Hindustan Aeronautics Limited
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Transcript of Hindustan Aeronautics Limited
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1.1 GENERAL INTRODUCTION
Hindustan Aeronautics Limited (HAL) Hindustan Aeronautics Limited (HAL)
came into existence on 1st October 1964. The Company was formed by the merger of
Hindustan Aircraft Limited with Aeronautics India Limited and Aircraft Manufacturing
Depot, Kanpur.
The Company traces its roots to the pioneering efforts of an industrialist with
extraordinary vision, the late Seth Walchand Hirachand, who set up Hindustan Aircraft
Limited at Bangalore in association with the erstwhile princely State of Mysore in
December 1940. The Government of India became a shareholder in March 1941 and
took over the Management in 1942.
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1.2.a. ORIGIN AND DEVELOPMENT OF THE INDUSTRY
Hindustan Aeronautics has a long history of collaboration with several other
international and domestic aerospace agencies such as the Airbus Industries, Boeing,
Sukhoi Aviation Corporation, Israel Aircraft Industries, RSK MiG, BAE Systems, Rolls-
Royce plc, Dassault Aviation, Dornier Flugzeugwerke, Aeronautical Development
Agency and Indian Space Research Organisation.
HAL was established as Hindustan Aircraft in Bangalore in 1940 by Walchand
Hirachand to produce military aircraft for the Royal Indian Air Force. The initiative was
actively encouraged by the Kingdom of Mysore, especially by the Diwan, Sir Mirza
Ismail. The British Government bought a one-third stake in the company by April 1941
as it believed this to be a strategic imperative. Later in April 1942, it bought out the
stakes of Walchand Hirachand himself and other promoters so that it can act freely. The
decision by United Kingdom was primairly motivated to boost British military hardware
supplies in Asia to counter the increasing threat posed by Imperial Japan during Second
World War. However, the Mysore Kingdom refused to sell its stake in the company but
yielded the management control over to the British Government. Thus, within 2 years of
establishment, it was nationalized.
The Government of India became a stakeholder of the company in 1941 and seized the
management department in 1942. HAL has 19 Production Units and 9 Research and
Design Centers in 7 locations in India.
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1.2.B. GROWTH AND PRESENT STATUS OF THE INDUSTRY
HAL has played a significant role for India's space programs by participating in the
manufacture of structures for Satellite Launch Vehicles like
PSLV (Polar Satellite Launch Vehicle)
GSLV (Geo-synchronous Satellite Launch Vehicle)
IRS (Indian Remote Satellite)I
NSAT (Indian National Satellite)
HAL has formed the following Joint Ventures (JVs) :
BAeHAL Software Limited
Indo-Russian Aviation Limited (IRAL)
Snecma HAL Aerospace Pvt. Ltd.
SAMTEL HAL Display System Limited
HALBIT Avionics Pvt. Ltd.
Apart from these seven, other major diversification projects are Industrial Marine Gas
Turbine and Airport Services. Several Co-production and Joint Ventures with
international participation are under consideration.
HAL has won several International & National Awards for achievements in R&D,
Technology, Managerial Performance, Exports, Energy Conservation, Quality and
Fulfillment of Social Responsibilities.
1.2c FUTURE OF INDUSTRY
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Enable all those working for HAL to give their best to ensure their all-round growth as
well as that of the organization. To become a globally competitive aerospace industry
while working as an instrument for achieving self-reliance in design, manufacture and
maintenance of aerospace defenses equipment and diversifying to related areas,
managing the business on commercial lines in a climate of growing professional
competence.
"To become a globally competitive aerospace industry while working as an instrument
for achieving self-reliance in design, manufacture and maintenance of aerospace
defenses equipment and diversifying to related areas, managing the business on
commercial lines in a climate of growing professional competence
"To make HAL a dynamic, vibrant, value-based learning organization with human
resources exceptionally skilled, highly motivated and committed to meet the current and
future challenges. This will be driven by core values of the Company fully embedded in
the culture of the Organization".
HAL has formed the following Joint Ventures (JVs) :
BAeHAL Software Limited
Indo-Russian Aviation Limited (IRAL)
Snecma HAL Aerospace Pvt. Ltd.
SAMTEL HAL Display System Limited
HALBIT Avionics Pvt. Ltd.
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2.1 ORIGIN OF THE ORGANIZATION
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The Foundry & Forge Division was established in 1953. The Division's facility, set up on
a lush expanse of 32 acres, manufactures castings, forgings, rolled rings, brakepads
and rubber products for critical applications for the Aeronautics, Space, Defence,
Locomotive, Earthmover and other industries. Advanced Technology, Quality and
Reliability and a highly skilled workforce have enabled the Division to turn out
failsafe components for vital applications in war and peace, meeting the exacting
needs of every customer. The Division is one of the few units in the world to be
acknowledged for its diverse and wide range of products, manufacturing processes,
complemented by its state-of-the-art and comprehensive infrastructure.
The Foundry & Forge Division is proud of the company it keeps. Nearer home, our
delighted customers include divisions of HAL manufacturing aircraft, aeroengines and
accessories, the Indian Space Research Organisation, Defence Research &
Development organisation, Ordinance Factories, Indian Railways, Bharat Earth Movers
Limited, Combat Vehicle Research & development Establishment, Indian Airlines,
Crompton Greaves, Bharat Heavy Electrical Limited and Escorts. Across the globe,
among our valued customers are renowned aircraft and aeroengine manufacturers.
Over the years, the Division's product have been used in vital areas such as the Light
Combat Aircraft, GSLV, PSLV, Advanced Light Helicopter, Jaguar and Main Battle
Tank. The Division also caters to the commercial market.
2.2 GROWTH AND DEVELOPMENT OF THE ORGANATION
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The Company's steady organizational growth over the years with consolidation and
enlargement of its operational base by creating sophisticated facilities for manufacture
of aircraft / helicopters, aero engines, accessories and avionics is illustrated below.
SERVICES
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EXPORTS OF HAL
2.3 PRESENT STATUS OF THE ORGANIZATION.
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The Division is one of the few units in the world to be acknowledged for its diverse and
wide range of products, manufacturing processes, complemented by its state-of-the-art
and comprehensive infrastructure. Across the globe, among our valued customers are
renowned aircraft and aero engine manufacturers. Over the years, the Division's
product have been used in vital areas such as the Light Combat Aircraft, GSLV, PSLV,
Advanced Light Helicopter, Jaguar and Main Battle Tank. The Division also caters to the
commercial market.
The Foundry & Forge Division is proud of the company it keeps. delighted customers
include divisions of HAL manufacturing aircraft, aero engines and accessories, the
Indian Space Research Organization, Defence Research & Development organization,
Ordinance Factories, Indian Railways, Bharat Earth Movers Limited, Combat Vehicle
Research & development Establishment, Indian Airlines, Crompton Greaves, Bharat
Heavy Electrical Limited and Escorts The Foundry & Forge Division was established in
1953. We shall achieve our mission by:
Understanding customers' need
Developing our human resources
Using systematic selection, development technical support and surveillance of
our suppliers and sub-contractors
Improving regularly the facilities
2.4 FUNCTIONAL DEPARTMENT OF THE ORGANIZATION
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Finance and accounting both play very vital role in any business organizational setup.
The main function of any finance and accounting of an organization are founds
management, cost monitoring, cost reduction and finance appraisal. Money and finance
are not one and the same things.
Money stored in vaults or kept in the shape of gold bars or ornaments is not finance.
Depending upon the requirement and close monitoring of expenditure, HAL Bangalore
Division has formed the following section for smooth running of the finance and
accounts department and to maintain the liquidity position of the company.
Bills payable section
Bills receivable section
Book keeping section
Cash office section
Costing section
Finance section
Material section
Payroll section
Provident fund section
Shipping section
Export section
Import section
Warehouse section
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Rings section
Forge section
Raw material section.
These sections are described as follows:
BILLS PAYABLE
This section mainly divided into three sub sections such as:
Bills payable (inland): This section deals with payment and accounting of
supplies and services rendered by inland/domestic vendor to the company.
Bills payable (civil work): This section deals with service rendered by the
contractor of the company.
Bills payable (foreign): This section deals with payment and accounting of
supplies and services rendered by the foreign collaborators to the company.
BILLS RECEIVABLE SECTION
This section is responsible for preparation and submission of invoice to customer for the
suppliers made and services rendered and follow up for recovery of the amounts and
accounting of the same.
BOOK KEEPING SECTION
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This is the section in which the financial position of the organization can be reflected
through the presentation of profit and loss account and balance sheets. It is the apex
section of the finance and accounts department, which cover the following important
functions.
Co-ordination of all sections for relevant information
Maintenance of journal and ledger.
Preparation of trial balance, profit and loss account and balance sheets.
Maintenance of capital assets ledger.
Preparation of fixed assets and depreciation schedules.
Furnishing of data for determination of income tax liability.
Preparation of performance budget.
CASH OFFICE SECTION
The section is responsible for all receipt and payment of cash/cheque and accounting of
the same in the book. The main functions are as follows:
Receipt of cash, cheque, bank draft & issue of official receipt for the same.
Banking of all receipt.
Drawl of cash from bank to cater for daily needs.
Payment of vouchers by cash/cheque.
Writing cash/bank books.
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Preparation of Bank Reconciliation Statement.
Safe Custody of cash, cheque books, bank guarantees, fixed deposits
receipts & other investments etc.
COSTING SECTION
The main functions of this section are:
Fixation of fixed cost quotation.
Fixation of standard man-hour rate.
Preparation of operating statement.
Accounting & adjustment of differed revenue expenditure.
Accounting of non-production of overhead.
Preparation of man-hour rate.
Accounting of work in progress.
Setting of sales.
Submission of monthly reports to various agencies.
FINANCE SECTION
The main functions are: Security & financial concurrent as per the delegation of power
of proposal for:
Capital expenditure
Revenue expenditure
Purchase of Material, stores tools & other services
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Manpower requirements
Incentives
PAYROLL SECTION
The main function of payroll covers the following:
Placement of time punching cards in the time card racks for recording
attendance.
Receipt of approved leave application, over time authorization, attendance sheet
and employees gate pass etc.
Maintenance of level records and feeding of attendance data to computer.
Disbursement of salary and wages.
Payment and recovery of advances.
Maintenance of employees punching card..
PROVIDENT FUND SECTION
This section deals with the transaction preparing to PF as:
Account of Provident Fund transaction.
Remittance of amounts recovered from employee to a fund called provident fund
trust fund.
Providing refundable & nonrefundable loan & adjustment thereof.
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2.5 ORGANIZATIONAL STRUCTURE AND ORGANIZATIONAL CHART.
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2.6 PRODUCTS AND SERVICE PROFILE OF THE ORGANIZATION COMPETITORS.
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Castings.
The Foundry & Forge Division has the infrastructure and expertise to manufacture
radiographic quality castings to international standards. This section offers a wide range
of materials and processes to meet the stringent specifications of customers.
Castings are designed using AFS solidification software for simulation. This software
calculates the heat transfer during mould filling and solidifications on 3D solid models of
the castings. This enables prediction of hot spots and helps in optimum riser design.
The main areas are :
Alloy fabrication
Semi-continuous cast billets
Aluminium alloy castings
Magnesium alloy castings
Investment castings
General Forgings
The General Forge Shop is the only one of its kind in India with the capability
specifications of shape, size weight and number. The shop has, since the early sixties,
manufactured
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Forgings in all wrought alloys
Open forgings, closed die forgings and material forged rings under one roof
Post-forging processing facilities for forgings weighing from a few grams up to
7kgs
Precision Forgings
A combination of state-of-the-art facilities and traditional hand skills has enabled the
Precision Forgings Section to engineer quality into its high technology products. The
process and inspection support has been designed around production of precision
forgings to close tolerance.
Unique Capabilities
Complex precision forged products including aerofoil shapes in all wrought alloys
and precision blades from component drawing using CAD/CAM/CMM route of
manufacture
Custom built equipment for forging, processing and inspection of precision
forgings especially compressor and turbine blades
Abrasive blasting and vibratory finishing equipment
Optical projectors and multi-gaugung equipment backed by checking fixtures,
gauges and other inspection aids
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Range of screw presses to undertake manufacture of a wide range of precision forged
products.
Powder Metallurgy
The Powder metallurgy unit is the only one of its kind in India to manufacture a range of
sintered friction and anti-friction materials such as copper and iron-based brake pads
and bimetallic anti-friction bearings and bushes for aircraft. The DGAQA and DGCA
have approved the unit for design, development, manufacture and testing of military and
civilian aircraft brake pads.
Unique Capabilities
Indigenous development and manufacture of metalloceramic and organic brake
pads, sintered bi-metallic bushes and clutch discs for aircraft, earthmover,
automobile, marine and railway applications
Development and manufacture of advanced metal matrix composites (MMC)
such as AL-SiCp
Unique dynamometer testing facility for assessing performance characteristics of friction
materials and brake pads
Rubber Products
Precision rubber items and metal rubber bonded components such as gaskets, seals, o-
rings, bellows, sleeves, diaphragms, and shock mounts are manufactured to stringent
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aeronautical standards. The components with high performance ratings are including
nitrile, neoprene, silicone, flurocarbon and flurosilicone rubbers to suit operational
requirements of aircraft or helicopters in the areas of gear boxes, fuel systems, engines,
electrical circuits, vibration damping and structures.
Rolled Rings
Four decades of serving the high technology segment of industry and a zeal to offer an
extended range of products, motivated the Division to diversify into the manufacture of
seamless rolled rings. The Ring Rolling facility has a state-of-the-art ring rolling mill
incorporating the latest technology including computerised control of operation and laser
measuring device.
The state-of-the-art ring mill is capable of manufacturing profiled rolled rings in variety of
ferrous and non-ferrous alloys. The benefits of profile rolled rings are reduced input
materials; desired grain flow along the rolled profile and improved metallurgical
properties.
2.7 MARKET PROFILE OF THE ORGANIZATION
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Ministry of Defence
The principal task of the Defence Ministry is to obtain policy
directions of the Government on all defence and security related matters and convey
the same to the Services Headquarters, Inter-Services Organisations, Production
Establishments and Research and Development Organisations for implementation. It is
also required to ensure effective implementation of the Government's policy directions
and the execution of approved programs within the allocated resources. The Ministry of
Defence comprises of four Departments viz., the Department of Defence (DOD), the
Department of Defence Production (DDP), Department of Defence Research &
Development (DDRD) and the Finance Division.
Bharat Dynamics Limited
Bharat Dynamics Limited (BDL), the force behind peace, established in 1970 has been
in the forefront to support Defence Forces with Weapon Systems to effectively defend
the country against any evil designs of our adversaries.
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Commencing with the production of guided missile systems for land forces, BDL is well
on its way to become a supplier of guided weapons and allied systems to Air and Naval
forces also. Expertise has also been created for cost-effective product upgrades and
retrofits with enhanced lethality to impart a fresh lease of life to ageing equipment within
core competence of BDL.
Bharat Earth Movers Limited
Bharat Earth Movers Limited is a premier ISO 9000 Company in India and the second
largest manufacturer of earthmoving equipment in Asia. A three-decade-old multi-
location and multi-product company.
A public sector undertaking, BEML commands 70% market share in the domestic
earthmover industry. Nearly 40% of its equity has been divested to financial institutions
and the public. BEML has its corporate headquarters and central marketing division in
Bangalore.
Bharat Electronics
Bharat Electronics Limited (BEL) designs, develops and manufactures state-of-the-art
products in the field of Radars, Defence Communications, Telecommunications, Sound
and Vision Broadcasting, Opto-electronics, Solar Systems, IT products and Electronic
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CHAPTER 3
DISCUSSION ON TRAINING
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3.1 STUDENT’S WORK PROFILE
The role and responsibility given to me in HAL Foundry & forge , shipping department
during the period of internship was as follows:
Understand the various avenues of export in shipping department as a part of
groundwork assigned to me.
Study what is to be exported and in what norms by HAL.
Organizing, directing and controlling the functions of the plant machinery under
the guidance of assistance engineers.
Responsible for receipt of goods, processing, storage maintenance under the
guidance of assistant engineers.
Frequent visit to the factory.
Material handling process in the plant.
Under guidance of the accountant observing the balance sheet of the company.
Constant observation of works in the plant.
To learn about the various software used HAL and analyzing the different work in
progress involved.
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3.2 DESCRIPTION OF LIVE EXPERIENCE
The role and responsibility given to me in Hindustan aeronautics limited during the
period of internship
Fill the log in forms
Experiencing how to recognize a problem in the company.
Learning how to present the idea and the solution to the supervisor.
Learning how to discuss with the fellow teammates.
Learning how to inform about the plant daily progress.
How to document the analyzed problem and share with the workers.
Learned how to gather basic information and measures.
Determination of quantitative objectives of each process.
Selection of suppliers i.e. selecting according to the price variation.
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CHAPTER 4
STUDY OF SELECTED
RESEARCH PROBLEM
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4.1 STATEMENT OF RESEARCH PROBLEM
The term working capital refers to current assets which may be defined as (i) those which are
convertible into cash or equivalents within a period of one year and (ii) those which are required
to meet day to day operations. The fixed asset as well as the current assets, both requires
investment of funds. The very basics of fixed assets decision process (i.e. the capital
budgeting)& the working capital decision processes are different. The fixed assets involve long
period perspective & therefore, the concept of time value of money is applied in order to discount
the future cash flows: whereas in working capital considered. The fixed assets affect the long-
term profitability of the firm while the current assets affect the short-term liquidity position. So in
the working capital management there are some decisions to be taken, as
1. What should be the total investments in working capital of the firm?
2. What should be the level of individual current assets?
3. What should be the relative proportion of different sources to finance the working capital
requirements?
Thus, the working capital management may be defined as the management of firm’s sources and
uses of working capital in order to maximize the wealth of the shareholders. The proper working
capital requires both the medium term planning and also the immediate adaptations to changes
arising due to fluctuations in operating levels of the firm.
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4.2 STATEMENT OF RESEARCH OBJECTIVE OF THE SURVEY
To conduct its business economically and efficiently so that it can contribute its
due share to the national effort for achieving reliant and self generating economy.
To study the components, determinants of working capital.
To study how to keep the capital that is tied up in the working capital cycle at a
minimum and maximizing profit.
To study how HAL finances working capital requirements of the firms.
Interpreting, analyzing based on the various ratios, the liquidity position of HAL.
To ascertain the amount of working capital.
OBJECTS OF WORKING CAPITAL MANAGEMENT
The need for working capital cannot be over emphasized. Every business
needs some amount of working capital. So management of working capital is
necessary. working capital is needed for the following purpose:
For the purchase of raw materials, components and spares
To pay wages and salaries
To inure day-to-day expenses and overhead costs such as fuel power and
office expenses etc.
To meet the selling costs as packing, advertising etc.
To provide credit facilities to the customers
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To maintain the inventories of raw materials, work-in-progress, spares and
finished stock.
A finance manager should therefore, chalk out appropriate working capital
management policies in respect of each of the components of working capital so as to
ensure higher profitability, proper liquidity and sound structural health of the
organization.
Estimating the amount of working capital.
Sources from which these funds have to be raised.
Net working capital:
The term net working capital may be defined as the excess of current
assets over total current liabilities. It may be noted that to those liabilities which are
payable within a period of one year. The extent, to which the payments to these current
liabilities are delayed, the firm gets the availability of funds for that period. So a part of
the funds required to maintain current assets is provided by the current liabilities & the
firm will be required to invest the funds in only those current assets which are not
financed by the current liabilities. In the broad sense, the term working capital refers to
the gross working capital and represents the amount of funds invested in current assets.
In narrow sense the term working capital refers to the net working capital. Net working
capital is the excess of current assets over current liabilities i.e.;
NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES.
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There are two elements in the business cycle that absorb cash - Inventory (stocks and
work-in-progress) and Receivables (debtors owing you money). The main sources of
cash are Payables (your creditors) and Equity and Loans
4.3 RESEARCH DESINE AND METHODOLOGY
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The present study is based upon primary and secondary data. The sources of primary
data are the official records and discussion with the officers in the finance dept. of the
organization. The secondary sources of the data include various publications of the organization
and annual reports and audited financial statements. The data, which are presented in this
report, have been taken from secondary sources. The data of Hindustan Aeronautics Limited,
Engine Division, Koraput, for the year 2007-08 and 2008-09 used in these report have been
taken from financial statements i.e., the Profit & Loss Account, Balance Sheet for the relevant
years.
TECHNIQUES OF DATA COLLECTION
Working capital management policy has a great effect on firm’s profitability, liquidity and
its structural health.
For analyzing the performance of working capital management, simple mathematical tools like
Percentages, Averages, and Ratios have been used in this project work. To know the financial
performances of this division, calculation of Operation Cycle, Earning before Interest & Taxes
have been calculated.Each component of working capital (namely inventory, receivables and
payables) has two dimensions ........TIME ......... and MONEY. When it comes to managing
working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g.
collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g.
reduce inventory levels relative to sales), the business will generate more cash or it will need to
borrow less money to fund working capital..
Symbolically the duration of the working capital cycle can be put as follows:
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O = R + W + F + D – C
Where,
O=Duration of operating cycle;
R=Raw materials and stores storage period;
W=Work-in-progress period;
F=Finished stock storage period;
D=Debtors collection period;
C=Creditors payment period.
Each of the components of the operating cycle can be calculated as follows:-
R= Average stock of raw materials and stores
Average raw materials and stores consumptions per day
W = Average work-in-progress inventory
Average cost of production per day
D = Average book debts
Average credit sales per day
C= Average trade creditors
Average credit purchases per day
4.4 ANALYSIS AND INTERPRETETION
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TABLE- 1
CALCULATION OF PERCENTAGE OF CASH AND BANK BALANCE TO THE CURRENT ASSETS ( IN LAKHS)
PARTICULAR 2007-2008 2008-2009
A. Cash and bank balance (Rs)
19.98 11.95
B. Current Assets (Rs) 152518.97 260862.93
C. % of Cash and Bank Balance to Current Assets (A/B*100)
0.013 0.004
CASH AND BANK BALANCE TO THE CURRENT ASSETS
INTERPRETATION
By analyzing the statements, it is observed that 0.013, 0.004 of current assets
were held as cash in hand and cash at bank during the years 2007-2008, 2008-2009
respectively. The cash management in HAL is centralized and managed by the
corporate office.
TABLE – 2
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CALCULATION OF PERCENTAGE OF ACCOUNTS RECEIVABLE TO THE CURRENT ASSETS (IN LAKHS)
PARTICULARS 2007-08 2008-09A. Account receivable 5883.47 14655.86
B. Current assets 152518.97 260862.93
C.% of accounts receivable to current assets (A/B*100)
3.85 5.61
ACCOUNTS RECEIVABLE TO THE CURRENT ASSETS
INTERPRETATION
The above comparison shares that: The investment in Accounts receivables is
more during 2008-2009. By increasing more credit the sales have increased
proportion. If more & more block of working capital. The increase in ratio indicates
that the management wants to push off the accumulated stocks & go for fresh
production. However the resultant credit period extended to the customer is to be
received.
It had a sudden decrease in 2007-08 due to a sudden increase in current
assets.
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.TABLE – 3
CALCULATION OF AVERAGE COLLECTION PERIOD (IN LAKHS)
PARTICULAR 2007-08 2008-09
A. Debtors 5883.47 14655.86
B. Sales 140816.78 140991.83
C. Average collection period (A/B*360 days)
16 days 38 days
AVERAGE COLLECTION PERIOD
INTERPRETATION
From the above table we can analyzes that:
The Average Collection Period (ACP) for the year 2007-08 & 2008-09 are 16 days
and 38 days.
Normally 50-60 days is the lead-time for realizing the debtors for the enterprise
like HAL.
The Average Collection Period for these years is much than required.
The Average Collection Period shows the extent of time period & the efficiency in
the Collection of debtors.
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Average Collection Period below would be better for HAL. As more than 95% of
Collections are from Government there is no risk of bad debts.
TABLE – 4
CALCULATION OF PERCENTAGE OF INVENTORY TO CURRENT ASSETS (IN LAKHS)
PARTICULARS 2007-08 2008-09A. Inventories 94998.36 153860.31B. Current Assets 152518.97 260862.93C. Percentage of Inventory to Current Assets(A/B*100)
62.28 58.98
PERCENTAGE OF INVENTORY TO CURRENT ASSETS
INTERPRETATION
The holding of inventory is 13-62% of current assets. This percentage has been
substantially increased from 2007-08 onwards but decreased in 2008-09. The main
cause for the accumulation of inventory is to maintain sufficient space/raw
materials to meet the emergency like war. Maximum material of HAL, Bangalore
Division is imported from Russia, there for it is possible to decrease cost of
transportation & also large-scale order will enable HAL to bargain for cost.
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TABLE – 5
CALCULATION OF RAW MATERIAL CONVERSION PERIOD (IN LAKHS)
PARTICULARS 2007-08 2008-09
A. Closing Raw Material 46818.85 77615.98
B. Raw material consumed 64227 123733.45
C. Raw material conversion period (A/B*360 Days)
263 days 226 days
RAW MATERIAL CONVERSION PERIOD
INTERPRETATION:
There is significance increases in raw material conversion period. The reason is most
of the raw materials are produced from Russia. They are ordered in bulk and hence at
the closing of the period stock of raw material more. As bulk orders will reduce the
most of procuring division orders large amounts at a time. Increase in raw materials
does not affect the raw material conversion period seriously.
Raw material conversion period is263 days in 2007-08, 226 days in 2008-09.
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The raw material conversion period is very high during 2007-08 as compared to
2008-09.
TABLE – 6
CALCULATION OF WORK IN PROGRESS CONVERSION PERIOD (IN LAKHS)
PARTICULARS 2007-08 2008-09A. Closing WIP (Rs.) 35794.14 72537.85B. Cost of production (Rs.)
145324.85 177735.54
C. WIP Conversion period (A/B*360)
89 days 147 days
WORK IN PROGRESS CONVERSION PERIOD
NOTE: Cost of production = Sales +Closing balance of WIP–Opening balance of WIP +Closing balance of SIT–Opening balance of SIT.Where,WIP - Work in ProgressSIT - Stock in Trade
INTERPRETATION
WIP conversion period are 89 days and 147 days in 2007-08 and 2008-09
respectively.
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The company has shown an efficient management labour force & efficient
utilization of materials by maintaining a less work in progress conversion period in
year 2007-08 as compared to2008-09.
Further to improve , it has to reduce the work in progress conversion period though
aviation industry requires much time in work in progress, still constant vigil over
reducing work in progress is appreciable.
TABLE – 7
CALCULATION OF FINISHED GOODS CONVERSION PERIOD (IN LAKHS)PARTICULARS 2007-08 2008-09A. Closing Finished Goods.
108719 116322.85
B. Cost of Goods Sold. 127809 128945.87
C. Finished Goods Conversion period (A/B*360 Days)
307 days 325days
FINISHED GOODS CONVERSION PERIOD
NOTE: Cost of Goods Sold = Sales – Profit
INTERPRETATION:
Finished goods conversion period is 307 days and 325 days in 2007-08 and 2008-
09 respectively.
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The time period consumed by the company to the convert the finished in goods in
to sales is very long.
TABLE – 8
CALCULATION PAYABLE DEFERRAL PERIOD (IN LAKHS)
PAYABLE DEFERRAL PERIOD
INTERPRETATION
From the above table it is seen that:
The payable deferral period i.e. the credit period allowed by the creditors during
the years 2007-08 and 2008-09 is 64 days and 45 days respectively.
This means that the amount payable to creditors was paid after a long period of
credit purchase.
RAMAIAH INSTITUTE OF MANAGEMENT STUDIES
PARTICULARS 2007-08 2008-09
A. Creditors 23474.48 25846.90B. Credit Purchase 132207.91 207532.20
C. Payable Deferral period (A/B*360 Days)
64 days 45 days
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Where as in 2008-09, the payable deferral period was the shortest i.e. only 45
days, which means that creditors were paid with in a very short span of time as
compare to 2007-08..
TABLE – 9
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Due to the manufacturing of the new product the Engine SU – 30, the gross operating
cycle in the year 2007-08 onwards it is going higher
RAMAIAH INSTITUTE OF MANAGEMENT STUDIES
SUMMARY OF OPERATING CYCLE CALCULATION (IN LAKHS)
PARTICULARS 2007-08 2008-09
A. Inventory conversion period
i. Raw Material Conversion period
ii. WIP Conversion Period
iii. Finished goods Conversion period
263 days
89 days
307 days
226 days
147 days
325 days
Total 659 days 698 days
B. Debtors Conversion Period
16 days 38 days
C. Gross operating Cycle (A+B)
675 days 736 days
D. Payment Deferral Period
64 days 45 days
E. Net Operating Cycle (C-D)
611 days 691 days
INTERPRETATION
During last two years the Gross operating cycle varies from 675 days to 736
days.
There is no specific rule or formula to know the optimum period of operating
cycle.
Usually the period is of one year.
It depends upon the time gap between two consecutive procurements.
43
4.5 SUMMAYR OF FINDINGS
The sales of HAL Foundry & Forge Division, Bangalore are increasing year by
year, which is a positive indication of growth of the organization.
Working capital is always shows negative, because the duration of the project of
developing any aircraft Foundry & Forge at least for 15 years. In this period
company only take advance from customers (i.e 40% of total amount) which are
debited to share capital, so company cannot make profit as well as the current
assets are always less then the current liabilities during this time.
HAL should indigenously get the raw material and develop spare parts without
depending on Russian to avoid unnecessary delays.
Company is very strict to their customers.
It is founded that 40% to 50% of the current asset is occupied by industry.
Company got advance from the Government of India, which resulted in an
increase in cash/bank balance.
Company annual sales turnover for 2008-09 175.05 crore and to see it reach
enviable heights in the future.
This is a defence related organization, so production is made on contract basis.
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CHAPTER 5
SUMMARY AND CONCLUSIONS.
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5.1 SUMMARY OF LEARNING EXPERIENCE
Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund
operations, reinvest and meet capital requirements and payments. Understanding a company's
cash flow health is essential to making investment decisions. A good way to judge a company's
cash flow prospects is to look at its working capital management (WCM).
A company can be endowed with assets and profitability but short of liquidity if its assets cannot
readily be converted into cash. Positive working capital is required to ensure that a firm is able to
continue its operations and that it has sufficient funds to satisfy both maturing short-term debt
and upcoming operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable and cash.
RECOMMENDATIONS.
Organization must take necessary steps to raise the interest on loans and advances in order
to increase the revenue sources of HAL.
To maintain a good current ratio, it must try to increase the amount of current assets.
As the analysis reveals, the division is facing a problem of liquidity due to the reason that
the payment to be received from the debtors is not realized in the time.
That is the collection period is more than the required.
So, the HAL Foundry & forge Division, Bangalore has to be strict to its debtors by reducing
the credit period allowed, so as to improve its efficiency in managing work.
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LIMITATION
The study of the solely depends upon reliability of the data and information collected from the
secondary sources, it is not possible to collect information on all activities taken over the years,
thus the study incorporates on limitation that are inherent in the available publish information.
As usual Most of the information is collected from the secondary sources.
There is a gap between the theoretical analysis & its practical and real life application. The
data available is limited to the Bangalore Division. The overall data of HAL is not available.
Even if all the factors are taken in consideration, factors like motivation is not considered.
As HAL comes under Defence sector of central govt. there are some limitations upon
getting the data.
The analysis is purely mathematical in nature and ignores management factors like
motivation.
The overall performance is taken into consideration without taking into account the
individual values.
The study is purely based on the data in the form of annual reports and appraisal
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5.2 CONCLUSION
Cash is the life-blood of any business, no matter how large or small. If a business
has no cash and no way of getting any cash, it will have to close down.
Cash flows in a cycle into, around and out of a business. It is the business's life
blood and every manager's primary task is to help keep it flowing and to use the
cash flow to generate profits. If a business is operating profitably, then it should,
in theory, generate cash surpluses. If it doesn't generate surpluses, the business
will eventually run out of cash and expire.
Cash is king, especially at a time when fund raising is harder than ever. Letting it
slip away is an oversight that investors should not forgive. Analyzing a company's
working capital can provide excellent insight into how well a company handles its
cash, and whether it is likely to have any on hand to fund growth and contribute
to shareholder value.
Working capital of a business reflects the short-term use of funds these are cash
short-term securities, amount receivable and inventories of raw materials, work in
progress and finished goods.
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It is also referred as to the funds required for operations of the business. It
follows a cycle process of conversion of cash into inventory, inventory to
receivable and receivable into cash.
The determination of working capital are nature of business manufacturing
cycles, credit policies, availability of raw materials, availability of credits, growth
and expansion activities and other factors.
REFERENCE BOOKS
MANAGEMENT ACCOUNTING – S.P.JAIN & K.L.NARANGFINANCIAL MANAGEMENT- R.P.RUSTAGIFINANCIAL MANAGEMENT - DR. S N MAHESHWARI
REPORTS
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BALANCE SHEET OF HALPROFIT AND LOSS ACCOUNT OF HALANNUAL BOOK REPORT OF HAL
WEBSITES
www.google.comwww.hal-india.com
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HINDUSTAN AERONAUTICS LIMITEDDIVISION:BANGALORE
PROFIT AND LOSS ACCOUNTFor the year ended 31st March 2009 (Rs. in Lakhs)INCOMEGross Sales 140991.83
Less Excise DutyNet Sales 140991.83Transfer to inter divisional units 754.03Changes in WIP/SIT/Scrap 36766.73Other Income 4748.82Chances received on iter divisional transfers 75.4
Transfer from R&D reserves183336.81
EXPENDITUREConsumption of Raw Material, Components, etc 123733.45Amortization &Other charges 15214.51Salaries and Wages 21104.93Other Expenses 8412.15Charges paid on its divisional Transfer 3.3Interest 1.41Depreciation 3659.52Provisions 9218.99Inter services/common services 1585.9Transfer of IDT 182934.16Deduct :Expenditure relating to 11643.31Capital & Other Accounts Net Expenditure 171290.85
Profit for the Year 12045.96
Less :Provision For Taxation (Net) Provision For Fringe Benefit Tax Provision For Deferred Taxation (Net) Profit After Tax 12045.96Profit Available For Appropriations APPROPRIATIONSInterim Dividend Proposed Final Dividend
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Debenture redemption reserveGeneral Reserve Balance carried to balance sheetTotal of Appropriations 12045.96
HINDUSTAN AERONAUTICS LIMITED DIVISION:BANGALOREBALANCE SHEET (Rs in Lakhs)As at 31st March 2009 31st March 2009SOURCES OF FUNDSShareholders' FundsHead office control account 4712.43Reserves and Surplus 12045.96
16758.39Loan Funds Secured Loans 259.75Unsecured Loans 0
259.75Deferred Liabilities (Net) 0.44Deferred Tax Liabilities (Net)
17018.58APPLICATION OF FUNDSFixed AssetsGross block 60053.35Less : Depreciation 23475.2Less :impairment loss Net Block 36578.15Capital Work-in-progress 7522.95
44101.1Special Tools and Equipments 113380.82InvestmentsDeffered tax assetsCURRENT ASSETS, LOANS & ADVANCESInventories 153860.31Sundry debtors 14655.86Cash & Bank balance 11.95Loans & advances 92334.81
260862.93Less: current liabilities & provisionsLiabilities 411352.28Provisions 22538.14
433890.42Net current assets -173027.49
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INTANGIBLE ASSETSGross carrying amount 44467.53Less: cumulative amortization & impairment loss 11903.38NET CARRYING AMOUNT 32564.15
17018.58
BALANCE SHEET (Rs in Lakhs)DIVISION:BANGALORE
As at 31st March 200831st March 2008
SOURCES OF FUNDSShareholders' FundsHead office control account -89880.19Reserves and Surplus 12630.29
-77249.9Loan Funds Secured Loans 468.56
Unsecured Loans 468.56
Deferred Liabilities (Net) 0.74Deferred Tax Liabilities (Net)
-76780.6APPLICATION OF FUNDSFixed AssetsGross block 46430.09Less : Depreciation 19817.22Less :impairment loss Net Block 26612.87
Capital Work-in-progress 9145.97
35758.84Special Tools and Equipments 110774.82InvestmentsDeffered tax assetsCurrent Assets, Loans & AdvancesInventories 94998.36Sundry debtors 5883.47Cash & Bank balance 19.98Loans & advances 51617.16
152518.97Less: current liabilities & provisionsLiabilities 387792.34Provisions 17758.51
405550.85Net current assets -253031.88
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Intangible assetsGross carrying amount 38257.78Less: cumulative amortization & impairment loss 8540.16
29717.62-76780.6
HINDUSTAN AERONAUTICS LIMITEDDIVISION:BANGALORE
PROFIT AND LOSS ACCOUNTFor the year ended 31st March 2008 (Rs. in Lakhs)INCOMEGross Sales 140816.78Less Excise DutyNet Sales 140816.78Transfer to inter divisional units 312.82Changes in WIP/SIT/Scrap -9121.13Other Income 2406.65Chances received on iter divisional transfers 31.28
Transfer from R&D reserves134446.4
EXPENDITUREConsumption of Raw Material, Components, etc 64227.08Amortization &Other charges 11164.18Salaries and Wages 7697.32Other Expenses 8412.15Charges paid on its divisional Transfer 2.04Interest 4.06Depreciation 2369.55Provisions 1116.81
Inter services/common services16110.35
Transfer of IDT 128246.37Deduct :Expenditure relating to 6430.26Capital & Other Accounts Net Expenditure 121816.11
Profit for the Year 12630.29
Less :Provision For Taxation (Net) Provision For Fringe Benefit Tax Provision For Deferred Taxation (Net) Profit After Tax 12630.29
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Profit Available For Appropriations APPROPRIATIONSInterim Dividend Proposed Final Dividend Debenture redemption reserveGeneral Reserve
12630.29
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