Project Report On Working Capital Management in HCL

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Project Report on working capital management in HCL
MBA (Indian Institute of Foreign Trade)
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A REPORT
ON
“WORKING CAPITAL MANAGEMENT IN

HCL INFOSYSTEMS LIMITED”
BY
(Submitted in partial fulfillment of the requirements of

MBA program at
ICFAI Business School, Chandigarh)
1
ACKOWLEDGEMENT
Achievement is finding out what you would be then doing, what you have to do.
The higher the summit, the harder is the climb. The goal was fixed and we
began with a determined resolved and put in ceaseless sustained hard work.
Greater challenge, greater was our effort to overcome it.
This project work, which is my first step in the field of professionalization, has
been successfully accomplished only because of my timely support of well-
wishers. I would like to pay my sincere regards and thanks to those, who
directed me at every step in my project work.
I would also like to thank the faculty members and the staff members of HCL
Infosystems Ltd. for their kind support and help during the project.
2
TABLE OF CONTENTS
Acknowledgement
Abstract
1. Introduction
 The problems
 Purpose of study
 Research methodology
 Scope of the study
 Data sources
 Limitations
2. Hindustan Computers Limited
3. HCL Infosystems – An Overview
 Company’s history
 HCL at a glance
 Alliances and partnerships
 Management team
 Corporate information
4. Conceptual Framework
 Introduction to Working Capital Management
 Significance of working capital management
 Liquidity vs Profitability: Risk – Return trade off
 Classification of working capital
 Types of working capital needs
 Financing of working capital
 Factors determining working capital requirements
 Working capital cycle
 Sources of working capital
3
 HCL financials
 Working capital position
 Inventory management
 Cash management
 Receivables management
 Managing payables (Creditors)
 Financing current assets
 Working capital & short-term financing
5. Analysis
 Industry analysis
 Financial graphs
 Concluding analysis
 Suggestions and recommendations
 Bibliography
6. Appendices
4
ABSTRACT
This project is based on the study of working capital management in HCL

Infoystems. An insight view of the project will encompass – what it is all about,
what it aims to achieve, what is its purpose and scope, the various methods used
for collecting data and their sources, including literature survey done, further
specifying the limitations of our study and in the last, drawing inferences from
the learning so far.
HCL Infosystems Limited (HCL), is a leading domestic computer hardware

and hardware services company. HCL is engaged in selling manufactured ( like
PCs, servers, monitors and peripherals) and traded hardware ( like notebooks,
peripherals) to institutional clients as well as in retail segment. It also offers
hardware support services to existing clients through annual maintenance
contracts, network consulting and facilities management.
The working capital management refers to the management of working capital,

or precisely to the management of current assets. A firm’s working capital
consists of its investments in current assets, which includes short-term assets—
cash and bank balance, inventories, receivable and marketable securities.
This project tries to evaluate how the management of working capital is done in
HCL Infosystems through inventory ratios, working capital ratios, trends,
computation of cash, inventory and working capital, and short term financing.
5
INTRODUCTION
he problems Purpose of study

esearch methodology Scope of the study Data sources Limit
6
INTRODUCTION:
The project undertaken is on “WORKING CAPITAL MANAGEMENT IN

HCL INFOSYSTEMS LIMITED”.
It describes about how the company manages its working capital and the various
steps that are required in the management of working capital.
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).
Working capital refers to the cash a business requires for day-to-day operations
or, more specifically, for financing the conversion of raw materials into finished
goods, which the company sells for payment. Among the most important items
of working capital are levels of inventory, accounts receivable, and accounts
payable. Analysts look at these items for signs of a company's efficiency and
financial strength.
The working capital is an important yardstick to measure the company’s
operational and financial efficiency. Any company should have a right amount
of cash and lines of credit for its business needs at all times.
This project describes how the management of working capital takes place at
HCL Infosystems.
7
THE PROBLEMS
In the management of working capital, the firm is faced with two keyproblems:
1. First, given the level of sales and the relevant cost considerations, what are the
optimal amounts of cash, accounts receivable and inventories that a firm should
choose to maintain?
2. Second, given these optimal amounts, what is the most economical way to
finance these working capital investments? To produce the best possible
results, firms should keep no unproductive assets and should finance with the
cheapest available sources of funds. Why? In general, it is quite advantageous
for the firm to invest in short term assets and to finance short-term liabilities.
8
PURPOSE OF STUDY
The objectives of this project were mainly to study the inventory, cash and
receivable at HCL Infosystems Ltd., but there are some more and they are -
The main purpose of our study is to render a better understanding of
the concept “Working Capital Management”.
To understand the planning and management of working capital at HCL

Infosystems Ltd.
To measure the financial soundness of the company by analyzing various
ratios.
To suggest ways for better management and control of working capital at
the concern.
9
RESEARCH METHODOLOGY
This project requires a detailed understanding of the concept –

“Working Capital Management”. Therefore, firstly we need to
have a clear idea of what is working capital, how it is managed
in HCL Infosystems, what are the different ways in which the
financing of working capital is done in the company.
The management of working capital involves managing inventories,

accounts receivable and payable and cash. Therefore one also needs to
have a sound knowledge about cash management, inventory management
and receivables management.
Then comes the financing of working capital requirement, i.e. how the
working capital is financed, what are the various sources through which it
is done.
And, in the end, suggestions and recommendations on ways for better
management and control of working capital are provided.
10
SCOPE OF THE STUDY
This project is vital to me in a significant way. It does have some

importance for the company too. These are as follows –
This project will be a learning device for the finance student.

Through this project I would study the various methods of the working
capital management.
The project will be a learning of planning and financing working capital.
The project would also be an effective tool for credit policies of the
companies.
This will show different methods of holding inventory and dealing with
cash and receivables.
This will show the liquidity position of the company and also how do they
maintain a particular liquidity position.
11
DATA SOURCES:
The following sources have been sought for the prep of this report:
Primary sources such as business magazines, current annual reports, book

on Financial Management by various authors and internet websites the
imp amongst them being : www.hcl.com, www.indiainfoline.com,
www.studyfinance.com .
Secondary sources like previous years annual reports, reports on working
capital for research, analysis and comparison of the data gathered.
While doing this project, the data relating to working capital, cash
management, receivables management, inventory management and short
term financing was required.
This data was gathered through the company’s websites, its corporate
intranet, HCL’s annual reports of the last five years.
A detailed study on the actual working processes of the company is also
done through direct interaction with the employees and by timely
studying the happenings at the company.
Also, various text books on financial management like Khan & Jain,
Prasanna Chandra and I.M.Pandey were consulted to equip ourselves
with the topic.
12
LIMITATIONS OF THE STUDY:
We cannot do comparisons with other companies unless and until

we have the data of other companies on the same subject.
Only the printed data about the company will be available and not
the back–end details.
Future plans of the company will not be disclosed to the trainees.
Lastly, due to shortage of time it is not possible to cover all the
factors and details regarding the subject of study.
The latest financial data could not be reported as the company’s
websites have not been updated.
13
HINDUSTAN COMPUTERS LIMITED:
Type Public
(BSE: 500179,BSE: 532281)
Founded 11th August 1976
Headquarters Noida, India
(Delhi metropolitan area), India
Key People Shiv Nadar, Founder, Chairman & CEO
Sanjay Kumar Choudhary , Vineet Nayar
Industry Information Technology Services
Revenue ▲4.7 billion USD

Employees ~53,000 (as on 31st Dec 2007)
Website www.hcl.in
Hindustan Computers Limited, also known as HCL Enterprise, is one of

India's largest electronics, computing and information technology company.
Based in Noida, near Delhi, the company comprises two publicly listed Indian
companies, HCL Technologies and HCL Infosystems.
HCL was founded in 1976 by Shiv Nadar, Ajai Chowdhry and four of their
colleagues. HCL was focused on addressing the IT hardware market in India for
the first two decades of its existence with some sporadic activity in the global
market. In 1981, HCL seeded a company focused on addressing the computer

training industry, NIIT, though it has currently divested its stake in the
company. In 1991, HP took minority stake in the company (26%) and the
14
company was known as HCL HP for the five years of the joint venture. On
termination of the joint venture in 1996, HCL became an enterprise which
comprises HCL Technologies (to address the global IT services market) and
HCL Infosystems (to address the Indian and APAC IT hardware market). HCL
has since then operated as a holding company.
HCL INFOSYSTEMS – AN OVERVIEW
15
Company’s history
HCL at a glance
Alliances and partnerships
Management team
Corporate information
HCL INFOSYSTEMS LIMITED
AN OVERVIEW ABOUT THE COMPANY
16
HCL Infosystems is no flash in the Information Technology pan. Founded in
1976, the firm has climbed into pantheon of India's corporate giants on the
strength of its IT products and services. HCL Infosystems specializes in IT
hardware (PC's and servers, as well as networking, imaging and
communications products), and system integration services serving the domestic
Indian market. In addition to its consumer products, the company provides
commercial IT products, facilities management, network services, and IT
security services for clients in such industries as government, financial services,
and education. HCL Corporation owns significant stakes in HCL Infosystems
(about 44%) and sister company HCL Technologies.
HCL Infosystems Ltd, a listed subsidiary of HCL, is an India-based hardware

and systems integrator. It claims a presence in 170 locations and 300 service
centres. Its manufacturing facilities are based in Chennai, Pondicherry and
Uttarakhand .Its headquarters is in Noida.
HCL Peripherals (A Unit of HCL Infosystems Limited) Founded in the year

1983, has established itself as a leading manufacturer of computer peripherals in
India, encompassing Display Products, Thin Client solutions, Information and
Interactive Kiosks. HCL Peripherals has two Manufacturing facilities, one in
Pondicherry (Electronics) and the other in Chennai (Mechanical) .The Company
has been accredited with ISO 9001:2000, ISO 14001, TS 16949 and ISO 13485.
HISTORY
17
HCL Infosystems Ltd is one of the pioneers in the Indian IT
market, with its origins in 1976. For over quarter of a century,
we have developed and implemented solutions for multiple
market segments, across a range of technologies in India. We
have been in the forefront in introducing new technologies and
solutions. The highlights of the HCL saga are summarized
below:
Y E AR H I G H L I G H T S
- Foundation of the Company laid
1976 - Introduces microcomputer-based programmable calculators with wide
acceptance in the scientific / education community
- Launch of the first microcomputer-based commercial computer with a ROM -
based Basic interpreter
1977 - Unavailability of programming skills with customers results in HCL
developing bespoke applications for their customers
- Formation of Far East Computers Ltd., a pioneer in the Singapore IT market,
1980 for SI (System Integration) solutions
- HCL launches an aggressive advertisement campaign with the theme ' even a
typist can operate' to make the usage of computers popular in the SME (Small &
Medium Enterprises) segment. This proposition involved menu-based
1983 applications for the first time, to increase ease of operations. The response to the
advertisement was phenomenal.
-HCL develops special program generators to speed up the development of
applications
- Zonal offices of banks and general insurance companies adopt
computerization
- Purchase specifications demand the availability of RDBMS products on the
1986 supplied solution (Unify, Oracle). HCL arranges for such products to be ported
to its platform.
- HCL assists customers to migrate from flat-file based systems to RDBMS
- HCL enters into a joint venture with Hewlett Packard
1991 - HP assists HCL to introduce new services: Systems Integration, IT consulting,
packaged support services ( basic line, team line )
- HCL acquires and executes the first offshore project from IBM Thailand
1994
- HCL sets up core group to define software development methodologies
18
- Starts execution of Information System Planning projects
1995 - Execution projects for Germany and Australia
- Begins Help desk services
- Sets up the STP ( Software Technology Park ) at Chennai to execute software
1996 projects for international customers
- Becomes national integration partner for SAP
- Kolkata and Noida STPs set up
1997
- HCL buys back HP stake in HCL Hewlett Packard
1998 - Chennai and Coimbatore development facilities get ISO 9001 certification
- Acquires and sets up fully owned subsidiaries in USA and UK
1999 - Sets up fully owned subsidiary in Australia
- HCL ties up with Broadvision as an integration partner
- Sets up fully owned subsidiary in Australia
- Chennai and Coimbatore development facilities get SEI Level 4 certification
- Bags Award for Top PC Vendor In India
2000 - Becomes the 1st IT Company to be recommended for latest version of ISO
9001 : 2000
- Bags MAIT's Award for Business Excellence
- Rated as No. 1 IT Group in India
-Launched Pentium IV PCs at below Rs 40,000
2001
-IDC rated HCL Infosystems as No. 1 Desktop PC Company of 2001
-Declared as Top PC Vendor by Dataquest
-HCL Infosystems & Sun Microsystems enters into a Enterprise Distribution
2002 Agreement
- Realigns businesses, increasing focus on domestic IT, Communications &
Imaging products, solutions & related services
- Became the first vendor to register sales of 50,000 PCs in a quarter

2003 - First Indian company to be numero uno in the commercial PC market
- Enters into partnership with AMD
- Launched Home PC for Rs 19,999
2004 - 1st to announce PC price cut in India, post duty reduction, offers Ezeebee at
Rs. 17990
- Maintains No.1 position in the Desktop PC segment for year 2003
- Becomes the 1st company to cross 1 lac unit milestone in the Indian Desktop
PC market
- Partners with Union Bank to make PCs more affordable, introduces lowest
ever EMI for PC in India
- Registers a market share of 13.7% to become No.1 Desktop PC company for
year 2004
19
- Crosses the landmark of $ 1 billion in revenue in just nine months
- Launch of HCL PC for India, a fully functional PC priced at Rs.9,990/-
- Rated as the No.1 Desktop PC company by IDC India -Dataquest
- 'Best Employer 2005' with five star ratings by IDC India -Dataquest.
- 'The Most Customer Responsive Company 2005'
-IT Hardware Category by The Economic Times -Avaya Global Connect.
-Top 50 fastest growing Technology Companies in India' & 'Top 500 fastest
Growing Technology Companies in Asia Pacific' by 'Deloitte & Touche'. by
'Deloitte & Touche'
2005 -'7th IETE -Corporate Award 2005' for performance excellence in the field of
Computers & Telecommunication Systems by IETE.
-India 's 'No.1 vendor' for sales of A3 size Toshiba Multi Functional Devices for
the year '04 -'05 by IDC.
-Toshiba 'Super Award 2005 towards business excellence in distribution of
Toshiba Multifunctional products,
-Strategic Partners in Excellence' Award by In focus Corporation for projectors.
-'Most valued Business Partner' Award for projectors by In focus Corporation in
2005
- 75, 000+ machines produced in a single month
- HCL Infosystems in partnership with Toshiba expands its retail presence in
India by unveiling 'shop Toshiba'
- HCL Infosystems & Nokia announce a long term distribution strategy
- HCL the leader in Desktops PCs unveils India's first segment specific range of
notebooks brand - 'HCL Laptops'
2006 - IDBI selects HCL as SI partner for 100 branches ICT infrastructure rollout
- HCL Infosystems showcases Computer Solutions for the Rural Markets in
(till India
June) - HCL Support wins the DQ Channels-2006 GOLD Award for Best After Sales
Service on a nationwide customer satisfaction survey conducted by IDC
- HCL Infosystems First in India to Launch the New Generation of High
Performance Server Platforms Powered by Intel Dual - Core Xeon 5000
Processor
- HCL Forms a Strategic Partnership with APPLE to provide Sales & Service
Support for iPods in India
20
VISION STATEMENT:
"Together we create the Enterprises of Tomorrow"
MISSION STATEMENT:
"To provide world-class Information Technology solutions and

services in order to enable our customers to serve their customers
better"
CORE VALUES:
 Nothing transforms life like education.

 We shall honor all commitments
 We shall be committed to Quality, Innovation and Growth in
every endeavor
 We shall be responsible corporate citizens
QUALITY POLICY:
"We shall deliver defect-free products, services and solutions to meet the
requirements of our external and internal customers, the first time, every time."
21
OBJECTIVES:
 MANAGEMENT OBJECTIVES –
To fuel initiative and foster activity by allowing individuals, freedom
of action and innovation in attaining defined objectives.
 PEOPLE OBJECTIVES –
To help people in HCL Infosystems Ltd., share company’s
success, which they make possible; to provide job security
based on their performance; to
recognize their individual achievements; and help them gain a sense of
satisfaction and accomplishment from their work.
ALLIANCES and PARTNERSHIPS:
To provide world-class solutions and services to all our customers, HCL

Infosystems have formed Alliances and Partnerships with leading IT companies
worldwide.
HCL Infosystems has alliances with global technology leaders like Intel, AMD,
Microsoft, Bull, Toshiba, Nokia, Sun Microsystems, Ericsson, nVIDIA,
SAP, Scansoft, SCO, EMC, Veritas, Citrix, CISCO, Oracle, Computer
Associates, RedHat, Infocus, Duplo, Samsung and Novell.
22
These alliances on one hand give us access to best technology & products as
well as enhancing our understanding of the latest in technology. On the other
hand they enhance our product portfolio, and enable us to be one stop shop for
our customers.
23
MANAGEMENT TEAM:
Ajai Chowdhry
Co-Founder HCL, Chairman and CEO - HCL Infosystems.
An engineer by training, Ajai Chowdhry is one of the six
co- founder members of HCL, India 's premier IT
conglomerate.
J V Ramamurthy
Chief Operating Officer HCL Infosystems Ltd.
J V Ramamurthy has an engineering degree in Electronics &
Communications, from Guindy Engineering College, and a
Masters' degree in Applied Electronics from the Madras Institute
of Technology, both in Chennai.
Rajendra Kumar
Executive Vice President - Frontline Division HCL Infosystems
Ltd. Mr. Rajendra Kumar has been with HCL for over 30 years and
has seen HCL grow from a startup company to a gigantic
conglomerate that it is today.
24
CORPORATE INFORMATION:
BOARD OF DIRECTORS Chairman & Chief Executive Officer

Ajai Chowdhry
Whole-time Director
J.V. Ramamurthy
Directors
S. Bhattacharya
D.S. Puri
R.P. Khosla
E.A. Kshirsagar
Anita Ramachandran
T.S. Purushothaman
Narasimhan Jegadeesh
V.N. Koura
COMPANY SECRETARY Sushil Kumar Jain
AUDITORS Price Waterhouse, New Delhi
BANKERS State Bank of India

Canara Bank
HDFC Bank Ltd.
ICICI Bank Ltd.
Societe Generale
Standard Chartered Bank
State Bank of Patiala
State Bank of Saurashtra
REGISTERED OFFICE 806, Siddharth,

96, Nehru Place, New Delhi - 110 019.
CORPORATE OFFICE E - 4, 5, 6, Sector XI, Noida - 201 301 (U.P.)
WORKS ♦ R.S. Nos: 34/4 to 34/7 and part of 34/1,
25
Sedarapet, Puducherry - 605 111.
♦ R.S. Nos: 107/5, 6 & 7, Main Road,
Sedarapet, Puducherry - 605 111.
♦ Plot No 78, South Phase,
Ambattur Industrial
Estate,Chennai - 600 058.
♦ Plot No SPL. A2, Thattanchavadi, Industrial
Area, Puducherry - 605 009.
♦ Plot Nos. 1, 2, 27 & 28, Sector 5, 11E,
Rudrapur, Distt. - Udham Singh Nagar,
Uttarakhand - 263 145.
26
WORKING CAPITAL MANAGEMENT
CONCEPTUAL FRAMEWORK
ction
ance of working capital management Liquidity Vs profitability: Risk – Return trade off Classification o
f working capital needs Financing of working capital
determining working capital requirements Working capital cycle
s of working capital HCL financials
g capital position Inventory management Cash management Receivables management
ng payables (Creditors) Financing current assets
g capital & short-term financing
Financing Current Assets
27
INTRODUCTION TO WORKING CAPITAL
“Working Capital is the Life-Blood and Controlling Nerve Center of a

business”
The working capital management precisely refers to management

of current assets. A firm’s working capital consists of its investment
in current assets, which include short-term assets such as:
Cash and bank balance,

Inventories,
Receivables (including debtors and bills),
Marketable securities.
Working capital is commonly defined as the difference between current assets

and current liabilities.
WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES
There are two major concepts of working capital:
Gross working capital

Net working capital
28
Gross working capital:
It refers to firm's investment in current assets. Current assets are the assets,
which can be converted into cash with in a financial year. The gross working
capital points to the need of arranging funds to finance current assets.
Net working capital:
It refers to the difference between current assets and current liabilities. Net
working capital can be positive or negative. A positive net working capital
will arise when current assets exceed current liabilities. And vice-versa for
negative net working capital. Net working capital is a qualitative concept. It
indicates the liquidity position of the firm and suggests the extent to which
working capital needs may be financed by permanent sources of funds. Net
working capital also covers the question of judicious mix of long-term and
short-term funds for financing current assets.
29
Significance Of Working Capital
Management
The management of working capital is important for several reasons:
For one thing, the current assets of a typical manufacturing firm account for
half of its total assets. For a distribution company, they account for even
more.
Working capital requires continuous day to day supervision. Working

capital has the effect on company's risk, return and share prices,
There is an inevitable relationship between sales growth and the level of

current assets. The target sales level can be achieved only if supported by
adequate working capital Inefficient working capital management may lead
to insolvency of the firm if it is not in a position to meet its liabilities and
commitments.
30
LIQUIDITY VS PROFITABILITY: RISK - RETURN
TRADE OFF
Another important aspect of a working capital policy is to maintain and

provide sufficient liquidity to the firm. Like the most corporate financial
decisions, the decision on how much working capital be maintained
involves a trade off- having a large net working capital may reduce the
liquidity risk faced by a firm, but it can have a negative effect on the
cash flows. Therefore, the net effect on the value of the firm should be
used to determine the optimal amount of working capital.
Sound working capital involves two fundamental decisions for the firm.
They are the determination of:
The optimal level of investments in current assets.

The appropriate mix of short-term and long-term financing used to
support this investment in current assets, a firm should decide
whether or not it should use short-term financing. If short-term
financing has to be used, the firm must determine its portion in total
financing. Short-term financing may be preferred over long-term
financing for two reasons:
The cost advantage
Flexibility
But short-term financing is more risky than long-term financing.

Following table will summarize our discussion of short-term versus
long-term financing.
31
Maintaining a policy of short term financing for short term or temporary
assets needs (Box 1) and long- term financing for long term or
permanent assets needs (Box 3) would comprise a set of moderate risk –
profitability strategies. But what one gains by following alternative
strategies (like by box 2 or box 4) needs to weighed against what you
give up.
32
CLASSIFICATION OF WORKING CAPITAL
Working capital can be classified as follows:
On the basis of time

On the basis of concept
TYPES OF WORKING CAPITAL NEEDS
33
Another important aspect of working capital management is to analyze
the total working capital needs of the firm in order to find out the
permanent and temporary working capital. Working capital is required
because of existence of operating cycle. The lengthier the operating
cycle, greater would be the need for working capital. The operating
cycle is a continuous process and therefore, the working capital is
needed constantly and regularly. However, the magnitude and quantum
of working capital required will not be same all the times, rather it will
fluctuate.
The need for current assets tends to shift over time. Some of these
changes reflect permanent changes in the firm as is the case when the
inventory and receivables increases as the firm grows and the sales
become higher and higher. Other changes are seasonal, as is the case
with increased inventory required for a particular festival season. Still
others are random reflecting the uncertainty associated with growth in
sales due to firm's specific or general economic factors.
The working capital needs can be bifurcated as:
Permanent working capital

Temporary working capital
Permanent working capital:
34
There is always a minimum level of working capital, which is
continuously required by a firm in order to maintain its activities. Every
firm must have a minimum of cash, stock and other current assets, this
minimum level of current assets, which must be maintained by any firm
all the times, is known as permanent working capital for that firm. This
amount of working capital is constantly and regularly required in the
same way as fixed assets are required. So, it may also be called fixed
working capital.
Temporary working capital:
Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable working capital. The position of the
required working capital is needed to meet fluctuations in demand
consequent upon changes in production and sales as a result of seasonal
changes.
35
The permanent level is constant while the temporary working capital is
fluctuating increasing and decreasing in accordance with seasonal
demands as shown in the figure.
In the case of an expanding firm, the permanent working capital line

may not be horizontal. This is because the demand for permanent
current assets might be increasing (or decreasing) to support a rising
level of activity. In that case line would be rising.
36
FINANCING OF WORKING CAPITAL
There are two types of working capital requirements as discussed above.

They are:
Permanent or Fixed Working Capital requirements

Temporary or Variable Working Capital requirements
Therefore, to finance either of these two working capital requirements,

we have long-term as well as short-term sources.
37
FACTORS DETERMINING WORKING CAPITAL
REQUIREMENTS
There are many factors that determine working capital needs of an

enterprise. Some of these factors are explained below:
 Nature or Character of Business.

The working capital requirement of a firm is closely related to the
nature of its business. A service firm, like an electricity
undertaking or a transport corporation, which has a short
operating cycle and which sells predominantly on cash basis, has
a modest working capital requirement. Oh the other hand, a
manufacturing concern like a machine tools unit, which has a
long operating cycle and which sells largely on credit, has a very
substantial working capital requirement.
Sintech is a manufacturing concern so this requires them to keep a
very sizeable amount in working capital.
 Size of Business/Scale of Operations.

Sintech has a good position in its segment and they are also spending their operations
in the domestic market as well as in foreign market. The scale of operations and
the size it holds in the market makes it a must for them to hold their inventory and
current asset at a huge level.
38
 Rate of Growth of Business.
The rate of growth of sales indicates a need for increase in the
working capital requirements of the firm. As the firm is projected
to increase their sales by 69% from what it was in 2009, it is
required to guard them against the increasing requirements of the
net current asset by way of efficient working capital management.
The sales and projected sales level determine the investment in
inventories and receivables.
 Price Level Changes.

Changes in the price level also affect the working capital
requirements. It was the reduced margins in the price of the raw
materials that had prompted them to go for bulk purchases thus
making on additions to their net current assets. They might have
gone for this large-scale procurement for availing discounts and
anticipating a rise in prices, which would have meant that more
funds are required to maintain the same current assets.
WORKING CAPITAL CYCL
The upper portion of the diagram above shows in a simplified form the
chain of events in a manufacturing firm. Each of the boxes in the
upper part of the diagram can be seen as a tank through which funds
flow.
These tanks, which are concerned with day-to-day activities, have funds
constantly flowing into and out of them.
39
The chain starts with the firm buying raw materials on credit.
In due course this stock will be used in production, work will be
carried out on the stock, and it will become part of the firm’s
work- in-progress.
Work will continue on the WIP until it eventually emerges as the
finished product.
As production progresses, labor costs and overheads need have to
be met.
Of course at some stage trade creditors will need to be paid.
When the finished goods are sold on credit, debtors are
increased.
They will eventually pay, so that cash will be injected into the firm.
Each of the areas- Stock (raw materials, WIP, and finished goods), trade
debtors, cash (positive or negative) and trade creditors – can be viewed as
tanks into and from which funds flow.
Working capital is clearly not the only aspect of a business that affects
the amount of cash.
The business will have to make payments to government for

taxation.
Fixed assets will be purchased and sold
Lessors of fixed assets will be paid their rent
Shareholders (existing or new) may provide new funds in the form
of cash
Some shares may be redeemed for cash
Dividends may be paid
40
Long-term loan creditors (existing or new) may provide loan
finance, loans will need to be repaid from time-to-time, and
Interest obligations will have to be met by the business
Unlike, movements in the working capital items, most of these ‘non-

working capital’ cash transactions are not every day events. Some of
them are annual events (e.g. tax payments, lease payments, dividends,
interest and, possibly, fixed asset purchases and sales). Others (e.g. new
equity and loan finance and redemption of old equity and loan finance)
would typically be rarer events.
SOURCES OF WORKING CAPITAL
HCL Infosystems has the following sources available for the fulfillment
of its working capital requirements in order to carry on its operations
smoothly:
41
Banks:
These include the following banks –
State Bank of India
Canara Bank
HDFC Bank Ltd.
ICICI Bank Ltd.
Societe Generale
Standard Chartered Bank
State Bank of Patiala
State Bank of Saurashtra
Commercial Papers:
Commercial Papers have become an important tool for
financing working capital requirements of a company.
Commercial Paper is an unsecured promissory note issued
by the company to raise short-term funds. The buyers of the
commercial paper include banks, insurance companies, unit
trusts, and companies with surplus funds to invest for a short
period with minimum risk.
HCL issues Commercial Papers and had 4000 commercial
papers in the year 2006.
HCL FINANCIALS:
CONSOLIDATED FINANCIAL PERFORMANCE
42
WORKING CAPITAL POSITION :
CURRENT ASSET – TOTAL ASSET
PARTICULARS 2006 2005 2004 2003 2002
43
CURRENT 100970 81533 54091 45042 55985
ASSETS
NET BLOCK 7970 5329 4925 4954 5552
TOTAL ASSETS 122479 99139 87076 71285 75205
CA/TA 82.44 82.24 62.12 63.18 74.43
The current asset percentage on total asset is the highest over the years.
This increasing percentage of current assets to the total assets at first
might indicate a preference for liquidity in place of profitability, but a
look into the nature of the business carried on by HCL Infosystems
reveal the reason behind it. How far their preference to current assets
has affected the sales is shown below.
NET CURRENT ASSET – SALES
PARTICULARS 2006 2005 2004 2003 2002

NET CURRENT 40343 34742 14301 18752 27065
ASSETS
SALES 238136 199886 154295 166604 127003
WORKING 16.12 142.93 -23.736 -30.7 -0.46
CAPITAL %
INCREASE
SALES % 19.14 29.54 -7.38 31.18 8.7
INCREASE
The sales has increased and the profits risen despite the 16.12% increase
in working capital. But what is noteworthy here is that the firm has
managed to maintain the trend of an increase in net current assets.
Whether the change has worked for the company has to be analysed in
the context of the growth in sales as compared to the previous year.
There has been a 19.14% rise in the sales or revenue generated. This
would automatically suggest towards a very efficient working capital
44
management where the assets of the firm which are short-term in nature
have been utilized optimally in connection to their fixed assets. The firm
has gone towards such a dramatic shift in their working capital position
might be because of the tremendous growth witnessed in the domestic
IT market
CURRENT ASSET – FIXED ASSET
PARTICULARS 2006 2005 2004 2003 2002

NET CA/NET BLOCK 5.062:1 6.519:1 2.903:1 3.785:1 4.875:1
The ratio of the net current asset to the fixed ones is an indicator as to the
liquidity position of the firm. This ratio has declined for the firm
compared to the previous year. There could be an argument as to whether
the increased ratio of working capital to net block is a conservative policy
and whether it would be detrimental to the interest of the company. Or,
whether it would have been proper if the company invested more into the
capital expenditure in the form of plant and machinery or invested in any
other form that would have got them an internal rate of return. What has
to be kept in mind before coming to a conclusion as to the policy of the
company, is the fact that the firm being primarily into assembling, its
investment in the fixed asset segment need not be high. A look into the
capacity utilization of the plant would reaffirm this point. It would be
ideal for the firm to continue in the same line and not have excessive
investment in the fixed asset as they can easily add onto this part.
COMPUTER and MICRO PROCESSOR BASED SYSTEMS
YEAR INSTALLED ACTUAL % CAPACITY

CAPACITY PRODUCTION UTILIZATION
2006 1150000 581805 50.59
2005 600000 448121 74.69
2004 525000 295192 56.23
45
DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS
YEAR INSTALLED ACTUAL % CAPACITY

CAPACITY PRODUCTION UTILIZATION
2006 250000 267326 106.93
2005 250000 259617 103.85
2004 350000 297991 85.14
That the fixed assets of the firm are being put to efficient use and the firm
is trying for optimum capacity utilization is something that can be easily
deduced. Whether the current assets or the working capital of the firm has
anything to do with it is for us to see. An increased production in normal
circumstances means better raw material to finished goods conversion
rate, i.e. the firm is taking less of time in the production process and this
happens when the current asset employed in relation with the fixed ones
are at optimum. The other notable feature here is that though the firm has
added on to its installed capacity in all three years, they were still able to
increase the capacity utilization. That they have been able to do it shows
that the more current assets, especially inventory used in relation to the
fixed assets, i.e., plant and machinery and their management has only
helped in increasing their utilization to the maximum.
CURRENT ASSET – CURRENT LIABILITY
PARTICULARS 2006 2005 2004 2003 2002

CURRENT ASSETS 100970 81533 54091 45042 55985
CURRENT LIABILITES 60627 46791 39790 26290 28920
% CURRENT ASSETS 23.84 50.7 20.09 -19.54 8.9
INCREASE
%CURRENT 29.57 17.6 51.35 -9.1 19.45
LIABILITES INCREASE
46
The 16.12% increase in Net Current assets despite of the fact that there
has been an increase in the Current Assets by 23.84% and increase in
Current Liability has been by 29.57% over that of the previous year has to
be attributed to the fact that in 2005, the company showed such a high
increase in CA, that it is still being offset. This is an indication as to the
expanding operations of the firm. HCL has increased its current assets in
order to meet the increasing sales. The firm’s level of liquidity being
high, we need a check on whether it affects the return on assets.
INVENTORY MANAGEMENT
Inventories
Inventories constitute the most important part of the current assets of
large majority of companies. On an average the inventories are
approximately 60% of the current assets in public limited companies in
India. Because of the large size of inventories maintained by the firms, a
considerable amount of funds is committed to them. It is therefore,
47
imperative to manage the inventories efficiently and effectively in order
to avoid unnecessary investment.
Nature of Inventories
Inventories are stock of the product of the company is manufacturing for

sale and components make up of the product. The various forms of the
inventories in the manufacturing companies are:
Raw Material: It is the basic input that is converted into the

finished product through the manufacturing process. Raw materials
are those units which have been purchased and stored for future
production.
Work-in-progress: Inventories are semi-manufactured products.
They represent product that need more work they become finished
products for sale.
Finished Goods: Inventories are those completely manufactured
products which are ready for sale. Stocks of raw materials and
work-in-progress facilitate production, while stock of finished
goods is required for smooth marketing operations. Thus,
inventories serve as a link between the production and
consumption of goods.
48
Inventory Management Techniques
In managing inventories, the firm’s objective should be to be in

consonance with the shareholder wealth maximization principle. To
achieve this, the firm should determine the optimum level of inventory.
Efficiently controlled inventories make the firm flexible. Inefficient
inventory control results in unbalanced inventory and inflexibility-the
firm may sometimes run out of stock and sometimes pile up unnecessary
stocks.
Economic Order Quantity (EOQ): The major problem to be

resolved is how much the inventory should be added when
inventory is replenished. If the firm is buying raw materials, it has
to decide lots in which it has to purchase on replenishment. If the
firm is planning a production run, the issue is how much
production to schedule. These problems are called order quantity
problems, and the task of the firm is to determine the optimum or
economic lot size. Determine an optimum level involves two types
of costs:-
 Ordering Costs: This term is used in case of raw material
and includes all the cost of acquiring raw material. They
include the costs incurred in the following activities:
 Requisition
 Purchase Ordering
 Transporting
 Receiving
 Inspecting
 Storing
Ordering cost increase with the number of orders placed;

thus the more frequently inventory is acquired, the higher the
firm’s ordering costs. On the other hand, if the firm
maintains large inventory’s level, there will be few orders
placed and ordering costs will be relatively small. Thus,
ordering costs decrease with the increasing size of inventory.
49
 Carrying Costs: Costs are incurred for maintaining a given
level of inventory are called carrying costs. These include
the following activities:
 Warehousing Cost
 Handling
 Administrative cost
 Insurance
 Deterioration and obsolescence
Carrying costs are varying with inventory size. This

behavior is contrary to that of ordering costs which decline
with increase in inventory size. The economic size of
inventory would thus depend on trade-off between carrying
costs and ordering cost.
Composition 2006 2005 2004

Raw Material 6349 7749 6127
Stores and Spares 3713 2987 2622
Finished Goods 13374 7245 6506
Work-in-progress 595 784 871
The increasing component of raw materials in inventory is due to

the fact that the company has gone for bulk purchases and has
increased consumption due to a fall in prices and reduced margins
for the year. Another reason might be the increasing sales, which
might have induced them to purchase more in anticipation of a
further increase in demand of the product. And the low
composition of work-in-progress is understandable as because of
the nature of the business firm is involved in.
To the question as to whether the increasing costs in inventory are

justified by the returns from it the answer could be found in the
HCL retail expansion. HCL caters to the need of the two separate
segments:
a) Institutions for which they manufacture against orders and,

50
b) Retail segment of the market.
They are more into retail than earlier and at present more than 650
retail outlets branded with HCL sign ages and more are in the
pipeline
The company in order to meet its raw materials requirements could

have gone for frequent purchases, which would have resulted in
lesser cash flows for the firm rather than the high expenditure
involved when procuring in at bulk. The reason why the firm has
gone for these bulk purchases because of the lower margins and the
discounts it availed because of procuring in bulk quantities.
A negative growth in WIP could be because:
a) The time taken to convert raw materials to finished goods is

very minimal
b) This is also due to capacity being not utilized at the
optimum.
ABC System: ABC system of inventory keeping is followed in

the factories. Various items are categorized into three different
levels in the order of their importance. For e.g. items such as
memory, high capacity processors and royalty are placed in the
‘A’ category. Large number of firms has to maintain several types
of inventories. It is not desirable the same degree of control all the
items. The firm should pay maximum attention to those items
whose value is highest. The firm should therefore, classify
inventories to identify which items should receive the most effort
in controlling. The firm should be selective in approach to control
investment in various types of inventories. This analytical
approach is called “ABC Analysis”. The high-value items are
classified as “A items” and would be under tightest control. “C
items” represent relatively least value and would require simple
control. “ B items” fall in between the two categories and require
reasonable attention of management.
51
JIT: The relevance of JIT in HCL Info system can be questioned.
This is because they procure materials on the basis of projections
made at least two or three months before. Even at the time of
procurement they ensure that they procure much more than what
actually is required by the firm that is they hold significant amount
of inventory as safety stock. This is done to counter the threat
involved in default and accidental breakdowns. The levels of
safety stock usually vary according to the usage.
Conversion Periods Analysis

Raw Material
Particulars 20079 2008 2009

Raw Material Consumption 1176.73 682.05 592.92
Raw Material Consumption/day 3.32 1.86 1.62
Raw Material Inventory 129.29 184.53 340.08
Raw Material Holding Days 40.15 99.20 209.92
The raw material conversion period or the raw material holding

cost has increased from 40 to 100 days, because in e an increase in its
consumption. This indicates that the firm is able to convert the raw
material at its disposal to the work-in-progress at a lesser time as
compared to the last year. It would be to the benefit of the firm to reduce
the production process and increase the conversion rate still as the firm is
required to meet the increasing demand.
Work-in-progress

Cost of Production 191911 159651.19 113500.33
Cost of Production/day 525.78 437.4 310.95
52
Work in progress inventory 689.5 827.52 679.455
WIP Holding days 1.31 1.89 2.19
The work-in-progress holding time is important for a firm in the sense

that it determines the rate of time at which the production process will be
complete or the finished goods will be ready for disposal by the firm. The
firm as it is in the
process of assembling should take the least possible time in conversion to

finished goods unlike a hard core manufacturing firm, as any firm would
like to have its inventory in the work-in-progress at the minimum. There
would also be less of stock out costs as due to better conversion rates the
firm is able to meet the rise in demand situations. More the time it spends
lesser its efficiency would be in the market. Here the firm has been able
to bring down its WIP conversion periods.
Finished Goods

Cost of goods sold 228177 178438.85 124768.92
Cost of goods sold/day 625 488.87 341.832
Finished goods inventory 10310 6875.725 5026.505
Finished goods inventory Holding 16 14.06 14.8
days
The time taken for the firm to realize its finished goods as sales has
increased as compared to last year. This growth in sales could be traced
back to the growing domestic IT market for the commercial as consumer
segment in India. HCL has around 15% of the market in desktop and it is
the market leader in this segment. So it is only natural that they are able
to better their conversion rate of finished goods to sales.
Operating Cycle

Inventory conversion period 38 42 45
53
Average collection period 70 63 66
Gross operating cycle 108 105 111
Average payment period 22 23 17
Operating cycle 86 82 94
The operating cycle of the firm reveals the days within which the
inventory procured gets converted to sales or revenue for the firm. This
time period is of importance to the firm as a lag here could significantly
affect the profitability, liquidity, credit terms, and the policies of the firm.
All the firms would like to reduce it to such extend that their cash inflows
are timely enough to meet their obligations and support the operations.
That the firm has been able to reduce the ratio is in itself an achievement
as they were having huge stocks of inventory. But the reduction in the
cycle could also be attributed to the boom in the market and the growth it
is expected to reach. This boom automatically ensures the demand for the
finished goods and thus helping in it to garner sales for the firm.
Raw Material
Consumption

Imported 92007 70784.27 42129.63
Indigenous 29070 27187.04 15645.51
% Imports 75.99 72.25 72.92
A major chunk of the imports come from Korea and Taiwan and is
purchased in US$. The value of imported and indigenous raw material
consumed give a clear picture that if there is a change in the EXIM policy
of the government it is bound to affect the company adversely as more
than 70% of their consumption is from imports. But this is the scenario
witnessed in the industry as a whole and though HCL is into expanding
its operation to Uttaranchal it in the present state is would be affected by
a change in the import duty structure.
54
A major chunk of their current assets are in the form of inventory and the
change in technology will invariably be a threat faced by the firm. The
question of technology applying here like says a certain device going say
out of fashion or outdated. For e.g. TFT monitors being in demand more
than CRT.
CASH MANAGEMENT
SOURCES OF CASH:
Sources of additional working capital include the following:
Existing cash reserves

Profits (when you secure it as cash!)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts or lines of credit.
Long-term loans
If you have insufficient working capital and try to increase sales, you
can easily over-stretch the financial resources of the business. This is
called overtrading.
Early warning signs include:
Pressure on existing cash

Exceptional cash generating activities e.g. offering high discounts
for early cash payment
Bank overdraft exceeds authorized limit.
Seeking greater overdrafts or lines of
credit Part-paying suppliers or other
creditors
55
Paying bills in cash to secure additional supplies
Management pre-occupation with surviving rather than managing
Frequent short-term emergency requests to the bank (to help pay
wages, pending receipt of a cheque).
CASH MANAGEMENT IN HCL INFOSYSTEMS:
The cash management system followed by the HCL Infosystems is

mainly lock box system.
Cash Management System involves the following steps:
1. The branch offices of the company at various locations hold the

collection of cheques of the customers.
2. Those cheques are either handed over to the CMS agencies or bank
of the particular location take charge of whole collection.
3. These CMS agencies or bank send those cheques to the clearing
house to make them realized. These cheques can be local or
outstation.
4. The CMS agencies or bank send information to the central hub of
the company regarding realization/cheque bounced.
5. The central hub passes on the realized funds to the company as per
the agreed agreements.
6. The CMS agencies or concerned bank provides the necessary MIS
to the company as per requirement.
In cash management the collect float taken for the cheques to be realized
into cash is irrelevant and non-interfering because banks such as Standard
Chartered, HDFC and CitiBank who give credit on the basis of these
cheques after charging a very small amount. These credits are given to
immediately and the maximum time taken might be just a day. The
amount they charge is very low and this might cover the threat of the
cheque sent in by two or three customers bouncing. Even otherwise the
time taken for the cheques to be processed is instantaneous. Their Cash
Management System is quite efficient.
56
Cash-Current Liability

Absolute Liquid Ratio 0.24:1 0.31:1 0.11:1
The absolute liquid ratio is the best for three years and the cash balances
as to the current liability has improved for the firm. Firm has large
resources in cash and bank balances. While large resources in cash and
bank balances may seem to affect the revenue the firm could have earned
by investing it elsewhere as maintenance of current assets as cash and in
near cash assets and marketable securities may increase the liquidity
position but not the revenue or profit earning capacity of the firm.
Dividend Policy-Cash

Dividend Policy% 210 310 400
Shift in Sales 154295 199886 238136
Cash Balance 4463.43 14582.65 14529.29
Cash in Hand 118.33 128.97 128.97
57
58
The other notable feature in HCL statements has been the growing
dividend policy of the firm. The payment of dividend means a cash
outflow. Thus cash position is an important criterion at the time of paying
dividends. There is a theory that greater the cash position and ability to
pay dividends. The firm has adopted a policy of disbursing the revenue
earned as profits to the shareholders as dividends as could be seen from
the increasing % of dividends declared.

PBIDT 14284 15634 14523
Equity Dividend% 400 310 210
This could mean two things for the firm the amount of cash retained in
the business for capital expenditure purposes are minimal or nil. But
rather than investing more in plant and machine which they can at any
point in time by adding on a additional line if need they would like to
optimize their utilization in fixed assets at present. This also means that
the percentage of cash in hand maintained by the firm as a source of
liquidity could be reduced, i.e. the amount of idle cash in the business
could be made to a level which the firm feels optimum.
59
The firm feels that they should retain cash and it would be in the interest
of the firm as well as the shareholders. This would automatically mean as
decrease in Earning/share (EPS)(Basic EPS declined from 8 in 2005 to
6.74 in 2006). It would prompt more of investors being interested in the
shares of the company, which would boost the purchase of the securities
and increase the market price/share thus being beneficial for the firm.
Cash Flows
Cash Flows 2006 2005 2004

Net Cash from Operating activities 6924 2675.57 13706.34
Net Cash from Investing activities -3515 15661.29 -2169.16
Net Cash from Financing activities -3512 -8217.68 -11412.1
The firm has disposed of investments worth around 655 Crores to meet its
growing needs. The other notable feature is decline is the firm’s inflows
from operations primarily due to the reason that the cash generated from
the operations is the lowest in three years. And the firm’s growing
dividend policy has contributed to the outflows in financing activities.
Cash Flow in Operating Activities
Working Capital Changes
Working Capital Changes 2006 2005 2004

Trade and other receivables -14166 -14510.69 -7106.68
Inventories -5221 -2683.92 -7221.11
Trade Payables and other Liabilities 13026 6419.13 14311.5
The cash from the operation has been subject to considerable change due
to the changes that could be adjusted towards trade receivables and trade
payables. The outflows in inventory have become as low as 37% of what
it was last year despite an increase in the inventory consumption by
60
16.64%. The resulting reduction in the cash outflows might be because of
the inventories being procured more on credit. That the cash from
operations has declined has affected the current liability index of the firm.
Cash Flow in Investing Activities
Investments in Mutual Funds 2006 2005 2004

Investments (year end) 13539 12277.44 28059.88
Purchase of Investment -65992 -53075.99 -59249.81
Disposal/Redemption of 65312 65489.84 52087.36
Investment
The investments have reduced from the last year due to the redemption of
investments taken place to meet various needs such as increasing demand
in stock or inventory and to ensure better credit and receivables policy.
We can see that the firm has in these three years increased their cash
inflow from the investing activities by way of disposal of investments
when in need. That is the firm has redeemed to realize cash as to meet its
expanding operations, fund the inventory procurement and meet the
obligations.
The investments in mutual funds are beneficial to the firm in the context
that they contain interest bearing securities which add up as a source of
revenue for the firm unlike cash which remains idle and unproductive
when not in use. This reduction of dividend could be attributed to
disposal of investments in mutual funds and subsidiary. This disposal
creates a fund, which can be used by the company as and when the need
arises.
Cash vs. Marketable Securities
The investment in marketable securities rather than having large cash

balances in something that has been given thought for by the firm. This is
61
because while a firm gets revenue in the form of interests by investments,
it actually has to pays certain amount money to the banks for maintaining
current accounts and fixed deposits usually have a longer maturity period.
That is, the problem with high investments is that the opportunity to earn
is lost, thus a firm has to maintain an optimal cash balance. But the
investment in mutual funds or other marketable securities might create a
problem of investment, as they might not be readily realizable as say
liquid cash or the amount deposited in the current account. The
investments in say fixed assets say may earn a fixed rate of interest but
they have a maturity period attached to them.
In HCL, Standard Chartered is the concentration bank in which all the

inflows from the deposit banks are concentrated and passed on to the
disbursement banks for further disbursement.
Liquid Cash Balance
The liquid cash maintained in the business is only that much as is

required to satisfy the daily requirements of the firm and not more. The
rest of the cash is invested into mutual funds and also held in fixed
deposits and current accounts.
Instruments Used
The instrument used here are primarily cheques comprising of around

97% of what is used in. The rest 2-3% comprise of the letters of credit.
Thus working capital is the lifeline for every business. The main
advantages of sufficient working capital are:
 It helps in prompt payment

 Ensures high solvency in the company and good credit
standing.
 Regular supply of material and continuous production.
 Ensures regular payment of salaries and wages and day to
day commitments.
62
RECEIVABLES MANAGEMENT
Cash flow can be significantly enhanced if the amounts owing to a

business are collected faster. Every business needs to know.... who owes
them money.... how much is owed.... how long it is owing.... for what it
is owed.
Late payments erode profits and can lead to bad debts.
Slow payment has a crippling effect on business; in particular on small

businesses whom can least afford it. If you don't manage debtors, they
will begin to manage your business as you will gradually lose control
due to reduced cash flow and, of course, you could experience an
increased incidence of bad debt.
The following measures will help manage your debtors:
1.Have the right mental attitude to the control of credit and make sure
that it gets the priority it deserves.
2.Establish clear credit practices as a matter of company policy.
3.Make sure that these practices are clearly understood by staff,
suppliers and customers.
4.Be professional when accepting new accounts, and especially
largerones.
5.Check out each customer thoroughly before you offer credit. Use
credit agencies, bank references, industry sources etc.
63
6.Establish credit limits for each customer and stick to them.
7.Continuously review these limits when you suspect tough times are
coming or if operating in a volatile sector.
8.Keep very close to your larger customers.
9.Invoice promptly and clearly.
10.Consider charging penalties on overdue accounts.
11.Consider accepting credit /debit cards as a payment option.
12.Monitor your debtor balances and aging schedules, and don't let any
debts get too old.
Recognize that the longer someone owes you, the greater the chance you
will never get paid. If the average age of your debtors is getting longer,
or is already very long, you may need to look for the following possible
defects.
 Poor collection procedures.

 Lax enforcement of credit terms.
 Slow issue of invoices or statements.
 Errors in invoices or statements.
 Customer dissatisfaction.
 Weak credit judgement.
64
lOMoARcPSD|3669995
Debtors due over 90 days (unless within agreed credit terms) should generally
demand immediate attention. Look for the warning signs of a future bad debt.
For example…..
1. Longer credit terms taken with approval, particularly for smaller orders.
2. Use of post-dated checks by debtors who normally settle within agreed
terms.
3. Evidence of customers switching to additional suppliers for the same
goods.
4. New customers who are reluctant to give credit references.
5. Receiving part payments from debtors.
Profits only come from paid sales.
The act of collecting money is one, which most people dislike for many
reasons and therefore put on the long finger because they convince themselves
that there is something more urgent or important that demand their attention
now. There is nothing more important than getting paid for your product or
service. A customer who does not pay is not a customer.
HERE ARE FEW WAYS IN COLLECTING MONEY FROM DEBTORS: -

 Develop appropriate procedures for handling late payments.
 Track and pursue late payers
 Get external help if you own efforts fail.
 Don’t feel guilty asking for money .. its yours and you are entitled to it.
 Make that call now. And keep asking until you get some satisfaction.
 In difficult circumstances, take what you can now and agree terms for the
remainder, it lessens the problem.
 When asking for your money, be hard on the issue – but soft on the person.
Don’t give the debtor any excuses for not paying.
 Make that your objective is to get the money, not to score points or get
even.
RECEIVABLES MANAGEMENT IN HCL INFOSYSTEMS:
PARTICULARS 2006 2005 2004 2003

DEBTORS TURNOVER RATIO 5.21 5.80 5.53 6.62
AVERAGE COLLECTION PERIOD 70 63 66 55
A better turnover ratio implies for the firm, more efficiency in converting the
accounts receivable to cash. A firm with very high turnover ratio can take the
freedom of holding very little balances in cash, as their debtors are easily
realizable. In case of HCL, the collection period for the firm is 70 days.
PARTICULARS 2006 2005 2004

PROVISION FOR DOUBTFUL DEBTS(CASH FLOW) 3 49.85 25
DEBTS DOUBTFUL(EXCEEDING 6 MONTHS) 47 134.09 69.8
The debts doubtful have doubled but their percentage on the debts has almost
become half. This implies a sales and collection policy that get along with
the receivables management of the firm.
COLLECTION POLICIES:
It refers to the collection procedures such as letters, phone calls and other follow
up mechanism to recover the amount due from the customers. It is obvious that
costs are incurred towards the collection efforts, but bad debts as well as average
collection period would decrease. Further, a strict collection policy of the firm is
expensive for the firm because of the high cost is required to be incurred by the
firm and it may also result in loss of goodwill. But at the same time it minimizes
the loss on account of bad debts. Therefore, a firm has to strike a balance
between the cost and benefits associated with collection policies.
The steps usually followed in collection efforts are:
Sending repeated letters and reminders to the customers

Personal visits
Using agencies involved in collection process
Making telephonic reminders
Initiating legal actions
Real Time Gross Settlement (RTGS)
Real Time Gross Settlement as such is a concept new in nature and though the
firm uses the system with all the members of the consortium, it is still in its
primal stage and will take time before all of the clients of the firm are willing to
accept it. The firm has made a proposal to the consortium of the banks during
appraisal for faster implementation of internet based banking facility by all the
banks and adoption of RTGS payment system through net.
The debtor’s turnover ratio is completely dependent upon the credit policy
followed by the firm. The credit policy followed by the firm should be such that
the threat of bad debts and the default rate involved should be terminated.
PARTICULARS 2006 2005 2004 2003

CREDITORS TURNOVER RATIO 16.44 15.68 21.29 21.14
PAYMENT PERIOD 22 23 17 16
That the creditors turnover ratio has declined and payment period has increased
indicate that the company has got a leeway in making the payment to the
creditors by way of increased time.
With creditors they are having pre-agreements and have undertaken

arrangements with them, which they believe to be the best in the business and
these are fixed.
(NOTE: Acceptances are not included in the computation of creditors turnover)
MANAGING PAYABLES (Creditors)
Creditors are a vital part of effective cash management and should be

managed carefully to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function

can create liquidity problems.
Consider the following: -
 Who authorizes purchasing in your company - is it tightly managed or

spread among a number of (junior) people?
 Are purchase quantities geared to demand forecasts?
 Do you use order quantities, which take account of stock holding and
purchasing costs?
 Do you know the cost to the company of carrying stock?
 Do you have alternative sources of supply? If not, get quotes from major
suppliers and shop around for the best discounts, credit terms as it reduces
dependence on a single supplier.
 How many of your suppliers have a return policy?
 Are you in a position to pass on cost increases quickly through price
increases to your customers?
 If a supplier of goods or services lets you down can you charge back the
cost of the delay?
 Can you arrange (with confidence!) to have delivery of supplies staggered
or on a just-in-time basis?
There is an old adage in business that "if you can buy well then you can sell
well". Management of your creditors and suppliers is just as important as the
management of your debtors. It is important to look after your creditors- slow
payment by you may create ill feeling and can signal that your company is
inefficient (or in trouble!).
Remember that a good supplier is someone who will work with you to enhance the future viability
and profitability of your company.
Financing Current Assets
The firm has to decide about the sources of funds, which can be availed to
make investment in current assets.
Long term financing:
It includes ordinary share capital, preference share capital, debentures, long

term borrowings from financial institutions and reserves and surplus.
Short term financing:

It is for a period less than one year and includes working capital funds from
banks, public deposits, commercial paper etc.
Spontaneous financing:
It refers to automatic sources of short-term funds arising in normal course of

business. There is no explicit cost associated with it. For example, Trade
Credit and Outstanding Expenses etc.
Depending on the mix of short and long term financing, the company can
follow any of the following approaches.
Matching Approach
In this, the firm follows a financial plan, which matches the expected life of
assets with the expected life of source of funds raised to finance assets. When
the firm
follows this approach, long term financing will be used to finance fixed assets
and permanent current assets and short term financing to finance temporary or
variable current assets.
Conservative Approach
In this, the firm finances its permanent assets and also a part of temporary
current assets with long term financing. In the periods when the firm has no
need for temporary current assets, the long-term funds can be invested in
tradable securities to conserve liquidity. In this the firm has less risk of facing
the problem of shortage of funds.
Aggressive Approach
In this, the firm uses more short term financing than warranted by the
matching plan. Under an aggressive plan, the firm finances a part of its current
assets with short term financing.
Relatively more use of short term financing makes the firm more risky.
Current asset to fixed asset ratio:
The financial manager should determine the optimum level of current assets so
that the wealth of shareholders is maximized. A firm needs fixed and current
assets to support a particular level of output
The level of current assets can be measured by relating current assets. Dividing
current assets by fixed assets gives CA/FA ratio. Assuming a constant level of
fixed assets, a higher CA/FA ratio indicates a conservative current assets policy and a lower CA/FA
ratio means an
aggressive current assets policy assuming other factors to be constant. A conservative policy i.e.
higher CA/FA ratio implies greater liquidity and lower risk; while an aggressive policy i.e. lower CA/FA
ratio indicates
higher risk and poor liquidity. The current assets policy of the most firms may fall
between these two extreme policies. The alternative current assets policies
may be shown with the help of the following figure.
In this figure the most conservative policy is indicated by alternative A, where

as CA/FA ratio is greatest at every level of output. Alternative C is the most
aggressive policy, as CA/FA ratio is lowest at all levels of output. Alternative B
lies between the conservative and aggressive policies and is an average policy.
WORKING CAPITAL & SHORT-TERM FINANCING
CONSORTIUM BASED FINANCING
Current Working Capital Limits
NAME OF THE BANK FUND BASED NON-FUND BASED

INDIAN BANK 300 250
SYNDICATE BANK 200 100
TOTAL 500 350
In order to finance the working capital needs of the firm in the form of Working
Capital Demand Loan, there is a consortium of nine banks. The consortium if
banks provide a fund based limit of 125 Crores which comprises of cash credit
and working capital demand loans and non-fund based limits which has bank
gurantee and letter of credit subject to a limit of 1375 Crores. The Lead Bank
in this consortium of banks is State Bank of India and the second lead bank is
ICICI. It is SBI, which fixes the limit on the basis of consortium. They, in
consultation of the company decide the allocation of limit to various member
banks. The allocation cannot be higher than the limits fixed by it. SBI is the
biggest contributor in the consortium for both fund and non-fund based limits
with about
31.30 in funds and 34.02 in non-fund limits. The ratio of both limits for the
year 2006 is 0.23:0.77
It is on the basis of the accounts receivable that the banks come to an agreement
with regards to the limits imposed. Though it is the fund based limits that
finance the working capital requirements, the non-fund based limits are
important for the management of the working capital as there might be clients
who are not willing to sell on open credit and might be demanding letters of
credit before any advances.
RENEWAL OF LIMITS
LIMITS 2006 2005 2004

FUND BASED 11500 11500 11500
NON FUND BASED 48500 38500 28500
TOTAL 60000 50000 40000
All banks sanction the limits for a period of one year. Thereafter it is to be
renewed every year. SBI appraises the limit on the basis of consortium. The
individual banks appraise for their own individual limit. The non fund based
limits of the firm in consortium financing has been subjected to change for the
past two years as per the requirements of the firm and the consent of the lead
bank to its proposal. It was around 385 Crores in 2005 and had been risen to
around 485 Crores in 2006.
A proposal has been made by the firm to further appraise the limits by 100
Crores to 585 Crores in view of the growing operations of the firm with full
interchangeability between letter of credit and bank guarantee limits for
operational flexibility. Allocation of the fund based and non based limits among
the banks based on operational convenience rather than allocating the fund
based and non fund based on the same ratio is also among the proposals made
by the firm.
The company needs to provide the following information to bank for appraisals:
 Credit Monitoring Appraisal

 Write Up on company
 Share holding pattern
 List of the directors
CONSORTIUM MEETING :
All the members of the consortium are required to meet to discuss various
issues relating to the working facilities. As per RBI guidelines, the lead bank,
i.e., SBI should ensure that one consortium meeting is held every quarter snd
this meeting has to be arranged by HCL.
DOCUMENTATION and JOINT DOCUMENTATION:
There are various documents that need to be signed at the time of renewal or
inducting any bank to the consortium. The various documents are as follows:
 Loan agreement
 Hypothecation agreement for movable machinery
 Hypothecation agreement for movables and book debts
 Counter Indemnity
The above are the standard agreements asked for by the banks. The common
seal has to be witnessed by the company secretary and one of the directors of
the company.
As of 2005, no additions or deletions were made to the consortium of the banks.

But over the years the number of banks in the consortium have been reduced.
Indian Banks and State Bank of Hyderabad are the two banks which were
earlier a part of the consortium.
Joint Documentation is executed between the company and the consortium of

banks for the working capital facilities extended by the consortium to the
company. The joint documentation is valid for three years. The documents
comprising joint documentation are:
 Working Capital consortium agreement

 Joint deed of documentation
 Inter se agreement between bankers
 Letter of authority to lead bank by other consortium banks
 Letter of authority to second lead bank by other consortium banks
 Undertaking to create charge on the assets of the company.
ALLOCATION OF LIMIT BY LEAD BANK
SBI appraises the limit on behalf of the consortium. It in consultation with the
company decided the allocation of the limit to various member banks. The
allocation of any member bank cannot be higher than the limit sanctioned by it.
The drawing power for it fund based limits out of the consortium are
determined on the basis of the stock statement submitted by the company. HCL
is required to submit the stock statement to all member banks in consortium for
every month.
FINANCIAL FOLLOW UP REPORTS ( FFRI & FFRII):
Every quarterly and half quarterly intervals, the firm submits Financial Follow
Up Reports I and II. FFR I is an extract of the balance sheet. In this report, the
company is required to submit the details of sales, current assets and current
liabilities for the quarter and the estimates for the current year. FFR II – the
company is required to prepare P&L, B/S and Cash Flow in a different format.
The information is to be provided for the last year (actual), current year half
yearly results (actual) and the estimates for the next year.
SHORT TERM FINANCING
Other than the investment in current assets, the firm also has to be concerned
with short-term to long-term debt as this plays a very important role in
determining the amount of risk undertaken by the firm. That is , the firm not
only has to be concerned about current assets but also the sources through
which they are financed. A firm before financing in either of the two, has to
take into consideration various aspects. While short term might seem the ideal
way to finance your assets than the long term due to shorter maturity period
and also less of costs are involved, there is an inherent risk in short term
financing
due to fluctuating interest rates and due to the reason that the firm might be
unable to reay the amount in a shorter span of time.
SECURED LOANS 2006 2005 2004 2003

SHORT TERM 3849 4991.28 6903.7 4987.52
LONG TERM 0 530.07 0 3461.36
TOTAL 3849 5521.35 6903.7 8448.88
%SHORT TERM 100 90.4 100 59.03
Under secured loan cash credit, along with non fund based facilities, foreign
currency term loan from banks are secured by way of hypothecation of stock-in-
trade, book debts as first charge and by way of second chanrge on all the
immovable and movable assets of the parent company. Term loan in Indian
rupees from a bank is subject to a prior charge in favour of company’s bankers
on book debts and stock in trade for working capital facilities.
UNSECURED LOANS 2006 2005 2004 2003

SHORT TERM 15104 2593.39 63.94 76.84
LONG TERM 11 17 169.51 3261.42
TOTAL 15115 2610.39 233.45 3338.26
% SHORT TERM 99.93 99.348 27.38 2.3
Here HCL has a major portion of their financing done through short term
financing than long term financing. The preference of short term financing to
long term as such is not the part of any policy employed by the firm but it was
due to the reason that the interest rates in short term were more investor friendly
and the cost involved in them were also low. At present, we can see that the
firm is moving more towards long term financing as the interest terms in the
long term has reduced compared to the short term.
YEAR- END COMMERCIAL PAPERS

PARTICULARS 2006 2005 2004 2003
COMMERCIAL 4000 2500 --- 3000
PAPERS
The credit rating by ICRA continued at ‘A1+’indicating highest safety to

company’s commercial paper program of Rs. 75 Crores. It acts as an effective
tool in reducing the interst cost and is used for financing inventories and other
receivables. As and when the firm issues commercial papers, it sends a letter to
the leader of the consortium, i.e., SBI to reduce from the fund based limits the
amount it has issued in the form of the commercial papers. Suppose the firm
issues 30 Crores as commercial papers and the fund based limits are say 115
Crores. Then firm sends a letter to SBI to reduce the existing fund based limits
from 115 to 85 Crores.
In terms of desirability, the commercial papers are cheaper and advantageous to

the firm compared to the consortium financing. The main advantage being the
interest rate which is lower than the bank rates existing under consortium
financing. But the firm depends on both and for working capital financing, it is
dependent on the banks for funds sich as working capital demand loans and
cash credits. There is no point in the firm not making use of the fund based
limits in the consortium banking as their commercial papers are restricted to
75 Crores.
MERITS OF COMMERCIAL PAPERS:
 It is an alternative source of raising short-term finance, and proves to be

handy during periods of tight bank credit.
 It is a cheaper source of finance in comparison to the bank credit.
DEMERITS OF COMMERCIAL PAPERS:
 It is an impersonal method of financing.

 It is always available to the financially sound and highest rated
companies.
 The amount of lonable funds available in the commercial paper market is
limited to the amount of excess liquidity of the various purchasers of
commercial paper.
ANALYSIS
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Industry analysis
Financial graphs
Concluding analysis
Suggestions and recommendations
Bibliography
INDUSTRY ANALYSIS
INDUSTRY STRUCTURE AND
DEVELOPMENTS
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Over the past decade, the Information Technology (IT) industry

has become one of the fastest growing industries in India,
propelled by exports (the industry accounted for more than a
quarter of India’s services exports in 2004-05). The key
segments that have contributed significantly (96 percent of
total) to the industry’s exports include – Software and services
(IT services) and IT enabled services (ITES) i.e. business
services. Over a period of time, India has established itself
as a preferred global sourcing base in these segments and they
are expected to continue to fuel growth in the future.
FINANCIAL GRAPHS
Gross Business Income:

Consolidated Revenue for the year grew to Rs. 11855 crores. Services
revenue grew by 31%, from Rs. 274 crores to Rs. 360 crores in the
current year. The Compounded Annual Growth Rate (CAGR) for the
preceding five years is 45%.
Profit before Tax:

PBT grew by 11% from, Rs. 385 crores in the previous year to Rs. 429
crores in the current year. The Compounded Annual Growth Rate
(CAGR) for the preceding five years is 53%.
Profit after Tax:
Profit after tax grew by 13%, from Rs. 280 crores in the previous year to
Rs. 316 crores. The Compounded Annual Growth Rate (CAGR) for the
preceding five years is 36%. Profits for the current year are after a
provision for Rs. 106 crores for current tax expense, Rs. 3 crores for
deferred tax expense and Rs. 4 crores for Fringe Benefit Tax.
Earnings Per Share:

Basic EPS grew from Rs. 16.7 in the previous year to Rs. 18.7 in the
current year. Diluted EPS grew from Rs. 16.5 in the previous year to Rs.
18.6 in the current year.
Dividend:
The Company distributed dividends @ 100% per share in each of the first
three quarters of the current year. The company proposes to pay a final
dividend of 100% per fully paid up equity share of Rs. 2/- each. The
interim dividends paid together with proposed final dividend total to
400% for the current year, entailing an outflow of Rs. 156 crores,
including distribution tax.
Net worth/ Shareholders Fund:
Net Worth grew from Rs. 698 crores as at previous year-end to Rs. 860
crores as on June 30, 2007. Share capital as at year-end is Rs. 34 crores
divided into 16.9 crores shares of Rs. 2/- each. Reserves & surplus as at
year-end are Rs. 826 crores after appropriating Rs 156 crores for
dividends. Book value per share grew from Rs. 41.3 as at June 30, 2006
to Rs.50.8 as at June 30, 2007.
During the year, the Company allotted 4.2 lakh shares under Employee
Stock Option Scheme realizing Rs. 4.4 crores.
Borrowings: Year-end loan balances increased from Rs. 85 crores as on

June 30, 2006 to Rs. 236 crores as on June 30, 2007. The increase in loan
balances was mainly to fund growth in Computing Business including
System Integration. Debt-Equity ratio [Debt/(Debt+Equity)] is 22%.
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CURRENT ASSET RATIO:
CONCLUDING ANAYSIS
The working capital position of the company is sound and the various
sources through which it is funded are optimal.
The company has used its dividend policy, purchasing, financing and
investment decisions to good effect can be seen from the inferences made
earlier in the project.
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The debts doubtful have been doubled over the years but their percentage
on the debts has almost become half. This implies a sales and collection
policy that get along with the receivables management of the firm.
The returns have been affected by a marked growth in working capital
and though a 29.75% in 2006 return on investment is good, but it got
reduced as compared to 39.01% return in 2005.
The various ratios calculated are an indicator as to the fact that the
profitability of the firm and sales are on a rise and also the deletion of the
inefficiencies in the working capital management.
The firm has not compromised on profitability despite the high liquidity
is commendable.
HCL Infosystems has reached a position where the default costs are as
low as negligible and where they can readily factor their accounts
receivables for availing finance is noteworthy.
SUGGESTIONS AND RECOMMENDATIONS
The management of working capital plays a vital role in running of a

successful business. So, things should go with a proper understanding for
managing cash, receivables and inventory.
HCL Infosystems is managing its working capital in a good manner, but still
there is some scope for improvement in its management. This can help the
company in raising its profit level by making less investment in accounts
receivables and stocks etc. This will ultimately improve the efficiency of its
operations. Following are few recommendations given to the company in
achieving its desired objectives:
The business runs successfully with adequate amount of the working

capital but the company should see to it that the cash should not be tied
up in excessive amount of working capital.
Though the present collection system is near perfect, the company as
due to the increasing sales should adopt more effective measures so as
to counter the threat of bad debts.
The over purchasing function should be avoided as it could lead to
liquidity problems.
The investment of cash in marketable securities should be increased, as
it is very profitable for the company.
Holding of excessive and insufficient stock must be avoided as it
creates a burden on the cash resources of a business and results in lost
sales, delays for customers, etc respectively.
BIBLIOGRAPHY
Following sources have been sought for the preparation of this report:
Corporate Intranet
Financial Statements (Annual Reports)
Direct interaction with the employees of the
company Internet ----www.hclinfosystems.in
Textbooks on financial management -
 I.M.Pandey
 Khan and Jain
 Prasanna Chandra
APPENDICES
FINANCIAL STATEMENTS FOR HCL INFOSYSTEMS LTD.
Last 4 year Balance Sheet:
Although debt as a percent of total capital increased at HCL Infosystems Ltd.

over the last fiscal year to 21.53%, it is still in-line with the IT Services
industry's norm. Additionally, even though there are not enough liquid assets to
satisfy current obligations, Operating Profits are more than adequate to service
the debt. Accounts Receivable are among the industry's worst with 28.44 days
worth of sales outstanding. This implies that revenues are not being collected in
an efficient manner. Last, inventories seem to be well managed as the Inventory
Processing Period is typical for the industry, at 21.29 days.
Currency in As of: Jun 30 Jun 30 Jun 30 Jun 30

Millions of Indian Rupees 2004 2005 2006 2007
Restated Restated Reclassified
Assets
Cash and Equivalents 1,452.3 2,512.7 2,149.2 1,976.5

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Short-Term Investments 114.8 1,573.6 3,137.7 2,939.9
TOTAL CASH AND SHORT TERM INVESTMENTS 1,567.1 4,086.3 5,286.9 4,916.4
Accounts Receivable 4,390.4 6,103.1 7,691.4 10,520.0
Other Receivables 228.2 400.5 468.1 593.4
TOTAL RECEIVABLES 4,618.7 6,503.6 8,159.5 11,113.4
Inventory 2,804.2 3,493.9 4,696.1 7,918.8
Prepaid Expenses 107.0 163.0 146.0 287.8
Other Current Assets 23.8 56.4 86.8 84.8
TOTAL CURRENT ASSETS 9,120.8 14,303.2 18,375.3 24,321.2
Gross Property Plant and Equipment 1,406.1 1,404.7 1,731.9 2,431.0
Accumulated Depreciation -749.1 -744.9 -852.4 -966.5
NET PROPERTY PLANT AND EQUIPMENT 657.0 659.8 879.5 1,464.5
Goodwill -- -- 0.2 0.8
Long-Term Investments 2,190.9 -- -- --
Deferred Tax Assets, Long Term 59.1 -- -- --
Other Intangibles -- 95.3 32.4 30.9

Other Long-Term Assets -- 5.1 71.8 16.0
TOTAL ASSETS 12,027.9 15,063.4 19,359.2 25,833.4
LIABILITIES & EQUITY
Accounts Payable 3,390.6 4,100.9 5,964.8 8,298.5
Accrued Expenses 100.4 101.0 140.4 209.8
Short-Term Borrowings -- 307.9 784.9 1,182.4
Current Portion of Long-Term Debt/Capital Lease 690.4 499.6 0.4 892.5
Current Income Taxes Payable 30.1 80.9 77.4 252.8
Other Current Liabilities, Total 2,914.6 3,377.3 4,687.9 5,216.6
Unearned Revenue, Current 536.4 965.8 557.9 775.2
TOTAL CURRENT LIABILITIES 7,662.6 9,433.4 12,213.7 16,827.8
Long-Term Debt 15.8 7.2 60.1 284.0
Deferred Tax Liability Non-Current 109.0 73.5 107.6 124.8
Other Non-Current Liabilities 13.9 3.8 1.0 --
TOTAL LIABILITIES 7,801.3 9,517.9 12,382.4 17,236.6
Common Stock 328.9 334.4 337.5 338.3

Additional Paid in Capital 673.9 883.7 1,044.5 1,087.9
Retained Earnings 3,193.2 4,297.3 5,565.2 7,141.4
Comprehensive Income and Other 30.6 30.1 29.6 29.2
TOTAL COMMON EQUITY 4,226.6 5,545.5 6,976.8 8,596.8
TOTAL EQUITY 4,226.6 5,545.5 6,976.8 8,596.8
TOTAL LIABILITIES AND EQUITY 12,027.9 15,063.4 19,359.2 25,833.4
Last 4 year Cash Flow Statement:
In 2007, cash reserves at HCL Infosystems Ltd. fell by 172.7M. However, as a

percent of revenues, this change was similar to the IT Services industry median.
By looking at the Cash Flow Statement, analysts can easily see the sources and
use of cash generated throughout the year.
Currency in As of: Jun 30 Jun 30 Jun 30 Jun 30

Millions of Indian Rupees
2004 2005 2006 2007
Restated Restated Reclassified
NET INCOME 1,751.1 2,277.0 2,803.6 3,159.5
Depreciation & Amortization 180.1 152.4 124.3 144.0
Amortization of Goodwill and Intangible Assets -- -- -- 4.1
DEPRECIATION & AMORTIZATION, TOTAL 180.1 152.4 124.3 148.1
(Gain) Loss from Sale of Asset -0.4 -1.6 0.5 0.6
(Gain) Loss on Sale of Investment -79.6 -84.9 -61.5 -55.2
Asset Writedown & Restructuring Costs 0.0 0.5 -- --
Other Operating Activities 292.8 31.2 79.6 271.8
Provision & Write-off of Bad Debts 14.8 14.4 7.2 9.2
Change in Accounts Receivable -1,593.4 -1,993.4 -1,724.7 -3,158.8
Change in Inventories -423.3 -689.7 -1,202.2 -3,222.7
Change in Accounts Payable 1,471.8 1,561.6 2,759.5 3,112.2
CASH FROM OPERATIONS 1,614.0 1,267.5 2,786.3 264.7
Capital Expenditure -180.7 -267.8 -424.3 -674.5
Sale of Property, Plant, and Equipment 3.5 10.7 80.3 1.6
Investments in Marketable & Equity Securities 73.7 841.4 -1,453.6 289.0
CASH FROM INVESTING 30.8 622.4 -1,683.3 -231.9
Short-Term Debt Issued 41.1 169.5 -- --
Long-Term Debt Issued 200.8 231.3 200.5 1,837.2
TOTAL DEBT ISSUED 241.9 400.8 200.5 1,837.2

Short Term Debt Repaid -- -- -172.3 -74.7
Long Term Debt Repaid -707.9 -302.7 -- -250.0
TOTAL DEBT REPAID -707.9 -302.7 -172.3 -324.7
Issuance of Common Stock 283.3 215.2 163.9 44.2
Common Dividends Paid -866.2 -1,047.4 -1,526.6 -1,546.1
TOTAL DIVIDEND PAID -866.2 -1,047.4 -1,526.6 -1,546.1
Other Financing Activities -98.9 -95.4 -132.0 -216.1
CASH FROM FINANCING -1,147.8 -829.5 -1,466.5 -205.5
NET CHANGE IN CASH 497.1 1,060.4 -363.5 -172.7
Last 4 year Income Statement:
Year over year, HCL Infosystems Ltd. has seen revenues remain relatively flat
(113.7B to 116.9B), though the company was able to grow net income from
2.8B to 3.2B. A reduction in the percentage of sales devoted to cost of goods
sold from 93.21% to 92.53% was a key component in the bottom line growth in
the face of flat revenues.
Currency in As of: Jun Jun 30 Jun 30 Jun 30

Millions of Indian Rupees
30 2005 2006 2007
2004 Restated Reclassified
Restated
Revenues 43,064.4 77,478.9 113,683.1 116,853.0

Other Revenues -- -35.7 61.6 63.8
TOTAL REVENUES 43,064.4 77,443.2 113,744.7 116,916.8
Cost of Goods Sold 38,701.3 71,496.1 105,964.4 108,121.4
GROSS PROFIT 4,363.1 5,947.1 7,780.3 8,795.4
Selling General & Admin Expenses, Total 2,268.8 3,305.9 3,764.3 4,527.1
Depreciation & Amortization, Total 180.6 152.4 124.3 148.1
Other Operating Expenses -- -84.0 84.8 91.2
OTHER OPERATING EXPENSES, TOTAL 2,449.4 3,374.3 3,973.4 4,766.4
OPERATING INCOME 1,913.7 2,572.8 3,806.9 4,029.0
Interest Expense -82.8 -77.6 -132.6 -214.6
223.8
Interest and Investment Income 132.1 146.1 208.0
NET INTEREST EXPENSE 49.4 68.5 75.4 9.2
Currency Exchange Gains (Loss) 37.9 145.0 -144.4 189.6
Other Non-Operating Income (Expenses) 32.0 -- -- --
EBT, EXCLUDING UNUSUAL ITEMS 2,033.0 2,786.3 3,737.9 4,227.8
Gain (Loss) on Sale of Investments 79.6 85.0 61.5 55.2
Gain (Loss) on Sale of Assets 0.4 1.6 -0.5 -0.6
Other Unusual Items, Total 2.3 87.2 4.0 4.7

Insurance Settlements 2.3 3.7 4.0 4.7
Other Unusual Items -- 84.0 -- --
EBT, INCLUDING UNUSUAL ITEMS 2,115.1 2,960.1 3,802.9 4,287.1
Income Tax Expense 364.0 683.1 999.3 1,127.6
Earnings from Continuing Operations 1,751.1 2,277.0 2,803.6 3,159.5
NET INCOME 1,751.1 2,277.0 2,803.6 3,159.5
NET INCOME TO COMMON INCLUDING EXTRA 2,277.0 2,803.6 3,159.5

ITEMS 1,751.1
NET INCOME TO COMMON EXCLUDING EXTRA

ITEMS 2,277.0 2,803.6 3,159.5
1,751.1

Project Report On Working Capital Management in HCL

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Project Report on working capital management in HCL

MBA (Indian Institute of Foreign Trade)

StuDocu is not sponsored or endorsed by any college or university

“WORKING CAPITAL MANAGEMENT IN

(Submitted in partial fulfillment of the requirements of

This project is based on the study of working capital management in HCL

HCL Infosystems Limited (HCL), is a leading domestic computer hardware

The working capital management refers to the management of working capital,

he problems Purpose of study

The project undertaken is on “WORKING CAPITAL MANAGEMENT IN

Cash is the lifeline of a company. If this lifeline deteriorates, so does the

The main purpose of our study is to render a better understanding of

the concept “Working Capital Management”.

To understand the planning and management of working capital at HCL

This project requires a detailed understanding of the concept –

The management of working capital involves managing inventories,

This project is vital to me in a significant way. It does have some

This project will be a learning device for the finance student.

Primary sources such as business magazines, current annual reports, book

We cannot do comparisons with other companies unless and until

Revenue ▲4.7 billion USD

Hindustan Computers Limited, also known as HCL Enterprise, is one of

market. In 1981, HCL seeded a company focused on addressing the computer

HCL INFOSYSTEMS – AN OVERVIEW

Alliances and partnerships

HCL INFOSYSTEMS LIMITED

AN OVERVIEW ABOUT THE COMPANY

HCL Infosystems Ltd, a listed subsidiary of HCL, is an India-based hardware

HCL Peripherals (A Unit of HCL Infosystems Limited) Founded in the year

- Became the first vendor to register sales of 50,000 PCs in a quarter

"Together we create the Enterprises of Tomorrow"

"To provide world-class Information Technology solutions and

 Nothing transforms life like education.

ALLIANCES and PARTNERSHIPS:

To provide world-class solutions and services to all our customers, HCL

BOARD OF DIRECTORS Chairman & Chief Executive Officer

COMPANY SECRETARY Sushil Kumar Jain

AUDITORS Price Waterhouse, New Delhi

BANKERS State Bank of India

REGISTERED OFFICE 806, Siddharth,

CORPORATE OFFICE E - 4, 5, 6, Sector XI, Noida - 201 301 (U.P.)

WORKS ♦ R.S. Nos: 34/4 to 34/7 and part of 34/1,

Financing Current Assets

“Working Capital is the Life-Blood and Controlling Nerve Center of a

The working capital management precisely refers to management

Cash and bank balance,

Working capital is commonly defined as the difference between current assets

WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

There are two major concepts of working capital:

Gross working capital

Net working capital:

The management of working capital is important for several reasons:

Working capital requires continuous day to day supervision. Working

There is an inevitable relationship between sales growth and the level of

Another important aspect of a working capital policy is to maintain and

The optimal level of investments in current assets.

But short-term financing is more risky than long-term financing.

Working capital can be classified as follows: