FM - Dor Oliver

A Project Report On
At HINDUSTAN DORR OLIVER LTD, Ahmedabad Institution
Submitted to Gujarat Technological University - Ahmedabad
Prepared By: Rashmi C Limbola
K.K. Parekh Institute of Management Studies
M.B.A. Sem. II, Seat No. B 013905
Company Certificate
K. K. Parekh Institute of Management Student Amreli

Dr. Jivraj Mehta Vidhya Vihar Campus Lathi road Amreli Ph: (02792) 223509 fax: (02792) 223509 E-mail: kkpimsa@yahoo.com Web: kkpimsamreli.com
DIRECTORS RECOMMENDATION
TO, The Registrar Gujarat Technological University Ahmedabad Subject: MBA Summer Training Project Report Respected Sir, I am recommending the Summer Training Project entitled WORKING CAPITAL MANAGEMENT AND COMPARATIVE ANALYSIS prepared by RASHMI C LIMBOLA at HINDUSTAN DORR OLIVER LIMITED, AHMEDABAD as the partiaI fulfilment of the University requirement for the award of MBA degree of Gujarat Technology University Ahmedabad. Date: Place: - Amreli Thanking You, Yours Faithfully
Director K.K. Parekh Institute of Management Studies 4
ST UDENT DECL AR AT IO N
I the undersigned student MS RASHMI C LIMBOLA of K. K. Parekh Institute of Management Studies Amreli M.B.A. II Semester, hereby declare that, the project on WORKING CAPITAL MANAGEMENT AND COMPARATIVE ANALYSIS is my own work.
In the partial fulfillment of Master Degree of Business Administration, I had undergone project work at HINDUSTAN DORR OLIVER LIMITED under the guidance of - K. K. Parekh Institute of Management Studies Amreli and submitted to Gujarat Technological University, Ahmedabad.
This project work is my original work and has not been submitted to any where earlier.
ACKNOWLEDGEMENT
With immense pleasure I pay my gratitude to the people for their wholehearted co-operation & guidance throughout my project.
First and foremost I would like to express gratitude to HOD Mr. Vishal Patidar for giving me an opportunity to prepare this project and other staff for their support and guidance in the project work. I would like to express my sincere gratitude to Mr. K.N.NARONEY for their encouragement and also for the advices and guidance which enlighten my way towards the completion of this project. It was their co-operation and direction at every moment, without their help this project report would not have been seen the light of the day for which I am extremely grateful to them.
I am indebted to Ms. Arpita Vahgela,Mr.Vishal patidar, Mr. MAHENDRA PAREKH and Mr. K.C.POKHARANA especially because of their help we have been able to carry out this work successfully.
I appreciate the efforts of those who volunteered the tone and energy and critic before my project went to its final print. And last but not the list, my heartfelt thanks are to all those people who have lent a hand to me directly or indirectly in making my project. By doing this project I have really gained a rich experience.
Place: _____________________ K.K.P.I.M.S. Amreli
Submitted by: Rashmi C. Limbola
Preface
(Theory without practice has no fruit. Practice without theory has no root.) Experience is the best teacher. This saying plays a guiding role in our lives and also in project reports those are an integral part of our MBA Curriculum Todays age is an age of management. Management is the backbone of any organization or any activity done. The real success of management lies in applying the professional management techniques in all managerial activities. As we move into an era of intense competition and high performance expectations, it is important that we develop the winning edge. Practical study is eminent, and plays vital role for the students of management, because classroom coaching and theoretical study alone are not enough. To survive in this highly competitive world, practicality outweighs theoretic. Students are supposed to learn the various principles of business administration conceptually but accuracy and efficiency in their implementation is possible only through exposure to practical environment. Hence, to attain this objective and to have the outlook of all intricacies of corporate world, we have undertaken the summer internship Training at HDO LTD. Its all about Working Capital Management & Comparative Analysis .We have tried our best and have applied all our efforts, knowledge and sources available in summer project report.
Executive Summary
Manufacturing industry play very important role because every products should required some manufacturing process and to carry out that process company required working capital to look after day to day or short term manufacturing expenses for that company should have efficient and adequate working capital management so that firm profitability increase.
It is very difficult to capture the all the aspects of working capital management and manufacturing industry in a short period but still I have tried to show some basic and important issues. Through this report any person who doesnt anything about working Capital management and the industry can easily understands and makes decision on his own.
In this report I have tried to show the comparative trend analysis and ratio analysis of HDO LTD. with other top companies which show the companys position in terms of liquidity, profitability, and solvency. I have tried to show the inventory flow of the company which is again very important topic in working capital management.
In future, I will try to understand the whole structure of manufacturing industry, the factors that affect it, its advantages, future overview of the industry. As well as I will try to understand the cash management of the comp any HDO LTD. and its net operating cycle.
TABLE OF CONTENT
SR. NO 1 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 3 3.1 3.1.1 3.1.2 3.2 3.2.1 3.2.2 3.2.3 3.3 3.3.1 3.3.2 3.4 3.4.1 3.4.2 4 4.1 4.2 4.3 4.4 PARTICULARS Industry Profile Company Profile Introduction to HDO LTD. Mission Vision Manufacturing Facility Product Range Certificate & Approvals Board of Directors Organization Chart of HDO LTD. Man power at HDO LTD. Product Range of HDO LTD. Customers of HDO LTD. Study of four functional area Finance Objective of Finance Department at HDO Ltd. Function of Finance Department at HDO Ltd. Human Resource Training and Development Objective of Human Resource at HDO Ltd. Function Of Human Resource Department at HDO Ltd. Marketing Marketing Strategy at HDO Ltd. Distribution channel at HDO Ltd. Production Objective of Production Department at HDO Ltd. Element of Production Department at HDO Ltd. Research Methodology Introduction Problem of Study Objective of the study Rational of the study
PAGE NO. 1 6 7 8 8 9 9 10 10 12 12 13 13 15 16 17 18 19 20 21 21 22 23 24 25 26 27 28 29 29 30 30
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4.5 4.6 4.7 4.8 4.7.1 4.7.2 4.7.3 4.7.4 4.9 4.10 4.11 4.12 5 5.1 5.2
Scope Limitations of the study Type Data Collection Data analysis & Interpretation Working Capital level and analysis Working Capital Ratio analysis Working Capital management Working Capital Finance and Estimation Findings Suggestion Conclusion Bibliography Annexure Balance sheet of HDO LTD. Profit and Loss account of HDO LTD.
31 31 32 33 33 45 54 64 70 71 71 72 73 74 75
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A leading provider of Engineering focused turnkey EPC projects and solutions. Our impressive track record over the past few years has seen our credibility grow in the market and enabled our clients to see us a valued partner rather than a vendor. Today, its regarded a forerunner in its areas of operation and is raising the bar for others in the sector. We are able to provide our clients the best and most cost effective integrated solutions due to our in-house Engineering capability through Technologies and Manufacturing capability. We are continually augmenting our skills to provide a broader range of solution offerings in our core areas of mining and minerals, water and wastewater, fertilizers and chemicals and pulp & paper. Our team is working relentlessly and diversifying into new areas like power, nuclear energy, oil & gas and material handling. We have expanded our footprint in various locations and see many more opportunities for further expansion. We have had an excellent run over the past few years and are focused on maintaining the same growth. Their management skills were in full display during the successful integration and restructuring. It has successfully transformed itself from an engineering equipment supplier to an Engineering EPC company in a short span of five years.Our strength squarely lies in the high calibre and dedication of our people; Committed, professional and passionate individuals who share the same vision of a progressive India. With sights set high on the future and a penchant to take on new challenges, we are confident that as India traces on its incredible growth trajectory, we will continue scale new heights and be a partner in Engineering a Nation.
A leading engineering company is engaged in turnkey projects to serve a diverse range of industries like environmental engineering, pulp and paper, chemicals and fertilisers. The company has executed some outstanding phosphatic fertiliser plants, systems for water management in steel mills, and the petrochemical and oil and gas industries. We are one of the leaders in Indian infrastructure industry, having core business focus on total Water Management including pumping, conveyance, treatment and distribution, national highways, roads, buildings, hydro-electric projects, power distribution, desalination, etc. It is also executing many projects on BOOT basis for various Government Departments of India. It has over decades established a unique track record and position as an extremely dynamic, totally reliable and component-engineering company, having a cutting edge of superior technologies to emerge among leading process equipment and plant engineering companies in India
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Mineral Beneficiation It has an excellent track record in Mineral Beneficiation, which is one of its core business
sectors. It enjoys leadership in more than 70 different metallic and non-metallic mineral processing industries. With its time tested and proven solid-liquid separation technologies, Industries has made major contributions in processing of Alumina, Iron-ore, Uranium, Coal, Copper, Lead, Zinc, Chrome, etc. In-depth knowledge of mineral processing techniques, reliable field experience gained through more than four decades of operation and whole range of specialized equipment, makes HDO a consistent performer in Mineral Industry. Industries has served almost all the customers in Alumina Industry, viz. NALCO, HINDALCO, BALCO, INDAL, MALCO and VEDANTA, by supplying its core process units, such as Sand Washing Plant, Conventional Thickeners, Hi-rate Settlers, Cable Torque Thickeners, Kelly Filters, Disc Filters, Red Mud Filters, Horizontal Pan Filters, Milk of Lime Plants, etc.HDO has made a major contribution in the field of Uranium Ore Processing and Extraction Plants in India, and has supplied equipment and system to Uranium Corporation of India Ltd., for their Jaduguda Project.
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Environmental Management
It is pioneer in Water / Wastewater and Industrial Effluent Treatment Systems and offer integrated solutions for customer satisfaction. The company has over five decades of experience in India / abroad in terms of executing turnkey projects in this field. Derived from its core strength, i.e., solid-liquid separation technologies, it can offer wide range of unit operations and processes for treatment of variety of effluents. Having its strength in manufacturing of proprietary equipment, it has expanded its horizon to a complete engineering solution provider from concept to commissioning.
Water Treatment: Drinking Water Treatment Industrial Process Water Treatment Reverse Osmosis Circulating Water Treatment
Wastewater Treatment: Domestic Sewage Treatment Industrial Effluent Treatment Refineries and Petrochemical Pulp and Paper Industries Dairy Industries Textile Industries Fertilizer Industries Chemical Industries Tanneries
Fertilizers & Chemicals

It has a unique track record of installing almost 90% of India's phosphatic fertilizer plants on Turnkey basis. It has been a pioneer in the development of continuous process for beneficiation of low grade phosphates for manufacture of phosphoric acid by the wet process and production of high analysis complete NPK and DAP granular phosphatic fertilizers. It has been an active contributor in chemical industry. Solid-liquid separation units, such as Thickeners, Clarifiers, Classifiers, Drum Filters, Precoat Filters, Disc Filters, Horizontal Pan Filters, Horizontal Belt Filters, are some of the equipment, which cater to this segment. It has also supplied Drum Filters for various Oil Industries for separating steering from olein.
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Pulp and Paper

Its also contribution to the Pulp & Paper Industry can be seen in almost every mill in India and many abroad. In the past fifty years, since its inception in India, it has supplied wide range of Brown stock and Bleach Washers of different design comprising of wire wound, perforated and ripple deck design washers to the pulping industry. Its recausticizing plants for chemical recovery in Pulp & Paper Industry are well known. Most of the mills in India have sulphate process technology for pulp cooking and without its causticizing plant; this process is not economically viable.
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2.1 Introduction of HDO LTD.

Hindustan Dorr Oliver Ltd. (HDO) as one of the most established and ideally qualified manufacturing set up located in western India (state of Gujarat and city of Ahmedabad) for fabricated process plant equipment, specifically for Oil and Gas, Fertilizer, Refinery, Petrochemical sector & Power Industry. We wish to express keenness to work for your esteemed organization. We are sure that your attention on the below elaboration on credentials and growth of our company will certainly give you an insight of what the organization and set up has to offer to you. A leader in the industrial EPC market, Hindustan Dorr-Oliver Limited, has been providing state-of-art technology solutions to its clients for about 7 decades now. We have come a long way from our humble beginnings as supplier of proprietary solid-liquid separation equipment to being a major Engineering EPC player, assimilating new technologies and providing the best, most cost effective and integrated turnkey solutions. We have a pan India presence, with offices in every major city in India - Mumbai, Bangalore, Chennai, Kolkota, Delhi and Ahmedabad. Our wholly owned Engineering Services arm, HDO Technologies, provides complete range of engineering services in-house, enabling us to have control over delivery time and quality. Our manufacturing facility at Vatva, Ahmedabad manufactures pressure vessels, heat exchangers, storage tanks and other proprietary solid-liquid separation equipments like filters, classifiers, thickeners, clarifiers etc. We are recognized amongst the top ten manufacturers of pressure vessels and Heat Exchangers in India by firms like EIL, PDIL etc. HDO has been involved in major industrial projects in areas of Mining and Minerals, Water and Wastewater, Fertilizers and Chemicals and Pulp and Paper. We have done water management and effluent treatment for all major refineries in India in the past five years. We have an excellent presence in Uranium ore processing from supplying equipment to the first uranium mill in Jagududa to now providing the complete uranium ore processing plant at Tummalapalle in Andhra Pradesh. We have excellent presence in Alumina refineries working on all new Greenfield projects in the last five years. Ninety percents of phosphatic fertilizer plants were installed by HDO. We have the capability of providing the entire pulp mill. Our
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focus on quality and excellent project execution skills have brought us repeat business from our clients sometimes on purely nomination basis. We are a publically listed company with 55% of stock held by our parent company IVRCL Infrastructures and Projects Limited, 25% held by Foreign Institutional Investors and the rest by other investors. We are a professionally managed firm with prominent figures from various industries in our Board.
HDO has a talented workforce of about 1,300 people of which more than ninety percent are engineers or hold an equivalent degree. At any given point we have about 30 active sites at various stages of completion and manage over 14,000 site labour force at various project locations all over India.
HDO has obtained international certifications for Quality, Safety and Environment Management Systems. Our manufacturing facility follows international codes and standards and employs world reputed third party inspection agency. The company is committed to maintaining the highest standards of Health, Safety and Environment and has a separate HSE team dedicated to this task.
We are proud to be India's partner in developing some of the world's most modern industry infrastructure. Our strength remains our people - highly qualified, professional, passionate and dedicated towards our company's growth.
2.2 Mission
To achieve this we will energise our people with positive culture that rewards innovation breeds initiative and encourage intelligent risk taking
2.3 Vision
To achieve this we will use the energy of our people develop and implement leading edge technologies and draw on both to deliver effective WORLD CLASS solution to our customer.
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2.4 Manufacturing Facility

Hindustan Dorr Oliver Ltd. (HDO) as one of the most established and ideally qualified manufacturing set up located in western India (state of Gujarat and city of Ahmedabad) for fabricated process plant equipment, specifically for Oil and Gas, Fertilizer, Refinery, Petrochemical sector & Power Industry.
We wish to express keenness to work for your esteemed organization. We are sure that your attention on the below elaboration on credentials and growth of our company will certainly give you an insight of what the organization and set up has to offer to you.
Growth in terms of Revenue. We take this opportunity to convey; Equipment, Heat Exchangers & Pressure Vessel business has grown from USD 8 Million(2007-2008) to USD 15 Million (2008-2009). The overall HDOs did USD 90 Million.(2008 -09); as against USD 80 Million in the year 2007-08; Growth of more than 50% in terms of sales; this has been possible under umbrella of fast growing Hyderabad based mega-infrastructure
company IVRCL Infrastructures & Projects Ltd.
2.5 Product Range
Screw Feeder
Spiral Classifier
Drum Slaker
Motorised Assembly
Diesel Product MP Steam Generator
Waste Heat Reboiler
TAIL Gas Preheater
Splitter Thermo Siphon Reboiler
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2.6 Certifications & Approvals

SO 9001:2000/ISO 14001:2004/ OHSAS 18001:2007 Certification "U" Stamp Certification National Board Certificate IBR Certification Explosives Department certification EIL Registered UDHE India Certification PDIL Certification GNFC Certification ONGC Certification TDC Certification
We are ASME "U" & "R" stamp authorized work shop. HDO is ISO 9001, ISO 14001 & OHSAS 18001 certified company. HDO is approved with major operating consultant/PMC/EPC in India i. e. EIL, UHDE, TOYO, Jacobs, Samsung, Technip, SNC Lavalin, Lurgi, Bechtel, Foster Wheeler, PDIL, Technimont etc. & have experience in working with them. Various certificates of approval are attached here with.
2.7 Board of Directors

Name Prabhakar Ram Tripathi E Sunil Reddy R Balarami Reddy M L Majumdar E Sudhir Reddy S C Sekaran T N Chaturvedi Shiv Dayal Kapoor Designation Chairman / Chair Person Managing Director Director Director Vice Chairman Executive Director Director Additional Director
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Registered Office
Dorr-Oliver House Chakala Andheri (East) Mumbai-400099 Maharashtra-India Phone:28359400 Fax:28365659 Email : invcomplaint@hdo.in
Auditor
Chaturvedi & Partners
Website www.hdo.in
Banker
Bank of India Andhra Bank
Registrar and Transfer Agents

Karvy Computershare Pvt. Limited 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad 500034
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2.8 Organization chart of HINDUSTAN DORR OLLIVER LTD.
2.9 MAN POWER AT HDO LTD.
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2.10 PRODUCT RANGE OF HDO LTD.

Non-Proprietary (As per ASME) Proprietary Equipments:
Heat Exchanger Pressure Vessels Columns Reactors Tanks Spheres Storage Tanks
Horizontal Pan Filters Kelly Filters Red Mud Component Filters Precoat Drum Filters Rotary Vacuum Drum Filters Brown Stock Washers Bleach Washer Drier, Cooler, Granulator and Pulveriser for NPK and DAP Fertilizer plants.
2.11 CUSTOMERS OF HDO LTD.

CUSTOMERS OF HDO IN INDIA
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CUSTOMERS OF HDO Outside India
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Businesses need finance for their day-to-day activities and in order to grow and change over time. Businesses must respond to their external environment in which the actions of their competitors, customers, suppliers and other parties influence the decisions they
make. Business finance comes from a range of sources: Internal finance comes from owners - shareholders in the case of private and public companies. External finance is provided by banks, and other institutional lenders, as well as creditors. Businesses frequently need to grow or to change their structure in response to changes that are taking place in the external environment. Internal finance therefore can be quite an inflexible way of responding to the changing environment because profits take time to develop, although they can be ploughed into a reserve fund. External financing A quicker way of growing therefore is to raise finance from external sources, typically loans. However, the danger of borrowing too much externally is that there are associated interest payments. In ongoing periods the business is saddled with these interest payments which can curtail future profit making potential.
Finance for internal (organic) expansion typically comes from selling new shares or ploughing back profits. Finance for external expansion will often come from borrowing.
3.1.1 Objective of Finance Department at HDO Ltd.

Plan the financial operations of the organisation Direct, control and administer the financial activities of the organization Provide the Chief Executive and the Board with financial assessments and information which will ensure planning and budgeting activities meet corporate goals. Specific accountabilities
K.K. Parekh Institute of Management Studies 27
Provide financial information and interpretations to other management. In consultation with other senior management, make recommendations and devise financial policy approach, and strategy. Direct the collection of financial and accounting information. The preparation of budgets, reports, forecasts, and consolidated profit and loss reports. Control activities such as taxation, credit policy, cash flow and investment policy, costing and expense control, preparation of tenders, audits administration of contracts, insurance arrangements and property administration. Represent the organisation in dealings with the organisation's bankers, legal advisers, major clients and others as required.
3.1.2 Function of finance department at HDO LTD.

Provide strategic financial support for business and operational planning. Provide day-to-day financial services to the company. Meet external and internal financial reporting requirements. Preparation of budget, appropriation of accounts, re-appropriations, surrender and savings. Control of expenditure and ways & means position. Audit and Treasury administration Administration of Taxes i.e. Sales Tax, Entertainment Tax, Luxury Tax and Entry Tax etc. Service Conditions including Freedom Fighters Pensions. Finance, Small Savings, Credit and Investment. Financial concurrence and advice. Contract, recovery and refund of revenue etc.
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Human resources are the people that work for an organisation, and Human Resource Management is concerned with how these people are managed. However, the term Human Resource Management (HRM) has come to mean more than this because people are different from the other resources that work for an organisation. People have thoughts and feelings, aspirations and needs. The term HRM has thus come to refer to an approach, which takes into account both:
1.The needs of the organisation. 2. The needs of its people.
3.2.1 Training and development

Different individuals have their own needs and aspirations. HRM therefore involves finding out about the needs and aspirations of individual employees, for example through the appraisal process and then creating the opportunities within the organisation (e.g. through job enlargement) and outside the organisation (e.g. through taking up educational opportunities at local colleges/universities) for employees to improve themselves. HRM therefore relates to every aspect of the way in which the organisation interacts with its people, e.g. by providing training and development opportunities, appraisal to find out about individual needs, training and development needs analysis, etc. Training - opportunities and courses for individuals to develop skills, knowledge and attitudes that help the organisation to achieve its objectives. Development - the provision of opportunities and courses for individuals to develop skills, knowledge and attitudes that help themselves to achieve personal objectives. Training and development needs analysis - an analysis of the opportunities and experiences that are required for individuals to train and develop in order to meet organisational and personal objectives. A training and development plan can then be created to set out how these needs can be addressed in practical steps.
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3.2.2 Objective of Human Resource Department at HDO LTD.

The main objective of HR at HDO LTD. is how to achieve the mission and vision of the company. Control the staff of the company. Establish lines of control and delegate responsibilities to subordinate staff. Provide adequate training to the new employee. Acquire better technology for production. To achieve the goal of the company within stipulated time. Optimum use of the resources available.
3.2.3 Function of Human Resource Department at HDO LTD.

The function of HR at HDO LTD. is to formulate the policy for the company which guide rules, regulation, and objective used in decision making. To formulate the strategy to coordinate the plan and realize its vision and long term objective. Recruitment and selection process of the appropriate candidate for the company. Allocate the available resources to the various departments. To distribute the work as per skill of the employee. Checking the progress of the plan. Motivate the employee in the company toward the goal.
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Marketing involves a range of processes concerned with finding out what consumers want, and then providing it for them. This involves four key elements, which are referred to as the 4Ps. A useful starting point therefore is to carry out market research to find out about customer requirements in relation to the 4Ps. There are two main types of market research - quantitative research involving collecting a lot of information by using techniques such as questionnaires and other forms of survey. Qualitative research involves working with smaller samples of consumers, often asking them to discuss products and services while researchers take notes about what they have to say. The marketing department will usually combine both forms of research The marketing department will seek to make sure that the company has a marketing focus in everything that it does. It will work very closely with production to make sure that new and existing product development is tied in closely with the needs and expectations of customers. Modern market focused organisations will seek to find out what their customers want. For example, financial service organisations, will want to find out about what sort of accounts customers want to open and the standard of service they expect to get. Retailers like Argos and Home base will seek to find out about customer preferences for store layouts and the range of goods on offer. Airlines will find out about the levels of comfort that customers desire and the special treatment that they prefer to receive. A useful definition of marketing is the anticipation and identification of customer needs and requirements so as to be able to meet them, make a profit or other key organisational objectives.
3.3.1 Marketing Strategy at HDO LTD.

Company marketing strategy to design to maximize revenue and profit. Company focus toward its target customer only. Company segmented its market i.e. engineering company.
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3.3.2 Distribution channel at HDO Ltd.

HDO Ltd. directly supply their equipment to their customer without any intermediates because the equipment is manufactured as per order and for supply of equipment it use road transportation and sea transport because the company is manufacturing big vessels.
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The function of the production department is to produce our products on time, to the required quality levels, at the defined product cost. Of major concern to the production manager is monthly output. Production managers have monthly targets which they are expected to strive to meet or exceed. Production can only meet its targets if Sales secure orders. Also production costs are dependent on the price we pay for components and materials, etc. Securing sales is outside the direct control of Production, but the relationship between Production & Sales is intense. If sales are down, production targets cannot be met, on the other hand if Production fails to meet its target output monthly income is down and customers are likely to complain about late delivery. There is scope for friction between sales and production personnel. Component and materials procurement is another factor that strongly influences production, production targets and delivery. If components cannot be purchased at the target price, profits are down. If components arrive late at our factory production targets may not be met and customers may experience late delivery. Purchasing of components and materials is carried out by the Purchasing section of Production. We shall say more about Purchasing later in this unit. We may consider the relationship between Production, Sales and Purchasing as some form of eternal triangle.
3.4.1 Objective of Production department at HDO LTD.

The quality of product is established based upon the customers needs. It is determined by the cost of the product and the technical characteristics as suited to the specific requirements.
The objective of company is to manufacture the products in right number or quantity.
Timeliness of delivery is one of the important parameter to judge the effectiveness of production department. So, the production department has to make the optimal utilization of input resources to achieve its objective.
Manufacturing costs are established before the product is actually manufactured.
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3.4.2 Element of Production Department at HDO LTD.

PLANNING: The operations manager defines the objectives for the operations subsystem of the organization, and the policies, and procedures for achieving the objectives. This stage includes clarifying the role and focus of operations in the organizations overall strategy. It also involves product planning, facility designing and using the conversion process.
ORGANIZING: Operation managers establish a structure of roles and the flow of information within the operations subsystem. They determine the activities required to achieve the goals and assign authority and responsibility for carrying them out.
CONTROLLING: To ensure that the plans for the operations subsystems are accomplished, the operations manager exercise control by measuring actual outputs and comparing them to planned operations management. Controlling costs, quality, and schedules are the important functions here.
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4.1 Introduction
Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying now research is done systematically. In that various steps, those are generally adopted by a researcher in studying his problem along with the logic behind them.
It is important for research to know not only the research method but also know methodology. The procedures by which researcher go about their work of describing, explaining and predicting phenomenon are called methodology. Methods comprise the procedures used for generating, collecting and evaluating data. All this means that it is necessary for the researcher to design his methodology for his problem as the same may differ from problem to problem.
Data collection is important step in any project and success of any project will be largely depend upon now much accurate you will be able to collect and how much time, money and effort will be required to collect that necessary data, this is also important step.
Data collection plays an important role in research work. Without proper data available for analysis you cannot do the research work accurately.
4.2 Problem:
The problem related to working capital at HDO LTD. is that company could not able to maintain their current assets and current liabilities in the ideal ratio.
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4.3 OBJECTIVES OF THE STUDY

Study of the working capital management is important because unless the working capital is managed effectively, monitored efficiently planed properly and reviewed periodically at regular intervals to remove bottlenecks if any the company cannot earn profits and increase its turnover. With this primary objective of the study, the following further objectives are framed for a depth analysis.
1. To study the working capital management of Hindustan Dorr Oliver Ltd.
2. To study the optimum level of current assets and current liabilities of the company.
3. To study the liquidity position through various working capital related ratios. 4. To study the working capital components such as receivables accounts, Cash management, Inventory position.
5. To study the way and means of working capital finance of the Hindustan Dorr Oliver Ltd.
6. To estimate the working capital requirement of Hindustan Dorr Oliver Ltd.
7. To study the operating and cash cycle of the company.
4.4 Rational of the study

If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. For example, it could be that the company's sales volumes are decreasing and, as a result, its accounts receivables number continues to get smaller and smaller.
Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company's obligations. So, if a company is not
operating in the most efficient manner (slow collection), it will show up as an increase in the working capital. This can be seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the company's operation
4.5 SCOPE
The scope of the study is identified after and during the study is conducted. The study of working capital is based on tools like Trend Analysis, Ratio Analysis, working capital leverage, operating cycle etc. Further the study is based on last 5 years Annual Reports of Hindustan Dorr Oliver Ltd. and even factors like competitors analysis, industry analysis were not considered while preparing this project.
4.6 Limitations of the study

Following limitations were encountered while preparing this project:
Limited data:-This project has completed with annual reports; it just constitutes one part of data collection i.e. secondary. There were limitations for primary data collection because of confidentiality. Limited period:-This project is based on five year annual reports. Conclusions and Recommendations are based on such limited data. The trend of last five year may or may not reflect the real working capital position of the company Limited area:-Also it was difficult to collect the data regarding the competitors and their financial information. Industry figures were also difficult to get.
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4.7 Types of data collection

There are two types of data collection methods available.
Primary data: - The primary data is that data which is collected fresh or first hand, and for first time which is original in nature. Primary data can collect through personal Interview, questionnaire, survey etc. which support the secondary data.
Secondary data collection method: - The secondary data are those which have already collected and stored. Secondary data easily get those secondary data from records, journals, annual reports of the company etc. It will save the time, money and efforts to collect the data. Secondary data also made available through trade magazines, balance sheets, books etc.
This project is based on secondary data collected through annual report, through head of accounting department and other concerned staff member of finance department. Thus project is based on secondary information collected through five years annual report of the company, supported by various books and internet sides. The data collection was aimed at study of working capital management of the company Project is based on
1. Annual report of HDO 2004-05 2. Annual report of HDO 2005-06 3. Annual report of HDO 2006-07 4. Annual report of HDO 2007-08 5. Annual report of HDO 2008-09
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4.8 Data Analysis and Interpretation

In my project regarding data analysis and interpretation I had used various tools like tables and charts. 4.8.1.1 Working Capital level and analysis The consideration of the level investment in current assets should avoid two danger points excessive and inadequate investment in current assets. Investment in current assets should be just adequate, not more or less, to the need of the business firms. Excessive investment in current assets should be avoided because it impairs the firms profitability, as idle investment earns nothing. On the other hand inadequate amount of working capital can be threatened solvency of the firms because of its inability to meet its current obligation. It should be realized that the working capital need of the firms may be fluctuating with changing business activity. This may cause excess or shortage of working capital frequently. The management should be prompt to initiate an action and correct imbalance. Table 4.8.1.1-Size of Working Capital (Rs. In Lakhs) Particulars A)Current assets Inventories Sundry Debtors Cash & Bank Balance Other Assets Loan & Advances Total of A (Gross W.C.) B) Current liabilities Current liabilities Provisions Total of B Net W.C.(A-B) 629.45 24.68 654.13 425.49 590.62 23.7 614.32 1119.86 1551.48 36.05 1587.53 920.54 2258.85 41.13 2299.98 1438.22 3682.30 60.53 3742.83 1219.01 90.45 378.76 96.93 419.51 93.97 1079.62 86.38 308.87 759.64 507.78 71.51 1734.18 122.11 1025.37 410.18 688.03 262.38 2508.07 469.1 1169.14 372.02 1338.44 389.75 3738.2 311.48 1556.19 246.60 1955.70 891.87 4961.84 2004-05 2005-06 2006-07 2007-08 2008-09
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Chart 4.8.1.1- Current assets to Current Liabilities

6000
5000
4000 3000 2000 1000 0 2004-05 2005-06 2006-07 2007-08 1079.62 654.13 1734.18 3738.2
4961.84
3742.83
2508.07 1587.53
C.A. 2299.98 C.L.
614.32
2008-09
Interpretation It was observed that Current Assets show a continuous growth over last five years and it was grown by approx. 460 % in 2008-09 over 2004-05.The reason behind in increase of current assets is that company expand its business and consequently the size of current assets also increase and on the other hand increase in current liabilities also increase with the increase in the current assets of HDO LTD. In the year 2005-06 C.A. of HDO LTD. Increase but current liabilities of HDO LTD. Decrease over its previous year after that in next year it show increasing trend till 2008-09 .
4.8.1.2 Working Capital Trend Analysis

In working capital analysis the direction at changes over a period of time is of crucial importance. Working capital is one of the important fields of management. Table 4.8.1.2-Working Capital Size (Rs. In Lakhs) Year Net W.C.(A-B) W.C. Indices 2004-05 425.49 100.00 2005-06 1119.86 263.19 2006-07 920.54 216.35 2007-08 1438.22 338.01 2008-09 1219.01 286.50
Chart 4.8.1.2- Working Capital Indices

Interpretation It was observed that major source of liquidity problem is the mismatch between current payments and current receipts from the Comparison of funds flow statements of HDO for five years. It was observed that in the year 2005-06 current assets increased by around 60% and current liabilities decreased only by 7% which affect as working capital increased by 163%. In the year 2006-07 to 2007-08 net working capital increased to Rs 920.54 to Rs. 1438.22, the increase in working capital is close to 56%. While current assets increased by 49% and current liabilities by 56%. It shows that management is using long term funds to short term requirements. And it has fallen to Rs.1219.01 million in the year 2008-09 because current assets gone up by only 32%, current liabilities grown by 62%. This two together pushed down the net working capital to the present level. The fall in working capital is a clear indication that the company is utilizing its short term resources with efficiency.
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4.8.2.3 Current assets A balance sheet item which equals the sum of cash and cash equivalents, accounts
receivable, inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year. A company's creditors will often be interested in how much that company has in current assets, since these assets can be easily liquidated in case the company goes bankrupt. In addition, current assets are important to most companies as a source of funds for day-to-day operations Table 4.8.1.3- Current Assets Size (Rs. In Lakhs) Particulars Inventories Sundry Debtors Cash&Bank Balance Other Assets Loan & Advances Total of C.A. C.A. indices 2004-05 90.45 378.76 96.93 419.51 93.97 1079.62 100.00 2005-06 86.38 308.87 759.64 507.78 71.51 1734.18 160.63 2006-07 122.11 1025.37 410.18 688.03 262.38 2508.07 232.31 2007-08 469.1 1169.14 372.02 1338.44 389.75 3738.2 346.25 2008-09 311.48 1556.19 246.60 1955.70 891.87 4961.84 495.59
Chart 4.8.1.3-Current Assets Indices
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Interpretation Current Assets grow approx. 61% in 2005-06 over its previous year and in the next year that is 2006-07 its decline by approx. 16% and over the next year increase in current assets is nominal i.e. 4% nearly and during the previous financial year it was declined by 16%.Here the HDO current assets indices show continuous fluctuation due to this company get less credit from the supplier and it needs to hold more working capital of firm and company cannot enjoy credit facility. 4.8.3.4 Composition of current assets Analysis of current assets components enable one to examine in which components the working capital fund has locked. A large tie up of funds in inventories affects the profitability of the business or the major portion of current assets is made up cash alone, the profitability will be decreased because cash is non earning assets. Table 4.8.1.4 Composition of Current Assets Particulars Inventories Sundry Debtors Cash & Bank Balance Other Assets Loan & Advances Total of C.A. 2004-05 8.38 35.08 8.98 38.86 8.70 100.00 2005-06 4.98 17.81 43.80 29.28 4.12 100.00 (Rs. In Lakhs) 2007-08 12.55 31.28 9.95 35.80 10.42 100.00 2008-09 6.28 31.36 5.01 39.41 17.97 100.00
2006-07 4.87 40.88 16.35 27.43 10.46 100.00
Chart 4.8.1.4-Current Assets Components
Current Assets Component in %

2008-09 17% 2004-05 23% 2007-08 34% 2005-06 13% 2006-07 13%
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Interpretation It was observed that the size of current assets is increasing with increases in the sales. The excess of current assets is showing positive liquidity position of the firm but it is not always good because excess current assets then required, it may adversely affects on profitability. Current assets include some funds investments for which company pay interest. The balance of current assets is highly increased in year 2005-06, because of increase in cash balance. Cash balance of the company increased in the same year because company got some encashment of deposits in the schedule Banks as current account Rs.439 million and fixed deposits (out of ZCCB funds) Rs.1785 million. Current assets components show sundry debtors are the major part in current assets it indicates that the inefficient collection management. 4.8.1.5 Current liabilities Current liabilities mean the liabilities which have to pay in current year. It includes sundry creditors means supplier whose payment is due but not paid yet, thus creditors called as current liabilities. Table 4.8.1.5-Current Liabilities Size (Rs. In Lakhs) Particulars Current liabilities Provisions Total of C.L Indices of C.L. 629.45 24.68 654.13 100.00 2005-06 590.62 23.7 614.32 93.91 2006-07 1551.48 36.05 1587.53 242.69 2007-08 2258.85 41.13 2299.98 351.61 2008-09 3682.30 60.53 3742.83 572.18
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Chart 4.8.1.5-Current Liabilities Indices
C.L.Indices
700
600
500 400 300 200 100 0 2004-05 2005-06 2006-07 2007-08 100 93.91 351.61
572.18
242.69
2008-09
Interpretation Current liabilities show fluctuation each year as in 2005-06 its decline by 6% and in to 2006 07 it was increased by 164% because company creates the credit in the market by good transaction. To get maximum credit from supplier which is profitable to the company it reduces the need of working capital of firm. As a current liability decline in the year 2006-07 by 114 % it reduce the working capital size in the same year. But company enjoyed over creditors which may include indirect cost of credit terms.
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Table 4.8.1.6 Statement of changes in working capital (Rs. In Lakhs) Particulars 2007-08 2008-09 Change in Working Capital Increase A)Current assets Inventories Sundry Debtors Cash & Bank Balance Other Assets Loan & Advances Total of A (Gross W.C.) B) Current liabilities Current liabilities Provisions Total of B Net W.C.(A-B) Net Decrease in Working Capital Total 2949.28 2949.28 2258.85 41.13 2299.98 1438.22 3682.30 60.53 3742.83 1219.01 1423.45 19.4 2666.24 469.1 1169.14 372.02 1338.44 389.75 3738.2 311.48 1556.19 246.60 1955.70 891.87 4961.84 387.05 617.26 502.12 157.62 125.42 Decrease
Interpretation Working capital decreased in the year 2007-08 to 2008-09 because 1. Sales increased by around 68%, where cost of raw material purchased increased by 10% and manufacturing expenses increased by 68%. 2. Cost of material and manufacturing expanses increased because of inflation, which was around 8.63% in Feb. 2008-09.
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4.8.1.6 Operating Cycle The average time between purchasing or acquiring inventory and receiving cash proceeds from its sale. This time gap is called Operating Cycle or Working Capital Cycle.
Table 4.8.1.7-Calculation of operating cycle To calculate the operating cycle of HDO used last five year data. Operating cycle of the HDO vary year to year as changes in policy of management about credit policy and operating control (No. of days) Particulars ADD. Raw mat. Holding period WIP period Finished goods holding period Receivable collection period Gross operating cycle LESS. Creditors payment period Net operating cycle 169 109 178 83 122 102 130 72 130 74 70 2 51 155 278 66 4 58 133 261 58 3 47 116 224 54 2 39 107 202 58 1 36 109 204 2004-05 2005-06 2006-07 2007-08 2008-09
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Chart 4.8.1.6-Net Operating Cycle
120 100 80 60 40 20 0
109
83
102
72
74
2004-05
2005-06
2006-07
2007-08
2008-09
Chart 4.8.1.7-Component of Operating Cycle
Component of Operatiing Cycle

200 180 160 140 120 100 80 60 40 20 0
2004-05 2005-06 2006-07 2007-08 2008-09
No. Of Days
RMHP
WIP Pe FGHP RCP
CPP
Interpretation
Operating cycle of HDO shows the numbers of day are decreasing in recent year it is reflect the efficiency of management. Days of operating cycle shows period of lack of funds in current assets, if no of day are more than it increases the cost of funds as taken from outside of the business. In 2004-05 shows the high no. of days because of reduced of creditors holding period.
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4.8.1.8 Working capital leverage One of the important objectives of working capital management is by maintaining the optimum level of investment in current assets and by reducing the level of investment in current assets and by reducing the level of current liabilities the company can minimize the investment in the working capital thereby improvement in return on capital employed is achieved. The term working capital leverage refers to the impact of level of working capital on companys profitability. The working capital management should improve the productivity of investment in current assets and ultimately it will increase the return on capital employed. Higher level of investment in current assets than is actually required means increase in the cost of Interest charges on short term loans and working capital finance raised from banks etc. and will result in lower return on capital employed and vice versa. Working capital leverage measures the responsiveness of ROCE (Return on Capital Employed) for changes in current assets. It is measures by applying the following formula,
Working capital leverage
% change in ROCE % change in current assets
EBIT Return on capital employed = Total assets
The working capital leverage reflects the sensitivity of return on capital employed to changes in level of current assets. Working capital leverage would be less in the case of capital intensive capital employed is same working capital leverage expresses the relation of efficiency of working capital management with the profitability of the company.
Table 4.8.1.8- Calculation of Working Capital Leverages. (Rs. In Lakhs) Particulars ROCE % % Changes in ROCE % Changes in C.A W.C. Leverages 2005-06 5.13 72.15 68.63 1.05 2006-07 16.78 227.09 44.62 5.09 2007-08 18.12 7.99 49.5 0.16 2008-09 24.55 35.49 32.73 1.08
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Chart 4.8.1.8-Working Capital Leverage
6
5
5.09
4
3
2
1
1.05
1.08
0.16
2005-06 2006-07 2007-08 2008-09
Chart 4.8.1.9-W.C. Leverage component
250
200
150
100
50
0 2005-06 ROCE % 2006-07 Change in ROCE % 2007-08 Change in C.A. % 2008-09 W.C. Leverage
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Interpretation Working capital leverage of the company has decreased in the year 2007-08 as compare to the year 2005-06 reduction in working capital shows the inefficient current assets management. In the year 2006-07 current assets decline over its previous year and 2007-08 the current assets has increased by high rate of 35% and 11% respectively. It adversely affects on ROCE, which increased by only rate of 154% in 2006-07, that resulted in push down the working capital leverage to 2007-08 and. When investment in current assets is more than requirement that increases the cost of funds raised from short term sources may be bank loans, which affected on profitability of the HDO.
4.8.2 Working Capital Ratio Analysis

4.8.2.1 Introduction:-Ratio analysis is the powerful tool of financial statements analysis. A ratio is define as the indicated quotient of two mathematical expressions and as the relationship between two or more things. The absolute figures reported in the fi nancial statement do not provide meaningful understanding of the performance and financial position of the firm. Ratio helps to summaries large quantities of financial data and to make qualitative judgment of the firms financial performance
4.8.2.2 Classification of working capital ratio:-Working capital ratio means ratios which are related with the working capital management e.g. current assets, current liabilities, liquidity, profitability and risk turnoff etc. these ratio are classified as follows:
1. Efficiency ratio The ratios compounded under this group indicate the efficiency of the organization to use the various kinds of assets by converting them the form of sale. This ratio also called as activity ratio or assets management ratio. As the assets basically categorized as fixed assets and current assets and the current assets further classified according to individual components of current assets viz. investment and receivables or debtors or as net current assets, the important of efficiency ratio as follow:
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a. Working capital turnover ratio b. Inventory turnover ratio c. Receivable turnover ratio d. Current assets turnover ratio e. Liquidity ratio
The ratios compounded under this group indicate the short term position of the organization and also indicate the efficiency with which the working capital is being used. The most important ratio under this group is follows I. Current ratio II. Quick ratio III. Absolute liquid ratio Efficiency ratio Working capital turnover ratio : Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio represents the number of times the working capital is turned over in the course of year.
Formula: Working Capital Turnover Ratio = Cost of Sales / Net Working Capital
Table 4.8.2.1- Working Capital Turnover (Rs. In Lakhs) Particulars 2004-05 2005-06 2006-07 2007-08 2008-09
Sales Net W.C. W.C.TOR
838.10 425.49 1.97
1414.08 1119.86 1.26
2085.10 920.54 2.27
3050.70 1438.22 2.12
5133.22 1219.01 4.21
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Chart 4.8.2.1-Working Capital Turnover
Interpretation High working capital ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in working capital. Companys working capital ratio shows mostly more than or near two, except for the year 2005-06 and because of excess of cash balance in current assets which occurred due to encashment of deposits. In the year 2008-09 the ratio was more than 4, it indicates that the capability of the company to achieve maximum sales with the minimum investment in working capital.
b) Inventory turnover ratio The inventory turnover ratio measures the number of times a company sells its inventory during the year. A high inventory turnover ratio indicated that the product is selling well. The inventory turnover ratio should be done by inventory categories or by individual product.
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Formula: Inventory Turnover Ratio = cost of goods sold / average inventory. Table 4.8.2.2 Inventory turnover (Rs. In lakhs) Particulars Cost of goods sold Average inventory Inventory TOR 2004-05 643.01 90.45 7.11 2005-06 1129.56 88.42 12.77 2006-07 1640.49 104.25 15.74 2007-08 2423.68 295.61 8.20 2008-09 4121.56 403.79 10.21
Chart 4.8.2.2 Inventory Turnover
Interpretation It was observed that Inventory turnover ratio indicates maximum sales achieved with the minimum investment in the inventory during. As such, the general rule high inventory turnover is desirable but high inventory turnover ratio may not necessary indicates the profitable situation. An organization, in order to achieve a large sales volume may sometime sacrifice on profit, inventory ratio may not result into high amount of profit.
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c) Receivable/Debtors turnover ratio Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. Formula: Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors Table 4.8.2.3-Calculation of debtors turnover ratio Particulars Gross sales Avg. Debtors Receivable TOR 2004-05 862.73 378.76 2.28 2005-06 1456.49 343.82 4.24 2006-07 2145.93 667.12 3.22 (Rs. In Lakhs) 2007-08 3103.52 1097.26 2.83 2008-09 5222.55 1362.67 3.83
Chart 4.8.2.3-Debtors Turnover
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Interpretation It was observed from debtors turnover ratio that receivables turned around the sales were more than 4 times in 2005-06. The actual collection period was more than normal collection period allowed to customer. It concludes that over investment in the debtors which adversely affect on requirement of the working capital finance and cost of such finance. d) Current assets turnover ratio Ratio that indicates how efficiently a firm is using its current assets to generate revenue. A higher ratio implies a more efficient use of funds thus high turnover ratio indicate to reduced the lock up of funds in current assets. An analysis of this ratio over a period of time reflects working capital management of a firm. Formula: Fixed Assets Turnover Ratio = Cost of Sales / Net Fixed Assets
Table 4.8.2.4-Calculation of Current Assets Turnover Ratio (Rs. In Lakhs) Particulars Sales Current assets Current assets TOR 2004-05 838.10 1079.62 0.78 2005-06 1414.08 1734.18 0.82 2006-07 2085.10 2508.07 0.83 2007-08 3050.70 3738.2 0.82 2008-09 5133.22 4961.84 1.03
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Chart 4.8.2.4- Current Assets TOR
Interpretation It was observed that current assets turnover ratio does not indicate any trend over the period of time. Turnover ratio was 0.78 in the year 2004-05 and increase to 082 and 0.83 in the year 2005-06 and 2006-07 respectively, but it decreased in the year 2007-08, because of high cash balance. Cash did not help to increase in sales volume, as cash is non earning asset. In the year 2008-09 company increased its sales with increased investment in current assets, thus current assets turnover ratio increased to 1.03.
e) Liquidity ratio I) Current ratio:- An indication of a company's ability to meet short-term debtobligations; the
higher the ratio, the more liquid the companyis. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liablities exceed current assets, then the company may have problems meeting its short-term obligations
Formula: Current ratio= Current assets / Current Liabilities

Table 4.8.2.5-Calculation of Current Ratio (Rs. In Lakhs) Particulars 2004-05 2005-06 2006-07 2007-08 2008-09
Current assets Current liabilities Current ratio
1079.62 654.13
1734.18 614.32
2508.07 1587.53
3738.2 2299.98
4961.84 3742.83
1.65
2.82
1.58
1.63
1.33
Chart 4.8.2.5 Current Ratio
Current Ratio
3 2.5 2 1.5 1 0.5 1.65 1.58 1.63 1.33 Current Ratio 2.82
0
2004-05 2005-06 2006-07 2007-08 2008-09
Interpretation The current ratio indicates the availability of funds to payment of current liabilities in the form of current assets. A higher ratio indicates that there were sufficient assets available with the organization which can be converted in cash, without any reduction in the value. As ideal current ratio is 2:1, where current ratio of the firm is more than 2:1, it indicates the unnecessarily investment in the current assets in the form of debtor and cash balance. Ratio is higher in the year 2005-06 where cash balance is more than requirement which came through encashment of deposits from bank.
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II) Quick ratio: - A measure of a company's liquidity and ability to meet itsobligations. Quick ratio, often referred to as acid-test ratio, is obtained by subtracting inventories from current assets and then dividing by current liabilities. Quick ratio is viewed as asign of company's financial strength or weakness (higher means weaker) Formula: Quick ratio= Liquid Current assets / Current Liabilities Table 4.8.2.6-Calculation of Quick Ratio Particulars Liquid current assets Current liabilities Quick ratio 2004-05 989.17 654.13 1.51 2005-06 1647.8 614.32 2.68 2006-07 2385.96 1587.53 (Rs. In Lakhs) 2007-08 3269.1 2299.98 1.50 1.42 2008-09 4650.36 3742.83 1.24 number means stronger, lower number
Chart 4.8.2.6-Quick Ratio

3 2.5 2 1.5 1 0.5 0 1.51 1.5 1.42
2.68
1.24
2004-05
2005-06
2006-07
2007-08
2008-09
Interpretation Quick ratio indicates that the company has sufficient liquid balance for the payment of current liabilities. The liquid ratio of 1:1 is suppose to be standard or ideal but here ratio is more than 1:1 over the period of time, it indicates that the firm maintains the over liquid assets than actual requirement of such assets. In the year 2005-06 company had Rs.2.68 cash for every 1 rupee of expenses; such a policy is called conservative policy of finance for working capital, Rs. 1.68 is the ideal investment which affects on the cost of the fund and returns on the funds.
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III) Absolute liquid ratio:- Liquid ratio is also termed as "Liquidity Ratio", "Acid Test Ratio" or "Quick Ratio". It is the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due.
Formula: Liquid Ratio = Liquid Assets / Current Liabilities
Table 4.8.2.7- Calculation of Absolute Liquid Ratio Particulars Absolute liquid assets Current liabilities Quick ratio 2004-05 96.93 654.13 0.0014 2005-06 759.64 614.32 1.24 2006-07 410.18 1587.53 0.26 2007-08 2008-09 372.02 246.60
2299.98 3742.83 0.16 0.066
Chart 4.8.2.7-Absolute Liquid Ratio
Cash & Bank TO Current Liabilities

4000 3500 3000 2500 2000 1500 1000 500 0 2004-05 2005-06 2006-07 2007-08 2008-09
Cash&bank Current Liabilities
Interpretation Absolute liquid ratio indicates the availability of cash with company is sufficient because company also has other current assets to support current liabilities of the company. In the year 2005-06 absolute liquid ratio increased because of company carry more cash balance, as a cash balance is ideal assets company has to take control on such availability of funds which is affect on cost of the funds.
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4.8.3 Working Capital management

Working capital management is classified into 3 categories they are as follow:
4.8.3.1 Receivables Management Money owed by customers (individuals or corporations) to vendors in exchange for goods or services rendered. Receivables usually come in the form of operating lines of credit and are usually due within a relatively short period, ranging from a few days to a year. On a balance sheet, AR often is recorded as an asset because it represents cash legally owed by a customer.
Table 4.8.3.1-Size of Receivables of HDO Particulars 2004-05 2005-06 2006-07
(Rs. In Lakhs) 2007-08 2008-09
Sundry Debtors Indices
1556.19
1169.14
1025.37
308.87
378.76
100
75.13
65.89
19.84
24.33
65
Chart 4.8.3.1-Receivable Indices
Interpretation Receivable Indices show fluctuation each year as in 2005-06 its decline by 25% and in to 2005 -06 it was increased by 12% because company gives less credit period to debtors. In 2006-07 the receivable indices increased by 12% its because company adopted liberalize in collection period and 2007-08 its decline to get maximum credit from supplier which is profitable to the company it reduces the need of working capital of firm. As a current liability decline in the year 2006-07 by 114 % it reduce the working capital size in the same year. But company enjoyed over creditors which may include indirect cost of credit terms.
Average collection period The approximate amount of time that it takes for a business to receive payments owed, in terms of receiveables, from its customers and clients. Calculated as: Average Collection Period = Days X AR Cr. Sales Where: Days=Total amount of days in period. AR = Average amount of accounts receivables. Credit Sales = Total amount of net credit sales during period
Table 4.8.3.2-Average Collection Period Particulars Gross sales Avg. Debtors Receivable TOR Avg. collection 2004-05 862.73 378.76 2.28 155 2005-06 1456.49 343.82 4.24 129 2006-07 2145.93 667.12 3.22 110
(Rs. In Lakhs) 2007-08 3103.52 1097.26 2.83 101 2008-09 5222.55 1362.67 3.83 103
period(days)
Chart 4.8.3.2-Avg. Collection period
Interpretation The size of receivables are staidly increasing it indicates that the company was allowing more credit year to year, but it was not bad signal because as receivables were supporting to the increase in the sales. Average collection period are reducing to present situation, but as compare with the normal collection period allowed to customer by HDO LTD. of 90 days, it was clear that the company required increasing our efficiency of collection of receivables. All he above factors directly or indirectly affects in the debtors turnover ratio, current ratio and working capital ratio. For effective management of credit, the firm should lay down clear cut guidelines and procedure for granting credit to individual customers and collecting individual accounts should involve following steps: (1) Credit information (2) Credit investigation (3) Credit limits (4) Collection procedure.
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4.8.3.2 Inventory Management Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. It is also used for a list of the contents of a household and for a list fortestamentary purposes of the possessions of someone who has died. In accounting inventory is considered an asset. In business management, inventory consists of a list of goods and materials held available in stock. 1. Finished goods (saleable) 2. Work-in-progress (convertible) 3. Material and supplies (consumable)
Table 4.8.3.3-Size of inventory Particulars Raw material W.I.P Finished goods Total Indices 2004-05 3582 13 4424 9110 100.00 2005-06 4182 43 4671 10828 117.74 2006-07 6343 31 6354 15438 169.46
(Rs. In Lakhs) 2007-08 8213 22 15013 26861 294.85 2008-09 14052 113 22963 46959 515.47
Chart 4.8.3.3-Inventory Indices
Inventories Indices
600 515.47
500 400 300

200
294.85 169.46 100

117.74
100
0 2004-05 2005-06 2006-07 2007-08 2008-09
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Inventory components The manufacturing firms inventory consist following components i) Raw material ii) Work- in-progress iii) Finished goods To analyze the level of raw material inventory and work in progress inventory held by the firm on an average it is necessary to examine the efficiency with which the firm converts raw material inventory and work in progress into finished goods. Chart 4.8.3.4-Inventory component
Inventory holding period The reciprocal of inventory turnover gives average inventory holding in percentage term. When the numbers of days in year are divided by inventory turnover, we obtain days of inventory holding (DIH).
Table 4.8.3.4-Inventory holding period Particulars Inventory TOR Days of inventory holding Raw material turnover Raw material holding period 2004-05 2.59 141 5.07 72 2005-06 3.00 122 5.58 65 2006-07 3.54 103 6.31 58 2007-08 3.82 96 6.76 54 2008-09 4.06 90 5.85 62
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Chart 4.8.3.5-Inventory TOR
Chart 4.8.3.6-Inventory Holding
Interpretation Size of inventory of HDO was increasing with the increase the sales. The inventory size was increasing because of increment in the finished goods stock; it indicates that the company reduced the liquidity of finished goods. High inventory turnover ratio is showing that the maximum sales turnover is achieved with the minimum investment in the inventories. Raw
material turnover has reduced in the year 2007-08 it indicates that company are investing more in raw material purchasing; thus raw material holding period has increased in the same year to 62 days from 54 days in the previous year 2008-09. Overall inventory holding period has reduced because of increases in the inventory turnover and sales volume.
4.8.3.3 Management of Cash Cash management, or treasury management, is a marketing term for certain services offered primarily to larger business customers. It may be used to describe all bank accounts (such as checking accounts) provided to businesses of a certain size, but it is more often used to describe specific services such as cash concentration, zero balance accounting, andautomated clearing house facilities. Sometimes, private banking customers are given cash management services. Table 4.8.3.5-Size and indices of Cash in HDO Particulars Cash and bank bal. Indices 2004-05 96.93 100 2005-06 759.64 783.70 2006-07 410.18 423.81 (Rs. In Lakhs) 2007-08 372.02 383.02 2008-09 246.60 254.41
Chart 4.7.3.7-Cash Indices
Cash Indices
900 800 700 600 500 783.7
400
300 200 100 0 100
423.81
383.02 254.41
Cash Indices
2004-05
2005-06
2006-07
2007-08
2008-09
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Cash cycle A metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties.
Also known as "cash cycle".
Calculated as:
CCC = DIO + DSO -DPO
Where: DIO represents days inventory outstanding DSO represents days sales outstanding DPO represents days payable outstanding
Table 4.7.3.6- Cash Cycle (No. Of Days) Particulars 2004-05 2005-06 2006-07 2007-08 2008-09
Inventory Holding Period (+) Acc. receivable Period (-) Acc. payable period Cash cycle
123 155 169 109
128 133 178 83
108 116 122 102
95 107 130 72
95 109 130 74
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Interpretation The size of the cash in the current assets of the company indicates the miss cash management of the company. The cash balance in the year 2005-06 was extremely increased; because of encashment of deposits from schedules bank. Company failed to proper investment of available cash. After the study of cash management it mentioned above it can be conclude that management of cash involve three things: a) Managing cash flow into and out of the firm. b) Managing cash inflow within the firm. c) Financial deficit or investing surpluses cash and thus controlling cash balance at a point of a time. The firm should hold an optimum balance of cash and invest any temporary excess amount in short term marketable securities such as treasury bills, commercial papers, certificates of deposit, bank deposits and inter corporate deposit. The high portion of cash balance in the current assets it adversely affected on profitability of the company as cash is ideal asset; it reduced the working capital leverage.
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4.8.4 Working Capital Finance and Estimation

Sources of working Capital Finance are as follow a) Trade credit b) Bank Finance c) Letter of credit
a) Trade credit Trade credit refers to the credit that a customer gets from suppliers of goods in the normal course of business. The buying firms do not have to pay cash immediately for the purchase made. This deferral of payments is a short term financing called trade credit. It is major source of financing for firm.
b) Bank finance for working capital Banks are main institutional source of working capital finance in India. After trade credit, bank credit is the most important source of financing working capital in India. A banks considers a firms sales and production plane and desirable levels of current assets in determining its working capital requirements.
Forms of bank finance:i. Term Loan ii. Overdraft iii. Cash credit iv. Purchase or discounting of bills
I) Term Loan In this case, the entire amount of assistance is disbursed at one time only, either in cash or the companys account. The loan may be paid repaid in instalments will charged on outstanding balance.
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II) Overdraft In this case, the company is allowed to withdraw in excess of the balance standing in its Bank account. However, a fixed limit is stipulated by the Bank beyond which the company will not able to overdraw the account. Legally, overdraft is a demand assistance given by the bank i.e. bank can ask repayment at any point of time.
III) Cash credit In practice, the operations in cash credit facility are similar to those of those of overdraft facility except the fact that the company need not have a formal current account. Here also a fixed limit is stipulated beyond which the company is not able to withdraw the amount.
IV) Bills purchased / discounted This form of assistance is comparatively of recent origin. This facility enables the company to get the immediate payment against the credit bills / invoice raised by the company. The banks
hold the bills as a security till the payment is made by the customer. The entire amount of bill is not paid to the company. The company gets only the present worth of amount of bill from of discount charges. On maturity, bank collects the full amount of bill from the customer.
3) Letter of credit
A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase .
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Table 4.8.4.1-Working capital loan and interest Particulars Working capital term loan from Banks Consortium of banks Working capital demand loan Foreign Currency demand Loan Cash credit account Export packaging credit Foreign bill discounted from Bank Letter of credit Total Interest on working Capital 5482 -6094 587 431 728 21474 1801 1919 4965 3848 1398 1518 -21270 2060 905 5383 1589 6736 494 -18634 1947 359 4451 4579 11907 --23966 1960 728 5286 5952 19655 --33588 3549 2004-05 2005-06 8152 7622 2006-07 3527 (Rs. In Lakhs) 2007-08 2008-09 2670 1967
Chart 4.8.4.1-Working capital loan
40000 35000 30000 25000 20000 23966 21474 33588
21270
18634
15000 10000 5000

0 2004-05 2005-06
2006-07
2007-08
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2008-09
Chart 4.8.4.2-Interest on working capital
4000 3500 3000 2500 2000 1500 1000 500 0

Interpretation
35
1801
2060
1947
1960
2004-05 2005-06 2006-07 2007-08 2008-09
HDO takes huge working capital loan to fulfil the requirement of working capital, thus company had paid huge amount of interest on working capital loan. Company raised the funds for working capital through term loan from bank, and working capital loan from consortium of banks. HDO ltd. also used cash credit account but cash credit is not cost free source of working capital because it involves implicit cost. The supplier extending trade credit incurs cost in the form of opportunity cost of funds invested in accounts receivable. The annual opportunity cost of forgoing cash discount can be very high. Therefore HDO Ltd. should compare the opportunity cost of trade credit with the cost of other sources of credit while making its financial decisions.
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4.8.4.3 Estimation of working capital After considering the various factors affecting the working capital needs, it is necessary to forecast the working capital requirements. For this purpose, first of all estimate of all current assets should be made, these should be followed by the estimation of all current liabilities. Difference between the estimated current assets and estimated current liabilities will represent the working capital requirements. The estimation of working capital requirement of HDO Ltd. Is based on few assumptions such as follows. 1. Gross sales will increase by 40% 2. Receivables collection period will be 90 day as per standards fixed by company. 3. Unnecessary balance of Cash may reduce by finance management. 4. For working capital finance company can use maximum trade credit. 5. Inventory holding period can be 60 days instead of present 95 days. Table 4.7.4.2-Estimation of the working capital For the year 2008-09 for HDO LTD. Particulars A) Current assets Inventories (Holding Period 60 Days) Sundry Debtors (Average collection period 90 Days) Cash & Bank Balance Other Assets Loan & Advances Total of A (Gross W.C.) B) Current liabilities Current liabilities(40 % increment ) Provisions ( 40 % increment) Total of B Net W.C.(A-B)(Estimated) 60484 4632 65116 58613 40254 50921 5666 1345 25543 123729 Estimated Amt. Rs. in lakhs.
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Interpretation HDO ltd has good credit in the market because it is No. 1 EPC Company and at 1st position in Asia. Company took benefit of such position to raise the funds for working capital finance. In the year 2004-53 term loan from bank was the major source of finance, but it reduced by 75% it indicate that company changed the finance policy to get benefit sources like term credit (export package credit) which is not directly affect on cost of finance. In the year 2004-05 company used letter of credit but after that company not used such facility from third person, company start own offices in foreign country to transactions. Company required such huge amount for working capital finance because liquidity of the company locked in debtors. Company had around 50 % receivables account of total current assets. Company fixed normal collection period of 90 days, but collection system of the company was not able to collection from debtors within credit term. Company has receivable but not liquidity to payment of creditors thus company took cash credit and credit term, which increased the interest on working capital finance by around 96% from year 2005 to year end 2009. Cash management of the company is more conservative thus company carry huge amount in terms of liquid assets.
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4.9 Finding
Working capital management is important aspect of financial management. The study of working capital management of HDO ltd. has revealed that the current ration was as per the standard industrial practice but the liquidity position of the company showed an increasing trend. Working capital increased because of increment in the current assets is more than increase in the current liabilities. Positive working capital indicates that company has the ability of payments of short terms liabilities. Working capital of the company was increasing and showing positive working capital per year. It shows good liquidity position. Companys current assets were always more than requirement it affect on profitability of the company. Current assets are more than current liabilities indicate that company used long term funds for short term requirement, where long term funds are most costly then short term funds. Current assets components shows sundry debtors were the major part in current assets it shows that the inefficient receivables collection management. Operating cycle show no. of days decrease in recent year reflects the efficiency of management. High Working capital turnover ratio indicates capability of organization to achieve maximum sales within minimum investment. In the year 2008-09 working capital decreased because of increased the expenses as manufacturing expenses and increase the price of raw material as increased in the inflation rate. Inventory was supporting to sales, thus inventory turnover ratio was increasing, but company increased the raw material holding period. Study of the cash management of the company shows that company lost control on cash management in the year 2007-08, where cash came from fixed deposits, company failed to make proper investment of available cash.
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4.10 Suggestion:
Company should raise funds through short term sources for short term requirement of funds, which comparatively economical as compare to long term funds. Company should take control on debtors collection period which is major part of current assets. Company has to take control on cash balance because cash is non earning assets and increasing cost of funds. Company should reduce the inventory holding period with use of zero inventory concepts.
4.11 Conclusion:
Over all company has good liquidity position and sufficient funds to repayment of liabilities. Company has accepted conservative financial policy and thus maintaining more current assets balance. Any change in the working capital will have an effect on a business's cash flows. A positive change in working capital indicates that the business has paid out cash. Hence, an increase in working capital will have a negative effect on the business's cash holding. Cash is king, especially at a time when fund raising is harder than ever. Analyzing a company's working capital can provide excellent insight into how well a company handles its cash, and whether it is likely to have any on hand to fund growth and contribute to shareholder value.
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4.12 Bibliography
Review I.M.Pandey Vikas Publishing House Ltd. 9th Edition Prasanna Chandra TATA McGROW HILL 7th Edition M.Y. Khan and P.K. Jain, Financial management Vikas Publishing house Ltd.,
Website www.hdo.in www.moneycontrol.com www.googlefinance.com www.investopedia.com

www.investorsword.com www.accountingformanagement.com en.wikipedia.org
Search Engine www.google.com

www.yahoo.co.in
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5.1 Balance sheet of HDO as on 31st March
Particulars
Sources Of Funds Shareholders' funds Share Capital Stock Options Share Application Money Reserves & Surplus Loan Funds Secured Loan Unsecured Loan Deferred Tax Liability (Net) TOTAL Application Of Funds Fixed Assets Gross Block Less: Depreciation Net Block Add: Capital Work-in-Progress (Including Capital Advances) Investments Net Deferred Tax Assets Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Other Current Assets Loans and Advances Less: Current Liabilities & Provisions Liabilities Provisions Net Current Assets TOTAL
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
72.00 ----1681.48
72 5.71 --1422.64
72 ----1225.07
58 --6.4 1057.88
42.3 ----534.46
155.70 --9.47 1918.65
407.19 ----1907.55
------1297.07
341.54 ----1463.82
76.53 57.17 --710.46
919.70 258.61 661.10 21.52
623.95 225.54 398.41 33.74
538.25 199.89 338.36 14.94
499.26 184.78 314.47 4.4
466.27 206.68 259.59 ---
17.02 ---
34.92 2.01
17.18 6.05
16.52 8.58
20.06 5.33
311.48 1556.19 246.60 1955.70 891.87
469.1 1169.14 372.02 1338.44 389.75
122.11 1025.37 410.18 688.03 262.38
86.38 308.87 759.64 507.78 71.51
90.45 378.76 96.93 419.51 93.97
3682.30 60.53 1219.01 1918.65
2258.85 41.13 1438.47 1907.55
1551.48 36.05 920.54 1297.07
590.62 23.7 1119.85 1463.82
629.45 24.68 425.48 710.46
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5.2 Profit and Loss account of HDO on 31st March

Particulars Mar-09 Mar-08 Mar-07 Mar-06 Mar-05
Income Income from Sales and Services Net Sales Other Income TOTAL Expenditure Cost of Sales and Services (Increase) / Decrease in Inventories Operating and Administrative Expenses Interest and Finance Charges Depreciation / Amortisation Less: Transfer from Revaluation Reserve TOTAL Profit for the year before Taxation Provision for Taxation Current Tax Deferred Tax Fringe Benefit Tax Tax Adjustments for earlier years Profit for the year before Taxation Balance brought forward from previous year Balance available for appropriation Appropriations Proposed Dividend Corporate Dividend Tax Transfer to General Reserve Balance carried to Balance Sheet Basic Earnings Per Share (in Rupees) 36.00 6.12 180.00 341.03 8.38 21.6 3.67 120 261.56 6.29 18 3.06 70 180.47 4.32 11.6 1.63 20 118 13.06 85 5.08 0.66 2 86.49 2.64 563.16 406.83 271.53 151.23 94.23 146.33 11.48 3.94 3.48 301.60 261.56 105 4.04 2.98 0.56 226.36 180.47 63.3 3.53 2.1 -8.77 153.53 118 13 -0.2 2.09 -6 64.74 86.49 9 0.26 ----11.17 83.06 4736.03 466.83 2771.61 338.94 1922.27 213.69 1364.94 73.83 847.43 20.43 4121.56 -37.26 537.90 79.97 34.49 0.64 2423.68 -33.81 319.53 38.23 27.5 3.51 1640.49 -1.14 259.63 7.54 19.41 3.65 1129.56 21.17 200.75 6.01 11.15 3.71 643.01 -14.45 194.25 19.85 8.49 3.71 5222.55 5133.22 69.64 5202.86 3103.52 3050.70 59.85 3110.55 2145.93 2085.10 50.86 2135.96 1456.49 1414.08 24.69 1438.77 862.73 838.10 29.76 867.86
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A Project Report On

At HINDUSTAN DORR OLIVER LTD, Ahmedabad Institution

Submitted to Gujarat Technological University - Ahmedabad

Prepared By: Rashmi C Limbola

K.K. Parekh Institute of Management Studies

M.B.A. Sem. II, Seat No. B 013905

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

K. K. Parekh Institute of Management Student Amreli

Director K.K. Parekh Institute of Management Studies 4

K.K. Parekh Institute of Management Studies

Place: _____________________ K.K.P.I.M.S. Amreli

Submitted by: Rashmi C. Limbola

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

Fertilizers & Chemicals

K.K. Parekh Institute of Management Studies

Pulp and Paper

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

2.1 Introduction of HDO LTD.

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

2.4 Manufacturing Facility

company IVRCL Infrastructures & Projects Ltd.

2.5 Product Range

Diesel Product MP Steam Generator

Waste Heat Reboiler

TAIL Gas Preheater

Splitter Thermo Siphon Reboiler

K.K. Parekh Institute of Management Studies

2.6 Certifications & Approvals

2.7 Board of Directors

K.K. Parekh Institute of Management Studies

Registrar and Transfer Agents

K.K. Parekh Institute of Management Studies

2.8 Organization chart of HINDUSTAN DORR OLLIVER LTD.

2.9 MAN POWER AT HDO LTD.

K.K. Parekh Institute of Management Studies

2.10 PRODUCT RANGE OF HDO LTD.

2.11 CUSTOMERS OF HDO LTD.

K.K. Parekh Institute of Management Studies

CUSTOMERS OF HDO Outside India

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

3.1.1 Objective of Finance Department at HDO Ltd.

3.1.2 Function of finance department at HDO LTD.

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

1.The needs of the organisation. 2. The needs of its people.

3.2.1 Training and development

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3.2.2 Objective of Human Resource Department at HDO LTD.

3.2.3 Function of Human Resource Department at HDO LTD.

K.K. Parekh Institute of Management Studies

K.K. Parekh Institute of Management Studies

3.3.1 Marketing Strategy at HDO LTD.

K.K. Parekh Institute of Management Studies