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WORKING CAPITAL MANAGEMENT
#1

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Introduction
1.1Introductio of the power sector

While India has made impressive progress in the Power Sector since independence, it is still striving to meet the challenge of required demand. Post independence, where new capacity has been added, demand has far outstripped the supply leading to a widening gap. According to a report by 30.09.06(MOP website) , at present there is a deficit of 12.2% in the peak hours and 8% in the total energy requirement. Even the generated power could not be fully utilized due to the excessive energy losses in the transmission and distribution of electric supply. One of the primary reasons attributing to unacceptable loss level in the distribution segment of the value chain making the sector unavailable. Reports shows, that the losses in powers sector have reached an alarming figure of Rs. 26,000 Crore in the FY 05-06. Thus the biggest fundamental issue hampering the viability of the Indian Power Sector is the high level of composite Transmission and Distribution (T&D) losses to the tune of 31.25% as compared to 8-9% prevailing in western countries. To make the matter worse the LT level distribution losses are more than 60% in many states. In fact, the distribution system in India is plagued by inefficiency, low productivity, frequent interruption in supply associated with poor voltage. With the result, the generation companies not finding it easy to recover their dues from their biggest buyers, mainly the State Electricity Boards (SEBs). SEBs suffers huge financial losses every year due to power theft and ineffective practices of billing and collection. Therefore, some fundamental changes are imperative in the working of the
power sector entities to achieve the national vision of reliable, affordable and quality power for all by 2012 . The reform process is already in progress in several states under the overall guidance of MoP. It is aimed at bringing about sustainable improvements in the operations of the utilities and making them commercially viable. The reforms have brought about various improvements in operational structure, commercial orientation and transparency in operation and overall customer orientation in several states .
INDEPENDENT POWER PRODUCERS (IPPs)
In 1991, in response to severe foreign exchange crisis and lack of capital for expanding power generation capacity the Central Government opened up power generation for foreign and Indian private investment. Government offered concessions such as 100% foreign ownership, long-term purchase agreement, and assured profits (as high as 32% post tax return on equity every year in the currency of investment). In the initial period state governments and SEBs were allowed to enter into negotiated contracts with IPPs without competitive bidding. Initial response to this was enormous. During the three year period when such noncompetitive contracts were allowed, SEBs signed 243 contracts (MoUs) for the capacity addition of over 90,000 MW (more than the national installed capacity at that time), amounting to contracts of nearly 90 MW per working day2. In their zeal to sign as many IPP contracts as possible states and SEBs virtually gave a go by to even elementary norms of power planning including proper demand forecasts and evolution of least cost plans based on comparative costing of different options for sites and fuels. Only a handful of these contracts are likely to result in actual capacity addition. After 1995 the Central Government enforced competitive bidding route for acquiring new
capacity (i.e. IPPs). Some projects have gone ahead through this route too. As per the IPP Report 2001, published by Power Line Research, since the opening up in 1991, till now only 3,200 MW of IPPs have come on line and another 2,700 MW have achieved financial closure. These figures include the projects bid competitively. Major reasons for this failure to add capacity was weak financial situation of SEBs and lack of demand.
IPPs found it difficult to achieve financial closure due to lack of creditworthiness of the sole buyer i.e. SEBs. SEBs was making huge financial losses mainly due to huge transmission and distribution losses (including theft) and highly subsidized tariff to agricultural and domestic consumers. Some IPPs could progress beyond the initial stage due to credit enhancement through guarantees from state and central governments as well as allocation of escrow facility.
UNBUNDLING, PRIVATISATION AND INDEPENDENT REGULATION
In mid 1990s, Orissa state on the eastern cost of India began a process of fundamental restructuring of the state power sector. Under the World Bank (WB) loan, the state decided to adopt - what is known as WBOrissa model of reform. This consisted of a three pronged strategy of:
(1)Un-bundling the integrated utility in three separate sectors of generation, transmission and distribution,
(2)Privatisation of generation and distribution companies and,
(3) Establishment of independent regulatory commissions to regulate these
utilities.
Soon afterwards several other states such as Andhra Pradesh, Haryana, Uttar Pradesh, and Rajasthan also embarked on similar reforms and also availed loans from multilateral development banks such as the WB and Asian Development Bank. Later states of Karnataka and Delhi also joined the bandwagon. The Electricity Regulatory Commissions Act, 1998 of the central government enabled states to establish
independent regulatory commissions obliviating the need for a state level legislation. Several states such as Maharashtra, Tamil Nadu and Punjab have established regulatory commissions under this central legislation4. These states have not adopted the WB model of unbundling and privatisation as yet. In August 2001, the central government has introduced a bill, 'The Electricity Bill 2001' . Once approved by the parliament it will be converted into an Act. The Electricity Bill 2001 would replace the above mentioned three existing electricity Acts. It provides for increased competition in the sector by facilitating
open access to transmission and distribution grid, power trading, and also allowing setting up of captive (only for self use) power plants without any restriction. The states have been given liberty to either adopt the provisions of this new Act or enact separate reforms Act of its own. The impact of this new Act will be far-reaching and more fundamental.
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#2
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INTRODUCTION
Capital is primary need of an enterprise, for any uninterrupted productions of goods & services, an organization needs two types of assets and these are fixed assets and current assets. Capital requirements for fixed assets are estimated first then the assessment is made for the capital that would be needed to ensure smooth functioning of the enterprise.
A manufacturing company requires fund to maintain adequate size of raw material stock to ensure uninterrupted production activity. Likewise sufficient stock of finished goods has also to be maintained in the anticipation of future demands. To meet this purpose, a firm would need capital. Some of the items may be in semi-finished stage and capital gets blocked until they get through the final stage of production and are sold in the market and debtors get released. Credit Sales give rise to a situation to arrange funds to finance the accounts receivable for the period until they are collected.
Some fund is also required to meet the expenses against wages & overheads. Further, the firm has to hold special cash reserve to avail the advantages emanating from business opportunities .Since uncertainty is always a characteristic of business. Sufficient cash should be maintained as insurance against unexpected adversities. It may be concluding that capital is to be arranged for the following areas to ensure day to day operation of the firm:-
i. Building up the inventories.
ii. Financing receivables
ii. Covering day to day operating expenses of the firm & providing insurance against contingencies.
The above assets, needed to carry on the production and distribution activities of a business to pay liabilities as they become due and act as a protection for short term creditors, are termed as current assets. Capital invested in these assets is ordinary referred to as the WORKING CAPITAL .
With the wide dimension of business & his environment. Working Capital Management has its own importance and it has emerged as a distinct area of decision making in Financial Management. The modern conception approach in the business world with cut throat competition give working capital management a dignified place since judicious Working Capital Management has a far reaching effect on the prosperity and survival of the business firm.
In this reports attempt have been made to throw light on conceptual aspects of working capital management as well as its components along with analytical tools and technique for practical application.
OBJECTIVE OF STUDY
The objective of study is : -
i. Our curiosity to get acquainted with the overall system of management of finance in HEC.
ii. The know more about the financial performance of the organization which is our source of bread and butter, being a member of the HEC family.
ii. To undergo an in- depth study of working capital Management in HEC with a focal point on receivable management and inventory management area where the company is ailing.
iv. To prepare a Project Report on the company s Working Capital Management as a part of our study in the Financial Management.
RESEARCH METHODOLOGY
In research method, marketing often use formal marketing studies of specific problems and opportunities. They May request to market survey for a product- preference test, a sale forecast and an evaluation.
Thus, we as management trainee have gathered needful information for the purpose of preparing project report.
Our topic is WORKING CAPITAL MANAGEMENT. for collecting the information; we adopted both methods, primary as well as secondary. Primary in the sense that we contacted with some employees, and Managers and got some valuable information about this corporation , on the other hand, secondary data in the sense that we Consulted several sources like, HEC s ANNUAL REPORT , HEC MANUAL, Magazines and Internet for collecting valuable data and information.
A BRIEF HISTORY OF HEC
On the auspicious day of 31st December, 1958 took birth a giant engineering concern in the horizon of chhotnagpur belt with the establishment of the Heavy Engineering Corporation Limited. Considered to be the pioneer of the engineering Sector of India. It has three manufacturing units, located at Ranchi .
These are :
01. Foundry Forge Plant
02. Heavy Machine Building Plant
03. Heavy Machine Tools Plant
Apart from these three plants. The company has a Project & Consultancy Division. The company has also established a few branch offices at Delhi, Calcutta, Hyderabad and Nagpur for the supply of machines , tools & spares to industry like steel, mines ,cement , fertilizer , railways & defence establishments.
The Company has an authorized Share Capital of Rs.300 crores divided into 3000000 equity shares of Rs. 1000 \ each and is fully owned by the Government of India.
FOUNDRY FORGE PLANT
Foundry Forge Plant has the credibility of would fame in the Foundry & Forge Technology. It is one of the largest of its kind in the world. The covered area of the plant is 13, 16,930 sqrs.mtrs. With a fenced area of 28.80,000 sq.mtrs. The plant has the capability to produce different types of sophisticated, intricate Heavy Casting, Forgings required fot its sister plant HMBP & HMTP. It also manufactures casting. Forging & rolls of different size & type to meet requirements of industries like Steel, Mining, Sugar, Cement, Defence, Railways etc.
The plant has the following production shops: -
Grey Iron Foundry.
Steel Foundry.
Forge Shops.
Machine Shops.
Roll Manufacturing Shops.
Pattern Shops.
The plant is equipped with : -
Arc Furnace of capacity upto 60 tons.
Hot Blast Coupler.
Hydraulic Forging Presses of capacity up to 6000 tons
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#3
WORKING CAPITAL MANAGEMENT

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Introduction
A firm is required to maintain a balance between liquidity and profitability while conducting its day to day operations. Liquidity is a precondition to ensure that firms are able to meet its short-term obligations and its continued flow can be guaranteed from a profitable venture. The importance of cash as an indicator of continuing financial health should not be surprising in view of its crucial role within the business. This requires that business must be run both efficiently and profitably. In the process, an asset-liability mismatch may occur which may increase firm s profitability in the short run but at a risk of its insolvency. On the other hand, too much focus on liquidity will be at the expense of profitability and it is common to find finance textbooks begin their working capital sections with a discussion of the risk and return tradeoffs inherent in alternative working capital policies. Thus, the manager of a business entity is in a dilemma of achieving desired tradeoff between liquidity and profitability in order to maximize the value of a firm.

Importance of Working Capital

The working capital meets the short-term financial requirements of a business enterprise. It is a trading capital, not retained in the business in a particular form for longer than a year. The money invested in it changes form and substance during the normal course of business operations. The need for maintaining an adequate working capital can hardly be questioned. Just as circulation of blood is very necessary in the human body to maintain life, the flow of funds is very necessary to maintain business. If it becomes weak, the business can hardly prosper and survive. Working capital starvation is generally credited as a major cause if not the major cause of small business failure in many developed and developing countries.

Objectives of Working Capital
It is becoming more and more difficult to use debt to finance mechanical engineering firms. Companies in this industry are therefore forced to optimize their capital employed in order to become less dependent on borrowed money.

Management of Working Capital

While the performance levels of small businesses have traditionally been attributed to general managerial factors such as manufacturing, marketing and operations, working capital management may have a consequent impact on small business survival and growth. The management of working capital is important to the financial health of businesses of all sizes. The amounts invested in working capital are often high in proportion to the total assets employed and so it is vital that these amounts are used in an efficient and effective way. However, there is evidence that small businesses are not very good at managing their working capital. Given that many small businesses suffer from under capitalisation, the importance of exerting tight control over working capital investment is difficult to overstate.
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#4
WORKING CAPITAL MANAGEMENT

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Meaning of Working Capital:

- Working Capital is the amount of Capital that a Business has available to meet the day-to-day cash requirements of its operations
- Working Capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities)
- It refers to the amount of Current Assets that exceeds Current Liabilities (i.e. CA - CL)
- Working Capital refers to that part of the firm s Capital, which is required for Financing Short-Term or Current Assets such as Cash, Marketable Securities, Debtors and Inventories. Working Capital is also known as Revolving or Circulating Capital or Short-Term Capital

Working Capital Concepts:

- Gross Concept: It means Current Assets. This is knows as Quantitative aspect of Working Capital
(Focus is on (i) Optimum Investment in Current Assets and (ii) Financing of Current Assets)
- Net Concept: It means difference between Currents Assets & Current Liabilities. This is knows as Qualitative aspect of Working Capital
(Focus is on (i) Liquidity Position of the Firm and (ii) WC Amount that can be financed by Permanent sources of Funds)
Meaning of Operating Cycle/Working Capital Cycle:
- Cash
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#5
The Indian Life Insurance Company has seen a remarkable shift since the time of establishment of the first company, Oriental Life Insurance Company in 1823. At the time of Independence and thereafter, there were more than 200 companies operating in India and not all of them on sound ethical principles. Many factors combined together to prompt the then Government to nationalize the life insurance industry in 1956 to form the Life Insurance Corporation of India.

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#6
Smile NIC YAAR.. USEFUL.. AS I AM DOING MY PROJECT IN THIS TOPIC I FELT THAT THIS WILL BE USEFUL FOR UNDERSTANDING THE TERMS EASILY..
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