BHARAT HEAVY ELECTRICALS LIMITED

In the post independence era when India was moving towards

industrialization, the thrust by the government was in the core
sector. With this objective BHARAT HEAVY ELECTRICALS
LIMITED was setup in Bhopal in August 1956, with a view to
reach self sufficiency in industrial products and power equipments.
This plan was setup under collaboration of M/s. AEJ, U.K.

Now more plants were setup at Tiruchy, Hyderabad and

Haridwar with Czechoslovakian and Soviet Union assistance in
May 1956, Dec. 1965, Jan. 1967 respectively. Today B.H.E.L. has
become the largest engineering plant employing managing
approximately 72000 employees. Its headquarters are located at
Delhi.

B.H.E.L. is the largest engineering and manufacturing

enterprise in India in the energy/infrastructure sector, today.
B.H.E.L. was established more than forty years ago ushering in the
indigenous heavy electrical equipments industry in India a dream
that has been more than realized with a well-recognized track
record of performance. It has been earning profits since 1971-72
and paying dividends since 1976-77.

B.H.E.L. manufactures over 180 products under thirty major

product groups and caters to core sectors of the Indian Economy
viz., Power Generation and Transmission, Industry,
Transportation, Telecommunication, Renewable Energy, etc. The
wide network of B.H.E.L.’s fourteen manufacturing divisions, four
power sector regional centers, over hundred project sites, eight
service centers and eighteen regional offices, enables the company
to promptly serve its customers and provide them with suitable
products efficiently and at competitive prices.

The quality and reliability of its products is due to the

emphasis on design, engineering and manufacturing to
international standards by acquiring and adapting some of the best
technologies from leading companies in the world, together with
technologies developed in its own R&D centers.

B.H.E.L. has acquired certifications to Quality Management

Systems- ISO 9001, Environmental Management Systems-ISO
14001 and Occupational Health and Safety Management Systems-
OHSAS 18001 and has also adopted the concepts of Total Quality
Management.
 B.H.E.L. has installed equipment for over 90,000 MW of
power generation- for Utilities, Captive, and Industrial users. It
supplied over 2,25,000 MVA transformer capacity and sustained
equipment operating in transmission and distribution network up to
400 KV- AC & DC.

It supplied over 25,000 motors with Drive Control System to

power projects, petrochemicals, refineries, steel, aluminum,
fertilizer, cement plants, etc. It also supplied traction electrics and
AC/DC locos to power over 12,000 Km railway network. Supplied
over one million valves to power plants and other industries.

B.H.E.L.’s operations are organized around three business

sectors, namely Power Industry including Transmission,
Transportation, Telecommunication and Renewable Energy and
Overseas Business. This enables B.H.E.L. to have a strong
customer orientation, to be sensitive to his needs and respond
quickly to the changes in the market.

B.H.E.L.’s vision is to become a world class engineering

enterprise, committed to enhance stakeholder value. The company
is striving to give shape to its aspirations and fulfill the
expectations as a Navratna Company.

The greatest strength of B.H.E.L. is its highly skilled and

committed 44,000 employees. Every employee is given an equal
opportunity to develop himself and improve his position.
Continuous training and retaining, career planning, a positive work
culture and participative style of management have engendered
development of a committed and motivated work force leading to
enhanced productivity and higher levels of quality.

BHEL OBJECTIVE

A dynamic is one its aim high adopts itself quickly to changing

environment. So here we are in BHEL.

Business mission
To be a leading engineering enterprises providing quality product,
systems and services in the field of energy, transportation,
industry, infrastructure, and their potential areas

Growth

To ensure steady growth by enhancing the competitive edge of

BHEL in existing, new areas and international operations so as to
fulfill national expectation for BHEL.

Profitability

To provide a reasonable and adequate return on capital employed,

primarily through improvement in operational efficiency, capacity
utilization and productivity and generate adequate internal
resources to finance the company’s growth.

Customer Focus

To build a high degree of customer confidence by providing

increased value for his money through international standards of
product performance superior customer service.

People Orientation

To enable each employee to achieve his potential, improve

his capabilities, perceive his role and responsibilities and
participate and contribute to the growth and success of the
company, to invest in human resources continuously and be alive
to their needs.

Technology

To achieve technological excellence in operations by

development of indigenous technologies and efficient absorption
and provide competitive advantage to the company.

Image

To fulfill the expectations which stakeholders like

government as owner, employees, customers and the country at
large have from B.H.E.L.
 MANUFACTURING UNITS OF
B.H.E.L.

First Generation Units

BHOPAL Heavy Electrical Plant

HARDWAR Heavy Electrical Equipment Plant

HYDERABAD Heavy Electrical Power Equipment

Plant

TIRUCHY High Pressure Boiler Plant

Second Generation Units

JHANSI Transformer and Locomotive Plant

HARDWAR Central Foundry and Forge Plant

TIRUCHY Seamless Steel Tube Plant

Unit Through Acquisition and Merger

BANGALORE Electronic Electro Porcelain Division

New Manufacturing Units

RANIPAT Boiler Auxiliaries Plant

JAGDISHPUR Insulator Plant

RUDRAPUR Component and Fabrication Plant

BANGALORE Industrial System Group

BHARAT HEAVY ELECTRICALS LIMITED, JHANSI

I. A Brief Introduction

By the end of five year plan it was envisaged by the

planning commission that the demand for power transformer
would raise in the coming years. Anticipating the country’s
requirement B.H.E.L. decided to set up a plant which would
manufacture power and other type of transformer in addition to he
capacity available at B.H.E.L. Bhopal. The Bhopal plant was
engaged in manufacturing of transformer of large rating and Jhansi
unit would concentrate on power transformer like instrument
transformer, traction transformer for railway etc.

This unit of Jhansi was established around 14 Km from the

city on the NHNO 26 on Jhansi Lalitpur Road. It was called
second generation plant of B.H.E.L. set up in 1974 at an estimated
cost of Rs. 16.22 crores inclusive of Rs. 2.1 crores for township. Its
foundation was laid by Late Mrs. Indira Gandhi, the prime minister
on 9th Jan. 1974. The commercial production of the unit began in
1976-77 with an output of Rs. 53 lacks since then there has been
no looking back for B.H.E.L. Jhansi.

This plant of BHEL is equipped with the most modern

manufacturing processing and testing facilities for the manufacture
of power, special transformer and instrument transformers.

Diesel shunting locomotive and AC/DC locomotive. The layout of

the plant is such that it is well streamlined to enable smooth
material flow from the raw material stages to finished goods. All
the feeders bays have been laid perpendicular to main assembly
bay and in each feeder bay raw material smoothly gets converted
to subassemblies, which after inspection are sent to main assembly
bay.

The material that is needed for maintenance is used only after

through material testing in the testing lab and with strict quality
checks at various stages of productions. This unit BHEL is
basically engaged in the production and manufacture of
transformer of various type and capacities. with the growing
competition in the transformer section in 1985-88 it under took the
re powering of DSNL.
 THE PRODUCT PROFILE OF B.H.E.L., JHANSI

1. Power Transformer Up to 220 KV Class 250

MVA
 2. Special Transformer Up to 110 KVA
3. ESP Transformer 1000 KVA
4. Freight Loco Transformer 3900-5400

KVA&6500KVA (3 Phase)

5. ACEMU Transformer Up to 1000 KVA 25 KV

(1Phase)

6. Dry Type Transformer Up to 3150 KVA

7. Bus duct Up to 15.75
KVA(Generating

Voltage)

8. Instrument Transformer VT and CT Up to 220 KV

9. Diesel Electric Locomotive Up to 2600 HP
10. AC/DC Locomotive Up to 5000 HP(25
KV

AC/1500V DC)

11. Well Wagon 200Tone

12. Over Head Equipment Cum Test Car
13. Dynamic Track Stabilizer
14. Ballast Cleaning Machine
GROWTH OF PRODUCTION AND MILESTONES
OF

BHEL JHANSI UNIT

YEAR MILESTONES

1976-77 Start of Instrument Transformer Production

1977-78 Start of Traction Transformer and Power

Transformer (Up To132 KV)

1978-79 Start of HFTT type freight Locomotive

1979-80 Commissioning of 2,500 KV DG Set (due to

Server power cuts)

1980-81 Start of ESP Transformer

1981-82 Start of 220 KV Power Transformers

1982-83 Achieve Break Even

1983-84 Start of Bus duct

1984-85 Start of Dry Type Transformer

1985-86 Re powering of Diesel Locomotive Started

1986-87 Start of Diesel Locomotive Started

1987-88 Manufacturing Facilities for AC Locomotive

1988-89 Crossed Core Target

1990-91 Successful Design and Manufacturing of

400 HP 3 Axel Diesel CCI

1991-92 Manufacture of First 2600 HP Diesel for NTPC

1992-93 Successful Design and Development of

5000 HP Thruster Control Locomotive

1993-94 Unit has been Awarded ISO-19001

Certificate for Quality Systems

1994-95 240 MVA Power Transformer Produced

First Time

1995-96 AC/DC Locomotives first time in India

1996-97 Hundredth Locomotive Manufactured

1997-98 250 MVA Transformer Produced First

1998-99 Developed Over Head Equipment cum Test

Car

1999-00 Diesel Hydraulic Shunting

PRODUCTION UNIT DEPARTMENTS

FABRICATION (BAY-0, 1, 2)

Fabrication shop is the shop which deals with the manufacturing of

transformer and locomotive components such as Tanks, Plates,
Nuts and Bolts. Fabrication shop is divided into three parts-

 BAY-0

 BAY-1
  BAY-2

BAY-(0,1, 2)

These are fabrication shops established in 1978 and mainly deal

with fabrication with fabrication work of transformers and
locomotive.

BAY-3

It is split in two parts, half is consist of machine shop and the other
half is consist of winding of dry type transformer. bus duct are
used to transformer electricity from the generator to the
transformer.

BAY–4

Here winding work of the power transformer& dry type

transformer is carried out.

BAY–5
 It is core and punch section but in a part of it cast resin coil
encapsulation plant is situated. The coils of dry type transformer
are casted , cut and finally prepared.

BAY-6

It is also engaged in two processes one half is the traction transfer

assembly

BAY–7

In this bay various types of insulation are prepared which is to be

used in transformers.

BAY–8

This bay was established in the year 1974. it is one of the earliest
bay to setup . it involved in the manufacturing of instruments
transformer like 132KV and 220KV voltage/ current transformer.
ESP transformer is also manufactured here.
BAY–9

This is one of the largest bay in the unit engaged in the assembly of
power and rectifier transformer. The time taken for assembly
ranges from 4-12 weeks.

TRANSFORMER COMMERCIAL (TRC)

The objective of this department is to interact with the customers.

It brings out tenders arid notices and also responds to them. It is
department that places the contracts of building the transformer
and after delivery further interacts with the customer regarding
faults, failure and maintenance is done by this department. All such
snags are reported to them and they forward the information to the
concerning department.

The works of the commercial department are:

 Tenders and notices

 Interaction with design department

 Place of work

 Approximate cost of the work

  Earnest money

 Place and time where contract document can be

seen.

 Amount if any to be paid for such document

TENDERS AND NOTICES:

The department response to the tenders calls of companies or

organization which requires transformer. Contracts are bagged
through negotiations.

The department also invites tenders and notices. Before inviting

tenders it must be sure that BHEL is ready to undertake the
contract and before full knowledge of scope of work is essential.

TESTING

TRANSFORMER TESTING

In this shop testing on the transformer is carried out in one section

and for loco in other section. In transformer testing section there
are for MG. sets. The electrical specification of the entire test is
already given. These tests are done on demand of customer on
transformer manufactured, in this unit there are basically of test.

TRANSFORMER ENGINEERING (TRE)

The transformer manufactured in BHEL Jhansi range from the

10MVA to 240MVA and up to 200 KV. The various transformers
manufactured in this unit.

TECHNOLOGY

This department analyses the changes tacking place in the world

and suggest changes accordingly. This is very important because
the product must not get obsolete in the market otherwise they
will be rejected by customer.

BUS DUCT

Bus duct is used as connection between generators and

transformer. Bus duct are used in power connection over 150 M V.
The question now arise that why are bus duct preferred over
normal conductors. In high power application, insulations are the
major problems and frequent insulation breakdown occurs. If this
does happens then possibility of shorting of conductor’s and hence
serious damage may occur to both transformer and generators.

It have also the separate department BUS DUCT

COMMERCIAL

LOCOMOTIVE

A locomotive is a rail vehicle that provides the motive power for a

train.

“Loco” means from a place

“Motive” means causing motion.

A locomotive has no payload capacity of its own. It is used to

move a train.

STORE

There are separate stores for different type of material in the BHEL
newly technique has been put name provincial inventory means
continuation of maintains inventory.

There are three sections in store;

  Control Receiving Section

 Custody Section
 Scrap Disposal Section

Functions: A list of material coming in store is prepared and

Quality Control people are called for inspection. If material is
found as par standard SRV (Store Receipt Voucher) is issued for
each material. A total of 08 SVR’s are prepared. Some materials
such as Silicon oil, Transformer oil, insulating material etc are
directly stored in the Bays.

Scraps are also sold through that unit by a MATERIAL SCRAP

TRADING –DELHI

CENTRAL QUALITY SERVICE

First we get acquainted with a few terms concerning this

department.
Quality: It is the extent to which product and service satisfy the
customer needs.

Quality assurance: All those plants and systematic action

necessary to provide adequate confidence that the product or the
service will satisfy the given requirement is called quality
assurance.

Quality control: Activity such as measuring testing, gauging

one or more characteristics of product or service and comparing
these with specified requirement to determine conformity are
termed quality section.
WORK ENGINEERING AND SERVICES (WE&S)
As the name suggest this section deals with services and
maintenance.

It has following Sections:

 Plant Equipment: This has electronics and

electrical/mechanical maintenance.

 Services: This section deals with air, steam and power

equipments.

 Telephone Exchange:

 Township Electrical Maintenance:

 WE & S Planning
 This section deals with stores and new machines
procurement and others general things. There are three
maintenance centers at Bay 2, Substation and LOCO.

FINANCE DEPARTMENT OF
BHEL

JHANSI UNIT
 FINANCE DEPARTMENTS IN BHEL JHANSI

The finance department is very broad in that unit and has also
many sub department under finance department

 Administration

 Pay

 Sales and sales bill

  Cash , P.F , T.A

 P.S.L,

 Costing

 Budget & books

 Miscellaneous expenses

 Price bill

ADMINISTRATION

In this section main focus is to manage the functions of finance

section. And to provide the facility to employee working in
department.

PAY

In this section they credit the salary on every months 25th the salary
calculate under that date 15th of a month up to 14th of next month for
crediting the salary in there in 2 modes

1) CASH
 2) BANK

To prepare salary accounts section needed some data

1) staff no

2) Master data

3) Attendance

4) Any bill remaining like medical bill, convance bill

SALES & SUPPLY BILL

It include all sales made in an organization that process started

when accounts section gets purchase order SRV’s bills from
supplier

Terms of payment of three kinds

1) 10% in advance payment

2) 100% after receipt and acceptance

3) Partial advance and the remaining after receipt and

acceptance.

In case of foreign purchase a license is required from DGTD

This license is of 2 types

1) Quantity base

2) Value base

Value base license changes according to change in market

variation but quantity base are fixed for appropriate quantity

BHEL have quantity base license

CASH, P.F, T.A

This section is responsible for banking of all the money worth

received by the customer and disbursement of all authorized
payment on the behalf of the company to suppliers, contractors in
the form of cheque, cash, drafts, postal orders etc.

Cash section prepares these statements for management

information

DAILY-CASHFLOW >DAILY COLLECTION OF CASH

WEEKLY-CASH INFLOW > OUTFLOW – DURING WEEK

Cash flow forecast foe 3 months

Operating result statement

Statement of outstanding letter of credit & bank guarantee

Daily bank transfers statement.

P.F stands for provident fund that was that was started from 1952
the rate of interest decided by time to time rate of reduction is
8.33%-12% that whole amount get by employee at the time of
retirement P.F includes same contribution of employee as well as
company.

T.A stands travel allowance in this section all convences of tours

and travel company runs two things under this

 L.T.C Leave travel concession

 L.T.A Leave travel assistance

 In this section also check whether paper are appropriate or

not

 To check whether the claim is according to company rules

or not

PSL

PSL stands for price store ledger through this we get a current
status of material in the market the we calculate cost of a product
and offer product to a customer some terms comes under this are as
follows
SRV- Store receipt voucher

MIV- Material issue voucher

SRN- Store return note

MTV- Material transfer note

RCDV- Receipt cum dispatch voucher

SIV – Store issue voucher

DIV- direct material issue voucher

PSL’s monthly information report are prepared &sent to different

HOD’s and users.

In the MIR 1.1 details regarding

1. Reciept issue

2. Direct & Indirect material

3. Suspence balance status

4. Non-moving & slow moving items

COST SECTION

This section is responsible for calculating the cost incurred over a

product and some expanses like
 1) Material cost

2) Labour cost

3) Direct expanses

4) Overhead

Material cost calculate through that data like

Material cost = MIV* PSL

MIV collect from store and PSL check regularly another

department

Labour cost calculates through collecting labors number on

particular job there respective rate and the coast of job.

Predetermined overhead matters in it also known as budget shop

wise they calculate all expenses according to total job.

MISCELLANEOUS EXPENSES

This section deals with miscellaneous expenses which are out of

routine work like payment of contract worker, gifts.
BOOKS AND BUDGET

Budget section deals to with preparing revenue and capital budget

and to match all predetermined cost with its actual by which
regularly maintain balanced nature in organization. Budget is a
coordinating agency that provides as a interface with other units as
well as corporate.

Books section deals with maintains books of accounts regularly by

which they keep records for future. This section also check whole
recording of books as per company law act minimum 8 years they
have to maintain.

PRICE BILL

This section is new section in this unit which checks SRV pricing
on the basis of P.O purchase order according to there terms and
conditions approximately 12000 SRV’s processed under this
section.
INTRODUCTION OF WORKING CAPITAL
MANAGEMENT
“Working capital refers to firm investment in short term assets-
cash. Short term securities, accounts receivable & inventories.”

-Weston &
Brigham

Working capital can be classified regularly on its requirement.

There are two concepts of working capital

1) Gross working capital

2) Net working capital

GROSS WORKING CAPITAL

Gross working capital may be defined as a firm’s investment in

current assets. Current assets are the assets which can be converted
into cash with in an year and include cash, short term securities,
debtors (accounts receivable or book debts) bill receivable and
stock.

The gross working capital concept works over two aspects of

current assets management.

1) Optimum investment in current assets

2) Financing of current assets
NET WORKING CAPITAL

Net working capital refers to the difference between current assets

and current liabilities. Current liabilities are those claims of
outsiders which are expected to mature for payment within a year
and include creditors, bills payable and outstanding expenses

Net working capital may be negative or may be positive.

OPERATING CYCLE

Operating cycle involved in the conversion of sales into cash.

Operating cycle is the time duration required to convert sales.
After the conversion of resources into inventories into cash

Operating cycle of a manufacturing company involves three phases

1) Acquisition of resources

2) Manufacture of goods

3) Sale of the product

 It is clear that working capital is required because of the time gap
between the sales and their actual realization in cash. This time gap
is technically termed as “operating cycle” of the business.
Funds required investing in inventories; debtors and other current
assets keep on changing shape and volume. Like a company has
some cash in the beginning. This cash may be to the suppliers of
raw material to meet labor costs and other overheads. These three
combined would generate WIP, which will be converted into
finished goods on the completion of the production process. On
sale these finished goods gets converted into debtors and debtors
pay, the firm will again have cash. This cash will again used for
financing raw material, WIP,etc. Thus, there is a complete cycle
The Cash Cycle
when cash gets converted into raw material, WIP, finished goods,
After
debtors and finally again cash.
analyzing Understand
requirement Stock credit
s well terms

Reorder Sales

Keep
Cash sale
Supplier Payment count
s
Understanding Inventory management and control
is important
In case of manufacturing company, the operating cycle is the
length of time necessary to complete the following cycle of events:
(1) Conversion of cash into raw materials;
(2) Conversion of raw materials into work-in-process;

(3) Conversion of work-in-process into finished goods;

(4) Conversion of finished goods into accounts receivable, and

(5) Conversion of accounts receivable into cash.

The operation cycle of manufacturing business can be show as in

the following chart.

OBJECTIVE OF WORKING CAPITAL

MANAGEMENT
The basic objective of working capital is to provide adequate
support of the smooth functioning of normal business operation of
a company. The term adequate working capital is subjective
depending on management‘s attitude towards uncertainty/ risk.

1. Maintenance of working capital.

2. Availability of ample fund at the time of need.

SAFTEY LIQUIDITY PROFITABILITY

CREDIT MGMT BANK MGMT

MINIMIZE TIME MINIMIZE TIME

EXCESS
CAS ACCT PAYBLE
ACCT RECEIVABLE
H MGMT
MGMT
OPTIMIZE TIME
MINIMIZE TIME

MEDIA
 Goals of working capital management

BALANCED WORKING CAPITAL

The firm should maintain a sound working capital position there
two cases one is excessive and inadequate working capital
positions. Excessive working capital means holding cost and idle
funds which earn no profits for the firm.

Dangers facts of excessive working capital

 Unnecessary accumulation of inventories.

 Defective credit policy and slack collection period.
 There is managerial efficiency degeneracy

Inadequate working capital is also dangerous because it interrupt

production

Dangers facts of inadequate working capital

 Stagnates growth it becomes difficult for the firm to

undertake profitable projects
 It becomes difficult to implement operating plans
 If operating efficiencies affected so it is difficult to meet day
to day need
  Fixed assets are not efficiently utilized
 Firm loses their reputation in front of customer and society

An enlightenment management should maintain the right amount

of working capital on a continuous basis. A firm’s net working
capital position is not only important as index liquidity but it is
also as measure the firm’s risk.

GUIDELINES AND SOUCES OF FUNDS FOR

WORKING
CAPITAL REQUIREMENT OF BHEL
 1. CASH CREDIT FROM BANKS
The requirements of working capital will be met either from
internal resources or borrowings from banks. All the banking
transactions have been centralized at corporate office, New
Delhi. The corporate office will negotiate with consortium of
banks for total cash credit required for the company as a whole.

2. WORKING CAPITAL LOAN FROM GOVT

The funds for working capital over and above cash credit
limits may also be

Arranged through government loans.

3. RECEIPTS FROM CUSTOMERS

The bulk of the working capital requirement are met from the
advances from the customers in accordance with the contract
conditions as approved by the board. The receipt are deposited
in the centralized account.

4. FIXED DEPOSITS FROM MEMBERS OF PUBLIC

 Subject to the approval of the govt and board of director, the
funds may be raised from public by obtaining fixed deposit
under the provisions of the company rules to meet the working
capital requirements of the company.

5. PROVISIONS OF THE FUNDS FOR SITE OFFICES

Funds required to site offices will be provided by divisions
under which they are functioning and for the purpose. Current
accounts will be authorized to be opened with branches of SBI
or any other nationalized bank.

6. OTHER SOURCES OF FUNDS

a) Bill rediscounting scheme of IDBI:
The scheme was introduced in 1965. The
manufacturer of indigenous Capital equipment can push up
the sales of their products by offering the prospective
purchaser deferred payments facilities. The IDBI does

not itself discount bill of exchange but rediscount those

discounted by any

other approved bankers.

b) Bill market scheme
RBI providing rediscounting facility for bills having
maturity of not more then 120 days introduced in the
scheme. This facility enables the

Supplier to get the payments for their supplies at a reduced

rate of interest.
CASH MANAGEMENT

Cash is the important current assets for the operation s of the

business. Cash is the money which a firm can disburse
immediately without any restriction.

Cash management is concerned with the managing of

1) Cash flows into and out of the firm.

2) Cash flows within the firm
3) Cash balances held by the firm at appoint of time by
financing deficit or investing surplus cash.
CASH MANGEMENT CYCLE

Error: Reference source not found

MOTIVES FOR HOLDING CASH

 Transaction motive - transaction motive requires a firm to

hold cash to conduct its business in the ordinary course.
 Precautionary motive – precautionary motive is the need to
hold cash to meet contingencies in the future.
 Speculative motive - speculative motive relates to the holding
of cash for investing in profit making opportunities as and
when they arise.

TECHNIQUE TO MANAGE CASH

 Cash planning
 Cash forecasting & budgeting
CASH MANANGEMENT IN BHEL Jhansi

In BHEL, the centralized cash credit system id followed.

From 24-07-75 all the banking transaction of the company have
been centralized at corporate office at Delhi. Under this system all
the sales proceeds of the units are deposited in a centralized
account. This account number is universal for all units at ROD’s.
They have to deposit the sales the process if this account
withdraws money from it. Only corporate office operate it.

For meeting day to day expenses, the units have to prepare

the estimates of such expenses, which are then sent to corporate
office weekly or monthly, or both. At unit level, the cash budget is
prepared on yearly basis for estimating the expected cash inflows
and cash outflows. The inflows and outflows are estimated on
following basis.

The only source of cash inflow for units is the corporate

office. The sale proceeds cannot be directly utilized. Based in the
above requisition, the corporate office allocate the funds.

For cash credit corporate office will negotiate with

consortium of banks for total cash credit required for the company
a a whole. A consortium deed for hypothecation of stocks and
stores of company is executed by corporate office. All the
information, documents etc required in this connection will be
called for by corporate office from the division.

Arrangement have already been made with state bank of India ,

HDFC bank, canara bank, Bank of Baroda for centralizing cash
credit limit at Delhi.

Under this scheme, the units have furnished the required

information inder the following document. The units will send
estimated, monthly cash flow statement to the corporate office by
18th of every month.
 Based on these cash flow statement the corporate office will
allocate the sub limits will be transferred to the consortium of
banks by 25th of the month the units can utilize this fund.

The actual cash flow statement will be sending to corporate

office monthly, 1st of succeeding month.

The units are also required to send the weekly report of daily bank
transaction, to the corporate office. These reports show the details
of daily.

Debit and credit transaction appearing in bankbooks of the

company, enabling the posting of corporate bankbooks as well as
verification of bank statement received from bank. These report are
send to corporate office on –

1st (showing the transaction from 25th to 30th )

8th (showing the transaction from 1st to 7th of current

month )

16th (showing the transaction from 8thto 15thof the current

month )

25th (showing the transaction from 16th to 21st if current

month )
The units are required to send the comparative statement of
estimated and annual cash flow of the proceeding month. This
report will be sent quarterly after inter unit reconciliation meeting.
The total interest payable on cash credit availed by corporate office
is to be allocated among the units in the ratio of utilization of
funds. Thus cash forecast & budget are the principle tools of cash
management. Forcasting helps manger to know how much cash
will be held in balance, to what extent the firms should rely on
bank financing and how to invest in marketable securities.

ADVATAGES OF CENTRALISED SYESTEM

 Excess cash at various units can be efficiently used for

various purposes and improvement.
 Deficit of cash at various units can be sorted out through
centralized cash system
 Idle cash at various units, may be noted or avoided
RECEIVABLES MANAGEMENT

The customers from whom receivable or book debts have to be

collected in the future are called trade debtors. Trade credit always
create trade debtors or accounts receivables

The trade credit arises when a firm sell its product or services on
credit and does not receive cash immediately.

Business firms generally sell goods on credit to facilitaes sales.

When a firm makes an ordinary sale of goods on services and does
not receive payments. The firm grants trade credit and create
accounts receivable that would be collected in the future.

The characteristics of credit sales are

 It involves an element of risk

 It is based on economic value
 It implies for future

Credit policy are prepared in the receivable management it is the

combination of three decision variables.
  Credit standards
 Credit terms
 Collection efforts

GOALS OF CREDIT POLICY

A firm always follows a two type of credit policy

 Lenient credit policy- To sell on credit to customers on my

liberal terms and standards
 Stringent credit policy- To sell on credit on a high selective
basis only to those who always good credit worthiness and
able to pay in future

MONITORING RECEIVABLE

A firm need to continuously monitor and control its receivable to

ensure success of collection efforts.

Two methods to monitor management of receivables

 Average collection period

Average collection period = Debtors *360/credit sales

 Aging schedule – it break down receivables according to the

length of time for which they have been outstanding.
RECIEVABLE MANAGEMENT OF BHEL Jhansi

The main products of BHEL are heavy industrial goods with

long operating cycle. BHEL grant liberal term regarding trade
credit to lure the potential customers to by its products at favorable
selling prices.

To utilize its excess capacity, BHEL is granting liberal trade

credit terms to its customers. The main customers of BHEL are
railways, power industries and other private parties. BHEL has
overseas sales also.

All the BHEL units are having their commercial department.

Commercial department and regional operational divisions ( RODs
) primarily
 Carry out the job of recovery from customers. The sales
section of finance department also actively takes part in receivable
management by preparing and sending invoices and reminders to
customers at appropriate time. They keep track of money received
from customers as advances, as against dispatch of finished good
and money recoverable on account of price variation claims and
conversion of deferred depts into debtors. This monitoring is done
works order wise. The aging schedule of customers if also
prepared which gives the picture regarding period of outstanding
balances.

The terms and condition with the customers are finalized

according to the credit policy laid down by corporate office BHEL.
However deviation are permitted with the due approval from
corporate office.

While lying down of credit policy by head office, industry

conditions are taken into consideration. Seeing huge investment in
execution of work order. BHEL demands considerable payments in
advance in different phases of completion of work i.e. erection,
installation, commissioning, maintenance etc. despite all these
BHEL is presently facing cash crunch because a major chunk of
BHEL’s customers consists of Govt bodies, which are very casual
in clearance of dues.

INVENTORY MANAGEMENT

Inventories are the most significant part of current assets of a

large majority of companies in India. The large size of inventory
maintained by the firms a considerable amount of funds is required
to be committed to them. A firm neglecting the management of
inventories will be jeopardizing its long run profitability and may
fail ultimately.

In a manufacturing firm the level of inventory depends on the

operation cycle. A manufacturing firm with a long operating cycle
has to maintain a high inventory level.

NATURE OF INVENTORIES

Inventories are stock of the product a company is manufacturing

for sale and components that make up the product.

There are three type of inventory

 Raw material
 Work in progress
 Finished goods
 Supplies or stores and spares
The forth type of inventory is not very common some firms
maintain it like BHEL maintains it.

NEED FOR INVENTORY

 It have also same need as receivable management

 Transaction motive
 Precautionary motive
 Speculative motive

TECHNIQUES OF INVENTORY MANAGEMENT

 EOQ (Economic order quantity)

a) Ordering cost – ordering placing , transportation.
b) Carrying cost – warehousing , handling.
 Reorder point
 Safety stock

INVENTORY CONTROL SYESTEM

 ABC inventory control system – This analytical approach tends to

measure the significant of each item of inventories in terms of its
value
 JIT system – Japanese firm popularize that system it eliminates the
necessity of carrying large inventories and thus, saves carrying and
other expences.
  Computerized inventory control system – it is an automatic system
of counting inventories

These cost of holding inventories are

Material cost
Order cost
Carrying cost
Cost of funds tied up in inventory
Cost of running out of goods

Inventory Turnover
Annual
Cost of
Example
Inventory Annual

Goods Investment Inventory

Sold Turns

Rs 10,000 Rs 10,000 1

Rs 10,000 Rs 5,000 2

Rs 10,000 Rs 2,500 4
INVENTORY MANAGEMENT IN BHEL Jhansi

The investment in inventory in proportion to total is a

dominant determinant of working capital management. It holds
much importance in context in BHEL as it is having a long
production cycle where a good amount of capital is tied up in form
of raw material, work in progress and conversion cost.
Production planning and control department plays a pivotal
role in inventory management. The engineering department plays a
supporting role and provides the requisition regarding technology
to be applied and material required to PPC department. In BHEL
the inventory control is perform with following steps –

1. Planning –
 This is done by PPC department is consultation with
purchase, commercial, design and manufacturing department
prepares the planning schedule. The schedule along with
information provided by engineering and design department
help in material planning and inventory control

2. Procurement –

The procurement done by purchase department. It is

done with the assistance of PPC and commercial department
for maintaining a tradeoff between carrying cost and ordering
cost.

A single purchase order is placed for the entire quantity

of a specific item and its scattered delivery over a period of
time is received. The method help in obtaining cash and
quantity discount and saving carrying cost. In case of foreign
purchase also one order in placed for the full requirement of
an item and scattered delivery is obtained because variation
caused in material cost due to fluctuation in exchange rate is
much less than the carrying cost of the material which is
approximately 25% of the total price.

3. Receipt & Custody

For the proper inventory control on receipt of material

in store, quality control department checks the material as per
 specification. The cost section fills detail of all the purchase
by issuing store receipt voucher and material issue voucher.

4. Issue

After receiving the material and storing, the

management keeps the information whether these material
are being issued to desired destination. Full record of every
issuing of material is kept for the proper inventory control.

5. Accounting –

The record of every transaction regarding the use of material in

every department is kept. These records give the overall view of
how and where inventories have been used.

Method Use For Inventory Control

IN BHEL, PLANNING AND CONTROL OF INVENTORY IS

DONE BY USING TWO METHODS –

(1). ABC analysis

(2). Slow moving and non-moving goods analysis.

 (3). Budgeting material requirements.

(4). Fixation of raw material levels.

(5). Variety reduction.

Inventory Valuation

(1). Inventory is valued at actual / estimated cost or net realizable

value, whichever is lower.

(2). Finished goods in plants and work in progress involving hydro

and Thermal sets including gas based power plants, boilers
auxiliaries, compressors and industrial turbo sets are valued at
actual/ estimated factory cost or at 97.5% of the realizable value
whichever is lower.

(3). In respect of valuation of finished goods in plant and work in

progress, cost means factory cost, actual/ estimated factory cost
includes excise duty payable on manufactured goods.
(4). In respect of raw material, components, loose tools, stores and
spares cost means weighted average cost.

(5). The components and other materials purchased / manufactured

against production order but declared surplus are charged off to
revenue retaining residual value based on technical estimates.
ANALYSIS OF WORKING CAPITAL MANAGEMENT
The analysis working capital is primarily a test of short term
solvency. There are dangers in having too little or too much
working capital.

Therefore

The financial manager has to be very vigilant all though out

about the trends in the items that make up working capital.

The question to be studied and answered in connection with the

analysis of working capital include the following –

Is the management utilizing working capital effectively?

I the amount of working capital adequate, excessive or
insufficient?
does the firm have a favorable credit rating?
Is the current financial position improving?

TOOLS OF WORKING CAPITAL ANALYSIS

1. Working capital ratio analysis

2. Movement of working capital analysis

3. Fund flow analysis

4. Cash flow analysis

5. Working capital budget

6. Working capital report

We are using the technique of ratio analysis as a means of

checking upon the efficiency with which working capital is being
used in the company. These ratios would increase or decrease that
measure the working capital of management of BHEL. These are
as follows –

(1) CURRENT RATIO

Current ratio represent margin of safety for creditors. The

higher the current ratio, the greater the margin of safety, the
larger the amount of current assets in relation to current
liabilities, the more the firm ability to meet its current
obligations. This ratio is calculated as follows:

Current ratio = Current assets / Current liabilities

Current ratio of 2:1 is satisfactory. In the unit this ratio is 1.99 in

2004-05, this has difference of only 0.01 from standard ratio.

This reflects that the working capital is sufficient. Observing the
current ratio of last five year 2004 to 2008 it was seen that unit
is having sufficient working capital.

(2) QUICK RATIO:

This ratio provides a better measure of over all

liquidity. A firm’s inventory cannot be easily being converted in
to cash so it is not taken into account here. A ratio of 1:1 is
considered satisfactory. Ratio is computed as under –

Quick ratio= Current asset - Inventory / Current liabilities

In the unit quick ratio has been decreasing in last 5 years. This
gives the interference that the firm is having more liquidity than
what is prescribed. However a deep analysis reflects that ratio is
high level of debtors. There are old un realized debt of long
periods which are hiking up the debtors limit .The realization of
debtors is not very quick & regular As such the reflection of
excess liquidity as reflected by very high ratio is a false picture.

(3) CASH RATIO:

Cash is the most liquid asset and it should be

minimum in the firm as the excess of cash in hand/bank implies
loss of interest i.e. the wrong utilization of funds, which could
have been utilized/invested elsewhere. There is nothing to be
worried about lack of cash if the company has reserve
borrowing power.

Cash ratio is calculated by this formula –

Cash ratio= Cash / Current liabilities

There does not seem any standard ratio for measuring cash
position. In the unit cash ratio in 2004-05 is 0.00036 that shows
our cash worthiness then in the year 2007-08 the ratio decreases
to .00020 that shows position of unit in cash shows good. This
unit is following a centralized cash management system under
which the unit is not required to keep cash with it on regular
basis. A monthly cash budget is prepared and allocation is
required from corporate office.

(4) Inventory turnover ratio:

It shows how rapidly the inventory is turning into

receivable through sales. High ratio is indicative of good
inventory management. A low ITR implies excessive inventory
levels. Ratio should neither be low nor too high.

It is computed as follows –

ITR= Sales / Average inventory

In the unit ratio in 2005-06 is 2.30 which shows total inventory
turnover of that year, during last five year it shows fluctuation
means in year 2006-07 it decreases then it increases. The reason
for that ratio is that the inventory is also not justified with reduced
turnover and lack of orders.

if we see according to year 2006-07 to 2007-08 there is some

changes in inventory turnover it increases that shows blockage of
funds. the high inventory turn over always adversely affect to unit
due to which profit goes down

CURRENT RATIO

C.ratio = Current assets / Current liabilities

YEAR 2004-05 2005-06 2006-07 2007-08

Current
Ratio 1.99 1.9 2.1 1.71

C.Ratio

2.5

1.5
C.Ratio

C.Ratio
1

0.5

0
2004-05 2005-06 2006-07 2007-08
year
It measures the short term solvency of the firm, it ability to meet
short term obligations which indicates the rupees of current assets
available for each rupee of current liability. The current ratio of 2:1
is been considered satisfactory.

In context of BHEL, Jhansi the current ratio in the year 2004-05

was 1.99 and the year 2007-08 is 1.71 decreased around 14% that
shows the whole status of current assets and liability means in this
year company ratio of liability decrease from previous year. The
increasing ratio always shows ability to meet current obligation the
higher current ratio shows higher liquidity low profit because there
is load of current liability.

QUICK RATIO

Quick ratio = (Current assets –Inventory) / Current liabilities

YEAR 2004-05 2005-06 2006-07 2007-08

Quick
Ratio 1.45 1.35 1.46 1.27
 Q.Ratio

1.5
1.45
1.4
Q.Ratio

1.35
Q.Ratio
1.3
1.25
1.2
1.15
2004-05 2005-06 2006-07 2007-08
Year

It is widely available test of measure of liquidity position of firms.

The quick ratio of 1:1 is considered to be satisfactory as a firm can
easily meet all current claims while calculating expenses and
inventory are been excluded from current assets.

The ratio in BHEL is almost shows fluctuating trend if we see in

year 2004-05the ratio is 1.45 then in year 2007-09 it get changed
around 12% it shows changing working capital position of BHEL
Jhansi unit.

CASH RATIO

Cash ratio = Cash / Current liability

Year 2004-05 2005-06 2006-07 2007-08
Cash
Ratio 0.00036 0.00033 0.00017 0.0002

C.Ratio

0.0004
0.00035
0.0003
0.00025
C.Ratio

0.0002 C.Ratio
0.00015
0.0001
0.00005
0
2004-05 2005-06 2006-07 2007-08
year

Cash is the most liquid asset all investment are equal to cash shows
the liquidity of an organization

Every and each company want to carry small amount of cash this
type of position can be easily shown in the organization.

The cash ratio start to fall from 2004-05 to 2005-06 approximately

8% then year 2005-06 to 2006-07 it falls up to .00017 from .00033
then in current year it increases in comparison of preceding year
but not much effected.
INVENTORY TURNOVER RATIO

Inventory turnover ratio = Cost of good sold / Average inventory

Year 2004-05 2005-06 2006-07 2007-08

Inventory
Turnover
Ratio - 2. 30 2.18 2.33

I.T

2.35

2.3

2.25
I.T ratio

I.T
2.2

2.15

2.1
2004-05 2005-06 2006-07 2007-08
Year
Inventory turnover ratio indicates the efficiency of the firm in
producing and selling its product. In a manufacturing company
inventory of finished goods is used to calculate inventory
turnover.

In the unit there is no provision for inventory for finished goods

there is inventory of raw material and its components which holds
average of 12 months if we see the inventory turnover from 2005-
06 to 2006-07 there is some downward that shows there is no
blockage of funds in that year and if we see according to year
2006-07 to 2007-08 there is some changes in inventory turnover it
increases that shows blockage of funds. the high inventory turn
over always adversely affect to unit due to which profit goes down.
WORKING CAPITAL TURNOVER

Working capital turnover = Sales / Net current assets

Year 2004-05 2005-06 2006-07 2007-08

Working
Capital
Turnover Ratio 1.48 1.73 1.52 1.83
WCT.Ratio

1.5
WCT.Ratio

1 WCT.Ratio

0.5

0
2004-05 2005-06 2006-07 2007-08
year
A firm may also like to relate net current assets to sales. It may
thus compute net working capital.

If we see the reciprocal of first two years .67 that shows 1 rupee of
sales the company needs .67 of net current assets this gap will
maintain from borrowings this process same way work for whole
years. In next two years it becomes .57 & .65

In the year 2007-08 that shows changing rate comparitible its

preceding year if we find it’s reciprocal .54 means for sale of 1
rupee they need .54 current assets .

TURNOVER RATIO

Turnover ratio = Net salesT.Ratio

/ Capital employed
1.8
Year 1.6
1.4
2004-05 2005-06 2006-07 2007-08
1.2
Turnover
T.Ratio

1
T.Ratio
0.8
Ratio 1.34
0.6 1.57 1.43 1.7
0.4
0.2
0
2004-05 2005-06 2006-07 2007-08
Year
Turnover ratio is just an inter firm analysis a firm just to know its
financial standing and check status in comparison of other
competitor.

The turnover ratio show the expectation according to capabilities

which may be achieve or not it is just a target which they want to
achieve according to there capital employed .

In the 2004-05 total turnover was 31008 Lakh then in the year
2005-06 it increases up to 41151 Lakh then it decreases not just a
sale but in a comparison to there capital employed in the year
2006-07 then in current year it increases again.

RETURN ON CAPITAL EMPLOYED

Return on capital employed = PBIT / CE

 Year 2004-05 2005-06 2006-07 2007-08
Return on
Capital
Employed 0.048 0.118 0.118 0.037

ROCE

0.14
0.12
0.1
ROCE

0.08
ROCE
0.06
0.04
0.02
0
2004-05 2005-06 2006-07 2007-08
Year

Return on capital employed means those capital in any way put in

market by a business what its return comes out which shows as
profit of organization if we see return in the year 2004-05 to 2005-
06 there is return in a efficient manner according to there capital
employed but if we see return in the year 2005-06 to 2006-07 it is
constant same ratio is there between PBIT and capital employed at
last from 2006-07 to 2007-08 the get less then expectation
according their capital employed.

DEBTORS TURNOVER RATIO

Debtors turnover ratio = sales / Average debtor

Year 2004-05 2005-06 2006-07 2007-08

Debtors
turnover ratio - 1.39 1.47 1.32

DTR

1.5
1.45
1.4
DTR

1.35 DTR
1.3
1.25
1.2
2004-05 2005-06 2006-07 2007-08
Year
A firm sells out the goods on credit. Credit is just a marketing tools
debtors are convertible into a cash according to given policy of
company

If we see in the year 2005-06 to 2006-07 there is higher value of

debtors turnover that shows company is good in efficient
management in credit but in the year 2006-07 to 2007-08 there is
poor management policy towards debtors turnover so it diminish.

COMPARITIVE GERAPH OF TURNOVER AND PBIT

Year 2004-05 2005-06 2006-07 2007-08

Turnover(Rs
in lakh) 31008 41151 50094 62071
PBIT(Rs in
lakh) 1029 2814 3951 1250

70000

60000

50000
Turnover/PBIT

40000 turnover
30000 PBIT

20000

10000

0
2004-05 2005-06 2006-07 2007-08
Year
That graph shows over all performance of that unit turnover and its
profit.

In the year 2004-05 to 2005-06 there is increase in turnover so

there is also increase in profit in next two year turnover increases
profit also increases according to there preceding year but if we see
in current year there is a low level of profit according to its
preceding year in this profit should be increase according there
turnover but it get decreases.

BHEL’S financial performance

That graph show whole net sales, net profit, EPS of whole BHEL
units working in whole country this position is check out by Head
office of BHEL from DELHI in this we can see that the sales
increases according to this the net profit increases and decreases
from year 99-00 to year 2006-07 in the year 06-07the sales is 98.7
In crores profit also increase. That shows all over technological
development the orders are increasing day by day for BHEL and
BHEL also capable to meet its customer demand according terms
and condition.

RECOMMENDATIONS AND SUGGESTIONS

During my project period, I have studied the working capital

management in BHEL, Jhansi. On the basis of my study I am
putting forward some suggestions. Implementation of which may
certainly improve the efficiency of working capital management
in the unit.

1. Estimation of working capital requirement should be done on

the basis of the length of operating cycle of different products.
W.C Requirement = Average daily requirement of working
Capital X Length of operating cycle.

1. Working capital requirement can be minimized by decreasing

the length of operating cycle of different products this can be
done by adopting technology or state of art, mechanized
operations and by adopting of Critical Path Method (CPM) of
production operation.

2. The credit policy of BHEL, Jhansi should be made more

practical to shorten the debt collection period. The age wise
schedule of debtors shows that debtors pertaining since
financial year 1991-92 are outstanding. This an alarming
phenomenon as a point out that the terms and conditions of
pavements as well as recovery procedure had been very-very
liberal. The financial crunch would have been not there had
all the recoveries been made on time. A new credit policy is
the need of the hour which should specify strict terms and
penalties in case of delay release of payments without doing
my to relations with BHEL’s customers.
 3. To decrease loss due to bad debts and to reduce collection
period credit rating of customers should be done more
efficiently. Evaluation of credit worthiness is a precursor to
the final decision whether to grant credit or not for decision
making.” Decision tree approach” can be adopted. Under this
approach probability of default and payment by the customer
are determined. The weighted net benefit is calculated as .

P (Revenue-cost)- (1-P) Cost

Where P is the probability that customer pay his dues. The

customer should not be granted credit if answer is negative.

Quality of the product should be improved so that

company can dictate the term of payment. This will screen out
unworthy customers and recovery position will definitely be
improved.

4. Inventory management plays an important role in effective

working capital
management for a business firm producing industrial goods.
 For improvement in the area of inventory
management, suggested steps are as under:

I. The ABC analysis used considers only the value of

material and quantity of uses .It does not considers the
importance of the material in production function .To over
come this VED analysis could also be used which
categories the item according to their importance as vital,
essential and desirable

I. Suggest though research in this regard to arrive at

some suitable mix of both these method which gives due
consideration to value, quantity importance etc of stock item.
II. The maximum and minimum level of each item
should be indicated avoid over stock or under stock situation.
III. Internal performance report on inventory on at least
monthly basis should be prepared to study the material price
variance, material uses variance and inventory level variance
from the estimated figures.
IV. The indenting and tendering process for purchase
should be made expeditious to decrease the lead time and to
reduce the change of stocks out situations.
 V. It has been seen that delay in supply of raw materials
is regularly occurring on this ultimately to delay in supply to
customers. This should be avoided as it lowers the
performance rating of the company.

VI. The Material procurement period should be low by

which production is not to be delayed

VII. The capital employed should not be maximum by

which return can not be appropriate.

VIII. In the case of inventory management there is lack

of doing proper treatment for obsolete product.

IX. There should not be excess of turnover by which it

becomes work load for a employee.

X. The company should increase its credit sale at a

certain limit by which it can easily stand in market in front of
customer. Therefore we can see easily this year the debtor
turnover ratio decreases and profit also decreases.
 BIBLOGRAPHY

 Financial management (9th edition)

Writer (I.M Pandey)

 Management accounting (6th edition)

Writer (S.D Chowdhary)

 Financial reports of BHEL Jhansi unit