ so does the
#ompan(Bs abilit( to fund operations$ rein&est and meet #apital requirements
and pa(ments) Cnderstanding a #ompan(Bs #ash flo' health is essential to
ma+ing in&estment de#isions) A good 'a( to -udge a #ompan(Bs #ash flo'
prospe#ts is to loo+ at its 'or+ing #apital management (9!M%)
9or+ing #apital refers to the #ash a business requires for da(/to/da( operations
or$ more spe#ifi#all($ for finan#ing the #on&ersion of ra' materials into
finished goods$ 'hi#h the #ompan( sells for pa(ment) Among the most
important items of 'or+ing #apital are le&els of in&entor($ a##ounts re#ei&able$
and a##ounts pa(able) Anal(sts loo+ at these items for signs of a #ompan(Bs
effi#ien#( and finan#ial strength)
The 'or+ing #apital is an important (ardsti#+ to measure the #ompan(7s
operational and finan#ial effi#ien#() An( #ompan( should ha&e a right amount
of #ash and lines of #redit for its business needs at all times)
This pro-e#t des#ribes ho' the management of 'or+ing #apital ta+es pla#e at
9
4!2 nfos(stems)
THE PROBLEMS
n the management of 'or+ing #apital$ the firm is fa#ed 'ith t'o +e( problems:
0) "irst$ gi&en the le&el of sales and the rele&ant #ost #onsiderations$ 'hat are the
optimal amounts of #ash$ a##ounts re#ei&able and in&entories that a firm should
#hoose to maintainD
3) Se#ond$ gi&en these optimal amounts$ 'hat is the most e#onomi#al 'a( to
finan#e these 'or+ing #apital in&estmentsD To produ#e the best possible
results$ firms should +eep no unprodu#ti&e assets and should finan#e 'ith the
#heapest a&ailable sour#es of funds) 9h(D n general$ it is quite ad&antageous
for the firm to in&est in short term assets and to finan#e short/term liabilities)
10
PURPOSE OF STUDY
The ob-e#ti&es of this pro-e#t 'ere mainl( to stud( the in&entor($ #ash and
re#ei&able at 4!2 nfos(stems 2td)$ but there are some more and the( are /
The main purpose of our stud( is to render a better understanding of
the #on#ept ?9or+ing !apital ManagementA)
To understand the planning and management of 'or+ing #apital at HCL
Infosystems Ltd.
To measure the finan#ial soundness of the #ompan( b( anal(.ing &arious
ratios)
To suggest 'a(s for better management and #ontrol of 'or+ing #apital at
the #on#ern)
11
RESEARCH METHODOLOGY
This project requires a detailed understanding of the concept
!or"ing #apital $anage%ent&' Therefore( firstl) *e need to ha+e
a clear idea of *hat is *or"ing capital( ho* it is %anaged in ,#-
.nfos)ste%s( *hat are the different *a)s in *hich the financing of
*or"ing capital is done in the co%pan)'
The management of 'or+ing #apital in&ol&es managing in&entories$
a##ounts re#ei&able and pa(able and #ash) Therefore one also needs to
ha&e a sound +no'ledge about #ash management$ in&entor( management
and re#ei&ables management)
Then #omes the finan#ing of 'or+ing #apital requirement$ i)e) ho' the
'or+ing #apital is finan#ed$ 'hat are the &arious sour#es through 'hi#h
it is done)
And$ in the end$ suggestions and re#ommendations on 'a(s for better
management and #ontrol of 'or+ing #apital are pro&ided)
12
SCOPE OF THE STUDY
This project is vital to me in a significant way. It does have some
importance for the company too. These are as follows -
This pro-e#t 'ill be a learning de&i#e for the finan#e student)
Through this pro-e#t 'ould stud( the &arious methods of the 'or+ing
#apital management)
The pro-e#t 'ill be a learning of planning and finan#ing 'or+ing #apital)
The pro-e#t 'ould also be an effe#ti&e tool for #redit poli#ies of the
#ompanies)
This 'ill sho' different methods of holding in&entor( and dealing 'ith
#ash and re#ei&ables)
This 'ill sho' the liquidit( position of the #ompan( and also ho' do the(
maintain a parti#ular liquidit( position)
13
DATA SOURCES:
The follo'ing sour#es ha&e been sought for the prep of this report:
Primar( sour#es su#h as business maga.ines$ #urrent annual reports$
boo+ on "inan#ial Management b( &arious authors and internet 'ebsites
the imp amongst them being : ''')h#l)#om$ ''')indiainfoline)#om$
''')stud(finan#e)#om )
Se#ondar( sour#es li+e pre&ious (ears annual reports$ reports on 'or+ing
#apital for resear#h$ anal(sis and #omparison of the data gathered)
9hile doing this pro-e#t$ the data relating to 'or+ing #apital$ #ash
management$ re#ei&ables management$ in&entor( management and short
term finan#ing 'as required)
This data 'as gathered through the #ompan(7s 'ebsites$ its #orporate
intranet$ 4!27s annual reports of the last fi&e (ears)
A detailed stud( on the a#tual 'or+ing pro#esses of the #ompan( is also
done through dire#t intera#tion 'ith the emplo(ees and b( timel(
stud(ing the happenings at the #ompan()
Also$ &arious te*t boo+s on finan#ial management li+e !"A7s boo+$
@han ; Eain$ Prasanna !handra and )M)Pande( 'ere #onsulted to equip
oursel&es 'ith the topi#)
14
LIMITATIONS OF THE STUDY:
9e #annot do #omparisons 'ith other #ompanies unless and until
'e ha&e the data of other #ompanies on the same sub-e#t)
Onl( the printed data about the #ompan( 'ill be a&ailable and not
the ba#+6end details)
"uture plans of the #ompan( 'ill not be dis#losed to the trainees)
2astl($ due to shortage of time it is not possible to #o&er all the
fa#tors and details regarding the sub-e#t of stud()
The latest finan#ial data #ould not be reported as the #ompan(7s
'ebsites ha&e not been updated)
15
HINDUSTAN COMPUTERS LIMITED:
Type Public
(BSE: 500179,BSE: 532281)
Founded 00
th
August 0FG=
Headquarters Noida$ ndia
(1elhi metropolitan area%$ ndia
Key People
Shi& Nadar$ "ounder$ !hairman ; !EO
San-a( @umar !houdhar( $ Hineet Na(ar
Industry nformation Te#hnolog( Ser&i#es
Revenue
I8)G billion CS1
Employees J<5$KKK (as on 50st 1e# 3KKG%
Website ''')h#l)in
Hindustan Computers Limited$ also +no'n as HCL Enterprise$ is one of
ndiaBs largest ele#troni#s$ #omputing and information te#hnolog( #ompan()
Based in Noida$ near 1elhi$ the #ompan( #omprises t'o publi#l( listed ndian
#ompanies$ 4!2 Te#hnologies and 4!2 nfos(stems)
16
4!2 'as founded in 0FG= b( Shi& Nadar$ A-ai !ho'dhr( and four of their
#olleagues) 4!2 'as fo#used on addressing the T hard'are mar+et in ndia
for the first t'o de#ades of its e*isten#e 'ith some sporadi# a#ti&it( in the
global
mar+et) n 0FL0$ 4!2 seeded a #ompan( fo#used on addressing the #omputer
training industr($ NT$ though it has #urrentl( di&ested its sta+e in the
#ompan() n 0FF0$ 4P too+ minorit( sta+e in the #ompan( (3=M% and the
#ompan( 'as +no'n as 4!2 4P for the fi&e (ears of the -oint &enture) On
termination of the -oint &enture in 0FF=$ 4!2 be#ame an enterprise 'hi#h
#omprises 4!2 Te#hnologies (to address the global T ser&i#es mar+et% and
4!2 nfos(stems (to address the ndian and APA! T hard'are mar+et%) 4!2
has sin#e then operated as a holding #ompan()
17
HCL INFOSYSTEMS - AN OVERVIEW
18
19
!ompan(7s histor(
4!2 at a glan#e
Management team
HCL INFOSYSTEMS LIMITED
AN OVERVIEW ABOUT THE COMPANY
4!2 nfos(stems is no flash in the nformation Te#hnolog( pan) "ounded in
0FG=$ the firm has #limbed into pantheon of ndiaBs #orporate giants on the
strength of its T produ#ts and ser&i#es) 4!2 nfos(stems spe#iali.es in T
hard'are (P!Bs and ser&ers$ as 'ell as net'or+ing$ imaging and
#ommuni#ations produ#ts%$ and s(stem integration ser&i#es ser&ing the
domesti# ndian mar+et) n addition to its #onsumer produ#ts$ the #ompan(
pro&ides #ommer#ial T produ#ts$ fa#ilities management$ net'or+ ser&i#es$ and
T se#urit( ser&i#es for #lients in su#h industries as go&ernment$ finan#ial
ser&i#es$ and edu#ation) 4!2 !orporation o'ns signifi#ant sta+es in 4!2
nfos(stems (about 88M% and sister #ompan( 4!2 Te#hnologies)
4!2 nfos(stems 2td$ a listed subsidiar( of 4!2$ is an ndia/based hard'are
and s(stems integrator) t #laims a presen#e in 0GK lo#ations and 5KK ser&i#e
#entres) ts manufa#turing fa#ilities are based in !hennai$ Pondi#herr( and
Cttara+hand )ts headquarters is in Noida)
4!2 Peripherals (A Cnit of 4!2 nfos(stems 2imited% "ounded in the (ear
0FL5$ has established itself as a leading manufa#turer of #omputer peripherals
in ndia$ en#ompassing 1ispla( Produ#ts$ Thin !lient solutions$ nformation
and ntera#ti&e @ios+s) 4!2 Peripherals has t'o Manufa#turing fa#ilities$ one
20
!ompan(7s histor(
4!2 at a glan#e
Management team
in Pondi#herr( (Ele#troni#s% and the other in !hennai (Me#hani#al% )The
!ompan( has been a##redited 'ith SO FKK0:3KKK$ SO 08KK0$ TS 0=F8F and
SO 058L<)
HISTORY
4!2 nfos(stems 2td is one of the pioneers in the ndian T
mar+et$ 'ith its origins in 0FG=) "or o&er quarter of a #entur($
'e ha&e de&eloped and implemented solutions for multiple
mar+et segments$ a#ross a range of te#hnologies in ndia) 9e
ha&e been in the forefront in introdu#ing ne' te#hnologies and
solutions) The highlights of the 4!2 saga are summari.ed
belo':
Y E AR H I G H L I G H T S
1976
/ "oundation of the !ompan( laid
/ ntrodu#es mi#ro#omputer/based programmable #al#ulators 'ith 'ide
a##eptan#e in the s#ientifi# N edu#ation #ommunit(
1977
/ 2aun#h of the first mi#ro#omputer/based #ommer#ial #omputer 'ith a ROM
/based Basi# interpreter
/ Cna&ailabilit( of programming s+ills 'ith #ustomers results in 4!2 de&eloping
bespo+e appli#ations for their #ustomers
1980
/ "ormation of "ar East !omputers 2td)$ a pioneer in the Singapore T mar+et$ for
S (S(stem ntegration% solutions
1983
/ 4!2 laun#hes an aggressi&e ad&ertisement #ampaign 'ith the theme B e&en a
t(pist #an operateB to ma+e the usage of #omputers popular in the SME (Small ;
Medium Enterprises% segment) This proposition in&ol&ed menu/based
appli#ations for the first time$ to in#rease ease of operations) The response to the
ad&ertisement 'as phenomenal)
/4!2 de&elops spe#ial program generators to speed up the de&elopment of
appli#ations
21
1986
/ Oonal offi#es of ban+s and general insuran#e #ompanies adopt #omputeri.ation
/ Pur#hase spe#ifi#ations demand the a&ailabilit( of R1BMS produ#ts on the
supplied solution (Cnif($ Ora#le%) 4!2 arranges for su#h produ#ts to be ported to
its platform)
/ 4!2 assists #ustomers to migrate from flat/file based s(stems to R1BMS
1991
/ 4!2 enters into a -oint &enture 'ith 4e'lett Pa#+ard
/ 4P assists 4!2 to introdu#e ne' ser&i#es: S(stems ntegration$ T #onsulting$
pa#+aged support ser&i#es ( basi# line$ team line %
1994
/ 4!2 a#quires and e*e#utes the first offshore pro-e#t from BM Thailand
/ 4!2 sets up #ore group to define soft'are de&elopment methodologies
1995
/ Starts e*e#ution of nformation S(stem Planning pro-e#ts
/ E*e#ution pro-e#ts for ,erman( and Australia
/ Begins 4elp des+ ser&i#es
1996
/ Sets up the STP ( Soft'are Te#hnolog( Par+ % at !hennai to e*e#ute soft'are
pro-e#ts for international #ustomers
/ Be#omes national integration partner for SAP
1997
/ @ol+ata and Noida STPs set up
/ 4!2 bu(s ba#+ 4P sta+e in 4!2 4e'lett Pa#+ard
1998 / !hennai and !oimbatore de&elopment fa#ilities get SO FKK0 #ertifi#ation
1999
/ A#quires and sets up full( o'ned subsidiaries in CSA and C@
/ Sets up full( o'ned subsidiar( in Australia
/ 4!2 ties up 'ith Broad&ision as an integration partner
2000
/ Sets up full( o'ned subsidiar( in Australia
/ !hennai and !oimbatore de&elopment fa#ilities get SE 2e&el 8 #ertifi#ation
/ Bags A'ard for Top P! Hendor n ndia
/ Be#omes the 0st T !ompan( to be re#ommended for latest &ersion of SO FKK0
: 3KKK
/ Bags MATBs A'ard for Business E*#ellen#e
/ Rated as No) 0 T ,roup in ndia
2001
/2aun#hed Pentium H P!s at belo' Rs 8K$KKK
/1! rated 4!2 nfos(stems as No) 0 1es+top P! !ompan( of 3KK0
2002
/1e#lared as Top P! Hendor b( 1ataquest
/4!2 nfos(stems ; Sun Mi#ros(stems enters into a Enterprise 1istribution
Agreement
/ Realigns businesses$ in#reasing fo#us on domesti# T$ !ommuni#ations ;
maging produ#ts$ solutions ; related ser&i#es
22
2003
/ Be#ame the first &endor to register sales of <K$KKK P!s in a quarter
/ "irst ndian #ompan( to be numero uno in the #ommer#ial P! mar+et
/ Enters into partnership 'ith AM1
/ 2aun#hed 4ome P! for Rs 0F$FFF
2004
/ 0st to announ#e P! pri#e #ut in ndia$ post dut( redu#tion$ offers E.eebee at Rs)
0GFFK
/ Maintains No)0 position in the 1es+top P! segment for (ear 3KK5
/ Be#omes the 0st #ompan( to #ross 0 la# unit milestone in the ndian 1es+top P!
mar+et
/ Partners 'ith Cnion Ban+ to ma+e P!s more affordable$ introdu#es lo'est e&er
EM for P! in ndia
/ Registers a mar+et share of 05)GM to be#ome No)0 1es+top P! #ompan( for
(ear 3KK8
/ !rosses the landmar+ of P 0 billion in re&enue in -ust nine months
2005
/ 2aun#h of 4!2 P! for ndia$ a full( fun#tional P! pri#ed at Rs)F$FFKN/
/ Rated as the No)0 1es+top P! #ompan( b( 1! ndia /1ataquest
/ BBest Emplo(er 3KK<B 'ith fi&e star ratings b( 1! ndia /1ataquest)
/ BThe Most !ustomer Responsi&e !ompan( 3KK<B
/T 4ard'are !ategor( b( The E#onomi# Times /A&a(a ,lobal !onne#t)
/Top <K fastest gro'ing Te#hnolog( !ompanies in ndiaB ; BTop <KK fastest
,ro'ing Te#hnolog( !ompanies in Asia Pa#ifi#B b( B1eloitte ; Tou#heB) b(
B1eloitte ; Tou#heB
/BGth ETE /!orporate A'ard 3KK<B for performan#e e*#ellen#e in the field of
!omputers ; Tele#ommuni#ation S(stems b( ETE)
/ndia Bs BNo)0 &endorB for sales of A5 si.e Toshiba Multi "un#tional 1e&i#es for
the (ear BK8 /BK< b( 1!)
/Toshiba BSuper A'ard 3KK< to'ards business e*#ellen#e in distribution of
Toshiba Multifun#tional produ#ts$
/Strategi# Partners in E*#ellen#eB A'ard b( n fo#us !orporation for pro-e#tors)
/BMost &alued Business PartnerB A'ard for pro-e#tors b( n fo#us !orporation in
3KK<
2006
(till
1une)
/ G<$ KKKQ ma#hines produ#ed in a single month
/ 4!2 nfos(stems in partnership 'ith Toshiba e*pands its retail presen#e in
ndia b( un&eiling Bshop ToshibaB
/ 4!2 nfos(stems ; No+ia announ#e a long term distribution strateg(
/ 4!2 the leader in 1es+tops P!s un&eils ndiaBs first segment spe#ifi# range of
noteboo+s brand / B4!2 2aptopsB
/ 1B sele#ts 4!2 as S partner for 0KK bran#hes !T infrastru#ture rollout
/ 4!2 nfos(stems sho'#ases !omputer Solutions for the Rural Mar+ets in ndia
/ 4!2 Support 'ins the 1R !hannels/3KK= ,O21 A'ard for Best After Sales
23
Ser&i#e on a nation'ide #ustomer satisfa#tion sur&e( #ondu#ted b( 1!
/ 4!2 nfos(stems "irst in ndia to 2aun#h the Ne' ,eneration of 4igh
Performan#e Ser&er Platforms Po'ered b( ntel 1ual / !ore Seon <KKK
Pro#essor
/ 4!2 "orms a Strategi# Partnership 'ith APP2E to pro&ide Sales ; Ser&i#e
Support for iPods in ndia
VISION STATEMENT:
TTogether 'e #reate the Enterprises of Tomorro'T
MISSION STATEMENT:
TTo pro&ide 'orld/#lass nformation Te#hnolog( solutions and ser&i#es
in order to enable our #ustomers to ser&e their #ustomers betterT
CORE VALUES:
Nothing transforms life li+e edu#ation)
9e shall honor all #ommitments
9e shall be #ommitted to Rualit($ nno&ation and ,ro'th in e&er(
endea&or
9e shall be responsible #orporate #iti.ens
24
QUALITY POLICY:
T9e shall deli&er defe#t/free produ#ts$ ser&i#es and solutions to meet the
requirements of our e*ternal and internal #ustomers$ the first time$ e&er( time)T
OB1ECTIVES:
MANAGEMENT OB1ECTIVES 6
To fuel initiati&e and foster a#ti&it( b( allo'ing indi&iduals$ freedom
of a#tion and inno&ation in attaining defined ob-e#ti&es)
PEOPLE OB1ECTIVES 6
To help people in 4!2 nfos(stems 2td)$ share #ompan(7s su##ess$
'hi#h the( ma+e possibleU to pro&ide -ob se#urit( based on their
performan#eU to
re#ogni.e their indi&idual a#hie&ementsU and help them gain a sense of
satisfa#tion and a##omplishment from their 'or+)
25
ALLIANCES and PARTNERSHIPS:

To pro&ide 'orld/#lass solutions and ser&i#es to all our #ustomers$ 4!2
nfos(stems ha&e formed Allian#es and Partnerships 'ith leading T #ompanies
'orld'ide)
4!2 nfos(stems has allian#es 'ith global te#hnolog( leaders li+e Intel, AMD,
Microsoft, Bull, Toshiba, Nokia, Sun Microsystems, Ericsson, nVIDIA,
SAP, Scansoft, SCO, EMC, Veritas, Citrix, CISCO, Oracle, Computer
Associates, RedHat, Infocus, Duplo, Samsung and Novell.
These allian#es on one hand gi&e us a##ess to best te#hnolog( ; produ#ts as
'ell as enhan#ing our understanding of the latest in te#hnolog() On the other
hand the( enhan#e our produ#t portfolio$ and enable us to be one stop shop for
our #ustomers)
26

MANAGEMENT TEAM:
Ajai Chowdhry
!o/"ounder 4!2$ !hairman and !EO / 4!2 nfos(stems)
An engineer b( training$ A-ai !ho'dhr( is one of the si* #o/
founder members of 4!2$ ndia Bs premier T #onglomerate)

1 V Ramamurthy
!hief Operating Offi#er 4!2 nfos(stems 2td)
E H Ramamurth( has an engineering degree in Ele#troni#s ;
!ommuni#ations$ from ,uind( Engineering !ollege$ and a MastersB
27
degree in Applied Ele#troni#s from the Madras nstitute of
Te#hnolog($ both in !hennai)
Rajendra Kumar
E*e#uti&e Hi#e President / "rontline 1i&ision 4!2 nfos(stems 2td)
Mr) Ra-endra @umar has been 'ith 4!2 for o&er 5K (ears and has
seen 4!2 gro' from a startup #ompan( to a giganti# #onglomerate
that it is toda()
CORPORATE INFORMATION:
BOARD OF DIRECTORS Chairman & Chief Executive Officer
A-ai !ho'dhr(

Whole-time Director
E)H) Ramamurth(
Directors
S) Bhatta#har(a
1)S) Puri
R)P) @hosla
28
E)A) @shirsagar
Anita Rama#handran
T)S) Purushothaman
Narasimhan Eegadeesh
H)N) @oura
COMPANY SECRETARY Sushil @umar Eain
AUDITORS Pri#e 9aterhouse$ Ne' 1elhi
BANKERS State Ban+ of ndia
!anara Ban+
41"! Ban+ 2td)
!! Ban+ 2td)
So#iete ,enerale
Standard !hartered Ban+
State Ban+ of Patiala
State Ban+ of Saurashtra
REGISTERED OFFICE LK=$ Siddharth$
F=$ Nehru Pla#e$ Ne' 1elhi / 00K K0F)
CORPORATE OFFICE E / 8$ <$ =$ Se#tor S$ Noida / 3K0 5K0 (C)P)%
WORKS V R)S) Nos: 58N8 to 58NG and part of 58N0$
Sedarapet$ Pudu#herr( / =K< 000)
V R)S) Nos: 0KGN<$ = ; G$ Main Road$
Sedarapet$ Pudu#herr( / =K< 000)
V Plot No GL$ South Phase$ Ambattur
ndustrial
Estate$!hennai / =KK K<L)
V Plot No SP2) A3$ Thattan#ha&adi$
ndustrial
Area$ Pudu#herr( / =K< KKF)
V Plot Nos) 0$ 3$ 3G ; 3L$ Se#tor <$ 00E$
Rudrapur$ 1istt) / Cdham Singh Nagar$
Cttara+hand / 3=5 08<)
29
30
WORKING CAPITAL MANAGEMENT
CONCEPTUAL FRAMEWORK
31
ntrodu#tion
2iquidit( Hs profitabilit(: Ris+ 6 Return trade off
4!2 finan#ials
n&entor( management
!ash management
"inan#ing !urrent Assets
INTRODUCTION TO WORKING CAPITAL
Working Capital is the Life-Blood and Controlling Nerve Center of a
business
The working capital management precisely refers to management of
current assets. A firm`s working capital consists of its investment in
current assets, which include short-term assets such as:
!ash and ban+ balan#e$
n&entories$
Re#ei&ables (in#luding debtors and bills%$
Mar+etable se#urities)
9or+ing #apital is #ommonl( defined as the differen#e bet'een #urrent assets
and #urrent liabilities)
9OR@N, !APTA2 W !CRRENT ASSETS/!CRRENT 2AB2TES
There are t'o ma-or #on#epts of 'or+ing #apital:
,ross 'or+ing #apital
Net 'or+ing #apital
32
ntrodu#tion
2iquidit( Hs profitabilit(: Ris+ 6 Return trade off
4!2 finan#ials
n&entor( management
!ash management
"inan#ing !urrent Assets
Gross working capital:
t refers to firmBs in&estment in #urrent assets) !urrent assets are the assets$
'hi#h #an be #on&erted into #ash 'ith in a finan#ial (ear) The gross 'or+ing
#apital points to the need of arranging funds to finan#e #urrent assets)
Net working capital:
t refers to the differen#e bet'een #urrent assets and #urrent liabilities) Net
'or+ing #apital #an be positi&e or negati&e) A positi&e net 'or+ing #apital
'ill arise 'hen #urrent assets e*#eed #urrent liabilities) And &i#e/&ersa for
negati&e net 'or+ing #apital) Net 'or+ing #apital is a qualitati&e #on#ept) t
indi#ates the liquidit( position of the firm and suggests the e*tent to 'hi#h
'or+ing #apital needs ma( be finan#ed b( permanent sour#es of funds) Net
'or+ing #apital also #o&ers the question of -udi#ious mi* of long/term and
short/term funds for finan#ing #urrent assets)
33
Significance Of Working Capital Management
The management of working capital is important for several reasons:
"or one thing$ the #urrent assets of a t(pi#al manufa#turing firm a##ount
for half of its total assets) "or a distribution #ompan($ the( a##ount for
e&en more)
9or+ing #apital requires #ontinuous da( to da( super&ision) 9or+ing
#apital has the effe#t on #ompan(Bs ris+$ return and share pri#es$
There is an ine&itable relationship bet'een sales gro'th and the le&el of
#urrent assets) The target sales le&el #an be a#hie&ed onl( if supported b(
adequate 'or+ing #apital neffi#ient 'or+ing #apital management ma(
lead to insol&en#( of the firm if it is not in a position to meet its liabilities
and #ommitments)
34
LIQUIDITY VS PROFITABILITY: RISK - RETURN TRADE OFF
Another important aspe#t of a 'or+ing #apital poli#( is to maintain and
pro&ide suffi#ient liquidit( to the firm) 2i+e the most #orporate finan#ial
de#isions$ the de#ision on ho' mu#h 'or+ing #apital be maintained in&ol&es a
trade off/ ha&ing a large net 'or+ing #apital ma( redu#e the liquidit( ris+
fa#ed b( a firm$ but it #an ha&e a negati&e effe#t on the #ash flo's) Therefore$
the net effe#t on the &alue of the firm should be used to determine the optimal
amount of 'or+ing #apital)
Sound 'or+ing #apital in&ol&es t'o fundamental de#isions for the firm) The(
are the determination of:
The optimal le&el of in&estments in #urrent assets)
The appropriate mi* of short/term and long/term finan#ing used to support
this in&estment in #urrent assets$ a firm should de#ide 'hether or not it
should use short/term finan#ing) f short/term finan#ing has to be used$ the
firm must determine its portion in total finan#ing) Short/term finan#ing
ma( be preferred o&er long/term finan#ing for t'o reasons:
The #ost ad&antage
"le*ibilit(
But short/term finan#ing is more ris+( than long/term finan#ing) "ollo'ing
table 'ill summari.e our dis#ussion of short/term &ersus long/term finan#ing)
35
Maintaining a poli#( of short term finan#ing for short term or temporar(
assets needs (Bo* 0% and long/ term finan#ing for long term or permanent
assets needs (Bo* 5% 'ould #omprise a set of moderate ris+ 6profitabilit(
strategies) But 'hat one gains b( follo'ing alternati&e strategies (li+e b( bo*
3 or bo* 8% needs to 'eighed against 'hat (ou gi&e up)
36
CLASSIFICATION OF WORKING CAPITAL
9or+ing #apital #an be #lassified as follo's:
On the basis of time
On the basis of #on#ept
37
TYPES OF WORKING CAPITAL NEEDS
Another important aspe#t of 'or+ing #apital management is to anal(.e the
total 'or+ing #apital needs of the firm in order to find out the permanent and
temporar( 'or+ing #apital) 9or+ing #apital is required be#ause of e*isten#e
of operating #(#le) The lengthier the operating #(#le$ greater 'ould be the
need for 'or+ing #apital) The operating #(#le is a #ontinuous pro#ess and
therefore$ the 'or+ing #apital is needed #onstantl( and regularl() 4o'e&er$
the magnitude and quantum of 'or+ing #apital required 'ill not be same all
the times$ rather it 'ill flu#tuate)
The need for #urrent assets tends to shift o&er time) Some of these #hanges
refle#t permanent #hanges in the firm as is the #ase 'hen the in&entor( and
re#ei&ables in#reases as the firm gro's and the sales be#ome higher and
higher) Other #hanges are seasonal$ as is the #ase 'ith in#reased in&entor(
required for a parti#ular festi&al season) Still others are random refle#ting the
un#ertaint( asso#iated 'ith gro'th in sales due to firmBs spe#ifi# or general
e#onomi# fa#tors)
The working capital needs can be bifurcated as:
Permanent 'or+ing #apital
Temporar( 'or+ing #apital
38
Permanent working capital:
There is al'a(s a minimum le&el of 'or+ing #apital$ 'hi#h is #ontinuousl(
required b( a firm in order to maintain its a#ti&ities) E&er( firm must ha&e a
minimum of #ash$ sto#+ and other #urrent assets$ this minimum le&el of
#urrent assets$ 'hi#h must be maintained b( an( firm all the times$ is +no'n
as permanent 'or+ing #apital for that firm) This amount of 'or+ing #apital is
#onstantl( and regularl( required in the same 'a( as fi*ed assets are required)
So$ it ma( also be #alled fi*ed 'or+ing #apital)
Temporary working capital:
An( amount o&er and abo&e the permanent le&el of 'or+ing #apital is
temporar($ flu#tuating or &ariable 'or+ing #apital) The position of the
required 'or+ing #apital is needed to meet flu#tuations in demand #onsequent
upon #hanges in produ#tion and sales as a result of seasonal #hanges)
39
The permanent le&el is #onstant 'hile the temporar( 'or+ing #apital is
flu#tuating in#reasing and de#reasing in a##ordan#e 'ith seasonal demands as
sho'n in the figure)
n the #ase of an e*panding firm$ the permanent 'or+ing #apital line ma( not
be hori.ontal) This is be#ause the demand for permanent #urrent assets might
be in#reasing (or de#reasing% to support a rising le&el of a#ti&it() n that #ase
line 'ould be rising)
40
FINANCING OF WORKING CAPITAL
There are t'o t(pes of 'or+ing #apital requirements as dis#ussed abo&e) The(
are:
Permanent or "i*ed 9or+ing !apital requirements
Temporar( or Hariable 9or+ing !apital requirements
Therefore$ to finan#e either of these t'o 'or+ing #apital requirements$ 'e
ha&e long/term as 'ell as short/term sour#es)
41
FACTORS DETERMINING WORKING CAPITAL
REQUIREMENTS
There are man( fa#tors that determine 'or+ing #apital needs of an enterprise)
Some of these fa#tors are e*plained belo':
Nature or Character of Business.
The 'or+ing #apital requirement of a firm is #losel( related to the
nature of its business) A ser&i#e firm$ li+e an ele#tri#it( underta+ing or
a transport #orporation$ 'hi#h has a short operating #(#le and 'hi#h
sells predominantl( on #ash basis$ has a modest 'or+ing #apital
requirement) Oh the other hand$ a manufa#turing #on#ern li+e a
ma#hine tools unit$ 'hi#h has a long operating #(#le and 'hi#h sells
largel( on #redit$ has a &er( substantial 'or+ing #apital requirement)
4!2 nfos(stems #arr( on a#ti&ities related to #omputer s(stems)
Though the( are primaril( an assembling firm the( also ha&e
manufa#turing fa#ilities in !hennai and Pondi#herr() This requires
them to +eep a &er( si.eable amount in 'or+ing #apital)
Size of Business/Scale of Operations.
4!2 is the leader in its segment in both #onsumer as 'ell as
#ommer#ial mar+et share) The( ha&e in#reased their share in the
#onsumer segment notabl( in the last four (ears) This the( ha&e
42
a#hie&ed through retail e*pansion) The s#ale of operations and the si.e
it
holds in the ndian T mar+et ma+es it a must for them to hold their
in&entor( and #urrent asset at a huge le&el)
43
44
Rate of Growth of Business.
The rate of gro'th of sales indi#ates a need for in#rease in the 'or+ing
#apital requirements of the firm) As the firm is projected to increase
their sales b( LKM from 'hat it 'as in 3KK=$ it is required to guard
them against the in#reasing requirements of the net #urrent asset b( 'a(
of effi#ient 'or+ing #apital management) The sales and pro-e#ted sales
le&el determine the in&estment in in&entories and re#ei&ables)
HCL Infosystems
Limited
2008 2007 2006 2005 2004
PRO1ECTE
D
Gross Sales/Income
from Operations
58KK 3L55 35L0 0F=G)5
G
0<33)K5
Price Level Changes.
!hanges in the pri#e le&el also affe#t the 'or+ing #apital requirements)
t 'as the redu#ed margins in the pri#e of the ra' materials that had
prompted them to go for bul+ pur#hases thus ma+ing on additions to
their net #urrent assets) The( might ha&e gone for this large/s#ale
pro#urement for a&ailing dis#ounts and anti#ipating a rise in pri#es$
'hi#h 'ould ha&e meant that more funds are required to maintain the
same #urrent assets)
45
WORKING CAPITAL CYCLE
46
The upper portion of the diagram abo&e sho's in a simplified form the #hain of
e&ents in a manufa#turing firm) Ea#h of the bo*es in the upper part of the
diagram #an be seen as a tan+ through 'hi#h funds flo') These tan+s$ 'hi#h
are #on#erned 'ith da(/to/da( a#ti&ities$ ha&e funds #onstantl( flo'ing into
and out of them)
The #hain starts 'ith the firm bu(ing ra' materials on #redit)
n due #ourse this sto#+ 'ill be used in produ#tion$ 'or+ 'ill be #arried
out on the sto#+$ and it 'ill be#ome part of the firm7s 'or+/in/progress)
9or+ 'ill #ontinue on the 9P until it e&entuall( emerges as the
finished produ#t)
As produ#tion progresses$ labor #osts and o&erheads need ha&e to be
met)
Of #ourse at some stage trade #reditors 'ill need to be paid)
9hen the finished goods are sold on #redit$ debtors are in#reased)
47
The( 'ill e&entuall( pa($ so that #ash 'ill be in-e#ted into the firm)
Ea#h of the areas/ Sto#+ (ra' materials$ 9P$ and finished goods%$ trade
debtors$ #ash (positi&e or negati&e% and trade #reditors 6 #an be &ie'ed as tan+s
into and from 'hi#h funds flo')
9or+ing #apital is #learl( not the onl( aspe#t of a business that affe#ts the
amount of #ash)
The business 'ill ha&e to ma+e pa(ments to go&ernment for ta*ation)
"i*ed assets 'ill be pur#hased and sold
2essors of fi*ed assets 'ill be paid their rent
Shareholders (e*isting or ne'% ma( pro&ide ne' funds in the form of
#ash
Some shares ma( be redeemed for #ash
1i&idends ma( be paid
2ong/term loan #reditors (e*isting or ne'% ma( pro&ide loan finan#e$
loans 'ill need to be repaid from time/to/time$ and
nterest obligations 'ill ha&e to be met b( the business
Cnli+e$ mo&ements in the 'or+ing #apital items$ most of these Xnon/'or+ing
#apital7 #ash transa#tions are not e&er( da( e&ents) Some of them are annual
e&ents (e)g) ta* pa(ments$ lease pa(ments$ di&idends$ interest and$ possibl($
fi*ed asset pur#hases and sales%) Others (e)g) ne' equit( and loan finan#e and
redemption of old equit( and loan finan#e% 'ould t(pi#all( be rarer e&ents)
48
SOURCES OF WORKING CAPITAL
4!2 nfos(stems has the follo'ing sour#es a&ailable for the fulfillment of its
'or+ing #apital requirements in order to #arr( on its operations smoothl(:
Banks:
These in#lude the follo'ing ban+s 6
State Ban+ of ndia
!anara Ban+
41"! Ban+ 2td)
!! Ban+ 2td)
So#iete ,enerale
Standard !hartered Ban+
State Ban+ of Patiala
State Ban+ of Saurashtra
49
Commercial Papers:
!ommer#ial Papers ha&e be#ome an important tool for finan#ing
'or+ing #apital requirements of a #ompan()
!ommer#ial Paper is an unse#ured promissor( note issued b( the
#ompan( to raise short/term funds) The bu(ers of the #ommer#ial
paper in#lude ban+s$ insuran#e #ompanies$ unit trusts$ and
#ompanies 'ith surplus funds to in&est for a short period 'ith
minimum ris+)
4!2 issues !ommer#ial Papers and had 8KKK #ommer#ial papers
in the (ear 3KK=)
HCL FINANCIALS:
CONSOLIDATED FINANCIAL PERFORMANCE
50
WORKING CAPITAL POSITION :
!CRRENT ASSET 6 TOTA2 ASSET
51
PARTICULARS 2006 2005 2004 2003 2002
!CRRENT
ASSETS
0KKFGK L0<55 <8KF0 8<K83 <<FL<
NET B2O!@ GFGK <53F 8F3< 8F<8 <<<3
TOTA2 ASSETS 0338GF FF05F LGKG= G03L< G<3K<
!ANTA L3)88 L3)38 =3)03 =5)0L G8)85
The #urrent asset per#entage on total asset is the highest o&er the (ears) This
in#reasing per#entage of #urrent assets to the total assets at first might indi#ate
a preferen#e for liquidit( in pla#e of profitabilit($ but a loo+ into the nature of
the business #arried on b( 4!2 nfos(stems re&eal the reason behind it) 4o'
far their preferen#e to #urrent assets has affe#ted the sales is sho'n belo')
NET !CRRENT ASSET 6 SA2ES
PARTICULARS 2006 2005 2004 2003 2002
NET !CRRENT
ASSETS
8K585 58G83 085K0 0LG<3 3GK=<
SA2ES 35L05= 0FFLL= 0<83F< 0===K8 03GKK5
9OR@N, 0=)03 083)F5 /35)G5= /5K)G /K)8=
52
!APTA2 M
N!REASE
SA2ES M
N!REASE
0F)08 3F)<8 /G)5L 50)0L L)G
The sales has in#reased and the profits risen despite the 0=)03M in#rease in
'or+ing #apital) But 'hat is note'orth( here is that the firm has managed to
maintain the trend of an in#rease in net #urrent assets) 9hether the #hange has
'or+ed for the #ompan( has to be anal(sed in the #onte*t of the gro'th in
sales as #ompared to the pre&ious (ear) There has been a 0F)08M rise in the
sales or re&enue generated) This 'ould automati#all( suggest to'ards a &er(
effi#ient 'or+ing #apital management 'here the assets of the firm 'hi#h are
short/term in nature ha&e been utili.ed optimall( in #onne#tion to their fi*ed
assets) The firm has gone to'ards su#h a dramati# shift in their 'or+ing
#apital position might be be#ause of the tremendous gro'th 'itnessed in the
domestic IT market.
!CRRENT ASSET 6 "SE1 ASSET
PARTICULARS 2006 2005 2004 2003 2002
NET !ANNET B2O!@ <)K=3:0 =)<0F:0 3)FK5:0 5)GL<:0 8)LG<:0
53
The ratio of the net #urrent asset to the fi*ed ones is an indi#ator as to the
liquidit( position of the firm) This ratio has de#lined for the firm #ompared to
the pre&ious (ear) There #ould be an argument as to 'hether the in#reased ratio
of 'or+ing #apital to net blo#+ is a #onser&ati&e poli#( and 'hether it 'ould be
detrimental to the interest of the #ompan() Or$ 'hether it 'ould ha&e been
proper if the #ompan( in&ested more into the #apital e*penditure in the form of
plant and ma#hiner( or in&ested in an( other form that 'ould ha&e got them an
internal rate of return) 9hat has to be +ept in mind before #oming to a
#on#lusion as to the poli#( of the #ompan($ is the fa#t that the firm being
primaril( into assembling$ its in&estment in the fi*ed asset segment need not be
high) A loo+ into the #apa#it( utili.ation of the plant 'ould reaffirm this point)
t 'ould be ideal for the firm to #ontinue in the same line and not ha&e
e*#essi&e in&estment in the fi*ed asset as the( #an easil( add onto this part)
!OMPCTER and M!RO PRO!ESSOR BASE1 SYSTEMS
YEAR INSTALLED
CAPACITY
ACTUAL
PRODUCTION
CAPACITY
UTILIZATION
2006 00<KKKK <L0LK< <K)<F
2005 =KKKKK 88L030 G8)=F
2004 <3<KKK 3F<0F3 <=)35
1ATA ,RAP4!N1SP2AY MONTORNTERMNA2SN4CBS
YEAR INSTALLED
CAPACITY
ACTUAL
PRODUCTION
CAPACITY
UTILIZATION
2006 3<KKKK 3=G53= 0K=)F5
54
2005 3<KKKK 3<F=0G 0K5)L<
2004 5<KKKK 3FGFF0 L<)08
That the fi*ed assets of the firm are being put to effi#ient use and the firm is
tr(ing for optimum #apa#it( utili.ation is something that #an be easil( dedu#ed)
9hether the #urrent assets or the 'or+ing #apital of the firm has an(thing to do
'ith it is for us to see) An in#reased produ#tion in normal #ir#umstan#es means
better ra' material to finished goods #on&ersion rate$ i)e) the firm is ta+ing less
of time in the produ#tion pro#ess and this happens 'hen the #urrent asset
emplo(ed in relation 'ith the fi*ed ones are at optimum) The other notable
feature here is that though the firm has added on to its installed #apa#it( in all
three (ears$ the( 'ere still able to in#rease the #apa#it( utili.ation) That the(
ha&e been able to do it sho's that the more #urrent assets$ espe#iall( in&entor(
used in relation to the fi*ed assets$ i)e)$ plant and ma#hiner( and their
management has onl( helped in in#reasing their utili.ation to the ma*imum)
!CRRENT ASSET 6 !CRRENT 2AB2TY
PARTICULARS 2006 2005 2004 2003 2002
!CRRENT ASSETS 0KKFGK L0<55 <8KF0 8<K83 <<FL<
!CRRENT 2AB2TES =K=3G 8=GF0 5FGFK 3=3FK 3LF3K
M !CRRENT ASSETS
N!REASE
35)L8 <K)G 3K)KF /0F)<8 L)F
M!CRRENT 2AB2TES
N!REASE
3F)<G 0G)= <0)5< /F)0 0F)8<
The 0=)03M in#rease in Net !urrent assets despite of the fa#t that there has
been an in#rease in the !urrent Assets b( 35)L8M and in#rease in !urrent
2iabilit( has been b( 3F)<GM o&er that of the pre&ious (ear has to be attributed
to the fa#t that in 3KK<$ the #ompan( sho'ed su#h a high in#rease in !A$ that it
is still being offset) This is an indi#ation as to the e*panding operations of the
55
firm) 4!2 has in#reased its #urrent assets in order to meet the in#reasing sales)
The firm7s le&el of liquidit( being high$ 'e need a #he#+ on 'hether it affe#ts
the return on assets)
INVENTORY MANAGEMENT
Inventories
56
n&entories #onstitute the most important part of the #urrent assets of large
ma-orit( of #ompanies) On an a&erage the in&entories are appro*imatel( =KM
of the #urrent assets in publi# limited #ompanies in ndia) Be#ause of the large
si.e of in&entories maintained b( the firms$ a #onsiderable amount of funds is
#ommitted to them) t is therefore$ imperati&e to manage the in&entories
effi#ientl( and effe#ti&el( in order to a&oid unne#essar( in&estment)
Nature of Inventories
n&entories are sto#+ of the produ#t of the #ompan( is manufa#turing for sale
and #omponents ma+e up of the produ#t) The &arious forms of the in&entories
in the manufa#turing #ompanies are:
Raw Material: t is the basi# input that is #on&erted into the finished
produ#t through the manufa#turing pro#ess) Ra' materials are those
units 'hi#h ha&e been pur#hased and stored for future produ#tion)
Work-in-progress: n&entories are semi/manufa#tured produ#ts) The(
represent produ#t that need more 'or+ the( be#ome finished produ#ts for
sale)
Finished Goods: n&entories are those #ompletel( manufa#tured
produ#ts 'hi#h are read( for sale) Sto#+s of ra' materials and 'or+/in/
progress fa#ilitate produ#tion$ 'hile sto#+ of finished goods is required
for smooth mar+eting operations) Thus$ in&entories ser&e as a lin+
bet'een the produ#tion and #onsumption of goods)
57
Inventory Management Techniques
n managing in&entories$ the firm7s ob-e#ti&e should be to be in #onsonan#e
'ith the shareholder 'ealth ma*imi.ation prin#iple) To a#hie&e this$ the firm
should determine the optimum le&el of in&entor() Effi#ientl( #ontrolled
in&entories ma+e the firm fle*ible) neffi#ient in&entor( #ontrol results in
unbalan#ed in&entor( and infle*ibilit(/the firm ma( sometimes run out of sto#+
and sometimes pile up unne#essar( sto#+s)
Economic Order Quantity (EOQ): The ma-or problem to be resol&ed
is ho' mu#h the in&entor( should be added 'hen in&entor( is
replenished) f the firm is bu(ing ra' materials$ it has to de#ide lots in
'hi#h it has to pur#hase on replenishment) f the firm is planning a
produ#tion run$ the issue is ho' mu#h produ#tion to s#hedule) These
problems are #alled order quantit( problems$ and the tas+ of the firm is
to determine the optimum or e#onomi# lot si.e) 1etermine an optimum
le&el in&ol&es t'o t(pes of #osts:/
Ordering Costs : This term is used in #ase of ra' material and
in#ludes all the #ost of a#quiring ra' material) The( in#lude the
#osts in#urred in the follo'ing a#ti&ities:
Requisition
Pur#hase Ordering
Transporting
Re#ei&ing
nspe#ting
Storing
Ordering #ost in#rease 'ith the number of orders pla#edU thus the
more frequentl( in&entor( is a#quired$ the higher the firm7s
ordering #osts) On the other hand$ if the firm maintains large
in&entor(7s le&el$ there 'ill be fe' orders pla#ed and ordering
58
#osts 'ill be relati&el( small) Thus$ ordering #osts de#rease 'ith
the in#reasing si.e of in&entor()
Carrying Costs : !osts are in#urred for maintaining a gi&en le&el
of in&entor( are #alled #arr(ing #osts) These in#lude the follo'ing
a#ti&ities:
9arehousing !ost
4andling
Administrati&e #ost
nsuran#e
1eterioration and obsoles#en#e
!arr(ing #osts are &ar(ing 'ith in&entor( si.e) This beha&ior is
#ontrar( to that of ordering #osts 'hi#h de#line 'ith in#rease in
in&entor( si.e) The e#onomi# si.e of in&entor( 'ould thus depend
on trade/off bet'een #arr(ing #osts and ordering #ost)
Composition 2006 2005 2004
Ra' Material =58F GG8F =03G
Stores and Spares 5G05 3FLG 3=33
"inished ,oods 055G8 G38< =<K=
9or+/in/progress <F< GL8 LG0
The in#reasing #omponent of ra' materials in in&entor( is due to the fa#t
that the #ompan( has gone for bul+ pur#hases and has in#reased
#onsumption due to a fall in pri#es and redu#ed margins for the (ear)
Another reason might be the in#reasing sales$ 'hi#h might ha&e indu#ed
them to pur#hase more in anti#ipation of a further in#rease in demand of
the produ#t) And the lo' #omposition of 'or+/in/progress is
59
understandable as be#ause of the nature of the business firm is in&ol&ed
in)
To the question as to 'hether the in#reasing #osts in in&entor( are
-ustified b( the returns from it the ans'er #ould be found in the 4!2
retail e*pansion) 4!2 #aters to the need of the t'o separate segments:
a% nstitutions for 'hi#h the( manufa#ture against orders and$
b% Retail segment of the mar+et)
The( are more into retail than earlier and at present more than =<K retail
outlets branded 'ith 4!2 sign ages and more are in the pipeline
The #ompan( in order to meet its ra' materials requirements #ould ha&e
gone for frequent pur#hases$ 'hi#h 'ould ha&e resulted in lesser #ash
flo's for the firm rather than the high e*penditure in&ol&ed 'hen
pro#uring in at bul+) The reason 'h( the firm has gone for these bul+
pur#hases be#ause of the lo'er margins and the dis#ounts it a&ailed
be#ause of pro#uring in bul+ quantities)
A negati&e gro'th in 9P #ould be be#ause:
a% The time ta+en to #on&ert ra' materials to finished goods is &er(
minimal
b% This is also due to #apa#it( being not utili.ed at the optimum)
ABC System: AB! s(stem of in&entor( +eeping is follo'ed in the
fa#tories) Harious items are #ategori.ed into three different le&els in the
order of their importan#e) "or e)g) items su#h as memor($ high #apa#it(
pro#essors and ro(alt( are pla#ed in the XA7 #ategor() 2arge number of
firms has to maintain se&eral t(pes of in&entories) t is not desirable the
same degree of #ontrol all the items) The firm should pa( ma*imum
attention to those items 'hose &alue is highest) The firm should
therefore$ #lassif( in&entories to identif( 'hi#h items should re#ei&e the
60
most effort in #ontrolling) The firm should be sele#ti&e in approa#h to
#ontrol in&estment in &arious t(pes of in&entories) This anal(ti#al
approa#h is #alled ?AB! Anal(sisA) The high/&alue items are #lassified
as ?A itemsA and 'ould be under tightest #ontrol) ?! itemsA represent
relati&el( least &alue and 'ould require simple #ontrol) ? B itemsA fall in
bet'een the t'o #ategories and require reasonable attention of
management)
1IT: The rele&an#e of ET in 4!2 nfo s(stem #an be questioned) This
is be#ause the( pro#ure materials on the basis of pro-e#tions made at
least t'o or three months before) E&en at the time of pro#urement the(
ensure that the( pro#ure mu#h more than 'hat a#tuall( is required b(
the firm that is the( hold signifi#ant amount of in&entor( as safet( sto#+)
This is done to #ounter the threat in&ol&ed in default and a##idental
brea+do'ns) The le&els of safet( sto#+ usuall( &ar( a##ording to the
usage)
61
Conversion Periods
Raw Material
62
Particulars 2006 2005 2004
Ra' Material !onsumption 030KGG FGFG0)50 <GGG<)08
Ra' Material !onsumptionNda( 553 3=L)80 0<L)3L
Ra' Material n&entor( GKG3 =F=K)3G< 85=8)G5<
Ra' Material 4olding 1a(s 30 3<)F5 3G)<G
The ra' material #on&ersion period or the ra' material holding #ost has
redu#ed from 3= to 30) This is despite an in#rease in its #onsumption) This
indi#ates that the firm is able to #on&ert the ra' material at its disposal to the
'or+/in/progress at a lesser time as #ompared to the last (ear) t 'ould be to
the benefit of the firm to redu#e the produ#tion pro#ess and in#rease the
#on&ersion rate still as the firm is required to meet the in#reasing demand)
Work-in-progress
!ost of Produ#tion 0F0F00 0<F=<0)0F 005<KK)55
!ost of Produ#tionNda( <3<)GL 85G)8 50K)F<
9or+ in progress in&entor( =LF)< L3G)<3 =GF)8<<
9P 4olding da(s 0)50 0)LF 3)0F
The 'or+/in/progress holding time is important for a firm in the sense that it
determines the rate of time at 'hi#h the produ#tion pro#ess 'ill be #omplete or
the finished goods 'ill be read( for disposal b( the firm) The firm as it is in the
pro#ess of assembling should ta+e the least possible time in #on&ersion to
finished goods unli+e a hard #ore manufa#turing firm$ as an( firm 'ould li+e to
ha&e its in&entor( in the 'or+/in/progress at the minimum) There 'ould also
be less of sto#+ out #osts as due to better #on&ersion rates the firm is able to
meet the rise in demand situations) More the time it spends lesser its effi#ien#(
'ould be in the mar+et) 4ere the firm has been able to bring do'n its 9P
#on&ersion periods)
63
Finished Goods
!ost of goods sold 33L0GG 0GL85L)L
<
038G=L)F3
!ost of goods soldNda( =3< 8LL)LG 580)L53
"inished goods in&entor( 0K50K =LG<)G3< <K3=)<K<
"inished goods in&entor( 4olding da(s 0= 08)K= 08)L
The time ta+en for the firm to reali.e its finished goods as sales has in#reased
as #ompared to last (ear) This gro'th in sales #ould be tra#ed ba#+ to the
gro'ing domesti# T mar+et for the #ommer#ial as #onsumer segment in ndia)
4!2 has around 0<M of the mar+et in des+top and it is the mar+et leader in
this segment) So it is onl( natural that the( are able to better their #on&ersion
rate of finished goods to sales)
Operating Cycle
n&entor( #on&ersion period 5L 83 8<
A&erage #olle#tion period GK =5 ==
,ross operating #(#le 0KL 0K< 000
A&erage pa(ment period 33 35 0G
Operating #(#le L= L3 F8
The operating #(#le of the firm re&eals the da(s 'ithin 'hi#h the in&entor(
pro#ured gets #on&erted to sales or re&enue for the firm) This time period is of
importan#e to the firm as a lag here #ould signifi#antl( affe#t the profitabilit($
liquidit($ #redit terms$ and the poli#ies of the firm) All the firms 'ould li+e to
redu#e it to su#h e*tend that their #ash inflo's are timel( enough to meet their
obligations and support the operations) That the firm has been able to redu#e
64
the ratio is in itself an a#hie&ement as the( 'ere ha&ing huge sto#+s of
in&entor() But the redu#tion in the #(#le #ould also be attributed to the boom in
the mar+et and the gro'th it is e*pe#ted to rea#h) This boom automati#all(
ensures the demand for the finished goods and thus helping in it to garner sales
for the firm)
Raw Material Consumption
mported F3KKG GKGL8)3
G
8303F)=5
ndigenous 3FKGK 3G0LG)K
8
0<=8<)<0
M mports G<)FF G3)3< G3)F3
A ma-or #hun+ of the imports #ome from @orea and Tai'an and is pur#hased
in CSP) The &alue of imported and indigenous ra' material #onsumed gi&e a
#lear pi#ture that if there is a #hange in the ESM poli#( of the go&ernment it is
bound to affe#t the #ompan( ad&ersel( as more than GKM of their #onsumption
is from imports) But this is the s#enario 'itnessed in the industr( as a 'hole
and though 4!2 is into e*panding its operation to Cttaran#hal it in the present
state is 'ould be affe#ted b( a #hange in the import dut( stru#ture)
A ma-or #hun+ of their #urrent assets are in the form of in&entor( and the
#hange in te#hnolog( 'ill in&ariabl( be a threat fa#ed b( the firm) The question
of te#hnolog( appl(ing here li+e sa(s a #ertain de&i#e going sa( out of fashion
or outdated) "or e)g) T"T monitors being in demand more than !RT)
CASH MANAGEMENT
65
SOURCES OF CASH:
Sources of additional working capital include the following:
E*isting #ash reser&es
Profits ('hen (ou se#ure it as #ashY%
Pa(ables (#redit from suppliers%
Ne' equit( or loans from shareholders
Ban+ o&erdrafts or lines of #redit)
2ong/term loans
f (ou ha&e insuffi#ient 'or+ing #apital and tr( to in#rease sales$ (ou #an
easil( o&er/stret#h the finan#ial resour#es of the business) This is #alled
overtrading.
Early warning signs include:
Pressure on e*isting #ash
E*#eptional #ash generating a#ti&ities e)g) offering high dis#ounts for
earl( #ash pa(ment
Ban+ o&erdraft e*#eeds authori.ed limit)
See+ing greater o&erdrafts or lines of #redit
Part/pa(ing suppliers or other #reditors
Pa(ing bills in #ash to se#ure additional supplies
Management pre/o##upation 'ith surviving rather than managing
"requent short/term emergen#( requests to the ban+ (to help pa( 'ages$
pending re#eipt of a #heque%)
66
CASH MANAGEMENT IN HCL INFOSYSTEMS:
The cash management system followed by the HCL Infosystems is mainly
lock box system.
!ash Management S(stem in&ol&es the follo'ing steps:
0) The bran#h offi#es of the #ompan( at &arious lo#ations hold the
#olle#tion of #heques of the #ustomers)
3) Those #heques are either handed o&er to the !MS agen#ies or ban+ of
the parti#ular lo#ation ta+e #harge of 'hole #olle#tion)
5) These !MS agen#ies or ban+ send those #heques to the #learing house to
ma+e them reali.ed) These #heques #an be lo#al or outstation)
8) The !MS agen#ies or ban+ send information to the #entral hub of the
#ompan( regarding reali.ationN#heque boun#ed)
<) The #entral hub passes on the reali.ed funds to the #ompan( as per the
agreed agreements)
=) The !MS agen#ies or #on#erned ban+ pro&ides the ne#essar( MS to the
#ompan( as per requirement)
n #ash management the #olle#t float ta+en for the #heques to be reali.ed into
#ash is irrele&ant and non/interfering be#ause ban+s su#h as Standard
!hartered$ 41"! and !itiBan+ 'ho gi&e #redit on the basis of these #heques
after #harging a &er( small amount) These #redits are gi&en to immediatel( and
the ma*imum time ta+en might be -ust a da() The amount the( #harge is &er(
lo' and this might #o&er the threat of the #heque sent in b( t'o or three
#ustomers boun#ing) E&en other'ise the time ta+en for the #heques to be
pro#essed is instantaneous) Their !ash Management S(stem is quite effi#ient)
67
68
Cash-Current Liability
Particulars 3KK= 3KK< 3KK8
Absolute 2iquid Ratio K)38:0 K)50:0 K)00:0
The absolute liquid ratio is the best for three (ears and the #ash balan#es as to
the #urrent liabilit( has impro&ed for the firm) "irm has large resour#es in #ash
and ban+ balan#es) 9hile large resour#es in #ash and ban+ balan#es ma( seem
to affe#t the re&enue the firm #ould ha&e earned b( in&esting it else'here as
maintenan#e of #urrent assets as #ash and in near #ash assets and mar+etable
se#urities ma( in#rease the liquidit( position but not the re&enue or profit
earning #apa#it( of the firm)
Dividend Policy-Cash
1i&idend Poli#(M 30K 50K 8KK
Shift in Sales 0<83F< 0FFLL= 35L05=
!ash Balan#e 88=5)85 08<L3)=< 08<3F)3F
!ash in 4and 00L)55 03L)FG 03L)FG
69
70
The other notable feature in 4!2 statements has been the gro'ing di&idend
poli#( of the firm) The pa(ment of di&idend means a #ash outflo') Thus #ash
position is an important #riterion at the time of pa(ing di&idends) There is a
theor( that greater the #ash position and abilit( to pa( di&idends) The firm has
adopted a poli#( of disbursing the re&enue earned as profits to the shareholders
as di&idends as #ould be seen from the in#reasing M of di&idends de#lared)
PB1T 083L8 0<=58 08<35
Equit( 1i&idendM 8KK 50K 30K
This #ould mean t'o things for the firm the amount of #ash retained in the
business for #apital e*penditure purposes are minimal or nil) But rather than
in&esting more in plant and ma#hine 'hi#h the( #an at an( point in time b(
adding on a additional line if need the( 'ould li+e to optimi.e their utili.ation
in fi*ed assets at present) This also means that the per#entage of #ash in hand
maintained b( the firm as a sour#e of liquidit( #ould be redu#ed$ i)e) the
71
amount of idle #ash in the business #ould be made to a le&el 'hi#h the firm
feels optimum)
The firm feels that the( should retain #ash and it 'ould be in the interest of the
firm as 'ell as the shareholders) This 'ould automati#all( mean as de#rease in
EarningNshare (EPS%(Basi# EPS de#lined from L in 3KK< to =)G8 in 3KK=%) t
'ould prompt more of in&estors being interested in the shares of the #ompan($
'hi#h 'ould boost the pur#hase of the se#urities and in#rease the mar+et
pri#eNshare thus being benefi#ial for the firm)
Cash Flows
Cash Flows 2006 2005 2004
Net !ash from Operating a#ti&ities =F38 3=G<)<G 05GK=)58
Net !ash from n&esting a#ti&ities /5<0< 0<==0)3F /30=F)0=
Net !ash from "inan#ing a#ti&ities /5<03 /L30G)=L /00803)0
The firm has disposed of in&estments 'orth around =<< !rores to meet its
gro'ing needs) The other notable feature is de#line is the firm7s inflo's from
operations primaril( due to the reason that the #ash generated from the
operations is the lo'est in three (ears) And the firm7s gro'ing di&idend poli#(
has #ontributed to the outflo's in finan#ing a#ti&ities)
Cash Flow in Operating Activities
Working Capital Changes
Working Capital Changes 2006 2005 2004
Trade and other re#ei&ables /080== /08<0K)=F /G0K=)=L
n&entories /<330 /3=L5)F3 /G330)00
Trade Pa(ables and other 2iabilities 05K3= =80F)05 08500)<
72
The #ash from the operation has been sub-e#t to #onsiderable #hange due to the
#hanges that #ould be ad-usted to'ards trade re#ei&ables and trade pa(ables)
The outflo's in in&entor( ha&e be#ome as lo' as 5GM of 'hat it 'as last (ear
despite an in#rease in the in&entor( #onsumption b( 0=)=8M) The resulting
redu#tion in the #ash outflo's might be be#ause of the in&entories being
pro#ured more on #redit) That the #ash from operations has de#lined has
affe#ted the #urrent liabilit( inde* of the firm)
Cash Flow in Investing Activities
Investments in Mutual Funds 2006 2005 2004
n&estments ((ear end% 05<5F 033GG)88 3LK<F)LL
Pur#hase of n&estment /=<FF3 /<5KG<)FF /<F38F)L0
1isposalNRedemption of n&estment =<503 =<8LF)L8 <3KLG)5=
The in&estments ha&e redu#ed from the last (ear due to the redemption of
in&estments ta+en pla#e to meet &arious needs su#h as in#reasing demand in
sto#+ or in&entor( and to ensure better #redit and re#ei&ables poli#() 9e #an
see that the firm has in these three (ears in#reased their #ash inflo' from the
in&esting a#ti&ities b( 'a( of disposal of in&estments 'hen in need) That is the
firm has redeemed to reali.e #ash as to meet its e*panding operations$ fund the
in&entor( pro#urement and meet the obligations)
The in&estments in mutual funds are benefi#ial to the firm in the #onte*t that
the( #ontain interest bearing se#urities 'hi#h add up as a sour#e of re&enue for
the firm unli+e #ash 'hi#h remains idle and unprodu#ti&e 'hen not in use) This
redu#tion of di&idend #ould be attributed to disposal of in&estments in mutual
funds and subsidiar() This disposal #reates a fund$ 'hi#h #an be used b( the
#ompan( as and 'hen the need arises)
73
Cash vs. Marketable Securities
The in&estment in mar+etable se#urities rather than ha&ing large #ash balan#es
in something that has been gi&en thought for b( the firm) This is be#ause 'hile
a firm gets re&enue in the form of interests b( in&estments$ it a#tuall( has to
pa(s #ertain amount mone( to the ban+s for maintaining #urrent a##ounts and
fi*ed deposits usuall( ha&e a longer maturit( period) That is$ the problem 'ith
high in&estments is that the opportunit( to earn is lost$ thus a firm has to
maintain an optimal #ash balan#e) But the in&estment in mutual funds or other
mar+etable se#urities might #reate a problem of in&estment$ as the( might not
be readil( reali.able as sa( liquid #ash or the amount deposited in the #urrent
a##ount) The in&estments in sa( fi*ed assets sa( ma( earn a fi*ed rate of
interest but the( ha&e a maturit( period atta#hed to them)
n 4!2$ Standard !hartered is the #on#entration ban+ in 'hi#h all the inflo's
from the deposit ban+s are #on#entrated and passed on to the disbursement
ban+s for further disbursement)
Liquid Cash Balance
The liquid #ash maintained in the business is onl( that mu#h as is required to
satisf( the dail( requirements of the firm and not more) The rest of the #ash is
in&ested into mutual funds and also held in fi*ed deposits and #urrent a##ounts)
Instruments Used
The instrument used here are primaril( #heques #omprising of around FGM of
'hat is used in) The rest 3/5M #omprise of the letters of #redit)
Thus 'or+ing #apital is the lifeline for e&er( business) The main ad&antages of
suffi#ient 'or+ing #apital are:
t helps in prompt pa(ment
74
Ensures high sol&en#( in the #ompan( and good #redit standing)
Regular suppl( of material and #ontinuous produ#tion)
Ensures regular pa(ment of salaries and 'ages and da( to da(
#ommitments)

75
RECEIVABLES MANAGEMENT
!ash flo' #an be signifi#antl( enhan#ed if the amounts o'ing to a business
are #olle#ted faster) E&er( business needs to +no')))) 'ho o'es them
mone()))) ho' mu#h is o'ed)))) ho' long it is o'ing)))) for 'hat it is o'ed)
Late payments erode profits and can lead to bad debts.
Slo' pa(ment has a #rippling effe#t on businessU in parti#ular on small
businesses 'hom #an least afford it) f (ou donBt manage debtors$ the( 'ill
begin to manage (our business as (ou 'ill graduall( lose #ontrol due to
redu#ed #ash flo' and$ of #ourse$ (ou #ould e*perien#e an in#reased
in#iden#e of bad debt)
The following measures will help manage your debtors:
0)4a&e the right mental attitude to the #ontrol of #redit and ma+e sure that it
gets the priorit( it deser&es)
3)Establish #lear #redit pra#ti#es as a matter of #ompan( poli#()
5)Ma+e sure that these pra#ti#es are #learl( understood b( staff$ suppliers
and #ustomers)
8)Be professional 'hen a##epting ne' a##ounts$ and espe#iall( larger ones)
76
<)!he#+ out ea#h #ustomer thoroughl( before (ou offer #redit) Cse #redit
agen#ies$ ban+ referen#es$ industr( sour#es et#)
=)Establish #redit limits for ea#h #ustomer and sti#+ to them)
G)!ontinuousl( re&ie' these limits 'hen (ou suspe#t tough times are
#oming or if operating in a &olatile se#tor)
L)@eep &er( #lose to (our larger #ustomers)
F)n&oi#e promptl( and #learl()
0K)!onsider #harging penalties on o&erdue a##ounts)
00)!onsider a##epting #redit Ndebit #ards as a pa(ment option)
03)Monitor (our debtor balan#es and aging s#hedules$ and donBt let an( debts
get too old)
Re#ogni.e that the longer someone o'es (ou$ the greater the #han#e (ou 'ill
ne&er get paid) f the a&erage age of (our debtors is getting longer$ or is
alread( &er( long$ (ou ma( need to loo+ for the follo'ing possible defe#ts)
Poor #olle#tion pro#edures)
2a* enfor#ement of #redit terms)
Slo' issue of in&oi#es or statements)
Errors in in&oi#es or statements)
!ustomer dissatisfa#tion)
9ea+ #redit -udgement)
77
1ebtors due o&er FK da(s (unless 'ithin agreed #redit terms% should generall(
demand immediate attention) 2oo+ for the 'arning signs of a future bad debt)
"or e*ampleZ))
0) 2onger #redit terms ta+en 'ith appro&al$ parti#ularl( for smaller orders)
3) Cse of post/dated #he#+s b( debtors 'ho normall( settle 'ithin agreed terms)
5) E&iden#e of #ustomers s'it#hing to additional suppliers for the same goods)
8) Ne' #ustomers 'ho are relu#tant to gi&e #redit referen#es)
<) Re#ei&ing part pa(ments from debtors)
Profits only come from paid sales.
The a#t of #olle#ting mone( is one$ 'hi#h most people disli+e for man( reasons
and therefore put on the long finger be#ause the( #on&in#e themsel&es that there
is something more urgent or important that demand their attention no') There is
nothing more important than getting paid for (our produ#t or ser&i#e) A #ustomer
'ho does not pa( is not a #ustomer)
HERE ARE FEW WAYS IN COLLECTING MONEY FROM DEBTORS: -
1e&elop appropriate pro#edures for handling late pa(ments)
Tra#+ and pursue late pa(ers
,et e*ternal help if (ou o'n efforts fail)
1on7t feel guilt( as+ing for mone( )) its (ours and (ou are entitled to it)
Ma+e that #all no') And +eep as+ing until (ou get some satisfa#tion)
n diffi#ult #ir#umstan#es$ ta+e 'hat (ou #an no' and agree terms for the
remainder$ it lessens the problem)
9hen as+ing for (our mone($ be hard on the issue 6 but soft on the person)
1on7t gi&e the debtor an( e*#uses for not pa(ing)
Ma+e that (our ob-e#ti&e is to get the mone($ not to s#ore points or get e&en)

RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS:
PART!C2ARS 3KK= 3KK< 3KK8 3KK5
1EBTORS TCRNOHER RATO <)30 <)LK <)<5 =)=3
AHERA,E !O22E!TON PERO1 GK =5 == <<
A better turno&er ratio implies for the firm$ more effi#ien#( in #on&erting the
a##ounts re#ei&able to #ash) A firm 'ith &er( high turno&er ratio #an ta+e the
freedom of holding &er( little balan#es in #ash$ as their debtors are easil(
reali.able) n #ase of 4!2$ the #olle#tion period for the firm is GK da(s)
PARTICULARS 2006 2005 2004
PROVISION FOR DOUBTFUL DEBTS(CASH FLOW) 5 8F)L< 3<
DEBTS DOUBTFUL(EXCEEDING 6 MONTHS) 8G 058)KF =F)L
The debts doubtful ha&e doubled but their per#entage on the debts has almost
be#ome half) This implies a sales and #olle#tion poli#( that get along 'ith the
re#ei&ables management of the firm)
COLLECTION POLICIES:
t refers to the #olle#tion pro#edures su#h as letters$ phone #alls and other follo'
up me#hanism to re#o&er the amount due from the #ustomers) t is ob&ious that
#osts are in#urred to'ards the #olle#tion efforts$ but bad debts as 'ell as a&erage
#olle#tion period 'ould de#rease) "urther$ a stri#t #olle#tion poli#( of the firm is
e*pensi&e for the firm be#ause of the high #ost is required to be in#urred b( the
firm and it ma( also result in loss of good'ill) But at the same time it minimi.es
the loss on a##ount of bad debts) Therefore$ a firm has to stri+e a balan#e bet'een
the #ost and benefits asso#iated 'ith #olle#tion poli#ies)
The steps usuall( follo'ed in #olle#tion efforts are:
Sending repeated letters and reminders to the #ustomers
Personal &isits
Csing agen#ies in&ol&ed in #olle#tion pro#ess
Ma+ing telephoni# reminders
nitiating legal a#tions
Real Time ,ross Settlement (RT,S%
Real Time ,ross Settlement as su#h is a #on#ept ne' in nature and though the
firm uses the s(stem 'ith all the members of the #onsortium$ it is still in its primal
stage and 'ill ta+e time before all of the #lients of the firm are 'illing to a##ept it)
The firm has made a proposal to the #onsortium of the ban+s during appraisal for
faster implementation of internet based ban+ing fa#ilit( b( all the ban+s and
adoption of RT,S pa(ment s(stem through net)
The debtor7s turno&er ratio is #ompletel( dependent upon the #redit poli#(
follo'ed b( the firm) The #redit poli#( follo'ed b( the firm should be su#h that
the threat of bad debts and the default rate in&ol&ed should be terminated)
PART!C2ARS 3KK= 3KK< 3KK8 3KK5
!RE1TORS TCRNOHER RATO 16.44 15.68 21.29 21.14
PAYMENT PERO1 22 23 17 16
That the #reditors turno&er ratio has de#lined and pa(ment period has in#reased
indi#ate that the #ompan( has got a lee'a( in ma+ing the pa(ment to the #reditors
b( 'a( of in#reased time)
9ith #reditors the( are ha&ing pre/agreements and ha&e underta+en arrangements
'ith them$ 'hi#h the( belie&e to be the best in the business and these are fi*ed)
(NOTE: A##eptan#es are not in#luded in the #omputation of #reditors turno&er%
MANAGING PAYABLES (Creditors)
Creditors are a vital part of effective cash management and should be
managed carefully to enhance the cash position.
Pur#hasing initiates #ash outflo's and an o&er/.ealous pur#hasing fun#tion #an
#reate liquidit( problems)
Consider the following: -
9ho authori.es pur#hasing in (our #ompan( / is it tightl( managed or spread
among a number of (-unior% peopleD
Are pur#hase quantities geared to demand fore#astsD
1o (ou use order quantities$ 'hi#h ta+e a##ount of sto#+ holding and
pur#hasing #ostsD
1o (ou +no' the #ost to the #ompan( of #arr(ing sto#+D
1o (ou ha&e alternati&e sour#es of suppl(D f not$ get quotes from ma-or
suppliers and shop around for the best dis#ounts$ #redit terms as it redu#es
dependen#e on a single supplier)
4o' man( of (our suppliers ha&e a return poli#(D
Are (ou in a position to pass on #ost in#reases qui#+l( through pri#e in#reases
to (our #ustomersD
f a supplier of goods or ser&i#es lets (ou do'n #an (ou #harge ba#+ the #ost
of the dela(D
!an (ou arrange ('ith #onfiden#eY% to ha&e deli&er( of supplies staggered or
on a -ust/in/time basisD
There is an old adage in business that if you can buy !ell then you can sell
!ell. Management of (our #reditors and suppliers is -ust as important as the
management of (our debtors) t is important to loo+ after (our #reditors/ slo'
pa(ment b( (ou ma( #reate ill feeling and #an signal that (our #ompan( is
ineffi#ient (or in troubleY%)
Remember that a good supplier is someone 'ho 'ill 'or+ 'ith (ou to enhan#e the
future &iabilit( and profitabilit( of (our #ompan()
Financing Current Assets
The firm has to de#ide about the sour#es of funds$ 'hi#h #an be a&ailed to ma+e
in&estment in #urrent assets)
Long term financing:
t in#ludes ordinar( share #apital$ preferen#e share #apital$ debentures$ long term
borro'ings from finan#ial institutions and reser&es and surplus)
Short term financing:
t is for a period less than one (ear and in#ludes 'or+ing #apital funds from
ban+s$ publi# deposits$ #ommer#ial paper et#)
Spontaneous financing:
t refers to automati# sour#es of short/term funds arising in normal #ourse of
business) There is no e*pli#it #ost asso#iated 'ith it) "or e*ample$ Trade !redit
and Outstanding E*penses et#)
Depending on the mix of short and long term financing, the company can
follow any of the following approaches.
Matching Approach
n this$ the firm follo's a finan#ial plan$ 'hi#h mat#hes the e*pe#ted life of
assets 'ith the e*pe#ted life of sour#e of funds raised to finan#e assets) 9hen the
firm
follo's this approa#h$ long term finan#ing 'ill be used to finan#e fi*ed assets
and permanent #urrent assets and short term finan#ing to finan#e temporar( or
&ariable #urrent assets)
Conservative Approach
n this$ the firm finan#es its permanent assets and also a part of temporar( #urrent
assets 'ith long term finan#ing) n the periods 'hen the firm has no need for
temporar( #urrent assets$ the long/term funds #an be in&ested in tradable se#urities
to #onser&e liquidit() n this the firm has less ris+ of fa#ing the problem of
shortage of funds)
Aggressive Approach
n this$ the firm uses more short term finan#ing than 'arranted b( the mat#hing
plan) Cnder an aggressi&e plan$ the firm finan#es a part of its #urrent assets 'ith
short term finan#ing)
Relati&el( more use of short term finan#ing ma+es the firm more ris+()

Current asset to fixed asset ratio:
The finan#ial manager should determine the optimum le&el of #urrent assets so
that the 'ealth of shareholders is ma*imi.ed) A firm needs fi*ed and #urrent
assets to support a parti#ular le&el of output)
The le&el of #urrent assets #an be measured b( relating #urrent assets) 1i&iding
#urrent assets b( fi*ed assets gi&es !AN"A ratio) Assuming a #onstant le&el of
fi*ed assets$ a higher !AN"A ratio indi#ates a #onser&ati&e #urrent assets poli#(
and a lo'er !AN"A ratio means an aggressi&e #urrent assets poli#( assuming
other fa#tors to be #onstant) A #onser&ati&e poli#( i)e) higher !AN"A ratio
implies greater liquidit( and lo'er ris+U 'hile an aggressi&e poli#( i)e) lo'er
!AN"A ratio indi#ates higher ris+ and poor liquidit() The #urrent assets poli#( of
the most firms ma( fall bet'een these t'o e*treme poli#ies) The alternati&e
#urrent assets poli#ies ma( be sho'n 'ith the help of the follo'ing figure)
n this figure the most #onser&ati&e poli#( is indi#ated b( alternati&e A$ 'here as
!AN"A ratio is greatest at e&er( le&el of output) Alternati&e ! is the most
aggressi&e poli#($ as !AN"A ratio is lo'est at all le&els of output) Alternati&e B
lies bet'een the #onser&ati&e and aggressi&e poli#ies and is an a&erage poli#()
WORKING CAPITAL & SHORT-TERM FINANCING
CONSORTIUM BASED FINANCING
Current Working Capital Limits
NAME OF THE BANK FUND BASED NON-FUND BASED
STATE BAN@ O" N1A
5=KK 8=KKK
!! BAN@
03L3 0FKKK
41"! BAN@
03KK 0KKKK
STAN1AR1 !4ARTERE1 BAN@
03KK 0FKKK
STATE BAN@ O" SACRAS4TRA
G0< G<KK
STATE BAN@ O" PATA2A
05KK GGKK
!ANARA BAN@
03K5 =KKK
SO!ETE ,ENERA2E
0KKK 8KKK
4SB! BAN@
0KKK 0L5KK
TOTAL
12500 137500
n order to finan#e the 'or+ing #apital needs of the firm in the form of 9or+ing
!apital 1emand 2oan$ there is a #onsortium of nine ban+s) The #onsortium if
ban+s pro&ide a fund based limit of 03< !rores 'hi#h #omprises of #ash #redit and
'or+ing #apital demand loans and non/fund based limits 'hi#h has ban+ gurantee
and letter of #redit sub-e#t to a limit of 05G< !rores) The Lead Bank in this
#onsortium of ban+s is State Bank of India and the second lead bank is ICICI)
t is SB$ 'hi#h fi*es the limit on the basis of #onsortium) The($ in #onsultation of
the #ompan( de#ide the allo#ation of limit to &arious member ban+s) The
allo#ation #annot be higher than the limits fi*ed b( it) SBI is the biggest
contributor in the #onsortium for both fund and non/fund based limits 'ith about
31.30 in funds and 34.02 in non-fund limits) The ratio of both limits for the (ear
2006 is 0.23:0.77
t is on the basis of the a##ounts re#ei&able that the ban+s #ome to an agreement
'ith regards to the limits imposed) Though it is the fund based limits that finan#e
the 'or+ing #apital requirements$ the non/fund based limits are important for the
management of the 'or+ing #apital as there might be #lients 'ho are not 'illing
to sell on open #redit and might be demanding letters of #redit before an(
ad&an#es)
RENEWAL OF LIMITS
LIMITS 2006 2005 2004
"CN1 BASE1 00<KK 00<KK 00<KK
NON "CN1 BASE1 8L<KK 5L<KK 3L<KK
TOTAL 60000 50000 40000
All ban+s san#tion the limits for a period of one (ear) Thereafter it is to be
rene'ed e&er( (ear) SB appraises the limit on the basis of #onsortium) The
indi&idual ban+s appraise for their o'n indi&idual limit) The non fund based limits
of the firm in #onsortium finan#ing has been sub-e#ted to #hange for the past t'o
(ears as per the requirements of the firm and the #onsent of the lead ban+ to its
proposal) t 'as around 5L< !rores in 3KK< and had been risen to around 8L<
!rores in 3KK=)
A proposal has been made b( the firm to further appraise the limits by 100
Crores to 585 Crores in &ie' of the gro'ing operations of the firm 'ith full
inter#hangeabilit( bet'een letter of #redit and ban+ guarantee limits for
operational fle*ibilit() Allo#ation of the fund based and non based limits among
the ban+s based on operational #on&enien#e rather than allo#ating the fund based
and non fund based on the same ratio is also among the proposals made b( the
firm)
The #ompan( needs to pro&ide the follo'ing information to ban+ for appraisals:
!redit Monitoring Appraisal
9rite Cp on #ompan(
Share holding pattern
2ist of the dire#tors
CONSORTIUM MEETING :
All the members of the #onsortium are required to meet to dis#uss &arious issues
relating to the 'or+ing fa#ilities) As per RB guidelines$ the lead ban+$ i)e)$ SB
should ensure that one #onsortium meeting is held e&er( quarter snd this meeting
has to be arranged b( 4!2)
DOCUMENTATION and 1OINT DOCUMENTATION:
There are &arious do#uments that need to be signed at the time of rene'al or
indu#ting an( ban+ to the #onsortium) The &arious do#uments are as follo's:
2oan agreement
4(pothe#ation agreement for mo&able ma#hiner(
4(pothe#ation agreement for mo&ables and boo+ debts
!ounter ndemnit(
The abo&e are the standard agreements as+ed for b( the ban+s) The #ommon seal
has to be 'itnessed b( the #ompan( se#retar( and one of the dire#tors of the
#ompan()
As of 3KK<$ no additions or deletions 'ere made to the #onsortium of the ban+s)
But o&er the (ears the number of ban+s in the #onsortium ha&e been redu#ed)
ndian Ban+s and State Ban+ of 4(derabad are the t'o ban+s 'hi#h 'ere earlier a
part of the #onsortium)
Eoint 1o#umentation is e*e#uted bet'een the #ompan( and the #onsortium of
ban+s for the 'or+ing #apital fa#ilities e*tended b( the #onsortium to the
#ompan() The -oint do#umentation is &alid for three (ears) The do#uments
#omprising -oint do#umentation are:
9or+ing !apital #onsortium agreement
Eoint deed of do#umentation
nter se agreement bet'een ban+ers
2etter of authorit( to lead ban+ b( other #onsortium ban+s
2etter of authorit( to se#ond lead ban+ b( other #onsortium ban+s
Cnderta+ing to #reate #harge on the assets of the #ompan()
ALLOCATION OF LIMIT BY LEAD BANK
SB appraises the limit on behalf of the #onsortium) t in #onsultation 'ith the
#ompan( de#ided the allo#ation of the limit to &arious member ban+s) The
allo#ation of an( member ban+ #annot be higher than the limit san#tioned b( it)
The dra'ing po'er for it fund based limits out of the #onsortium are determined
on the basis of the sto#+ statement submitted b( the #ompan() 4!2 is required to
submit the sto#+ statement to all member ban+s in #onsortium for e&er( month)
FINANCIAL FOLLOW UP REPORTS ( FFRI & FFRII):
E&er( quarterl( and half quarterl( inter&als$ the firm submits "inan#ial "ollo' Cp
Reports and ) ""R is an e*tra#t of the balan#e sheet) n this report$ the
#ompan( is required to submit the details of sales$ #urrent assets and #urrent
liabilities for the quarter and the estimates for the #urrent (ear) ""R 6 the
#ompan( is required to prepare P;2$ BNS and !ash "lo' in a different format)
The information is to be pro&ided for the last (ear (a#tual%$ #urrent (ear half (earl(
results (a#tual% and the estimates for the ne*t (ear)
SHORT TERM FINANCING
Other than the in&estment in #urrent assets$ the firm also has to be #on#erned 'ith
short/term to long/term debt as this pla(s a &er( important role in determining the
amount of ris+ underta+en b( the firm) That is $ the firm not onl( has to be
#on#erned about #urrent assets but also the sour#es through 'hi#h the( are
finan#ed) A firm before finan#ing in either of the t'o$ has to ta+e into
#onsideration &arious aspe#ts) 9hile short term might seem the ideal 'a( to
finan#e (our assets than the long term due to shorter maturit( period and also less
of #osts are in&ol&ed$ there is an inherent ris+ in short term finan#ing due to
flu#tuating interest rates and due to the reason that the firm might be unable to
rea( the amount in a shorter span of time)
SECURED LOANS 2006 2005 2004 2003
SHORT TERM 5L8F 8FF0)3L =FK5)G 8FLG)<3
LONG TERM K <5K)KG K 58=0)5=
TOTAL 5L8F <<30)5< =FK5)G L88L)LL
SHORT TERM 0KK FK)8 0KK <F)K5
Cnder se#ured loan #ash #redit$ along 'ith non fund based fa#ilities$ foreign
#urren#( term loan from ban+s are se#ured b( 'a( of h(pothe#ation of sto#+/in/
trade$ boo+ debts as first #harge and b( 'a( of se#ond #hanrge on all the
immo&able and mo&able assets of the parent #ompan() Term loan in ndian rupees
from a ban+ is sub-e#t to a prior #harge in fa&our of #ompan(7s ban+ers on boo+
debts and sto#+ in trade for 'or+ing #apital fa#ilities)
UNSECURED LOANS 2006 2005 2004 2003
SHORT TERM 0<0K8 3<F5)5F =5)F8 G=)L8
LONG TERM 00 0G 0=F)<0 53=0)83
TOTAL 0<00< 3=0K)5F 355)8< 555L)3=
SHORT TERM FF)F5 FF)58L 3G)5L 3)5
4ere 4!2 has a ma-or portion of their finan#ing done through short term
finan#ing than long term finan#ing) The preferen#e of short term finan#ing to long
term as su#h is not the part of an( poli#( emplo(ed b( the firm but it 'as due to
the reason that the interest rates in short term 'ere more in&estor friendl( and the
#ost in&ol&ed in them 'ere also lo') At present$ 'e #an see that the firm is
mo&ing more to'ards long term finan#ing as the interest terms in the long term
has redu#ed #ompared to the short term)
YEAR- END COMMERCIAL PAPERS
PARTICULARS 2006 2005 2004 2003
COMMERCIAL PAPERS 8KKK 3<KK /// 5KKK
The #redit rating b( !RA #ontinued at XA1+7indi#ating highest safet( to
#ompan(7s #ommer#ial paper program of Rs) G< !rores) t a#ts as an effe#ti&e tool
in redu#ing the interst #ost and is used for finan#ing in&entories and other
re#ei&ables) As and 'hen the firm issues #ommer#ial papers$ it sends a letter to the
leader of the #onsortium$ i)e)$ SB to redu#e from the fund based limits the amount
it has issued in the form of the #ommer#ial papers) Suppose the firm issues 5K
!rores as #ommer#ial papers and the fund based limits are sa( 00< !rores) Then
firm sends a letter to SB to redu#e the e*isting fund based limits from 00< to L<
!rores)
n terms of desirabilit($ the #ommer#ial papers are #heaper and ad&antageous to
the firm #ompared to the #onsortium finan#ing) The main ad&antage being the
interest rate 'hi#h is lo'er than the ban+ rates e*isting under #onsortium
finan#ing) But the firm depends on both and for 'or+ing #apital finan#ing$ it is
dependent on the ban+s for funds si#h as 'or+ing #apital demand loans and #ash
#redits) There is no point in the firm not ma+ing use of the fund based limits in the
#onsortium ban+ing as their commercial papers are restricted to 75 Crores)
MERITS OF COMMERCIAL PAPERS:
t is an alternati&e sour#e of raising short/term finan#e$ and pro&es to be
hand( during periods of tight ban+ #redit)
t is a #heaper sour#e of finan#e in #omparison to the ban+ #redit)
DEMERITS OF COMMERCIAL PAPERS:
t is an impersonal method of finan#ing)
t is al'a(s a&ailable to the finan#iall( sound and highest rated #ompanies)
The amount of lonable funds a&ailable in the #ommer#ial paper mar+et is
limited to the amount of e*#ess liquidit( of the &arious pur#hasers of
#ommer#ial paper)
ANALYSIS
ndustr( anal(sis
"inan#ial graphs
!on#luding anal(sis
Bibliograph(
INDUSTRY ANALYSIS
INDUSTRY STRUCTURE AND DEVELOPMENTS
O&er the past de#ade$ the nformation Te#hnolog( (T% industr( has be#ome one
of the fastest gro'ing industries in ndia$ propelled b( e*ports (the industr(
a##ounted for more than a quarter of ndia7s ser&i#es e*ports in 3KK8/K<%) The +e(
segments that ha&e #ontributed signifi#antl( (F= per#ent of total% to the industr(7s
e*ports in#lude 6 Soft'are and ser&i#es (T ser&i#es% and T enabled ser&i#es
(TES% i)e) business ser&i#es) O&er a period of time$ ndia has established itself
as a preferred global sour#ing base in these segments and the( are e*pe#ted to
#ontinue to fuel gro'th in the future)
ndustr( anal(sis
"inan#ial graphs
!on#luding anal(sis
Bibliograph(
FINANCIAL GRAPHS
Gross Business Income:
!onsolidated Re&enue for the (ear gre' to Rs) 00L<< #rores) Ser&i#es
re&enue gre' b( 50M$ from Rs) 3G8 #rores to Rs) 5=K #rores in the #urrent
(ear) The !ompounded Annual ,ro'th Rate (!A,R% for the pre#eding fi&e
(ears is 8<M)
Profit before Tax:
PBT gre' b( 00M from$ Rs) 5L< #rores in the pre&ious (ear to Rs) 83F
#rores in the #urrent (ear) The !ompounded Annual ,ro'th Rate (!A,R%
for the pre#eding fi&e (ears is <5M)
Profit after Tax:
Profit after ta* gre' b( 05M$ from Rs) 3LK #rores in the pre&ious (ear to
Rs) 50= #rores) The !ompounded Annual ,ro'th Rate (!A,R% for the
pre#eding fi&e (ears is 5=M) Profits for the #urrent (ear are after a pro&ision
for Rs) 0K= #rores for #urrent ta* e*pense$ Rs) 5 #rores for deferred ta*
e*pense and Rs) 8 #rores for "ringe Benefit Ta*)
Earnings Per Share:
Basi# EPS gre' from Rs) 0=)G in the pre&ious (ear to Rs) 0L)G in the #urrent
(ear) 1iluted EPS gre' from Rs) 0=)< in the pre&ious (ear to Rs) 0L)= in the
#urrent (ear)
Dividend:
The !ompan( distributed di&idends [ 0KKM per share in ea#h of the first
three quarters of the #urrent (ear) The #ompan( proposes to pa( a final
di&idend of 0KKM per full( paid up equit( share of Rs) 3N/ ea#h) The interim
di&idends paid together 'ith proposed final di&idend total to 8KKM for the
#urrent (ear$ entailing an outflo' of Rs) 0<= #rores$ in#luding distribution
ta*)
Net worth/ Shareholders Fund:
Net 9orth gre' from Rs) =FL #rores as at pre&ious (ear/end to Rs) L=K
#rores as on Eune 5K$ 3KKG) Share #apital as at (ear/end is Rs) 58 #rores
di&ided into 0=)F #rores shares of Rs) 3N/ ea#h) Reser&es ; surplus as at
(ear/end are Rs) L3= #rores after appropriating Rs 0<= #rores for di&idends)
Boo+ &alue per share gre' from Rs) 80)5 as at Eune 5K$ 3KK= to Rs)<K)L as
at Eune 5K$ 3KKG)
1uring the (ear$ the !ompan( allotted 8)3 la+h shares under Emplo(ee
Sto#+ Option S#heme reali.ing Rs) 8)8 #rores)
Borrowings: Year/end loan balan#es in#reased from Rs) L< #rores as on
Eune 5K$ 3KK= to Rs) 35= #rores as on Eune 5K$ 3KKG) The in#rease in loan
balan#es 'as mainl( to fund gro'th in !omputing Business in#luding
S(stem ntegration) 1ebt/Equit( ratio \1ebtN(1ebtQEquit(%] is 33M)
CURRENT ASSET RATIO:
CONCLUDING ANAYSIS
The 'or+ing #apital position of the #ompan( is sound and the &arious
sour#es through 'hi#h it is funded are optimal)
The #ompan( has used its di&idend poli#($ pur#hasing$ finan#ing and
in&estment de#isions to good effe#t #an be seen from the inferen#es made
earlier in the pro-e#t)
The debts doubtful ha&e been doubled o&er the (ears but their per#entage on
the debts has almost be#ome half) This implies a sales and #olle#tion poli#(
that get along 'ith the re#ei&ables management of the firm)
The returns ha&e been affe#ted b( a mar+ed gro'th in 'or+ing #apital and
though a 3F)G<M in 3KK= return on in&estment is good$ but it got redu#ed as
#ompared to 5F)K0M return in 3KK<)
The &arious ratios #al#ulated are an indi#ator as to the fa#t that the
profitabilit( of the firm and sales are on a rise and also the deletion of the
ineffi#ien#ies in the 'or+ing #apital management)
The firm has not #ompromised on profitabilit( despite the high liquidit( is
#ommendable)
4!2 nfos(stems has rea#hed a position 'here the default #osts are as lo'
as negligible and 'here the( #an readil( fa#tor their a##ounts re#ei&ables
for a&ailing finan#e is note'orth()
SUGGESTIONS AND RECOMMENDATIONS
The management of 'or+ing #apital pla(s a &ital role in running of a su##essful
business) So$ things should go 'ith a proper understanding for managing #ash$
re#ei&ables and in&entor()
4!2 nfos(stems is managing its 'or+ing #apital in a good manner$ but still
there is some s#ope for impro&ement in its management) This #an help the
#ompan( in raising its profit le&el b( ma+ing less in&estment in a##ounts
re#ei&ables and sto#+s et#) This 'ill ultimatel( impro&e the effi#ien#( of its
operations) "ollo'ing are fe' re#ommendations gi&en to the #ompan( in
a#hie&ing its desired ob-e#ti&es:
The business runs su##essfull( 'ith adequate amount of the 'or+ing
#apital but the #ompan( should see to it that the #ash should not be tied up
in e*#essi&e amount of 'or+ing #apital)
Though the present #olle#tion s(stem is near perfe#t$ the #ompan( as due
to the in#reasing sales should adopt more effe#ti&e measures so as to
#ounter the threat of bad debts)
The o&er pur#hasing fun#tion should be a&oided as it #ould lead to
liquidit( problems)
The in&estment of #ash in mar+etable se#urities should be in#reased$ as it
is &er( profitable for the #ompan()
4olding of e*#essi&e and insuffi#ient sto#+ must be a&oided as it #reates a
burden on the #ash resour#es of a business and results in lost sales$ dela(s
for #ustomers$ et# respe#ti&el()
BIBLIOGRAPHY
"ollo'ing sour#es ha&e been sought for the preparation of this report:
#orporate .ntranet
/inancial 0tate%ents 12nnual 3eports4
5irect interaction *ith the e%plo)ees of the co%pan)
.nternet 6666***'hclinfos)ste%s'in
Te7t8oo"s on financial %anage%ent 6
.'$'9ande)
:han and ;ain
9rasanna #handra
APPENDICES
FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.
L ast 4 year Balance Sheet:
Although debt as a per#ent of total #apital in#reased at 4!2 nfos(stems 2td) o&er
the last fis#al (ear to 30)<5M$ it is still in/line 'ith the T Ser&i#es industr(Bs
norm) Additionall($ e&en though there are not enough liquid assets to satisf(
#urrent obligations$ Operating Profits are more than adequate to ser&i#e the debt)
A##ounts Re#ei&able are among the industr(Bs 'orst 'ith 3L)88 da(s 'orth of
sales outstanding) This implies that re&enues are not being #olle#ted in an effi#ient
manner) 2ast$ in&entories seem to be 'ell managed as the n&entor( Pro#essing
Period is t(pi#al for the industr($ at 30)3F da(s)
Currency in
Millions of Indian Rupees
As of: Jun 30
2004
Restated
Jun 30
2005
Restated
Jun 30
2006
Reclassified
Jun 30
2007
Assets
Cash and Equivalents 1,452! 2,512" 2,14#2 1,#"$5
%hort&'er( Invest(ents 114) 1,5"!$ !,1!"" 2,#!##
'*'A+ CA%, A-. %,*R' 'ERM I-/E%'ME-'% 1,5$"1 4,0)$! 5,2)$# 4,#1$4
Accounts Receiva1le 4,!#04 $,10!1 ",$#14 10,5200
*ther Receiva1les 22)2 4005 4$)1 5#!4
'*'A+ RECEI/A2+E% 4,$1)" $,50!$ ),15#5 11,11!4
Inventory 2,)042 !,4#!# 4,$#$1 ",#1))
3repaid E4penses 10"0 1$!0 14$0 2)")
*ther Current Assets 2!) 5$4 )$) )4)
'*'A+ C5RRE-' A%%E'% #,120) 14,!0!2 1),!"5! 24,!212
6ross 3roperty 3lant and Equip(ent 1,40$1 1,404" 1,"!1# 2,4!10
Accu(ulated .epreciation &"4#1 &"44# &)524 &#$$5
-E' 3R*3ER'7 3+A-' A-. E85I3ME-' $5"0 $5#) )"#5 1,4$45
6ood9ill && && 02 0)
+on:&'er( Invest(ents 2,1#0# && && &&
.eferred 'a4 Assets, +on: 'er( 5#1 && && &&
*ther Intan:i1les && #5! !24 !0#
*ther +on:&'er( Assets && 51 "1) 1$0
TOTAL ASSETS 12,027.9 15,063.4 19,359.2 25,33.4

L!A"!L!T!ES # E$%!T&
Accounts 3aya1le !,!#0$ 4,100# 5,#$4) ),2#)5
Accrued E4penses 1004 1010 1404 20#)
%hort&'er( 2orro9in:s && !0"# ")4# 1,1)24
Current 3ortion of +on:&'er( .e1t;Capital +ease $#04 4##$ 04 )#25
Current Inco(e 'a4es 3aya1le !01 )0# ""4 252)
*ther Current +ia1ilities, 'otal 2,#14$ !,!""! 4,$)"# 5,21$$
5nearned Revenue, Current 5!$4 #$5) 55"# ""52
TOTAL '%RRE(T L!A"!L!T!ES 7,662.6 9,433.4 12,213.7 16,27.
+on:&'er( .e1t 15) "2 $01 2)40
.eferred 'a4 +ia1ility -on&Current 10#0 "!5 10"$ 124)
*ther -on&Current +ia1ilities 1!# !) 10 &&
'*'A+ +IA2I+I'IE% ",)01! #,51"# 12,!)24 1",2!$$
Co((on %toc< !2)# !!44 !!"5 !!)!
Additional 3aid in Capital $"!# ))!" 1,0445 1,0)"#
Retained Earnin:s !,1#!2 4,2#"! 5,5$52 ",1414
Co(prehensive Inco(e and *ther !0$ !01 2#$ 2#2
TOTAL 'O))O( E$%!T& 4,226.6 5,545.5 6,976. ,596.
TOTAL E$%!T& 4,226.6 5,545.5 6,976. ,596.
TOTAL L!A"!L!T!ES A(* E$%!T& 12,027.9 15,063.4 19,359.2 25,33.4
L ast 4 year Cash Flow Statement:
n 3KKG$ #ash reser&es at 4!2 nfos(stems 2td) fell b( 0G3)GM) 4o'e&er$ as a
per#ent of re&enues$ this #hange 'as similar to the T Ser&i#es industr( median)
B( loo+ing at the !ash "lo' Statement$ anal(sts #an easil( see the sour#es and
use of #ash generated throughout the (ear)
Currency in
As of: Jun 30
2004
Restated
Jun 30
2005
Restated
Jun 30
2006
Reclassified
Jun 30
2007
-E' I-C*ME 1,"511 2,2""0 2,)0!$ !,15#5
.epreciation = A(orti>ation 1)01 1524 124! 1440
A(orti>ation of 6ood9ill and Intan:i1le Assets && && && 41
.E3RECIA'I*- = AM*R'I?A'I*-, '*'A+ 1)01 1524 124! 14)1
@6ainA +oss fro( %ale of Asset &04 &1$ 05 0$
@6ainA +oss on %ale of Invest(ent &"#$ &)4# &$15 &552
Asset Britedo9n = Restructurin: Costs 00 05 && &&
*ther *peratin: Activities 2#2) !12 "#$ 2"1)
3rovision = Brite&off of 2ad .e1ts 14) 144 "2 #2
Chan:e in Accounts Receiva1le &1,5#!4 &1,##!4 &1,"24" &!,15))
Chan:e in Inventories &42!! &$)#" &1,2022 &!,222"
Chan:e in Accounts 3aya1le 1,4"1) 1,5$1$ 2,"5#5 !,1122
CA%, CR*M *3ERA'I*-% 1,$140 1,2$"5 2,")$! 2$4"
Capital E4penditure &1)0" &2$") &424! &$"45
%ale of 3roperty, 3lant, and Equip(ent !5 10" )0! 1$
Invest(ents in Mar<eta1le = Equity %ecurities "!" )414 &1,45!$ 2)#0
CA%, CR*M I-/E%'I-6 !0) $224 &1,$)!! &2!1#
%hort&'er( .e1t Issued 411 1$#5 && &&
+on:&'er( .e1t Issued 200) 2!1! 2005 1,)!"2
TOTAL *E"T !SS%E* 241.9 400. 200.5 1,37.2
%hort 'er( .e1t Repaid && && &1"2! &"4"
+on: 'er( .e1t Repaid &"0"# &!02" && &2500
TOTAL *E"T RE+A!* ,707.9 ,302.7 ,172.3 ,324.7
Issuance of Co((on %toc< 2)!! 2152 1$!# 442
Co((on .ividends 3aid &)$$2 &1,04"4 &1,52$$ &1,54$1
TOTAL *!-!*E(* +A!* ,66.2 ,1,047.4 ,1,526.6 ,1,546.1
*ther Cinancin: Activities &#)# &#54 &1!20 &21$1
'AS. /RO) /!(A('!(0 ,1,147. ,29.5 ,1,466.5 ,205.5
(ET '.A(0E !( 'AS. 497.1 1,060.4 ,363.5 ,172.7
Last 4 year Income Statement:
Year o&er (ear$ 4!2 nfos(stems 2td) has seen re&enues remain relati&el( flat
(005)GB to 00=)FB%$ though the #ompan( 'as able to gro' net in#ome from 3)LB
to 5)3B) A redu#tion in the per#entage of sales de&oted to #ost of goods sold from
F5)30M to F3)<5M 'as a +e( #omponent in the bottom line gro'th in the fa#e of
flat re&enues)
Currency in
As of: Dun !0
2004
Restated
Dun !0
2005
Restated
Dun !0
200$
Reclassified
Dun !0
200"
Re1enues 43,064.4 77,47.9 113,63.1 116,53.0
*ther Revenues && &!5" $1$ $!)
'*'A+ RE/E-5E% 4!,0$44 "",44!2 11!,"44" 11$,#1$)
Cost of 6oods %old !),"01! "1,4#$1 105,#$44 10),1214
0ROSS +RO/!T 4,363.1 5,947.1 7,70.3 ,795.4
%ellin: 6eneral = Ad(in E4penses, 'otal 2,2$)) !,!05# !,"$4! 4,52"1
.epreciation = A(orti>ation, 'otal 1)0$ 1524 124! 14)1
*ther *peratin: E4penses && &)40 )4) #12
*',ER *3ERA'I-6 EE3E-%E%, '*'A+ 2,44#4 !,!"4! !,#"!4 4,"$$4
O+ERAT!(0 !('O)E 1,913.7 2,572. 3,06.9 4,029.0
Interest E4pense &)2) &""$ &1!2$ &214$
Interest and Invest(ent Inco(e 1!21 14$1 20)0 22!)
-E' I-'ERE%' EE3E-%E 4#4 $)5 "54 #2
Currency E4chan:e 6ains @+ossA !"# 1450 &1444 1)#$
*ther -on&*peratin: Inco(e @E4pensesA !20 && && &&
E2', EEC+5.I-6 5-5%5A+ I'EM% 2,0!!0 2,")$! !,"!"# 4,22")
6ain @+ossA on %ale of Invest(ents "#$ )50 $15 552
6ain @+ossA on %ale of Assets 04 1$ &05 &0$
*ther 5nusual Ite(s, 'otal 2! )"2 40 4"
Insurance %ettle(ents 2! !" 40 4"
*ther 5nusual Ite(s && )40 && &&
E2', I-C+5.I-6 5-5%5A+ I'EM% 2,1151 2,#$01 !,)02# 4,2)"1
Inco(e 'a4 E4pense !$40 $)!1 ###! 1,12"$
Earnin:s fro( Continuin: *perations 1,"511 2,2""0 2,)0!$ !,15#5
(ET !('O)E 1,751.1 2,277.0 2,03.6 3,159.5
(ET !('O)E TO 'O))O( !('L%*!(0 E2TRA !TE)S 1,751.1 2,277.0 2,03.6 3,159.5
(ET !('O)E TO 'O))O( E2'L%*!(0 E2TRA !TE)S 1,751.1 2,277.0 2,03.6 3,159.5

Working Capital Management in HCL Infosystems Limited

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