Working Capital On Telecommunication Industry.docx

CHAPTER -1 INTRODUCTION TO THE TOPIC

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WORKING CAPITAL An introduction Every business needs adequate liquid resources in order to maintain day-to-day cash flow. It needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its workforce and ensure its supplies. It needs investment to procure fixed assets, which remain in use for a longer period. Money invested in these assets is called ‘long term funds’ or fixed capital. Fixed capital includes land and building, plant and machinery, furniture and fittings etc. business also needs funds for short term purposes to finance current operations. Investment in short term assets like cash, inventories, debtors is called short term funds or working capital.

Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital management (WCM). So, working capital management is an important aspect of financial management. Its main objective is to determine the optimum amount of working capital required. It is concerned with the problems that arise in attempting to manage the current assets, current liabilities and the relationship that exists between them. Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its shortterm liabilities with its current assets. A negative working capital is a sign of managerial inefficiency in a business with low inventory and accounts receivable. In any other situation, it is a sign of a company may be facing bankruptcy or serious financial trouble.

Concept of working capital There are two concepts of working capital 1. Gross working capital concept 2. Net working capital concept

Gross working capital concept According to this concept, working capital which is the total of all current assets of a business. 2

Mathematically Gross working capital=total current assets. According to Bonneville and Dewey “any acquisition of funds which increases working capital, for they are one and the same.”

Net working capital concept According to this concept, working capital means net working capital which is the excess of current assets over current liabilities.

Mathematically Net working capital = current assets –current liabilities According to C.W. Gestenbergh “it is ordinarily been defined as the excess of current assets over current liabilities.”

Current assets Those assets which are converted into cash within a short period of time not exceeding one year.

Current assets include 

Stocks of raw materials

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Work-in-progress

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Finished goods

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Trade debtors

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Prepayments

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Cash balances

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Accrued income

Current liabilities Those liabilities which have to be paid within a short period of time in no case exceeding one year.

Current Liabilities includes 

Trade creditors 3

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Accruals

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Taxation payable

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Dividends payable

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Short term loans

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Outstanding expenses

So, Working capital is a financial metric which represents the amount of day-by-day operating liquidity available to a business.

Needs of working capital Different industries have different optimum working capital profiles, reflecting their methods of doing business and what they are selling. Businesses with a lot of cash sales and few credit sales should have minimal trade debtors. Supermarkets are good examples of such businesses; Businesses that exist to trade in completed products will only have finished goods in stock. Compare this with manufacturers who will also have to maintain stocks of raw materials and work-inprogress. Some finished goods, notably foodstuffs, have to be sold within a limited period because of their perishable nature. Larger companies may be able to use their bargaining strength as customers to obtain more favorable, extended credit terms from suppliers. By contrast, smaller companies, particularly those that have recently started trading may be required to pay their suppliers immediately. Some businesses will receive their money at certain times of the year, although they may incur expenses throughout the year at a fairly consistent level. This is often known as “seasonality” of cash flow. For example, travel agents have peak sales in the weeks immediately following Christmas. 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. Working capital needs also fluctuate during the year The amount of funds tied up in working 4

capital would not typically be a constant figure throughout the year. Many businesses operate in industries that have seasonal changes in demand. This means that sales, stocks, debtors, etc. would be at higher levels at some predictable times of the year than at others. The working capital need can be separated into two parts: • A fixed part, and • A fluctuating part The fixed part is probably defined in amount as the minimum working capital requirement for the year. The more permanent needs (fixed assets and the fixed element of working capital) should be financed from fairly permanent sources (e.g. equity and loan stocks); the fluctuating element should be financed from a short-term source (e.g. a bank overdraft), which can be drawn on and repaid easily and at short notice. Five most common sources of short-term working capital financing: 

Equity: If your business is in its first year of operation and has not yet become profitable, then you might have to rely on equity funds for short-term working capital needs. These funds might be injected from your own personal resources or from a family member, friend or third-party investor.

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Trade Creditors: If you have a particularly good relationship established with your trade creditors,you might be able to solicit their help in providing short-term working capital. If you have paid on time in the past, a trade creditor may be willing to extend terms to enable you to meet a big order. For instance, if you receive a big order that you can fulfill, ship out and collect in 60 days, you could obtain 60-day terms from your supplier if 30-day terms are normally given. The trade creditor will want proof of the order and may want to file a lien on it as security, but if it enables you to proceed, that shouldn’t be a problem.

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Factoring: Factoring is another resource for short-term working capital financing. Once you have filled an order, a factoring company buys your account receivable and then handles the collection. This type of financing is more expensive than conventional bank financing but is often businesses.

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Line of credit: Lines of credit are not often given by banks to new businesses. However, if your new business is well-capitalized by equity and you have good collateral, your business might qualify 5

for one. A line of credit allows you to borrow funds for short-term needs when they arise. The funds are repaid once you collect the accounts receivable that resulted from the short-term sales peak. Lines of credit typically are made for one year at a time and are expected to be paid off for 30 to 60 consecutive days sometime during the year to ensure that the funds are used for short-term needs only. 

Short-term loan: While your new business may not qualify for a line of credit from a bank, you might have success in obtaining a one-time short-term loan to finance your temporary working capital needs. If you have established a good banking relationship with a banker, he or she might be willing to provide a short-term note for one order or for a seasonal inventory and/or accounts receivable buildup. In addition to analyzing the average number of days it takes to make a product (inventory days) and collect on an account (account receivable days) vs. the number of days financed by accounts payable, the operating cycle analysis provides one other important analysis. From the operating cycle, a computation can be made of the dollars required to support one day of accounts receivable and inventory and the dollars provided by a day of accounts payable. Working capital has a direct impact on cash flow in a business. Since cash flow is the name of the game for all business owners, a good understanding of working capital is imperative to make any venture successful.

ELEMENTS OF WORKING CAPITAL Inventory Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation. There are three basic reasons for keeping an inventory:

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1. Time: The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amount of inventory to use in this "lead time" 2. Uncertainty: Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods. 3. Economies of scale: Ideal condition of "one unit at a time at a place where user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So Bulk buying, movement and storing brings in economies of scale, thus inventory.

Working capital life cycle

Equity & loan

CASH PAYABLES

OVERHEADS

Receivables INVENTORY

SALES

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Each component of working capital (namely inventory, receivables and payables) has two dimensions Time and Money. When they come to managing working capital, Time is Money. If you can get money to move faster around the cycle (collect monies due from debtors more quickly) or reduce the amount of money tied up (i.e., reduce inventory level relative to sales). The business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you will have additional free money available to support addition sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limits, you festively create freed finance to help fund future salesA perusal of operational cycle reveals that the cash invested in operations are recycled back in to cash. However it takes time to reconvert the cash. Cash flows in cycle into around and out of a business it the business’s lifeblood and every manager’s primary task to help keep it flowing and to use the cash flow to generate profits. The shorter the period of operating cycle, the larger will be the turnover of the funds invested in various purposes.

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CHAPTER-2 INDUSTRY AND COMPANY PROFILE

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INDUSTRY PROFILE The history of telecommunication began with the use of smoke signals and drums in Africa, the Americas and parts of Asia. In the 1790s, the first fixed semaphore systems emerged in Europe; however it was not until the 1830s that electrical telecommunication systems started to appear. This article details the history of telecommunication and the individuals who helped make telecommunication systems what they are today. The history of telecommunication is an important part of the larger history of communication.

Early Era Early telecommunications included smoke signals and drums. Talking drums were used by natives in Africa, New Guinea and South America, and smoke signals in North America and China. Contrary to what one might think, these systems were often used to do more than merely announce the presence of a camp. In 1792, a French engineer, Claude Chappe built the first visual telegraphy (or semaphore) system between Lille and Paris. This was followed by a line from Strasbourg to Paris. In 1794, a Swedish engineer, Abraham Edelcrantz built a quite different system from Stockholm to Drottningholm. As opposed to Chappe's system which involved pulleys rotating beams of wood, Edelcrantz's system relied only upon shutters and was therefore faster. However semaphore as a communication system suffered from the need for skilled operators and expensive towers often at intervals of only ten to thirty kilometers (six to nineteen miles).

Telegraph System Telecommunications began with the successful innovation of Samuel Morse's telegraph system in 1844. For three years, the U.S. Post Office ran the pioneering Washington to Baltimore line. By that time other private telegraph companies had developed (the first connected New York and Philadelphia) and were rapidly growing. Telegraph expansion paralleled and aided the growth of 10

the America’s network of railroads. The latter provided a prepared right of way, while the former offered vital communication links for the often single-track networks that moved people and goods. The first coast-to-coast telegraph line was opened in 1862 (seven years before rail links extended that far) and immediately made money, demonstrating the value of telecommunications over great distances.

Early Corporate Alliances Western Union, the first telecommunications monopoly, was formed as a regional alliance of several smaller firms in 1856 and rapidly expanded, often following railway lines. Just a year later the six largest telegraph companies developed a cartel, dividing up the country and business among themselves. The Civil War demonstrated the value of telegraph links (the Union was far better equipped than the Confederacy) and drove up rates and company profits. Western Union took over some 15,000 miles of government-built lines at the end of the war and became by far the largest company in the field.

International Telegraph Systems Telegraph systems initially served only land routes, as it was presumed impossible to lay lines underwater. After experiments running insulated telegraph lines under lakes and across rivers, in 1858 an American-led consortium laid the first cable connecting Britain and the United States, which eventually failed in few months. After a failed attempt to lay a cable in 1865, success came in 1866; soon others were added. The Pacific was not crossed until 1902 because of the great distances involved. Availability of global telegraphy rapidly changed the face of business and government affairs. The ability to "instantly" communicate had great positive impact on business and other human aspects of daily life.

Birth of Telephone Success of telegraph industry and rising electrical manufacturing businesses formed the context for the telephone. The electric telephone was invented in the 1870s, based on earlier work with harmonic (multi-signal) telegraphs. The first commercial telephone services were set up in 1878 and 1879 on both sides of the Atlantic in the cities of New Haven and London. The first telephone switchboard was placed in service in New Haven, Connecticut, in early 1878, and 11

demonstrated its greater efficiency over individual lines between each customer. The first use of telephone numbers and directories of telephone users appeared about the same time. Telephone exchanges (using many switchboards) appeared about two decades later. Telephone was largely the creation of Alexander Graham Bell, who received his first patent in March 1876. Early development of the telephone was fraught with technical and financial problems. Alexander Graham Bell held the master patent for the telephone that was needed for such services in both countries. The technology grew quickly from this point, with inter-city lines being built and telephone exchanges in every major city of the United States by the mid1880s. Restricted by crude technology to providing local service (initial iron wires rarely extended 100 miles), telephone service developed slowly before the Bell patents expired in 1893. Initial Bell business strategy focused on licensing use of its patents and selling equipment to companies building systems in cities and towns, largely to serve business and the wealthy.

Mechanically Automated Telephone A Kansas City undertaker, concerned that telephone operators were sending business to his competitors, developed the first mechanically automated telephone switch in 1891. The first automated switches began to appear around the turn of the century in major cities—and would be used in smaller communities for decades. Copper telephone lines were placed in use between Boston and New York, extending telephone service to 300 miles. Around 1893, the country leading the world in telephones per 100 persons (teledensity) was Sweden with 0.55 in the whole country but 4 in Stockholm (10,000 out of a total of 27,658 subscribers). This compares with 0.4 in USA for that year. Telephone service in Sweden developed through a variety of institutional forms: the International Bell Telephone Company (a U.S. multinational), town and village cooperatives, the General Telephone Company of Stockholm (a Swedish private company), and the Swedish Telegraph Department (part of the Swedish government). Since Stockholm consists of islands, telephone service offered relatively large advantages, but had to use submarine cables extensively. Competition between Bell Telephone and General Telephone, and later between General Telephone and the Swedish Telegraph Dept., was intense.

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In 1893, the U.S. was considerably behind Sweden, New Zealand, Switzerland, and Norway in teledensity. The U.S. rose to world leadership in teledensity with the rise of many independent telephone companies after the Bell patents expired in 1893 and 1894.

20th Century Developments By 1904 there were over three million phones in the US, still connected by manual switchboard exchanges. By 1914, the U.S. was the world leader in teledensity and had more than twice the teledensity of Sweden, New Zealand, Switzerland, and Norway. The relative good performance of the U.S. occurred despite competing telephone networks not interconnecting. For the next half century, the network behind the telephone grew progressively larger and much more efficient, and after the rotary dial was added the instrument itself changed little until touchtone signaling started replacing the rotary dial in the 1960s.

Transatlantic Voice Communications Despite all these developments, transatlantic voice communication remained impossible for customers until January 7, 1927, when a connection was established using radio. However no cable connection existed until TAT-1 was inaugurated on September 25, 1956 providing 36 telephone circuits. Transcontinental telephone service became possible only around 1915 by use of amplifiers based on Lee De Forest's "Audion" vacuum tube.

Coaxial Cable and Microwave Links Improved technology would begin to change the face of telecommunications after 1945. Paced by wartime needs and spending, Bell Labs and other researchers produced coaxial cable and microwave links that were first used commercially in the years after the war. No longer was it necessary to build an expensive telecommunication network using copper wires. Microwave links required the use of many antenna towers— and a license to use the high-frequency spectrum—but this was less expensive than a traditional wired network. Coaxial cable offered the broadband capacity needed to transmit thousands of telephone calls or full-motion video.

Satellite Communications 13

Development of satellite communication was first hinted at in a 1945 article by Arthur C. Clarke in which he postulated a geostationary orbit 22,300 miles high that would keep a satellite above the same part of Earth. Pushed by the cold war missile race, the world's first artificial satellite came just 12 years later as the Soviet Union launched Sputnik into a low Earth orbit in October 1957. Early military satellite communications followed the same low-orbit path until the first commercial geostationary satellites appeared in the 1970s.

Mobile Phones The history of mobile phones can be traced back to two-way radios permanently installed in vehicles such as taxicabs, police cruisers, railroad trains, and the like. Later versions such as the so-called transportable or "bag phones" were equipped with a cigarette lighter plug so that they could also be carried, and thus could be used as either mobile two-way radios or as portable phones by being patched into the telephone network. Bell Labs developed the notion of "cellular" systems allowing for frequency reuse (and thus far greater capacity) and developed it through the 1970s. On April 3, 1973 Motorola manager Martin Cooper placed a cellular phone call (in front of reporters) to Dr. Joel S. Engel, head of research at AT&T's Bell Labs. This began the era of the handheld cellular mobile phone. Meanwhile the 1956 inauguration of the TAT-1 cable and later international direct dialing were important steps in knitting together the various continental telephone networks into a global network. The FCC approved operation of an analog cellular mobile telephone system in 1982, sparking a new growth sector.

Cable Television Companies Cable television companies began to use their fast-developing cable networks, with ducting under the streets of the United Kingdom, in the late 1980s, to provide telephony services in association with major telephone companies. One of the early cable operators in the UK, Cable London, connected its first cable telephone customer in about 1990.

Digital Technology

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Digital technology first appeared in American telecommunications with AT&T's introduction of its T1 Carrier System in 1962. A T1 line offered far more capacity and a cleaner (less noisy) signal. Soon digital telephone switches appeared, allowing for more flexible network design and operation. But the most sweeping change came with the installation of fiber-optic cables to carry voice, data, and video signals. The huge carrying capacity of fiber—constantly rose with further technical improvements— finally placed telecommunication networks well ahead of projected growth (and planted the seeds for disaster in the early 2000s).

The Internet On September 11, 1940, George Stibitz was able to transmit problems using teletype to his Complex Number Calculator in New York and receive the computed results back at Dartmouth College in New Hampshire. This configuration of a centralized computer or mainframe with remote dumb terminals remained popular throughout the 1950s. However it was not until the 1960s that researchers started to investigate packet switching — a technology that would allow chunks of data to be sent to different computers without first passing through a centralized mainframe. A four-node network emerged on December 5, 1969 between the University of California, Los Angeles, the Stanford Research Institute, the University of Utah and the University of California, Santa Barbara. This network would become ARPANET, which by 1981 would consist of 213 nodes. In June 1973, the first non-US node was added to the network belonging to Norway's NORSAR project. This was shortly followed by a node in London. Two popular link protocols for local area networks (LANs) also appeared in the 1970s. Internet access became widespread late in the century, using the old telephone and television networks. The Internet, based on government networks dating back to 1969, became a widely used public network in 1995. Development of the World Wide Web and the graphic user interface making it possible opened up a wealth of expanding information resources and growing public acceptance. By the early 2000s, more than half of American households were connected to the Internet, a slowly growing number of them linked by broadband connections. Projections of Internet growth sparked bullish plans for the underlying telecommunication services and manufacturing that made the Web possible. Many of those projections were wide of the reality.

Internet Protocol (IP) Telephony 15

Protocol (IP) telephony (also known as 'Internet telephony') is a service Internet based on the Voice over IP communication protocol (VoIP), a disruptive technology that is rapidly gaining ground against traditional telephone network technologies. In Japan and South Korea up to 10% of subscribers switched to this type of telephone service as of January 2005. IP telephony uses a broadband Internet connection to transmit conversations as data packets. In addition to replacing the traditional Plain Old Telephone Service POTS system, IP telephony is also competing with mobile phone networks by offering free or lower cost connections via WiFi hotspots. VoIP is also used on private wireless networks which may or may not have a connection to the outside telephone network.

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CHAPTER-3 COMPANY PROFILE

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BHARTI AIRTEL

HISTORY In 1984 Sunil Mittal started assembling push-button phones in India, which he earlier used to import from a Taiwan company, Kingtel, replacing the old fashioned, bulky rotary phones that were in use in the country then. Bharti Telecom Limited (BTL) was incorporated and entered into a technical tie up with Siemens AG of Germany for manufacture of electronic push button phones. By the early 1990s, Bharti was making fax machines, cordless phones and other telecom gear. He named his first push-button phones as 'Mitbrau'. In 1992, he successfully bid for one of the four mobile phone network licences auctioned in India. One of the conditions for the Delhi cellular license was that the bidder have some experience as a telecom operator. So, Mittal clinched a deal with the French telecom group Vivendi. He was one of the first Indian entrepreneurs to identify the mobile telecom business as a major growth area. His plans were finally approved by the Government in 1994 and he launched services in Delhi in 1995, when Bharti Cellular Limited (BCL) was formed to offer cellular services under the brand name AirTel. Within a few years Bharti became the first telecom company to cross the 2 million mobile subscriber mark. Bharti also brought down the STD/ISD cellular rates in India under brand name 'Indiaone'. 18

In 1999, Bharti Enterprises acquired control of JT Holdings, and extended cellular operations to Karnataka and Andhra Pradesh. In 2000, Bharti acquired control of Skycell Communications, in Chennai. In 2001, the company acquired control of Spice Cell in Calcutta. Bharti Enterprises went public in 2002, and the company was listed on Bombay Stock Exchange and National Stock Exchange of India. In 2003, the cellular phone operations were re-branded under the single Airtel brand. In 2004, Bharti acquired control of Hexacom and entered Rajasthan. In 2005, Bharti extended its network to Andaman and Nicobar.

PRODUCTS AND SERVICES 1. Broadband Router: Broadband is a medium using which you can connect your computer system to the internet. Airtel is a leading internet service provider in our country whose data speed of the internet is highest among all its competitors. We offer a variety of broadband plans so that you can choose the best one based upon your budget and needs. So don't waste time by thinking. Just jump in. 2. Data Card: A Data card, is a type of modem that allows a laptop, a personal computer or a router to receive Internet access via a mobile broadband connection instead of using telephone or cable television lines. A mobile Internet user can connect using a wireless modem to a wireless Internet Service Provider (ISP) to get Internet access. Airtel data card is not only known for its mobility but also for its high data rate. 3. Postpaid: Postpaid mobile service is one which the user has to provide the payment after its use every month. We offer exciting plans to our customers so that they can be benefited to the most. We recommend this service for people with a secured income because they will not face any problems while paying the bills. 4. Digital T.V: Digital TV is the transmission of audio and video by digitally processed and multiplexed signal, in contrast to the totally analog and channel separated signals used by analog television. It is an innovative service that represents a significant evolution in television technology. The main advantage of Airtel Digital TV is its clarity by far which is the best.

Strengths in the SWOT analysis of Airtel 19

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Renowned Telecom company: With its 19+ years of rich experience in telecom industry this MNC had travelled far to become world’s 3rd largest telecom operator overseas with operations in nearly 20 countries.

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High Brand Equity: It is one of the pioneer brands in telecommunication having a high brand recall and with a whopping subscriber base.

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Extensive infrastructure: With the formation of Indus tower & due to its partnership with Idea & Vodafone, the infrastructure of Airtel has extended in all parts of the country resulting into nationwide penetration.

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Strategic Alliances: The company has top notch stakeholders, namely Sony Ericsson, Nokia and singtel, and the recent one being Apple. Such strategic alliances boost the brand equity and the bottom line of the company.

Weaknesses in the SWOT analysis of Airtel 

Outsourced Operations: Outsourcing operations helped Airtel in lowering its cost. But on the other hand, they are running the risk of being dependent on some other companies which may affect its operations.

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Venturing into African operations: Although it’s been 4 years that Airtel has acquired Zain’s Africa business, but Airtel is still struggling to turn around the unit which was bought at a whoppy 9 billion dollars.

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High Debt: With its acquisitions turning out to bad investment, and credit being high and margins being low, Airtel group is under high debt. Airtel does not have as deep pockets as Vodafone.

Opportunities in the SWOT analysis of Airtel 

Strategic Partnership: Partnering with smart phone companies is going to be a smart strategy as far as MNP (mobile number portability in India) is concerned. This will ensure fixed cash flows in the future and a higher customer base. 20

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Market Development: With fierce competition in the telecom industry & shrinking margins, venturing out in new markets/developing economies will prove fruitful for the company.

 VAS: VAS (Value Added services) is going to future of the telecommunication industry & by specializing itself in this vertical Airtel can differentiate itself in highly competitive market. With introduction of unique services, Airtel can avail higher margins. 

Untapped geography of the current market: Although it is currently providing 3G & 4G services, but these services are limited to specific geographical locations. Expansion of these services to most of its regions will help the company get more margins and customers.

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LTE: The whole wireless world is moving towards LTE (long term evolution or 4G). LTE for mobile broadband can be a good solution for India where fixed broadband penetration is otherwise low. Airtel has taken the lead with this version of LTE in 4 cities, but deployment needs to catch up pace. Despite a weak LTE ecosystem in India, Airtel should portray itself as the embracer of that technology. The company lacks nationwide 3G license with spectrum in 13 out of 22 telecom service areas. Airtel’s LTE network for mobile broadband is still confined to only 4 cities in India.

Threats in the SWOT analysis of Airtel 

Government Regulatory Framework: With the auction of spectrum & change in the government policies on a regular basis, it is a potential threat to the stability & existence of this industry thereby affecting the players.

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Competition: Price war in the home market and declining margins due to this is adversely affecting the overall business of the group.

 MNP (Mobile number portability): MNP gives the customer independence to change the service provider while retaining the number and as Airtel charges are premium over other service providers, it can see slump in subscriber base in the next fiscal year with PAN India MNP applicable from May 3rd 2015.

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IDEA CELLULAR

Idea Cellular (commonly referred to as simply Idea, and stylised as !dea) is an Indian mobile network operator based at Mumbai, Maharashtra. Idea is a pan-India integrated GSM operator offering 2G, 3G and 4G mobile services. Idea is India’s largest mobile operator along with merged entity Vodafone by subscriber base (List of mobile network operators of India). Idea has 196.49 million subscribers as of 31 December 2017.

HISTORY Idea Cellular started its journey in 1995 as Birla Communications Limited with GSM licenses in Gujarat and Maharashtra circles.In 1996 it changed name to Birla AT&T Communications Limited following joint venture between Grasim Industries and AT&T Corporation. In 2001 it changed name to Birla Tata AT&T as a joint venture between Aditya Birla Group, Tata Group and AT&T Wireless. The company named its brand Idea in 2002. Following AT&T Wireless' merger with Cingular Wireless in 2004, Cingular decided to sell its 32.9% stake in Idea. This stake was bought by the remaining two stakeholders equally. Tata forayed into the cellular market with its own subsidiary, Tata Indicom, a CDMA-based mobile provider and in April 2006, Aditya Birla Group announced the acquisition of the 48.18% stake held by Tata Group at INR 40.51 a share amounting to INR 44.06 billion with 15% of the stake acquired by Aditya Birla Nuvo and the remaining by Birla TMT holdings Private Ltd. both AV Birla family owned companies. Malaysia based Axiata bought a 19.96% stake in the company in 2009.

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Merger with Vodafone India On 20 March 2017, Idea and Vodafone India announced that their respective boards had approved a merger of the two companies. The merger will not include Vodafone's 42% stake in Indus Towers Ltd. The merger will create the largest telecom company in India by subscribers and by revenue. Under the terms of the deal, the Vodafone will hold a 45.1% stake in the combined entity, the Aditya Birla Group will hold 26% and the remaining shares will be held by the public. The merger is expected to be completed by March 2019, and the newly merged entity will be named at a later date.

PRODUCT AND SERVICES

1. Postpaid Subscription: A Post-paid subscription is one wherein you use the services first and get charged for the usage later at periodic intervals. The charges are based on the rates and rentals applicable on your selected tariff plan, which will be explained in detail in the monthly bill sent to you. Customized tariff plans, economical roaming options, data offerings that always keep you connected and the kind of network coverage that you can count on anywhere.

2. Pre-Paid Subscription: A pre-paid connection is a ‘pay & use’ subscription service. With this subscription, you need to pay in advance to use the services by way of recharge, which provides you talk-time/ balance for usage. Pre-paid services allow you to control your usage as per your need.

3. Data and GPRS: GPRS services are ideally proactive on your Idea Post-paid and Pre-paid connection. In case you need to activate it, there are multiple modes through which you can make your request. Once the service is activated, there are certain settings required on your compatible handset

Strengths in the SWOT analysis of Vodafone 

Robust Services: Idea Cellular offers a wide variety of services over and above just telecom such as digital communication, online entertainment, digital payments, Games, Movies, music, and cloud-based services. 23

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Wide network: Idea has a network that spans across India and is there in 40,000 towns across the country. The idea is also credited with the fastest 4G network in India close to 230,000 sites and a fiber optic cable covering close to 1.28 lakh kms. It is proposed to expand the Idea 4G services to 20 circles which will cover more than 94 % of the total market.

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Prompt Service: Idea Cellular is credited with the provision of great after sales services through its outlets which number to 8780, call centers with round the clock help desk number, service app, and social media presence. The brand is at number 1 in a survey taken on customer satisfaction.

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Numerous Awards: The Idea Cellular Services has been given numerous prestigious awards such as Voice & Data Telecom Leadership Awards 2016, the Best CEO of the year 2015 by Business Today and the best marketing campaign in 2016 at The Economic Times Telecom Awards. The company is also listed amongst the top 25 companies to work for.

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Various domains of service: The company is also a registered presence in other technology areas such as Enterprise Services, Customer Service, Marketing, Internet & Broadband, Infrastructure Innovation, and VAS.

Weaknesses in the SWOT analysis of Vodafone 

Weaker 4G: In comparison to the market leader Airtel, Idea Cellular indicates slower 4 G speeds and more customer complaints about internet speeds. With increased usage of smartphones, this can turn out to be a critical weakness.

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Poor rural access: Idea Cellular is more focused on urban markets and cities and customer complain that the speed is painfully slow in rural regions. This gives many competitors an upper hand in rural areas.

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Pricing: The competition in the telecom service market is on a steep incline and the only way to penetrate the market through the lowest pricing. However, the company is finding it extremely challenging to undercut the prices of its competitors.

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Promotional Schemes: Mobile service providers are offering numerous promotional schemes and offers not just on calls but also on data and apps. These promotional schemes are eating into the financial models of the business. 24

Opportunities for the SWOT analysis of Vodafone 

Growth in technology: The technology changes are creating new opportunities in domains like VoIP and cloud-based communication services. These may be used as value added services for telecom service providers for which they can charge a premium.

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4G networks: Most of the telecom service providers in India are now into 4G which means that the internet speeds will see an ever before impact in more aspects of life.



Connected devices: The possibility of cities migrating to smart cities and the emergence of connected devices will present a new segment that technology companies can target. Emerging technologies like IoT and artificial intelligence presents a whole new gamut of services.

Threats in the SWOT analysis of Vodafone 

Competition: There is neck to neck competition in the telecom sector from players like Airtel, Jio, and Vodafone.



Lobbying and mafia: There are a lot of unethical practices and malpractices including lobbying and corruption in the telecom sector and this is creating a pricing struggle in the telecom sector in India.

25

VODAFONE

HISTORY The name Vodafone comes from voice data fone (the latter a sensational spelling of "phone" chosen by the company to "reflect the provision of voice and data services over mobile phones" The evolution of Vodafone started in 1982 with the establishment of the Racal Strategic Radio Ltd subsidiary of Racal Electronics, the UK's largest maker of military radio technology, which formed a joint venture with Millicom called 'Racal', which evolved into the present day Vodafone.On 16 September 1991, Racal Telecom was demerged from Racal Electronics as Vodafone Group, with Gerry Whent as its CEO. In July 1996, Vodafone acquired the twothirds of Talkland it did not already own for £30.6 million. On 19 November 1996, in a defensive move, Vodafone purchased Peoples Phone for £77 million, a 181 store chain whose customers were overwhelmingly using Vodafone's network. In a similar move the company acquired the 80% of Astec Communications that it did not own, a service provider with 21 stores. In January 1997, Gerald Whent retired and Christopher Gent took over as the CEO. The same year, Vodafone introduced its Speechmark logo, composed of a quotation mark in a circle, with the O's in the Vodafone logotype representing opening and closing quotation marks and suggesting conversation. On 28 July 2000, the Company reverted to its former name, Vodafone Group plc. On 17 December 2001, Vodafone introduced the concept of "Partner Networks", by signing TDC Mobil of Denmark. The new concept involved the introduction of Vodafone international services to the local market, without the need of investment by Vodafone. The concept would be used to extend the Vodafone brand and services into markets where it does not have stakes in local operators. Vodafone services would be marketed under the dual-brand scheme, where the Vodafone brand is added at the end of the local brand. 26

In April 2012, Vodafone announced an agreement to acquire Cable & Wireless Worldwide (CWW) for £1.04 billion. Vodafone was advised by UBS AG, while Barclays and Rothschild advised Cable & Wireless. The acquisition will give Vodafone access to CWW's fibre network for businesses, enabling it to take unified communications solutions to large enterprises in the UK and globally; and expand its enterprise service offerings in emerging markets. On 18 June 2012, Cable & Wireless' shareholders voted in favour of the Vodafone offer, exceeding the 75% of shares necessary for the deal to go ahead.

PRODUCT AND SERVICES 1. Mobile money transfer services In March 2007, Safaricom, which is part owned by Vodafone and the leading mobile communication provider in Kenya, launched a mobile payment solution developed by Vodafone. By February 2008, the M-PESA money transfer system in Kenya had gained 1.6 million customers. By 2011 there were fourteen million M-Pesa accounts by which held 40 percent of the country's savings.[157] Following M-PESA's success in Kenya, Vodafone announced that it was to extend the service to Afghanistan.

2. mHealth services In November 2009, Vodafone announced the creation of a new business unit focused on the emerging mHealth market (the application of mobile communications and network technologies to healthcare). One of its early success stories is with the Novartis-led "SMS for Life" project in Tanzania, for which Vodafone developed and deployed a text-message based system that enables all of the country's 4,600 public health facilities to report their levels of anti-malarial medications so that stock level data can be viewed centrally in real-time, enabling timely re-supply of stock. During the SMS for Life pilot, which covered 129 health facilities over six months, stock-outs dropped from 26% to 0.8%, saving thousands of lives

3. Vodafone Foundation The Vodafone Foundation is a recognised charity which supports and initiates projects which use mobile technology to benefit the vulnerable, using the slogan "Connecting for Good". They often work in collaboration with other charitable groups. Below are some examples of their initiatives: 27

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TECSOS: mobile phones have been adapted to allow victims of domestic violence to activate immediate contact with the emergency services if they are in danger

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Paediatric Epilepsy Remote Monitoring System: a monitoring system that allows physicians to remotely make patient observations

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Safe Taxi System: an initiative in Portugal that consists of technology that taxi drivers can use to alert police if they are in danger of being assaulted

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Learning with Vodafone Solution: technology that allows teachers in India to use graphical and multi-media content to enhance their teaching

Strengths in the SWOT analysis of Vodafone 

Massive market coverage: Vodafone is ranked 395th amongst the worlds top 2000 brands by Forbes. It is known for its wide distribution and network cover. It has the second largest subscriber base in India. It is the second highest ranked telecom operator and is behind only China Mobile. Vodafone operates in more then 25 countries across the globe.



Revenues generated: Vodafone generates billions of dollar of revenue every year. The latest figure of 2016 is it has generated a revenue of a whopping 87.3 billion dollars. Naturally, this results in boosting the rankings and expectations from Vodafone even further. It is ranked 104 in its sales figures across the global 2000 list and number 84 in market value.



Marketing: The Marketing by Vodafone is legendary. The Vodafone pug is known across the globe to follow Vodafone users everywhere. Simmilarly, the Vodafone zoozoo’s was a brilliant and endearing campaign which converted many users to die hard fans of Vodafone. Time and time again, Vodafone comes out with brilliant campaigns at the right time.



Subscriber base: Vodafone has a massive subscriber base which they retain efficiently. As of 2016, the total subscribers of Vodafone across the world was close to 350 million people.

Weaknesses in the SWOT analysis of Vodafone 

Dropping subscriber base: The subscriber base of Vodafone is dropping in the last 4 years. This is a major problem for Vodafone looking at the global market scenario. The brand needs to strengthen its core values and implement strategies to acquire more customers 28



Dropping brand valuation: One of the possible reasons for the drop in subscriber base of Vodafone can be the dropping brand valuation of the company. Both – subscriber base and brand valuation of the company was very strong to begin with. But both have them have suffered in the last 3-4 years. Brand valuation drop in the last 1 year was phenomenal.



Losing market share in USA: USA is a country where Vodafone could have demanded the premium it needs to keep itself afloat. However, it is fast losing market share in the USA to Verizon wireless and AT&T, both of whom are performing far above Vodafone if we consider the US market only.



Poor performance in Europe: Due to brexit and other economical conditions in Europe, Vodafones performance in its home market has been poor and it has not generated much revenue from its home market. In fact, if we look at revenues, 40% of the revenue is coming from India and not from US or UK.

Opportunities for the SWOT analysis of Vodafone 

Rural markets: If a high percentage of subscriber base of Vodafone is in India, then rural market penetration becomes a priority for the telecom operator. However, Vodafone seems to be operating more only in urban markets whereas its top competitor such as Airtel and Reliance communications have penetrated rural markets successfully.



Emerging markets: Not only rural markets in developing countries, other emerging markets such as those in Africa are also a great potential place for Vodafone. These new and emerging markets have increasing disposable income and communication becomes important once a network is growing.



Dependency on Cellular networks: As people rely more and more on their smartphones, paralelly their dependency on cellular networks is rising. This is a pretty good news for Vodafone because customer retention is not much of a problem. It is a need based segment, so the number of potential users will always be on the rise.



4G: The 4G spectrum has created disruption but at the same time has made people look at the telecom operators once again to see which one they will side with. In india for example, the free plans of Reliance jio have resulted in many people leaving Vodafone and joining Jio. Nonetheless, in the long run, the 4G spectrum can result in higher revenues for the telecom 29

operator. 

Improving the network coverage: A major problem which consumers of Vodafone sometimes have from the brand is its network coverage. Vodafone is known to have poor network coverage many a times.

Threats in the SWOT analysis of Vodafone 

Competition – A major threat for Vodafone is the competition it faces everywhere it goes. So if it goes to the US, it will face competition from Verizon Wireless and AT&T. China has its own China mobile. India has Airtel and Reliance Jio. There is cut throat competition in the telecom sector and this is strongly affecting the brand Vodafone.



Low margins – Vodafone’s differentiation initially worked, but in the last 3-4 years, the competition has been so fierce, that the whole telecom market is operating in a penetrative pricing mechanism. Competition is always good for consumers but too much competition is bad for companies.



Mobile number portability – MNP is a major threat to Vodafone because whenever a competitor introduces a cheap plan or someone like Reliance Jio gives phone calls and internet for free, then consumers dont think twice before switching brands. MNP has made it easier for consumers to switch between multiple telecom operaters.



Saturation – Saturation of the market in terms of the noise created by the telecom operators as well as the number of competitors present ultimately results in a waste of revenue spent on customer acquisition campaigns or strategies. Saturation results in the brand spending more and more on customer acquisition and getting lesser customers for the same amount spent.

30

CHAPTER-4 REVIEW OF LITERATURE

31

WORKING CAPITAL MANAGEMENT INTRODUCTION In a perfect world, there would be no necessity for current assets and liabilities because there would be no uncertainty, no transaction costs, information search costs, scheduling costs, or production and technology constraints. The unit cost of production would not vary with the quantity produced. Borrowing and lending rates shall be same. Capital, labour, and product market shall be perfectly competitive and would reflect all available information, thus in such an environment, there would be no advantage for investing in short term assets. However the world we live is not perfect. It is characterized by considerable amount of uncertainty regarding the demand, market price, quality and availability of own products and those of suppliers. There are transaction costs for purchasing or selling goods or securities. Information is costly to obtain and is not equally distributed. There are spreads between the borrowings and lending rates for investments and financings of equal risks. Similarly each organization is faced with its own limits on the production capacity and technology. It can employ there are fixed as well as variable costs associated with production goods. In other words, the markets in which real firm operated are not perfectly competitive.

Working Capital In simple words working capital is the excess of current Assets over current liabilities. Working capital has ordinarily been defined as the excess of current assets over current liabilities. Working capital is the heart of the business. If it is weak business cannot proper and survives. It is therefore said the fate of large scale investment in fixed assets is often determined by a relatively small amount of current assets. As the working capital is important to the company is important to keep adequate working capital with the company. Cash is the lifeline of company. If this lifeline deteriorates so the company’s ability to fund operation, reinvest do meet capital requirements and payment. Understanding Company’s cash flow health is essential to making investment decision. A good way to judge a company’s cash flow prospects is to look at its working capital management. The company must have adequate working capital as much as needed by the company. The primary objective of working capital management is to ensure that sufficient cash is available to: 32

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Meet day to day cash flow needs.

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Pay wages and salaries when they fall due.

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Pay creditors to ensure continued supplies of goods and services.

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Pay government taxation and provider of capital – dividends and

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Ensure the long term survival of the business entity.

Kinds of working capital Working capital can be put in two categories: 1. fixed or permanent working capital 2. fluctuating or temporary working capital

Fixed or permanent working capital The volume of investment in current assets an change over a period of time. But always there is minimum level of current assets that must be kept in order to carry on the business. This is the irreducible minimum amount needed for maintaining the operating cycle. It is the investment in current assets. This is permanently locked up in the business and therefore known as permanent working capital.

Variable/temporary working capital It is the volume of working capital which is needed over and above the fixed working capital in order to meet the unforced market changes and contingencies. In other words any amount over and about the permanent level of working capital is variable or fluctuating working capital. This type of working capital is generally financed from shorter source of finance such as bank credit because this amount is not permanently required and is usually paid back during off season or after the contingency.

Sources of working capital The company can choose to finance its current assets by 1. Long term sources 2. Short term sources 33

3. A combination of the two

Long term sources Long term sources of permanent working capital include equity and preference shares, retained earnings, debentures and other long term debts from public deposits and financial institution. The long term working capital needs should meet through long term means of financing. Financing through long term means provides stability, reduces risk or payment and increases liquidity of the business concern. Various types of long term sources of working capital are summarized as follow

Issue of shares It is the primary and most important sources of regular or permanent working capital. Issuing equity shares as it does not create and burden on the income of the concern. Nor the concern is obliged to refund capital should preferably raise permanent working capital.

Retained earnings Retain earning accumulated profits are a permanent sources of regular working capital. It is regular and cheapest. It creates not charge on future profits of the enterprises.

Issue of debentures It creates a fixed charge on future earnings of the company and the company is obliged to pay interest. Management should make wise choice in procuring funds by issue of debentures.

Long term debt Company can raise fund from accepting public deposits, debts from financial institution like banks, corporations etc. the cost is higher than the other financial tools. Other sources consist of the sale of idle fixed assets, securities received from employees and customers are examples of other sources of finance.

34

Types of working capital TYPES OF WORKING CAPITAL ON THE BASIS OF B/S CONCEPT GROSS WORKING CAPITAL

ON THE BASIS OF TIME

NET WORKING CAPITAL

REGULAR WORKING CAPITAL

TEMPORARY WORKING CAPITAL SEASONAL WORKING CAPITAL SPECIFIC WORKING CAPITAL

SIGNIFICANCE OF WORKING CAPITAL:-

PAYMENT TO SUPPLIERS EASY LOAN FROM BANKS

DIVIDEND DISTRIBUTION SIGNIFICAN-CE OF WORKING CAPITAL

INCREASE EFFECIENCY

INCREASE DEBT CAPACITY INCREASE IN FIX ASSETS

Concept of working capital 1.

Gross Working Capital = Total of Current Asset

2.

Net Working Capital = Excess of Current Asset over Current Liability 35

Current Assets

Current Liabilities

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Cash in hand / at bank

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Bills Payable

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Bills Receivable

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Sundry Creditors

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Sundry Debtors

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Outstanding expenses

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Short term loans

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Accrued expenses

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Investors/ stock

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Bank Over draft

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Temporary investment

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Prepaid expenses

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Accrued incomes

Working capital in terms of five components: 1. Cash and equivalents: This most liquid form of working capital requires constant supervision. A good cash budgeting and forecasting system provides answers to key questions such as: Is the cash level adequate to meet current expenses as they come due? What is the timing relationship between cash inflow and outflow? When will peak cash needs occur? When and how much bank borrowing will be needed to meet any cash shortfalls? When will repayment be expected and will the cash flow cover it?

2. Accounts receivable: Many businesses extend credit to their customers. If you do, is the amount of accounts receivable reasonable relative to sales? How rapidly are receivables being collected? Which customers are slow to pay and what should be done about them?

3. Inventory: Inventory is often as much as 50 percent of a firm's current assets, so naturally it requires continual scrutiny. Is the inventory level reasonable compared with sales and the

nature of your business? What's the rate of inventory turnover compared with other companies in your type of business?

4. Accounts payable: Financing by suppliers is common in small business; it is one of the major sources of funds for entrepreneurs. Is the amount of money owed suppliers reasonable relative to what you purchase? What is your firm's payment policy doing to enhance or detract from your credit rating.

5. Accrued expenses and taxes payable: These are obligations of your company at any 36

given time and represent a future outflow of cash.

Two different concepts of working capital are 

Balance sheet or Traditional concept



Operating cycle concept.

Operating cycle concept The duration or time required to completing the sequence of events right from purchase of raw material for cash to the realization of sales in cash is called the operating cycle or working capital cycle.

RAW MATERIAL

CASH

OPERATING CYCLE

DEBTORS & BILLS

WORK IN PROGRESS

RECEIVABLES

FINISH GOODS

SALES

NEED FOR WORKING CAPITAL Along with the fixed capital almost every business requires working capital though the extend of working capital requirements differs in different businesses. Working capital is needed for running to day-to-day business activities. When a business is started, working capital is needed 37

for purchasing raw materials. The raw material is then converted into finished goods by incurring some additional costs on it. Now goods are sold. Sales don’t convert into cash instantly because there is invariably some credit sales. Thus, there exists a time lag between sales of goods and receipt of cash. During this period, expenses are to be incurred for continuing the business operations. For this working capital is needed. Therefore, sufficient working capital is needed which shall be involved from the purchase of raw materials to the realization of cash. The time period that is required to convert raw materials into finished goods and then into cash is known as operating cycle or cash cycle. The need for working capital can also be explained with the help of operating cycle.

OPERATING CYCLE OF A MANUFACTURING CONCERN INVOLVES FIVE PHASES:  Conversion of cash into raw material.  Conversion of raw material into work-in-progress.  Conversion of work-in-progress into finished goods.  Conversion of finished goods into debtors by credit sales.  Conversion of debtors into cash by realizing cash from them. Thus, the operating cycle start from cash finishes at cash and then again restarts from cash. Need for working capital depends upon period of operating cycle. Greater the period more will be the need for working capital. Period of operating cycle in a manufacturing concern is greater the Period of operating cycle in a reading concern because in trading units cash is directly converted into finished goods. Because of the time involved in an operating cycle, there is a need of working capital in the form of current assets. Firms have to keep adequate stock of raw materials to avoid risk of non-availability of raw materials. Similarly, concerns must have adequate stock of finished goods to meet the demand in market on continuous basis and avoid being out of stock. Concerns also have to sell finished goods on credit due to competition which necessities the money tied up in debtors and bills receivables. In addition to all these, concerns have to necessarily keep cash to pay the manufacturing expenses etc. and to meet the contingencies 38

DETEMINANTS OF WORKING CAPITAL 

Nature of business

Working capital requirements of an enterprise are largely influenced by the nature of its business. Public utilities have the lowest requirements for the current assets partly because of cash nature of their business and partly because of cash nature of their business and partly of their selling a service instead of a commodity and there is no need of maintaining big investors. On the contrary, trading concerns have to invest proportionately high amount in current assets, as they have to carry stock in trade account receivable and liquid cash. Generally speaking, trading and financial firms require relatively large amount of working capital, public utilities comparatively small amounts where as manufacturing concerns stands between these two extremes, their needs depending upon the character of the industry to which they are a part. 

Size of business

Large the size of the business enterprise, grater would the need for working capital. The size of a business may be measured in terms of scale of its business operations. Production cycle means the time-span between the purchase of raw material and its conversio into finished goods. The longer the production cycle, the larger will be the need for working capital because the funds will be tied up for a longer period in work-in-progress. If the production cycle is small the need for working capital will also be small. 

Manufacturing process

If the manufacturing process in an industry entails a longer period because of its complex character more working capital is required to finance that process. The longer it takes to makes an approach and the greater its cost, the larger the inventory tied up its manufacture and therefore higher the amount of working capital. 

Growth and expansion

As a business enterprise grows, it is logical to expect that a larger amount of working capital will be required. Growing industries requires more working capitals than those that are static do. 

Business fluctuations

Business fluctuations may be in the direction of boom and depression. During boom period the 39

firm will have to operate at full capacity to meet the increased demand which in turn, leads to increase in the level of inventories and book debts. Hence, the need for working capital in boom conditions is bound to increase. The depression phase of business fluctuations has exactly an opposite effect on the level of working capital requirement. 

Credit policy relating to sales

If a firm adopts liberal credit policy in respect of sales, the amount tied up in debtors will also be higher. Obviously, higher book debts mean more working capitals. On the other hand if the firm follows tight credit policy, the magnitude of working capital will decrease. 

Credit policy relating to purchase

If a firm purchases more goods on credit, the requirement for working capital will be less. In other words, if liberal credit terms are available from the supplier of the goods (i.e. creditors) the requirement of the working capital will be reduced and vice- versa. 

Availability of raw material

If the raw material required by the firm is available easily on a continuous basis, there no one will keep large inventory of such raw material and hence the requirement of working capital will be less and vice-versa.

MORE ABOUT WORKING CAPITAL Cash management Cash is the important current asset for the operations of the business. Cash is the basic input needed to keep the business running on a continuous basis it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s operations while excessive cash will simply remain idle, without contributing anything towards the firm’s profitability. Thus a major function of the financial manager is to maintain a sound cash position. The basic characteristics of near cash assets are that they can readily be converted into cash. Cash management is concerned with managing of: 

Cash flows in and out of the firm 40



Cash flows within the firm



Cash balances held by the firm at a point of time by financing deficit or inverting surplus cash. Sales generate cash which has to be disbursed out. The surplus cash has to be invested while deficit cash has to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At the same time it also seeks to achieve liquidity and control. Therefore the aim of cash management is to maintain adequate control over cash position to keep firm sufficiently liquid and to use excess cash in some profitable way.

Motives for holding cash There are four primary motives for maintaining cash balances: 

Transaction motive

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Precautionary motive

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Speculative motive

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Compensating motive

Transaction motive: The transaction motive refers to the holding of cash to meet anticipated obligations whose timing is not perfectly synchronized with cash receipts. if the receipts of cash and its disbursements could exactly coincide in the normal course of operations, a firm would not need cash for transaction purposes.

Precautionary motive: Precautionary motive of holding cash implies the need to hold cash to meet unpredictable obligations and the cash balance held in reserve for such random and unforeseen fluctuations in cash flows are called as precautionary balances.

Speculative motive: It refers to the desire of a firm to take advantage of opportunities which present themselves at unexpected movements and which are typically outside the normal course of business. The speculative motive represents a positive and aggressive approach. Firms aim to exploit profitable opportunities and keep cash in reserve to do so.

Compensation motive: Yet another motive to hold cash balances is to compensate banks 41

for providing certain services and loans. Banks provide a variety of services to business firms, such as clearances of cheques, supply of credit information, transfer of funds, etc.

Evaluation of cash management performances To assess the cash management performance this phase is divided as follows:

a. Size of cash. b. Liquidity and adequacy of cash. c. Control of cash. d. Inventory management. e. Debtor turnover. a. Size of Cash Common size cash flow statement is a standardized format of the cash flow statement which makes comparison across time periods and across peers more meaningful. Common size cash flow statement can be built by stating each item in a cash flow statement as a percentage of revenue. Alternatively, each cash inflow can be stated as a percentage of total cash inflows and each cash outflow as a percentage of total cash outflows.

b. Liquidity and Adequacy of Cash One of the most important jobs of finance manager is to maintain sufficient liquidity to enable the firm to pay off its obligations when they fall due. To test a firm’s liquidity and solvency we commonly use current and quick ratios. Traditionally 2:1 current ratio and 1:1 quick ratio are taken as satisfactory standards for the purpose. The former indicates the extent of the soundness of the current financial position of a firm and the degree of safety provided to the creditors, later signifies the ability of a firm to settle all its current obligations on a particular date.

c. Control of cash One of the major objectives of cash management from the stand point of increasing return on 42

investment is to economize on the cash holding without impairing the overall liquidity requirements of the firms. This is possible by effecting tighter controls over cash flows. The following ratio has been applied to assess the efficiency of cash control: Cash to current assets ratio Cash turnover ratio Cash to current liabilities ratio

d. Inventory management The scope of inventory management concerns the balance between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space, quality management, replenishment, returns and defective goods, and demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an ongoing process as the business needs shift and react to the wider environment. Inventory management involves a retailer seeking to acquire and maintain a proper merchandise assortment while ordering, shipping, handling and related costs are kept in check. It also involves systems and processes that identify inventory requirements, set targets, provide replenishment techniques, report actual and projected inventory status and handle all functions related to the tracking and management of material. This would include the monitoring of material moved into and out of stockroom locations and the reconciling of the inventory balances. It also may include ABC analysis, lot tracking, cycle counting support, etc. Management of the inventories, with the primary objective of determining/controlling stock levels within the physical distribution system, functions to balance the need for product availability against the need for minimizing stock holding and handling costs. Reasons for keeping stock.

43

CHAPTER-4 RESEARCH MATHODOLOGY

44

Research Methodology Methodology may be a description of process, or may be expanded to include a philosophically coherent collection of theories, concepts or ideas as they relate to a particular discipline or field of inquiry. This project requires a detailed understanding of the concept Working Capital Management. Therefore, firstly we need to have a clear idea of, what is working capital, how it is managed in Telecommunication , what are the different ways in which the financing of working capital is done in the organization etc. In order to understand further data was collected from departments.

OBJECTIVE OF STUDY  To study the working capital management of the three company.

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To know the sundry debtors of the company.

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To know about the cash and bank balance of the company.

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To know about the loans and advance of the company.

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To study the current liabilities of the company.

SCOPE OF THE STUDY 

The area of study is Complete in the financial management and (working capital) of company string tools in this study



I covered net capital, net working capital, current assets, current liability and study of inventory turnover, debit turnover



I can use of purchase. Of turn over regarding of working capital and management case with the material production to production operation



One can spend on my various area which are to over in my study



To managing the financial activity.

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To help the Finance Department to evaluate shortcomings in the financial programs.

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To help the Finance Department to effective utilization of the funds. 45



To help the Finance Department to understand where the scope of improvement in the future.



To help the Finance Department to evaluate the financial activity of the organization.

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To help the Finance Department to evaluate the comparative study.

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To help in know the financial position of the company.

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To help the Finance Department in forecasting.

Collection of data There are two ways of collecting data

Primary data



Secondary data

Primary Data The first handed information collected through various methods is known as primary data. The primary data was gathered through personal interaction with various functional and technical personnel of tyre industry. Some information was also collected by observation.

Secondary Data Secondary data is data collected by someone other than the user. Common sources of secondary data for social science include censuses, surveys, organizational records and data collected through qualitative methodologies or qualitative research. Secondary data was collected from various reports, annual reports, documents charts, internet etc. The analysis of the information gathered has been made on the basis of the clarifications sought during the personal discussions with the concerned peoples the personal visits to the important areas of services. In marking observations identifying problems and suggesting certain remedies such emphasis was given on the basis of opinions gathered during the personal discussions and with the personal experience gained during the study. Working capital occupies a peculiar position in the capital structure of a company. The decision as to the adequacy of working capital is a complicated and yet a very important Decision. Working capital is the life-line of all types of enterprises, manufacturing and trading both. It is constantly required to buy raw materials, for payment of wages and other day-to-day expenses. Without adequate working capital, manufacturing operations will be crippled. For trading enterprises, the capacity to stock a variety of goods for sale depends upon its working 46

capital.. By effectively managing these components, companies can sharply reduce their depende nce on outside funding and can use the released cash for further investments or acquisitions. This will not only lead to more financial flexibility, but also create value and have a strong impact on a company‘s enterprise value by reducing capital employed and thus increasing asset productivity. High working capital ratios often mean that too much money is tied up in receivables and inventories. Typically, the knee-jerk reaction to this problem is to apply the ―big squeeze by aggressively collecting receivables, ruthlessly delaying payments to suppliers and cutting inventories across the board. But that only attacks the symptoms of working capital issues, not the root causes. A more effective approach is to fundamentally rethink and stream line key processes across the value chain. This will not only free up cash but lead to significant cost reductions at the same time. Only those enterprises which have adequate working capital can survive in times of depression. The investment in raw materials becomes long- term investments during depression and cash flow declines due to fall in sale. In such circumstances only enterprises with adequate working capital can survive. Excessive working capital is equally unprofitable. The extra working capital is not utilized in business operations and earns no profit for the firm. It results in unnecessary accumulation of inventories, leading to inventory mishandling, waste, theft etc. The abundance of working capital would lead to waste and inefficiency. Shortage of working capital funds renders the firm unable to avail attractive credit opportunities etc. The firm loses its reputation when it is not in a position to honor its short term obligations. As a result, the firm faces tight credit terms. It straight growth.

LIMITATIONS OF STUDY I have tried my best to make this report free from any sort of errors however, these were certain things which could not be avoided. The problems that I had cape with in the course of this project are; There may be limitations to this study because the study duration (summer placement) is very short and it’s not possible to observe every aspect of working capital management practices. 

Time is the Real factor that affects the study i.e. , the time duration of eight week for the project work is very short span of time to conduct effective study. 47



Most of the Department id remaining untouched to this exercise. Hence it does not bring the complete picture of organization’s competence level



Employee needs expectation and behaviors vary from one person to another person. During survey some employee show keen interest in the topic and give their views and on the other hand, some employee does not interest and help wholeheartedly in my survey.

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Scarcity of needful printed document on the topic.

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All the employees and officers were found very busy in their working hours.



Many a time my guide and other executive were not available in their seats because they were busy in their allied work so as researcher I have to visit many to meet them and discuss on my topic.

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CHAPTER-5 Data interpretation

49

Q1. Working capital of the telecommunication companies from the financial year 2014-2017 ? (in cr.) 2014-2015

2015-2016

2016-2017

Airtel

150.46

178.46

190.47

Idea

170.36

190.47

230.46

vodafone

130.46

150.47

170.37

From the diagram 250

200

150

Airtel Idea Vodafone

100

50

0 2014-2015

2015-2016

2016-2017

INTERPRETATION In the above the diagram show the working capital of three telecommunication company. In which Airtel, Idea and Vodafone telecommunication company increase the working capital respectively from Rs.150.46cr. , Rs.170.36cr. and Rs.130.46cr. to Rs.190.47cr. , Rs.230.46cr. and Rs.170.37cr. respectively from the FY 2014-2017.

50

Q2. Sundry debtor analysis of the telecommunication from the financial year 2014 – 2017 ? (in cr.) 2014-2015

2015-2016

2016-2017

Airtel

203.26

220.36

260.48

Idea

327.46

360.58

374.56

vodafone

150.57

170.46

195.47

From the diagram 400 350 300 250

Airtel idea

200

Vodafone

150 100 50 0

2014-2015

2015-2016

2016-2017

INTERPRATATION

In the above the diagram show the sundry debtors analysis of thee telecommunication company. In which Airtel, Idea and Vodafone telecommunication company increase the sundry debtors respectively from Rs.203.26cr. , Rs.327.46cr. and Rs.150.57cr. to Rs.260.38cr. , Rs.374.56cr. and Rs.195.47cr. respectively from the FY 2014-2017.

51

Q3. Cash and bank balance analysis of the telecommunication from the financial year 2014-2017 ? (in cr.) 2014-2015

2015-2016

2016-2017

Airtel

203.26

220.36

260.48

Idea

327.46

360.58

374.56

vodafone

150.57

170.46

195.47

From the diagram 400 350 300 250

Airtel Idea

200

Vodafone

150 100 50 0

2014-2015

2015-2016

2016-2017

INTERPRATATION

In the above the diagram show the cash and bank balance of three telecommunication company. In which Airtel, Idea and Vodafone telecommunication company increase the cash and bank balance respectively from the Rs.203.26cr. , Rs.327.46cr. and Rs.150.57cr. to Rs.260.48cr. , Rs.374.56cr. and Rs.195.47cr. respectively from the FY 2014-2017.

52

Q4. Loan and advance analysis of the telecommunication from the financial year 2014 to 2017 ? (In cr.) 2014-2015

2015-2016

2016-2017

Airtel

1050.65

1123.78

1308.08

Idea

1167.87

1445.67

1987.23

Vodafone

950.67

1078.56

1507.10

From the diagram 2000 1800

1600 1400 1200

Airtel

1000

Idea Vodafone

800 600 400 200 0 2014-15

2015-16

2016-17

INTERPRETATION

53

Q.5 Current liabilities analysis of telecommunication from the financial year 2014 – 2017 ? (In cr.) 2014-2015

2015-2016

2016-2017

Airtel

2016.76

2467.56

2245.90

Idea

2945.56

3108.90

2587.56

vodafone

1903.39

2269.87

2496.56

From the diagram 3500 3000 2500 Airtel

2000

Idea 1500

Vodafone

1000 500 0 2014-16

2015-16

2016-17

INTERPRETATION

54