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Chapter-IPHILIPS ELECTRONICS LTD.

-AN OVERVIEW

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COMPANY PROFILE

MISSION & VISION

Mission

"Improve the quality of people’s lives through timely introduction of meaningful innovations."

Vision

“In a world where complexity increasingly touches every aspect of our daily lives, we will lead in bringing sense and simplicity to people.”

VALUES

Delight Customers

Deliver great results

Develop people

Depend on each other

GOALS & OBJECTIVES

Delight Customers

We anticipate and exceed customer expectations

We demonstrate Passion for Philips and "sense and simplicity"

We create superior customer experiences, based on deep insights

We act as One Philips ambassadors all the time

Deliver great results

We continually raise the bar

We play to win big and always set ambitious targets

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We challenge the status quo and experiment with new ways

We take clear decisions and implement with speed and discipline

Develop people

We get the best from ourselves and each other

We attract the best players to create strong and diverse teams

We take risks by giving people stretch assignments to accelerate their development

We personally invest significant time to coach and recognize people

Depend on each other

We deliver more value by working as One Philips

We think as One Philips and act as owners

We trust and empower each other to contribute our best

We team up and allocate resources to the most promising opportunities

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HISTORY

. When Philips started manufacturing incandescent lamps in 1891, there was already a separate industrial research laboratory outside the factory; a concept virtually unknown elsewhere. In 1913, another major step was taken with the opening of a physics laboratory (the 'Nat. Lab.'). Under the leadership of Dr Gilles Holst, the Philips Research organization became a major center of technical competence and innovation.

From 1914-1945

1914 to 1945 saw considerable growth and diversification. Improvements were made to the incandescent lamp, and gas discharge lamps proved more efficient in generating light. Meanwhile our 'bulb expertise' led to new products such as the X-ray tube and the radio valve. The invention of the pentode gave Philips an important patent in radio. In 1923, Philips decided to become a 'systems supplier' instead of a 'components company', and consequently the research organization broadened its scope into radio as well as television.

1945-1970

After World War II there was a period of expansion. The sky was the limit. Television built on research carried out in the 30s became a mass-produced consumer phenomenon. The invention of the transistor by Bell Labs changed the world of electronics forever. We built up a strong patent position in magnetic materials, and contributed many breakthroughs such as the LOCOS process (LOCal Oxidation of Silicon), used in every modern Metal-Oxide-Semiconductor (MOS) IC, the rotary heads for the Philishave electric shaver (1950s), and the compact audio cassette (1963), a breakthrough in audio recording. Research laboratories in England, France, Germany and the USA were founded.

1970-today

From 1970 to the present day, our research has been tied much more closely to our industrial and business activities. This resulted in revolutionary developments such as the introduction of the CD, the DVD and Blu-ray Disc. In the medical sphere we made great strides forward in magnetic-resonance imaging and ultrasound, and with our increasing focus on health and well-being, these developments are still ongoing: in 2006, we saw the first commercial launch of a 3D scanner.

In that same year, we sold 80% of our Semiconductors business as a new independent company, NXP, was created. We also adopted Open Innovation as our way of working: the High Tech Campus Eindhoven was opened up to external companies.At Philips Research, we continue to focus on meaningful innovations that improve people’s lives. Ambilight, for example, has brought a whole new dimension to TV viewing, and in 2007, we developed Lumiramic – a groundbreaking new phosphor technology for energy-efficient white LEDs – together with our partners.

The future of Philips Research

Philips Research will remain an important driving force in realizing Philips’ vision to become an even more market-driven and people-centric health and well-being company. We do this by

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continually evaluating key issues and trends in society to ensure that people’s needs are at the heart of our innovations, now and in the future.

Royal Philips Electronics of the Netherlands is a diversified Health and Well-being company, focused on improving people’s lives through timely innovations. As a world leader in healthcare, lifestyle and lighting, Philips integrates technologies and design into people-centric solutions, based on fundamental customer insights and the brand promise of “sense and simplicity”.

 

Headquartered in the Netherlands, Philips employs approximately 121,000 employees in more than 60 countries worldwide. With sales of EUR 26 billion in 2008, the company is a market leader in cardiac care, acute care and home healthcare, energy efficient lighting solutions and new lighting applications, as well as lifestyle products for personal well-being and pleasure with strong leadership positions in flat TV, male shaving and grooming, portable entertainment and oral healthcare.

Philips Electronics India LimitedPhilips Electronics India Limited, a subsidiary of the Netherlands-based Royal Philips Electronics, is the leading Health and Wellbeing company. Today, Philips is a simpler and more focused company with global leadership positions in key markets of Healthcare, Lighting and Consumer Lifestyle, addressing people’s Health and wellbeing needs and aspirations as its overarching theme.

 

As one of the nation's most well-known and well-loved brands, Philips is a part of practically every Indian's life. With recent launch of Philips Respironics product categories in obstructive sleep apnea management and home respiratory care, home decorative lighting range and ALU range, Philips products find use in virtually every aspect of an individual’s daily life 24X7 - at home, at work, on the move and at rest. Philips stands as a source of easy to use, trendy and innovative internationally acclaimed products with superior design and technology that enhance the quality of consumers' professional and personal lives.

 

Philips has been operating in India for over 75 years and employs over 4,500 employees around the country.  The company has an excellent pan India distribution and after-sales service network.

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BUSINESSES

Lighting 

Philips Electronics India, India’s largest lighting company operates in business areas of Lamps, Luminaires, Lighting Electronics, Automotive and Special Lighting. Today, as global leader in Lighting, Philips is driving the switch to energy-efficient solutions. With worldwide electrical lighting using 19 per cent of all electricity, the use of energy-efficient lighting will significantly reduce energy consumption around the world and thereby cut harmful CO2 emissions. Philips India has been consistently working with industry bodies such as ELCOMA, Bureau of energy efficiency and NGOs towards addressing India’s power crisis through promotion of energy efficient lighting in India.

 

Philips provides advanced energy-efficient solutions for all segments: road lighting, office & industrial, hospitality and home. Philips is also a leader in shaping the future with exciting new lighting applications and technologies such as LED technology, which, besides energy efficiency, provides attractive benefits and endless new ‘never-before-possible’ lighting solutions.

 

In 2008, Philips inaugurated a global research and development (R&D) centre for lighting electronics in India. This was its third such unit in the world. The facility which is situated in Noida will not only cater to the needs of the Indian market but also the Asia-Pacific, Europe and North America. The other R&D centres are located at Eindhoven in the Netherlands and in Shanghai, China. One of the primary research areas for the centre is to develop products that can tackle high voltage fluctuations in India. The centre currently employs 35 engineers. Around 40 per cent of Philips’ revenue in India comes from the lighting business

Consumer lifestyle

Guided by the brand promise of “sense and simplicity” and the consumer insights, Philips Consumer Lifestyle offers rich, new consumer experiences that meet consumers’ desire for relaxation and improving their state of mind. Philips also responds to the consumer's desire for wellness and pleasure by introducing products that meet the individual’s interests in terms of their mind, space, body and appearance.

 

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The Consumer Lifestyle arm in India operates in the business areas of Home Entertainment solutions and Personal Infotainment with product categories such as TVs, home theatre systems, music systems, DVD players, personal entertainment solutions, sound accessories, Domestic Appliances and Personal care.

Philips Innovation Campus (PIC)

Philips Innovation Campus (PIC), Bangalore is a division of Philips Electronics India Limited, which is owned 96% by Royal Philips Electronics N.V., The Netherlands. It was established in August 1996, with a vision to be an innovation hub creating next generation solutions and products for Healthcare and Lifestyle. With the objective of meeting the growing need for high-quality, cost-effective software development capacity within the organization, PIC’s share has increased significantly from 8% in 1998 to around 20% in 2008.

 

Working at PIC are about 1000 of the industry's finest professionals, using state-of-the-art software engineering paradigms and platforms including real-time systems, component-based software engineering and multi-threaded architecture to drive the creation of tomorrow's products and services. PIC is an ISO 9001/Tick IT, SEI, CMM SM level 5 company & has emerged as a critical partner in the development of strategic & futuristic technologies for Philips worldwide. 60,000 registered patents illustrate the innovative nature of the company. Philips has adopted an Open Innovation strategy which leverages the joint innovative power of partnering companies and researchers to bring more innovations to the market effectively and faster. PIC has built-up extensive know-how and expertise in the software engineering and technology domains relevant to its business. In addition, competencies in the areas of project management, requirement engineering and quality assurance have been established to offer customers products and services of the highest quality, at the fastest time-to-market and the lowest cost of ownership.

RESEARCH AND DEVELOPMENT

Since its foundation 100 years ago, Philips Research has been at the forefront of fundamental scientific research. But, with market focus being more and more important across almost all corporate R&D organizations, is this still the case? If some of the pioneering work being done by scientists across Research is anything to judge by, the answer is a resounding “yes”.

It’s different at the cutting edge

In today’s market-focused corporate R&D organizations, the boundary between fundamental scientific research and applied research is becoming increasing blurred – particularly when it comes to some of the most exciting areas of research. “Here at Philips, our way of working is very dynamic,” says Philips Research’s Chief Science Officer Emile Aarts. “This means that you can apply both the ‘fundamental’ and the ‘applied’ labels to many of the projects that we’re

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working on because they are both very flexible terms.” Philips Research’s work on sleep, for instance, is an excellent example of this more dynamic approach. “This is a very important area for Philips – but there’s currently very little fundamental knowledge available. That’s why we’re involved in investigating the key issues at a more fundamental level together with our university and research institute partners. The only difference is that we want this research to lead to marketable products and solutions.”

Open Innovation in new areas

Despite the flexible nature of the “fundamental” and “applied” labels, it is still possible to detect a decline in some areas of more fundamental research at Philips in recent years. “This has mainly occurred in fields that don’t support the execution of our company’s Health and Well-being strategy,” says Aarts. As he explains, this refocusing exercise has gone hand-in-hand with an expansion of more fundamental research activities in a number of new fields, such as deep-brain stimulation and multi-modal imaging for healthcare applications. “In these fields we’re considered to be an extremely important research partner – especially by colleagues working in universities.” In the future, Philips Research will continue to develop its reputation in a number of exciting fundamental domains – “green lighting” and skincare are just two examples – albeit with a more applied focus. “Hopefully, this research will enable us to build on our strong heritage of improving the quality of people’s lives.

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BOARD OF DIRECTORS

Non-Executive Director & Chairman S. M. Datta

Executive Vice Chairman & Managing Director       Murali Sivaraman

Executive Director Jan-Hein Louwman

Non-Executive Director S. Venkatramani

India Management Team

MURALI SIVARAMANN - CEO

ANJAN BOSE - Healthcare

JAN-HEIN LOUWMAN – CEO

MAHESH KRISHNAN – Consumer lifestyle

RAJEEV CHOPRA – lighting

RAKESH SHARMA – Strategic Business Development

S. NAGARAJAN – Human resources

VIVEK SHARMA – Chief Marketing Officer

WIDO MENHARDT – Philips Innovation Campus

Corporate Office-

Philips Electronics India Ltd.

Technopolis Knowledge Park

Mahakali Caves Road,

Chakala, Andheri (East),Mumbai 400 093

Tel: +91 22 66912000

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VISION 2010

Through the Vision 2010 strategy, we aim to fuel growth by making Philips the leading brand in Health and Well-being. Vision 2010 further positions Philips as a market-driven, people-centric company with a strategy and a structure that fully reflect the needs of its customer base, while also increasing shareholder value. This is implemented through sharpened strategies in the three core sectors: Healthcare, Lighting and Consumer Lifestyle.

“With Vision 2010, we are putting people right at the center of things, with Health and Well-being as our overarching theme. We are thereby putting into practice our mission: improving the quality of life through the introduction of meaningful innovations.” – Gerard Kleisterlee, President and CEO of Royal Philips Electronic.

Our Ways of Working:

1. We are a people-centric company that organizes around customers and markets2. We invest in a strong brand and consistently deliver on our brand promise of “sense and

simplicity”, in our actions, products and services3. We deliver innovation by investing in world class strengths in end-user insights,

technology, design and superior supplier networks4. We develop our people’s leadership, talent and engagement and align ourselves with high

performance benchmarks5. We invest in high growth and profitable businesses and emerging geographies to achieve

market leadership positions6. We are committed to sustainability and focus on making the difference in efficient energy

use7. We drive operational excellence and quality to best in class levels, allowing us the above

mentioned strategic investments in our businesses.

BRAND PROMISE

It is the combination of two unique capabilities that enables us to deliver on our “sense and simplicity” promise. These capabilities are firstly, by understanding people and secondly, technology integration and product design.

We put our end users front and center of product innovations starting with understanding their needs and aspirations. We use best-in-class research facilities and agencies to validate and ensure that our product innovations are designed around people’s needs and aspirations, easy to experience and advanced.

SUSTAINABILITY

In 2009 we evaluated our sustainability strategy and resolved to fully leverage sustainability as an integral part of our overall strategy and an additional driver of growth, as reflected in the Philips Management Agenda 2010.

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To deliver on our brand promise of “sense and simplicity” and at the same time provide the company direction for the longer term in this area, we have identified three sustainability leadership key performance indicators where we can bring our competencies to bear, ‘care’, ‘energy efficiency’ and ‘materials’ including targets for 2015:

Bringing care to more than 500 million peopleTarget: 500 million lives touched by 2015

Improving energy efficiency of Philips productsTarget: 50% improvement by 2015 (for the average total product portfolio) compared to 2009

Closing the materials loopTarget: Double global collection, recycling amounts and recycled materials in products by 2015 compared to 2009.

Each sector will take the lead on one of the leadership key performance indicators with Healthcare leading ‘care’, Lighting ‘energy efficiency’ and Consumer Lifestyle ‘materials’.

In addition, we defined a set of complementary performance indicators to accelerate change and drive performance, including the EcoVision4 parameters

With EcoVision4 we have committed to the following by 2012:

• Generate 30% of total revenues from Green Products

• Double investment in Green Innovations to a cumulative EUR 1 billion• Improve our operational energy efficiency by 25% and reduce our CO2 emissions by 25%, all compared with the base year 2007.

SOCIAL COMMITMENT

Living up to this commitment means we use our capabilities to enhance the lives of our employees and people in society at large. Within the company, we encourage teamwork and collaboration in an environment that enables employees to reach their full potential.

Building on our rich heritage of involvement in social issues, we have established our own approach of supporting the communities where we live and work, focusing on energy efficiency and healthcare.

Sustainable lighting

 

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There is a pressing need to find innovative lighting solutions for the 1.6 billion people who live in areas with no access to the electricity grid or where the grid is unreliable. That’s why we have developed SMILE (Sustainable Model in Lighting Everywhere).

Launched as a pilot in 2006 in four Indian states, SMILE includes two lighting solutions: UDAY, a rechargeable portable lantern, and KIRAN, a hand-cranked LED flashlight. Today are distributed in eighth Indian states.

PRESS RELEASES

Tuesday, July 20, 2010  

Philips OLED luminaire concepts receive honorable mention in 2010 I.D. Annual Design review

Eindhoven, the Netherlands – Philips received an honorable mention for its OLED luminaire concepts, ‗The Beauty of Interaction‘, in the coveted I.D. Annual Design Review 2010.Wednesday, July 14, 2010  

Philips Design receives 8 iF communication design awards 2010

Eindhoven, the Netherlands – Royal Philips Electronics (NYSE:PHG, AEX: PHI) is proud to announce that Philips Design will receive 8 iF communication design awards, confirming Philips Design’s wide-ranging expertise in people-focused design. The awarded products received recognition in the categories digital media and the category packaging. Tuesday, June 08, 2010  

Philips Design launches new Design Probe Metamorphosis

Eindhoven, the Netherlands – Today Philips Design presents the latest Design Probe: Metamorphosis. The project explores how we have become separated from the natural world, both in terms of our surroundings and how we perceive and manage our time. It views the home as a filter to limit air pollution, electromagnetic smog, industrial noise, penetrating our living and working space while letting in natural light, air and sound. Friday, May 14, 2010  

Philips Design's Chulha at the National Design Triennial in the Smithsonian

Eindhoven, the Netherlands – Philips Designs’ award-winning smokeless stove, Chulha is part of the The National Design Triennial program, which will start today in the Smithsonian. The Triennial explores the work of designers addressing human and environmental problems across many fields of the design practice. Tuesday, May 11, 2010  

Philips Design presents innovative design during the Shanghai World Expo

Eindhoven, the Netherlands – Philips Design has sent award winning Chulha, the smokeless stove and the futuristic Biopharm, from Designs Probes program, to the Shanghai World Expo.

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Both items Illustrate Philips Designs innovative view on the World Expo’s theme: Better City, Better Live. Friday, May 07, 2010  

Philips Design's award winning solutions for Bosch and Sang Fei

Eindhoven, the Netherlands – Philips Design received two red dot awards for products designed for companies outside Philips, as part of the Philips Design Consulting and Brand Licensing business: the CCS 900 Ultro Discussion System designed for Bosch Security Systems and the Philips Xenium X712 mobile phone for Sang Fei. Both products have been designed by Philips Design. These 2 red dots are in addition to the 10 red dot awards that have been awarded for other Philips products.Wednesday, April 14, 2010  

Philips Design's award winning solutions for Bosch and Sang Fei

Eindhoven, the Netherlands – Philips Design received two red dot awards for products designed for external companies: the Ultro Discussion System designed for Bosch Security Systems and the Philips Xenium X712 mobile phone for Sang Fei. Both products have been designed by Philips Design. These 2 red dots are in addition to the 10 red dot awards that have been awarded for Philips products, as announced this week. Tuesday, April 13, 2010  

Philips awarded by prestigous red dot for product design

Eindhoven, the Netherlands – With no less than 12 red dot awards (including one honorable mention), Philips Design is once again recognized for its design excellence in product design. . These awards further validate Philips’ commitment to designing simplicity-led solutions for people.Wednesday, March 31, 2010  

Philips Design Food probes in London Design Museum

Eindhoven, The Netherlands – From March 31 until the beginning of September 2010, concepts from the Philips Design Probe: Food will be exhibited at the Design Museum in London. Both the Nutrition Monitor and the Biosphere Home Farming design concepts will be included in the Sustainable Futures exhibition which supports the idea that every single piece of design should consider the sustainability of its source material and to raise consciousness of our waste levels in the future.Wednesday, February 24, 2010  

Philips appoints first Chief Design Officer for Lighting

Amsterdam, The Netherlands – Today Philips announces a further step in elevating the role of design in the company. Recognizing that design is a key factor of brand differentiation and a significant source of competitive advantage, Philips has announced that Rogier van der Heide will be appointed in the newly created position of Chief Design Officer for Philips Lighting. The role of Chief Design Officer has already been established within the Philips Consumer Lifestyle and Healthcare Sectors.

SWOT ANALYSIS

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Strengths:• India was a market where the first mover enjoyed advantages over latecomers.• The first image of the product lasted long in the eyes of the consumer and the first to enter the market could gain the largest market share• PHILIPS is committed to enhance its image to the Chinese market as investors• PHILIPS was building a wholly owned manufacturing plant in India to show theChinese the commitment Korea had to the Chinese society.• Labor costs in India were less and would defray the cost of producing high-end• Samsung has been making color TVs for many years in Korea before moving to the Chinese market

Weaknesses:• PHILIPS must continue to control all costs to maintain success• India has a reputation of being a protected market (protectionism)• India was a market where the first mover enjoyed advantages over late comers, PHILIPS is trying to overcome the first comer advantage Japan manufacturers have over them by being those first comers• Companies such as Sony and Matsushita had built sales and service networks that were favorable to their sales programs in India, while Samsung would have to catch up in that area• Samsung is not as experienced in manufacturing high-end TVs for a higher-end market segment

Opportunities:• Based on the data that on 28% of the 220 million rural households own a color TV. PHILIPS focus on the domestic India market should be to penetrate the rural household market, which would mean that for those purposes the low-end production of sets in the 13” to 20” range should be produced to appeal to that segment’s purchasing ability.• Larger more high-end models can be produced to appeal to an urban customer in India, as well as being an export to the U.S. and European higher end customers.• With success in the higher-end manufacturing and sales of premium TVs in India; PHILIPS can establish themselves as high-end producers around the world

Threats:• PHILIPS faces intense competition in the color TV market• A premium-priced product wouldn’t sell in large volumes, so pricing can be a problem.• Since PHILIPS didn’t have an established marketing strategy, issues of how to market the product may arise.• Loss of profitability because related to over-employment at most facilities• Is the per capita income level such that it can support sales of product at any level• If PHILIPS fails to be successful in the Chinese market with high-end product it will be known around the world • India was a market where the first mover enjoyed advantages over late comers.

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• The first image of the product lasted long in the eyes of the consumer and the first to enter the market could gain the largest market share• PHILIPS is committed to enhance its image to the Chinese market as investors• PHILIPS was building a wholly owned manufacturing plant in India to show theChinese the commitment Korea had to the Chinese society.• Labor costs in India were less and would defray the cost of producing high-end.

PHILIPS ELECTRONICS MOHALI PLANT

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The mohali plant was established in 1985 as PUNJAB ANAND LAMP Ltd, as its second

division of lamp industry after the varodra plant , at that time it was a joint stock company and

majority of shares was with Punjab Anand Lamp around 75% , but in the year 2001 the company

ownership changed and the whole shares was bought by PHILIPS ELECTRONIC INDIA Ltd.

and its name was changed to PHILIPS ELECTRONIC INDIA Ltd. MOHALI LIGHT

FACTORY.

The plant is situated in Industrial focal point PHASE-9 MOHALI near Mohali railway station

and is sreaded in 26 acres. Total employees of tis plant is 532 including casual employees. This

company is a landmark in the Punjab state as it is the only factory which is most profitable one

than any industry located in Punjab.

OVERVIEW OF VARIOUS FRONTS OF

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PHILIPS ELECTRONICS INDIA Ltd.

Manufacturing-

Today the product range of Philips include the following products –

Televisions- LCD, Plasma, Flat Screen , Smart Touch XL.

Recorders, DVD Players, I pods and Home Theatre Systems.

Audio Products - Audio Systems, Remote Controls, Audio/Video Accessories.

Digital Photo Products and Frames.

Portable Audio and Video Systems, Accessories like Headphones and Speakers.

PC Products - Mouse and Keyboard, Multi Media Headsets, External Hard Disk Drives.

Mobile Phones.

Male Shaving and Grooming - Dry Shavers, Beard Trimmers.

Personal Care - Beauty and Hair Care Products.

Kitchen Appliances - Blenders and Hand Blenders, Juicers and Citruspresses, Food Processors and Mixers, Coffee Makers and Kettles, Frying and Grilling Appliances, Toasters and Snacking Products.

Household Products - Irons, Vacuum Cleaners, Water Purifiers.

Professional Lighting - Industrial, Shops and offices, Road and Area, Hospitality, Sports

Lighting, City Beautification and Petrol Stations.

Automotive Lighting - In Cars, Motorcycles and Trucks.

Home Lighting.

SERVICS

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Philips E-waste Management Program in India

Philips has tied up with a recycler for collecting, transporting and recycling unwanted / broken down consumer products.

 At Philips we offer consumers a convenient way of recycling their unwanted, obsolete and damaged Philips products by dropping them off at convenient locations. The program encompasses 8 major cities across India. Consumers can approach one of 27 authorized Philips service centres, which will act as collection points for consumer products which need recycling. Our efforts are to expand the network in the near future.

Philips ensures that the consumer products received will be recycled in an environment-friendly manner. Philips understand the corporate social responsibility and takes steps towards providing a safer environment to the future generations. We design our products to continuously realize improvements and reduce their overall life cycle environmental impact. Designing products for recycling is an integral part of this approach. Our aim is to use our planet’s limited resources effectively and respect the principle of extended producer responsibility. This also calls for manufacturers to engage in developing solutions for effective and efficient recycling of their products. We will continue to promote and invest into improved recycling systems to reduce the impact of electronic waste on the environment.

MANUFACTURING AT MOHALI PLANT –

Mohali plant mainly manufactures lighting products basically of domestic usage this includes the following products –

CFL bulbs –

1. Genie - 5 watt, 8 watt, 11 watt2. Essential – 8 watt, 11 watt, 14 watt, 18 watt, 23 watt, 29 watt3. Tornado – 5 watt, 8 watt, 11 watt, 14 watt, 18 watt, 23watt, 29 watt4. T5 slim tube 28 watt

Coil plant – Philips Electronics India is the only company that produces coils in the whole lighting industries in the world and in India only at the MOHALI PLANT.

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Chapter-II

OBJECTIVES OF THE STUDY

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OBJECTIVES OF THE STUDY

To study the various components of financial statements of Philips Electronics India Ltd.

and analyze them to identify the financial strength of the company.

To analyze the effect of current assets on the company’s return and risk.

To study the effect of current assets and current liabilities on the profitability and

liquidity position of the company.

To analyze the working capital position of the company in previous 4 years.

To suggest remedial measures for the improvement of the company’s performance

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Chapter-III

RESEARCH METHODOLOGY

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The basic task of research is to generate accurate information for use in decision-making.

Research can be defined as the systematic and objective process of gathering, recording and

analyzing data for aid in making business decisions. As the project involves analyzing of

financial structure, the research is exploratory in nature, covering financial parameters and come

of the important ratios to carry out research. There are basically two techniques adopted for

obtaining information:

Primary Data.

Secondary Data.

Primary Data is gathered specifically for the project at hand through personal interviews with

the accounts officers.

Secondary data is previously collected and assembled for some project other than the one at

hand. It is gathered and recorded by someone else prior to current needs of the researcher. It is

less expensive than the primary date.

Secondary Data can be obtained from both external and internal sources.

External data may be collected from books and periodicals, government sources, media and other

commercial sources.

Internal data is that secondary data, which is created, recorded or generated by the organization.

As the project is explanatory in nature secondary data is collected from the reports of the

company, books, journals and interest. Secondary data is gathered from annual reports, official

records and standing orders of the units.

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Chapter –IV FINANCIAL PERFORMANCE OF PHILIPS ELECTRONICS INDIA Ltd.

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FINANCIAL PERFORMANCE OF PHILIPS ELECTRONICS INDIA Ltd.

A financial statement is a systematic collection of data according to some logical and consistent accounting procedures. Its purpose is to convey an idea about some important financial aspects of a business firm. It may show a position at a moment of time as in the case of the balance sheet, or may reveal a series of activities over a given period of time as in the case of income statement. Various interested parties like management, creditors, investors, government and others to form judgement about the operative performance and financial position of the firm use the information contained in these financial statements. The users of financial statements can get better insight about financial strengths and weaknesses of the firm if they properly analyze the information given in these statements.The process of identifying the financial strengths and weaknesses of the firm by properly establishing relationship between the items of balance sheet and profit and loss account is called financial analysis. Such analysis is the starting point for making affective plans. Forecasting, which is an important pre-requisite of effective planning, requires understanding of the past to anticipate the future. Financial data can be used to analyze a firm’s past performance and assess its present financial strength. The nature of analysis will differ depending upon the purpose of the analyst. The present analysis is undertaken to evaluate performance of PHILIPS ELECTRONICS INDIA Ltd.In the present study, the financial and social performance of Philips is measured. For this purpose, an analysis of following aspects is done:Working Capital Management.

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KEY FINANCIALS OF PHILIPS ELECTRONICS INDIA Ltd

IN MILLIONS

Particulars June 2009 July 2010

Share Capital 13,372 15,797

Reserve & Surplus 1,853 1,803

Sales 5,230 6191

Net Profit (12) 463

EPS 14.39 16.65

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WORKING CAPITAL MANAGEMENT

Working capital refers to the excess of current assets over current liabilities. Management of working capital is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. In other words, it refers to all aspects of administration of both current assets and current liabilities.The basic current assets are cash, marketable securities, accounts receivable and inventory. The basic current liabilities are accounts payable, bills payable, bank overdraft, outstanding expenses.The goal of working capital management is to manage the firm’s current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. The reason behind this is if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy.

PRINCIPLES OF WORKING CAPITAL MANAGEMENT

The following are the main principles of a sound working capital management policy:

1.Principal of Risk Variation

Risk in this context, refers to inability of a firm to meet its obligations as and when they become due for payment. Larger investment in current assets with less dependence on short-term borrowing increases liquidity reduces risk and thereby decreases the opportunity for a loss. To the contrary, less investment in current assets with greater dependence on short-term borrowings increases risk, reduces liquidity as well as profitability. Thus there is a definite and inverse relationship between the degree of risk and profitability. A conservative management prefers to minimize the risk maintaining a higher level of current assets or working capital while a liberal management assumes greater risk by reducing working capital. However the goal of management should be to establish a suitable tradeoff between profitability and risk.

2. Principle of Cost of Capital.

Cost of raising capital is different for different sources of raising working capital finance. It is generally dependent on the degree of risk involved in raising capital from a particular source. Higher the risk, higher is the cost and lower the risk, lower is the cost. A sound working capital management should always try to achieve a proper balance between these two.

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3. Principle of Equity Position.

This states that the amount of working capital invested in each component should be adequately justified by a firm’s equity position. Every rupee invested in the current asset should contribute to the net worth of the firm. Thus this principle is concerned with planning the total investment in current assets. The level of current assets may be measure with the help of two ratios.Current assets as a percentage of total assets.Current assets as a percentage of total sales.While deciding about the composition of the current assets, the financial manager may consider the relevant industrial average.

4. Principle of Maturity of Payment.

This principle states that a firm should make every effort to relate maturities of payment to its flow of internally generated funds. It is concerned with planning the sources of finance for working capital. Maturity pattern of various current obligations is an important factor in risk assumptions and risk assessments. Generally, shorter the maturity schedule of current liabilities in relation to expected cash inflows the greater is the inability to meet its obligations in time.

There are two concepts under working capital-:

Gross Working Capital.Net Working Capital.

The term Gross Working Capital, also referred to as working capital, means the total current assets. The term Net Working Capital can be defined in two ways: mostly Net working Capital refers to the difference between the current assets and current liabilities.And second definition of Net Working Capital is that portion of current assets which is financed with long-term funds.

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Need for Working Capital-:The objective of financial decision making to maximize the shareholders wealth, it is necessary to generate sufficient profits. The extent to which profits can be earned will depend upon the volume of sales of a firm. However, sales do not convert into cash immediately there is a time lag between the sale of a goods and the receipt of cash. Therefore, a need of Working Capital in the form of current assets to deal with the problem arising out of the lack of immediate realization of cash against goods sold. That is why a sufficient amount of working capital is needed in the firm.Technically, this is referred to as the operating or cash cycle. The operating cycle can be said to be the heart of the need for working capital. The continuing flow from cash to suppliers, to inventory, to accounts receivables, and then back into cash is operating cycle.

Cash

Operating cycle

Nature of Working Capital RequirementsThe working capital requirements of a concern can be classified as:Permanent or fixed or regular working capital requirements.Temporary or variable working capital requirements.

Permanent or fixed working capitalPermanent or fixed working capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always minimum level of current assets, which is continuously required by the enterprise to

Debtors and bill Receivable

Finished goods

Work in progress

Raw Material

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carry out its normal business operations. A company maintains minimum level of raw materials, finished goods and cash balances. Amount of capital blocked in these assets is called as permanent or fixed working capital.

Temporary or variable working capital

Temporary or variable working capital is the amount of working capital, which is required to meet the seasonal demands and some contingencies.

FORMAT OF WORKING CAPITAL :-

Schedule of change in working capitalParticulars Current Year

(2007)Previous Year (2006)

Increase Decrease

Current Assets:-StockDebtorsCashTotal C.A. (A)

Current Liabilities:-

Total C.L. (B) Working capital (A-B)Increase or Decrease in Working capital

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FINANCING OF WORKING CAPITAL

Permanent working capital should be financed in such a manner that the enterprise may have its uninterrupted use for a sufficiently long period. Important sources are:1. Shares: Issue of shares is the most important source for raising the long term capital. Raising of permanent capital through the issue of shares has certain advantages like there is no fixed burden on the resources of the company and, moreover, no charge is created on the assets of the company.

2. Debentures: A debenture is an instrument issued by the company acknowledging its debt to its holder. Debentures carry a fixed rate of interest which is a legal charge against revenue of the company. The debentures are generally given floating charge on the assets of the company. The firm issuing debentures also enjoy a number of benefits such as trading on equity, retention of control, tax benefit, etc.

3. Public deposits: Public deposits are the fixed deposits accepted by a business enterprise directly from the public. This source of raising finance became popular because of the imperfect development of banking system in the country. This mode of financing has a large number of advantages such as very simple and convenient source of finance, taxation benefits, trading on equity, and inexpensive source of finance.

4. Retained Earnings: It refers to reinvestment by a concern of its surplus earnings in its business. It is an internal source of finance and it often referred to as self financing or ploughing back of profits. It is most suitable for an established firm for its expansion, modernization, replacement, etc. But excessive resort to ploughing back of profits may lead to monopolies, misuse of funds, over capitalization,

5 . Loans from Financial institutions: Financial institutions such as Commercial Banks, Life Insurance Corporation, State Financial Corporation of India, Industrial Development Bank of India, etc. also provide short term, medium term and long term loans.

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To comment upon the working capital management in PHILIPS ELECTRONICS INDIA Ltd., the technique of ratio analysis is adopted.

The following ratios have been calculated for the said purpose.

1. Current ratio.

2. Comparative debtors’ analysis.

3. Working capital turnover ratio.

4. Inventory Turnover analysis.

5. Creditor’s turnover.

Current Ratio:

The current ratio is an indicator of a firm’s short term solvency. A firm, to survive on a continuing basis, should maintain sufficient liquidity. As a rule of thumb, 2:1 is considered to be an ideal current ratio. The idea of having double the current assets as to current liabilities is to provide a cushion against possible losses and to ensure a smooth day to day functioning of the firm. There is, however, nothing very sacrosanct about the 2:1 ratio. What is more important is the quality of current assets, how fast and to what extent can they be converted into cash.

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Yearly Trend of Current Ratio of PHILIPS ELECTRONICS INDIA LTD.

Years Current Assets Current

Liabilities

Ratio

July 2009 11,358 8,097 1.40:1

July 2010 13,520 10835 1.24:1

A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. On the other hand, a low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time. The above table indicates that there are also fluctuations in the current ratio of PHILIPS. In FY 2009 it was 1.40:1 and then decreases to1.24:1 in semi FY 2010.

Debtors/Receivables Turnover Ratio:Debtor’s turnover ratio indicates the velocity of debt collection of firm. In simple words, it indicates the number of times the average debtors are turned over during a year

Debtors Turnover Ratio July 2009 = total sales = 5,230/3796 = 1.38 debtors

Debtors Turnover Ratio July 2010 = 6,191/4268 = 1.45

Average collection period 2009 = no. of months = 12/1.38 = 8.69

DTR

Average collection period July 2010 = 12/1.45 = 8.27

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2 Yearly Trend of Debtor Turnover Ratio of PTL

Years Sales Debtors D.T.R Collection Period

(months)

JULY 2009 5230 3796 1.38 8.69

JULY 2010 6191 4268 1.45 8.27

Since 1985, the company’s main product i.e. lighting which accounted for nearly 95% of its

turnover is being sold against credit only. Since liquidity position of a company depends upon

the quality of its debtors to a great extent, two ratios i.e. Debtors Turnover Ratio and Average

Collection Period are calculated to judge the quality and liquidity of debtors of the company and

comment on efficiency.

A close analysis of this ratio of two years from Dec 2009 to July 2010 has a fine turnover

ratio in 2009 but it increasing Y-O-Y and it is highest in the 2010 i.e.1.45. The reason is, during

the year, PHILIPS has made special efforts to reduce dealer outstanding by focusing attention on

increasing retail sales and reducing dealer stocks and thereby increase in collection from dealers.

But considerably there is more debtor collection period i.e nearly 8and half months which is very

high.

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Current Assets & Current Liabilities of PHILIPS in Period July 2009 - July

2010

Current Assets Total %age

Inventories 3,928 29

Sundry Debtors 4,268 31.57

Cash & Bank 4,493 33.23

Other current assets 636 4.7

Loans & Advances 195 1.44

TOTAL 13520 100

Current Liabilities Total %age

Sundry Creditors 3,462 31.95

Short term debt 1746 16.11

Accrued liability 4132 38.13

Short term Provisions 732 6.75

Other Liabilities 763 7.04

TOTAL 10835 100

Net Working Capital (C.A. - C.L.) 2685

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Working Capital Turnover Analysis:

The amount of working capital is sometimes used as a measure of a firm’s liquidity. It is considered that between the two firms, the one having the larger amount of working capital has the greater ability to meet its current obligations. Working capital turnover analysis is, therefore, used to measure the efficiency with which the firms are using their working capital. For this purpose, working capital turnover ratio, which indicates the velocity of the utilization of net working capital, is worked out. A higher ratio indicates efficient utilization of working capital. In the following lines a comparative statement of working capital turnover ratio of PHILIPS is produced.

Net Working Capital of PTL

Year Current Assets Current Liabilities Net Working Capital

July 2009 11,358 8,097 3,261

July 2010 13,,520 10,835 2685

Working Capital Turnover Ratio of PTL

Years Sales Net W. C. W.C. Turnover Ratio

2009 10,305 3,261 3.16:1

2010 11,868 2,685 4.42:1

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An analysis of this table shows there is slight variation of the ratio from Dec 2009 to July 2010. But it is quite high in 2010 in respect to previous year. This no doubt indicates the maximum use of working capital or quick turnover of current assets due to handsome sales of its main products. To ensure maximum profitability, working capital has to be managed skillfully to avoid situation of both, under and over trading. It is low because it has not accounted the remaining 2 quarters but it is high as compared to previous year first two quarters.

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Inventory Turnover Analysis:

Every firm has to maintain a certain level of inventory of finished products so as to be able to meet the requirements of the business and ensure an uninterrupted production. This analysis is done by calculating inventory turnover ratio. Inventory turnover ratio which is calculated by dividing sales by average inventory indicates the number of times the stock has been turned over during the year. It also evaluates the efficiency with which a firm is able to manage its inventory. A lower inventory turnover is an indicator of higher efficiency in managing the inventory.

Inventory Turnover of PHILIPS in 2 Years

Particulars July 2009 July 2010

Sales 10,305 11,868

Inventory 3,330 3,928

I. Turnover Ratio 3.09:1 3.02:1

The above table shows PHILIPS has the moderate inventory ratio during this period. This indicates that the company has a good inventory management. In FY 2009 there is moderate inventory turnover. The inventory turnover ratio should be moderate because we can’t blindly accept very high inventory turnover ratio as indicative of efficient inventory management as it may be due to very low levels of inventory which generally results into frequent stock outs. And frequent stock outs may hamper production activities and may ultimately affect profits.

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Creditors Turnover Analysis:The analysis of creditor’s turnover is basically the same as of debtor’s turnover ratio except that in place of trade debtors, the trades creditors are taken as one of the components of the ratio and in place of average daily sales, average daily purchases are taken as the other component of the ratio. It can be calculated as:

Creditors Turnover Ratio = Net Credit Annual Purchases Average Trade Creditors

July 2009 = 6,900/2,560 = 2.69:1July 2010 = 7,409/3,462 = 2.14:1 Average Payment Period Ratio = 12/CTR July 2009 = 12/2.69 = 4.46July 2010 = 12/2.14 = 5.60

Creditors Turnover Analysis of PHILIPS in 2 SEMI years

Year Purchases Sundry Creditors

Creditors Turnover

Payment Period (months)

2009 6,900 2,560 2.69:1 4.46

2010 7,409 3,462 2.14:1 5.60

The average payment period ratio represents the avg. number of days taken by the firm to pay its creditors. Generally lower the ratio better is the liquidity position of the firm and higher the ratio less liquid is the position of the firm. And in this case the company has a favorable creditor turnover ratio as the company is giving more credit period for its customers and is also paying its liabilities in less period that is about 4 months as compared to 8 months given to its customers.

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Following are some ratios which can also be considered while analyzing the working capital management:

Equity Ratio -:

Equity Ratio =Shareholders Fund *100Total Assets (Fixed assets+Current assets+Investments) July 2009 = 13,372x100/29,159 = 45.85%July 2010 = 15,797x100/34,314 = 46.03%

Years Shareholders fund Total assets Equity Ratio

July 2009 13,372 29,159 45.85%

July 2010 15,797 34,314 46.03%

Solvency Ratio -:

=100 - Equity Ratio

Years

July 2009 100 – 45.85 54.15

July 2010 100 – 46.03 53.97

The company equity ratio is quite acceptable as it is more than 50% and is merely constant in every financial year which means that company has enough to pay its liabilities and also the solvency ratio is quite good and constant in both the quarters which shows that the company has a strong financial management in their kitty which is a very positive point for a company in todays world of corporate business.

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Chapter-V

CONCLUSIONS AND

RECOMMENDATIONS

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CONCLUSION

On the basis of financial performance of Philips Electronics India Ltd. made in the previous

chapters, following conclusions are drawn:

General Profile: The plant of PHILIPS is ideally located in the Mohali , Industrial focal

point Phase 9 near Chandigarh, the capital of Punjab, on a campus of 17 hectares. The working

environment of the company is very healthy. The visitors feel happy after the campus.

Indigenous Technology: PHILIPS is the only lighting manufacturing company based on purely

indigenous technology. Philips was appropriately chosen as the brand name as self reliance and

building up of Indian Engineering capabilities remain the guiding spirit of PHILIPS.

Financial structure: PHILIPS is a low debt company signifying its dependence

mainly on its internal accruals for its financial requirements. PHILIPS continues to strengthen its

financial position by channelising these internal accruals to fund its expansion programmes.

Working results: PTL has registered a handsome and constant growth in its profits

because of a brisk demand for new and better technology electronic items. None of the other

electronic company has shown such a steady growth. Philips has recorded the lowest current

ratio. However, with this lowest current ratio, PTL still enjoys moderate payment period and

highest velocity of creditors and debtors.

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RECOMMENDATIONS

PHILIPS should increase its capacity utilization. It should work at full capacity to

minimize its cost of production. With this increase in capacity utilization, the total cost

will spread over more units thereby decreasing the per unit cost.

PHILIPS should decrease the credit facilities provided to its consumers. The payback

period is quite high in case of debtors as compared to creditors it should be more or less

equal, as it will help in improving company liquidity.

PHILIPS should focus more on the consumer lifestyle goods in India parallel to its other

business as it accounts very less as compare to other businesses of Philips.

Another recommendation for Mohali plant is about the HR department , that is they

should appoint permanent and skilled workers as against casual workers which generally

add up to the profit of the company.

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ANNEXTURE

CONSOLIDATED BALANCE SHEET - I

CONSOLIDATED P&L STATEMENT - II