RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 1

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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 2

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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 3

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.

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1.2c FUTURE OF INDUSTRY

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

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 HALBIT Avionics Pvt. Ltd.

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2.1 ORIGIN OF THE ORGANIZATION

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.

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2.2 GROWTH AND DEVELOPMENT OF THE ORGANATION

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.

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SERVICES

EXPORTS OF HAL

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2.3 PRESENT STATUS OF THE ORGANIZATION.

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

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  Improving regularly the facilities

2.4 FUNCTIONAL DEPARTMENT OF THE ORGANIZATION

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
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  Export section

 Import section

 Warehouse section

 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

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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

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

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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.

 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.

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  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

 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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 15
  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.

2.5 ORGANIZATIONAL STRUCTURE AND ORGANIZATIONAL CHART.

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2.6 PRODUCTS AND SERVICE PROFILE OF THE ORGANIZATION COMPETITORS.

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

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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

 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

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  Abrasive blasting and vibratory finishing equipment

 Optical projectors and multi-gaugung equipment backed by checking fixtures,

gauges and other inspection aids

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

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 19

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

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.

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2.7 MARKET PROFILE OF THE ORGANIZATION

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.

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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.

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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 22

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

CHAPTER 3
RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 23
 DISCUSSION ON
TRAINING

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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 24

  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.

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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 25

 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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 26

 CHAPTER 4

STUDY OF SELECTED
RESEARCH PROBLEM

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-
RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 27
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.

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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 28

  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

 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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 29
  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.

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

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 30

4.3 RESEARCH DESINE AND METHODOLOGY

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

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 31

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:

O=R+W+F+D–C

Where,

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 32

 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

TABLE- 1

CALCULATION OF PERCENTAGE OF CASH AND BANK BALANCE TO THE

CURRENT ASSETS ( IN LAKHS)

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 33

PARTICULAR 2007-2008 2008-2009
A. Cash and bank 19.98 11.95
balance (Rs)
B. Current Assets (Rs) 152518.97 260862.93

C. % of Cash and Bank 0.013 0.004

Balance to Current
Assets (A/B*100)

CASH AND BANK BALANCE TO THE CURRENT ASSETS

INTERPRETATION

By analyzing the statements, it is observed that 0.013, 0.004 of current assets

were held as cash in hand and cash at bank during the years 2007-2008, 2008-2009

respectively. The cash management in HAL is centralized and managed by the

corporate office.

TABLE – 2

CALCULATION OF PERCENTAGE OF ACCOUNTS RECEIVABLE TO THE

CURRENT ASSETS (IN LAKHS)

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 34

PARTICULARS 2007-08 2008-09
A. Account receivable 5883.47 14655.86
B. Current assets 152518.97 260862.93
C.% of accounts 3.85 5.61
receivable to current
assets (A/B*100)

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.

.TABLE – 3

CALCULATION OF AVERAGE COLLECTION PERIOD (IN LAKHS)

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 35

PARTICULAR 2007-08 2008-09
A. Debtors 5883.47 14655.86

B. Sales 140816.78 140991.83

C. Average collection 16 days 38 days

period (A/B*360 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.

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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 36

TABLE – 4

CALCULATION OF PERCENTAGE OF INVENTORY TO CURRENT

ASSETS (IN LAKHS)
PARTICULARS 2007-08 2008-09
A. Inventories 94998.36 153860.31
B. Current Assets 152518.97 260862.93
C. Percentage of Inventory 62.28 58.98
to Current Assets
(A/B*100)

PERCENTAGE OF INVENTORY TO CURRENT ASSETS

INTERPRETATION

The holding of inventory is 13-62% of current assets. This percentage has been

substantially increased from 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.

TABLE – 5

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 37

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 263 days 226 days
conversion period
(A/B*360 Days)
RAW MATERIAL CONVERSION PERIOD

INTERPRETATION:

There is significance increases in raw material conversion period. The reason is most

of the raw materials are produced from Russia. They are ordered in bulk and hence at

the closing of the period stock of raw material more. As bulk orders will reduce the

most of procuring division orders large amounts at a time. Increase in raw materials

does not affect the raw material conversion period seriously.

 Raw material conversion period is263 days in 2007-08, 226 days in 2008-09.

 The raw material conversion period is very high during 2007-08 as compared to

2008-09.

TABLE – 6

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 38

CALCULATION OF WORK IN PROGRESS CONVERSION PERIOD (IN
LAKHS)

PARTICULARS 2007-08 2008-09

A. Closing WIP (Rs.) 35794.14 72537.85
B. Cost of production 145324.85 177735.54
(Rs.)
C. WIP Conversion period 89 days 147 days
(A/B*360)

WORK IN PROGRESS CONVERSION PERIOD

NOTE: Cost of production = Sales +Closing balance of WIP–Opening balance of

WIP +Closing balance of SIT–Opening balance of SIT.
Where,
WIP - Work in Progress
SIT - Stock in Trade

INTERPRETATION

WIP conversion period are 89 days and 147 days in 2007-08 and 2008-09

respectively.

 The company has shown an efficient management labour force & efficient

utilization of materials by maintaining a less work in progress conversion period in

year 2007-08 as compared to2008-09.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 39

 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 2008-09
A. Closing Finished 108719 116322.85
Goods.
B. Cost of Goods Sold. 127809 128945.87
C. Finished Goods 307 days 325days
Conversion period
(A/B*360 Days)
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.

 The time period consumed by the company to the convert the finished in goods in

to sales is very long.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 40

TABLE – 8

CALCULATION PAYABLE DEFERRAL PERIOD (IN LAKHS)

PARTICULARS 2007-08 2008-09

A. Creditors 23474.48 25846.90
B. Credit Purchase 132207.91 207532.20

C. Payable Deferral 64 days 45 days

period (A/B*360 Days)
PAYABLE DEFERRAL PERIOD

INTERPRETATION

From the above table it is seen that:

 The payable deferral period i.e. the credit period allowed by the creditors during

the years 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.

 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

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 41

SUMMARY OF OPERATING CYCLE CALCULATION (IN LAKHS)
PARTICULARS 2007-08 2008-09

A. Inventory conversion
period
i. Raw
Material
Conversion 263 days 226 days
period
ii. WIP
Conversion
Period
iii. Finished
goods 89 days 147 days
Conversion
period

307 days 325 days

Total 659 days 698 days
B. Debtors Conversion 16 days 38 days
Period

C. Gross operating Cycle 675 days 736 days

(A+B)

D. Payment Deferral 64 days 45 days

Period

E. Net Operating Cycle (C- 611 days 691 days

D)

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.
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 42

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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 43

 CHAPTER 5
SUMMARY AND
CONCLUSIONS.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 44

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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 45

 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

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 46

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.

 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.

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 47

  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.NARANG

FINANCIAL MANAGEMENT- R.P.RUSTAGI
FINANCIAL MANAGEMENT - DR. S N MAHESHWARI

REPORTS

BALANCE SHEET OF HAL

PROFIT AND LOSS ACCOUNT OF HAL
ANNUAL BOOK REPORT OF HAL

WEBSITES

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 48

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

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 49

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 50
 DIVISION:BANGALORE
HINDUSTAN AERONAUTICS LIMITED
PROFIT AND LOSS ACCOUNT
For the year ended 31st March 2009 (Rs. in Lakhs)
INCOME
Gross Sales 140991.83

Less Excise Duty

Net Sales 140991.83
Transfer to inter divisional units 754.03
Changes in WIP/SIT/Scrap 36766.73
Other Income 4748.82
Chances received on iter divisional transfers 75.4

Transfer from R&D reserves

183336.81
EXPENDITURE
Consumption of Raw Material, Components, etc 123733.45
Amortization &Other charges 15214.51
Salaries and Wages 21104.93
Other Expenses 8412.15
Charges paid on its divisional Transfer 3.3
Interest 1.41
Depreciation 3659.52
Provisions 9218.99
Inter services/common services 1585.9
Transfer of IDT 182934.16
Deduct :Expenditure relating to 11643.31
Capital & Other Accounts
Net Expenditure 171290.85
12045.96
Profit for the Year
Less :
Provision For Taxation (Net)
Provision For Fringe Benefit Tax
Provision For Deferred Taxation (Net)
Profit After Tax 12045.96
Profit Available For Appropriations
APPROPRIATIONS
Interim Dividend
Proposed Final Dividend

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 51

Debenture redemption reserve
General Reserve

Balance carried to balance sheet

Total of Appropriations 12045.96

HINDUSTAN AERONAUTICS LIMITED DIVISION:BANGALORE

BALANCE SHEET (Rs in Lakhs)

As at 31st March 2009 31st March 2009

SOURCES OF FUNDS

Shareholders' Funds

Head office control account 4712.43

Reserves and Surplus 12045.96

16758.39

Loan Funds

Secured Loans 259.75

Unsecured Loans 0

259.75

Deferred Liabilities (Net) 0.44

Deferred Tax Liabilities (Net)

17018.58

APPLICATION OF FUNDS

Fixed Assets

Gross block 60053.35

Less : Depreciation 23475.2

Less :impairment loss

Net Block 36578.15

Capital Work-in-progress 7522.95

44101.1

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 52

Special Tools and Equipments 113380.82

Investments

Deffered tax assets

CURRENT ASSETS, LOANS & ADVANCES

Inventories 153860.31

Sundry debtors 14655.86

Cash & Bank balance 11.95

Loans & advances 92334.81

260862.93

Less: current liabilities & provisions

Liabilities 411352.28

Provisions 22538.14

433890.42

Net current assets -173027.49

INTANGIBLE ASSETS

Gross carrying amount 44467.53

Less: cumulative amortization & impairment loss 11903.38

NET CARRYING AMOUNT 32564.15

17018.58

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 53

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 54
 DIVISION:BANGALORE
BALANCE SHEET (Rs in Lakhs)
31st March
As at 31st March 2008 2008
SOURCES OF FUNDS
Shareholders' Funds
Head office control account -89880.19
Reserves and Surplus 12630.29
-77249.9
Loan Funds
Secured Loans 468.56

Unsecured Loans
468.56
Deferred Liabilities (Net) 0.74
Deferred Tax Liabilities (Net)
-76780.6
APPLICATION OF FUNDS
Fixed Assets
Gross block 46430.09
Less : Depreciation 19817.22
Less :impairment loss
Net Block 26612.87
9145.97
Capital Work-in-progress
35758.84
Special Tools and Equipments 110774.82
Investments
Deffered tax assets
Current Assets, Loans & Advances
Inventories 94998.36
Sundry debtors 5883.47
Cash & Bank balance 19.98

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 55

Loans & advances 51617.16

152518.97
Less: current liabilities & provisions
Liabilities 387792.34
Provisions 17758.51
405550.85
Net current assets -253031.88
Intangible assets
Gross carrying amount 38257.78
Less: cumulative amortization & impairment loss 8540.16
29717.62
-76780.6

DIVISION:BANGALORE
HINDUSTAN AERONAUTICS LIMITED
PROFIT AND LOSS ACCOUNT
For the year ended 31st March 2008 (Rs. in Lakhs)
INCOME
Gross Sales 140816.78
Less Excise Duty
Net Sales 140816.78
Transfer to inter divisional units 312.82
Changes in WIP/SIT/Scrap -9121.13
Other Income 2406.65
Chances received on iter divisional transfers 31.28

Transfer from R&D reserves

134446.4
EXPENDITURE
Consumption of Raw Material, Components, etc 64227.08
Amortization &Other charges 11164.18
Salaries and Wages 7697.32
Other Expenses 8412.15
Charges paid on its divisional Transfer 2.04
Interest 4.06
Depreciation 2369.55
Provisions 1116.81
16110.35
Inter services/common services
Transfer of IDT 128246.37
Deduct :Expenditure relating to 6430.26
Capital & Other Accounts
Net Expenditure 121816.11

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 56

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
Profit Available For Appropriations
APPROPRIATIONS
Interim Dividend
Proposed Final Dividend
Debenture redemption reserve
General Reserve

12630.29

RAMAIAH INSTITUTE OF MANAGEMENT STUDIES 57