SUMMARY, MAJOR CONCLUSIONSAND SUGGESTIONS FINANCIAL THEORY: The management science has developed number of techniques and theoretical guidelines to make sound decisions. Many of these effective techniques and theoretically sound policies are not being practiced by the firms. The deterant factors could be the size of the firm, type of government control, characteristics of national economy, type of management and so on. Finance function of management, considered to be vital, includes two broader policies; (a) investment policy and (b) financing policy. Investment policy refers to the investment in fixed assets and working capital. Financing policy refers to the capitalization decision and capital structure decision; it has an interface with dividend policy. There are well defined theories and models related to all the policy areas. Ideally, the process could start with long term growth strategy of a firm. A firm must determine the rate and the direction or its growth. Only those investment proposals which satisfy growth-needs are accepted. Once the market and technical feasibility of proposals are evaluated, financial feasibility has to be checked. Out of various evaluation techniques, discounted cashflow methods have got very sound theoretical support. Identification of risk, its adjustment, and selection of a cut-off point are the main problems in administering the discounted cash flow techniques. The inflation, constraints on resources, claims by various divisions on capital funds add to the problems. The decision regarding financing pattern is more critical because it determines the financial risk of business. Borrowed funds are generally cheaper and ownership funds dearer. The degree of control and interference by the suppliers of funds vary. Use of borrowed funds gives a chance to the company to maximize shareholders' wealth. But it may increase their risk. Debt to equity ratio has to be planned carefully. The dividend decision is a primary one. The company should have freedom to design its dividend policy to suit to its needs. Dividend decision interface the investment and financing decisions. Pure theory attempts to prove the independence of each of these policies under the assumption of market perfection. If capital market is a perfect market, the financing decision should not affect the cost of capital, the dividend decision should not change the valuation of firm, and since any firm can raise unlimited amount of funds, problems like rationing of capital would not arise. Meaning that every firm would be able to invest in all profitable projects. That would definitely prove the independency of all policies. But the basic premise itself is non-existant, the firms have to operate in imperfect market, and the situation is different.

Because of imperfect market all these policies have become interdependent. The dividend policy has emerged as the primary policy because in imperfect market situation investors are not indifferent between dividend and retained amount. Finance is not available without limit. The pattern of financing changes the expectations of various groups of shareholders and cost of capital. These in turn affect the investment decision. The applied theory, therefore, assumes the inter-dependence of policies. The real practices are likely to undergo the evolution stages. The theory is likely to find its application first in big business. This could be so because of more formal and complex organisation of big business and the availability of resources being associated with the size of business. MAJOR FINDINGS: Corporate Fincial Objective: 1. Though `shareholders' wealth maximization' was still not an acceptable objective, the trend indicated the positive change in its acceptance. Many more companies as compared to the earlier studies, had been following better objectives like `to maximize return on investment in assets' and `to maximize earnings per share'. Fixed Assets Investment Decisions: 2. The investment activities of the companies were mainly geared up to achieve the target of `increase in ROI' and `growth of firm'. Modernization and horizontal expansion were the strategies the companies normally preferred for fresh investment in fixed assets. However, growth-oriented companies preferred diversification of product lines than any thing else. Growth through merger and acquisitions was frequently tried out by growth-oriented companies. 3. Five years' investment planning was very common. High growth-companies believed in short term planning only. 4. Delegation of any kind of investment power was very uncommon. And it was strikingly more centralised in case of `successful' companies, the measurement of success being high growth or high ROCE . 5. The acceptability of most modern financial evaluation techniques was increasing day by day; and cut-off point was generally determined in terms of either ROI or weighted average cost of capital. However, some non-financial factors were also considered important in investment decisions. Competitive position and personal factors were considered to be the main non-financial drives for this matter. 6. Though the companies selected `debentures and term loans' as a first choice source of funds while determining Debt/Equity size, in the investment area they selected `retained profits' as the first choice source of funds. Companies were planning addition to capitalization

on the basis of internal funds. Borrowings were determined on that basis, but ultimately borrowership funds were larger than ownership funds. 7. Size of internal funds' and `unwillingness of top management to expand equity base' were the major constraints on undertaking new projects. Delay in completion of project was the most common experience of all the companies, despite the fact that all of them were following rigorous project monitoring. Some of the companies did not mind abandoning projects, if found to be non-viable at the later stage. But, growth oriented companies did not abandon projects. 8. Project becoming non-viable could be due to the fact that even big companies hardly pay any attention to the need of post-completion audit. In absence of post-completion audit the experience and data-base will be lacking. 9. Capital budgeting policies and practices have undergone tremendous changes. Better and scientific approach in evaluation of investment proposals, more paper work, creation of data-base, better support from costing divisions, use of expert consultants in this matter, and also the clear strategy to achieve better defined goal were quite noticable changes. The comparison with American studies very clearly indicates that Indian capital budgeting practices are behind by about 15 to 20 years than those of its American counterparts. Working Capital Investment Decisions: 10. However, working capital policies and practices followed by Indian giant companies did not seem to have changed so drastically. Operating aspect of working capital had been still kept in the centre and investment aspect was treated as secondary one by Indian companies. `Effective use of current assets' and not the `optimum investment in working capital' was the main goal of companies while managing their working capital. Production oriented approach was reflected in inventory and receivables management. It also got related in the ratios the companies used as the norms of working capital level. High profitability companies differed in this approach. They weighed more in favour of investment aspect of working capital. 11. Companies were paying maximum attention to inventory and receivables in their working capital functions. Despite that a concern for investment was lacking. At least a few companies systematically followed VED and SAP analysis in addition to commonly followed ABC analysis. For `A' items companies were setting lead time almost arbitrarily keeping unreasonably large margin for contingencies; only annual contract system of purchase was followed and weeding out was hardly done. These and such other things prove that `A' items were considered very important from production view point only but its investment function was ignored. 12. Receivables policies and practices were guided mostly by the market factors. Therefore, a detailed cost-benefit analysis was hardly done by any company. More or less the credit terms were similar in all the companies except where distribution channels were totally different.

13. In the collection the innovatives ideas were rarely applied. Very few companies were found to have been resorting to novel methods like concentration banking, lock box system or own bills discounting. Personal follow up was used as the sole device for improving collection. 14. In case of loan and advances investment awareness of companies was quite noticable. May be because in this case there is an `out-of-pocket' investment. 15. Companies were keeping cash on hand to meet the expenses during the forth coming period. The duration of period varied from company to company. Cash budget method was found most convenient for projecting cash requirement. Periodicity of cash budget was usually a month or a day. Short term surplus of funds was normally invested in quick investment or was used to repay short term funds. 16. Cash deficiency was also a common phenomenon except for high profitability companies. Cash credit system was found most convenient in bridging the cash deficiency by most of all companies. High growth companies favoured `delaying payment to suppliers' and `control of credit' since they did not like to consume their credit worthiness for such requirements. High ROCE companies also revealed their true characteristic by choosing `quick collection from receivables' for bridging the cash gap. Financing Decisions: 17. Decisions regarding capitalization were based on `earning capacity' and not on the `cost' of assets. This indicated the result oriented approach followed by companies. 18. Companies were found to have emphasied more on long term plans and strategies. Modernization was considered by all ailing companies as a panacea. 19. Borrowing policy of the companies indicated the preference for more debt funds and seized the chances to maximize `shareholders' return. The target D/E ratio was increasing. The choice of factors like `cost of funds', `fair level of leverage' and `capital market situation' clearly indicated the change in companies' financing philosophy. 20. Companies selected `internal funds' after `debentures and term loan' for financing all capital investment. Companies liked convertible debentures but they had unanimously rejected preference shares for all practical purposes. 21. However, for a sizeable need of working capital arising out of new projects, the companies preferred retained earnings against long-term funds. The regular working capital needs were financed through the short term funds only. 22. Unlike the most common hypothesis the companies did not always consider the dividend as a primary decision. Generally companies tried to maintain the dividend rate but not by decreasing retained earnings. Therefore, `stable dividend payout' was selected as the objective by majority of the companies. The choice of dividend policy was governed by the `general expectations of shareholders'.

23. Bonus shares were issued to benefit the shareholders and to peg the dividend rate within a reasonable range. In a process, some companies made bonus issue even though it was not ripe. Of course their bonus ratio was low and it availed no benefits. Thus, it was found that financial policies and practices have got a definite impact on success or otherwise of the companies and vice-versa. MANAGEMENT GROUP AS A FACTOR: Management group is a definite factor having its influence on the policies and practices of a company. Tata group companies had a better expression of their corporate objectives. Mafatlal companies tried to maximize aggregate earnings. Capital budgeting policies were geared up towards maximization of return on investment in case of Tata companies. But Mafatlal companies first chose the growth in assets. Tata companies liked horizontal expansion and modernization as the investment strategy. For Mafatlal companies modernization was the first choice. Capital expenditure planning was of shorter duration in Mafatlal companies as compared to those in Tata companies. Tata companies had decentralized screening of capital expenditure proposals where as Mafatlal companies had centralized screening. However in the matter of `authority' both were centralized. Tata companies were found to have been using more advanced techniques for the evaluation of capital expenditure proposals. Mafatlal companies were largely applying PBP method. This advancement was also noticed in the choice of cut-off point. But Tata companies were not professional in adjustment of risk in capital budgeting. Both the groups had identical practices in the matter of financing capital expenditure. Funds constraint position was seen more among the Mafatlal companies. Tata companies did not face such severe problem because of their good objectives of capital expenditure . More number of projects were abandoned by Tata companies on becoming non-viable. Mafatlal companies hardly abandoned any project. They had no system of post-completion audit also. Both the groups could not be distinguished on the basis of working capital objectives. They fell in the line with overall trend which was in favour of `efficient use of current assets' as the objective. Mafatlal companies were emphasising more, as per the general trend, on the inventory for the better management of working capital. Whereas Tata companies were found concentrating on receivables, payables and financing aspect. Tata companies were somewhat more professional in this matter. They were using multiple norms for planning and control of working capital.

In financing of working capital Tata companies were following hedging approach but majority of Mafatlal companies were in favour of aggressive financing. Significantly large proportion of Tata companies were keeping inventory for production requirement, whereas Mafatlals were keeping it for sales requirement also. Still the stockout was more frequent in case of Tata companies as compared to those of Mafatlal companies. In receivables management `increase in sales' was the goal of Tata companies, whereas Mafatlal companies were guided by `what competitors do'. Therefore, a large proportion of Tata companies were following a policy of selective credit with frequent checks', unlike Mafatlal's open credit policy. Mafatlal companies were paying more attention to investment aspect than sales. In capital structure planning Tata companies followed the short term plan period only. Only next project is generally kept in mind for planning capital structure. Tata group of companies, unlike Mafatlal companies, preferred retained earnings over debentures for financing the business. As a result the target D/E ratio was lower in Tata companies than their counterparts in Mafatlal group. Similarly in working capital financing also, Mafatlal companies were little more aggressive than Tata companies. In the area of dividend decision, Tata group companies were not under the influence of the management house. Varied approaches were found to have been selected by Tata companies. But most of the Mafatlal companies followed the policy of `fixed dividend rate'. Thus, on an average Tata companies scored better than Mafatlal companies from the view point of professionalism in financial policies and practices. The influence of management house on the policies and practices was less in the case of Tatas but more in the case of Mafatlals. GROWTH AS A FACTOR: The financial policies and practices followed by high growth and low growth giant companies were distinct from each other. High growth companies were truely growth conscious. High growth companies had a better expression of financial objectives. It was in terms of ROI and EPS only. Low growth companies were trying to maximize their earnings. ROI was their main goal. Their policies were geared up accordingly. On the investment front, high growth companies did not mind going in varied direction if investment opportunity existed. For faster growth they were going for merger and acquisition also. In entire capital budgeting exercise some delegation of authority was observed only in high growth companies. They followed advanced techniques of evaluation. But many of them did not care for entire risk aspect and cut-off point.

In the field of investment, low growth companies liked modernization as a suitable strategy. Hence they did not go for merger. Capital budgeting process was centralised and they used primitive methods of evaluation of capital expenditure proposals. However, risk study and better definition of cut-off point were the significant aspects. High growth companies did not face capital constraints. Project delay was experienced in some cases. Project abandonment was never done. Post-completion audit was done by greater number of growth companies. And "almost all projects brought desired results", they felt. Low growth companies had accute problem of investible funds for various reasons. Project abandonment was at the high rate. Many of them were not conducting post completion audit. In the field of working capital also high and low growth companies were different. High growth companies generally followed `gross working capital concept', unlike low growth companies. High growth companies were using better inventory techniques. Their receivables management practices were sounder then those of low growth companies. `Net working capital concept' was followed by low growth companies and half of them were aggressive in financing of working capital. They were not very objective and professional in the management of various components of working capital. `Cost of funds' and `fair level of leverage' were the main factors in the capital structure decision of high growth companies. In capital investment field also `growth' was their primary objective. However, they were in favour of keeping a part of their debt capacity unutilised so that capital might not become a constraint in future growth. Therefore, target D/E was low. These companies were keeping an eye on every component of financial resources, including short term funds. They never believed in channelising short term/medium term funds to the long term investment. They had very clear and acceptable policies of financing. In dividend policies also investment concern of high growth companies was primary. They followed either `stable payout' policy or `fixed plus extra' policy. They did not mind deviating from stated policy if funds were required for growth. Investment was a primary function for them and dividend the secondary one. Low growth companies followed long term planning, earnings theory of capitalization and decided capital structure on the basis of market condition. D/E ratio was higher than 1.5 in each of the cases. Not only that, they liked even to go for short term funds for long term investment. In working capital financing also low growth companies were aggressive. They did not use special norms to watch the change in various components of borrowed funds. This was so because they did not follow any particular policy but were guided by market forces. In the field of dividend also low growth companies tried to keep fixed rate of dividend. It was a primary decision for them. However very frequently they had deviated from stated dividend policy for the reasons of insufficient profit.

High growth companies usually followed a shorter plan period for planning their capital structure, capital investment and working capital. Apart this, they had shown better professionalism in this field. ROCE AS A FACTOR: Financial policies and practices might be affected by profitability and vice-a-versa. Therefore, companies in upper and lower quartiles based on ROCE were considered for comparison of financial policies and practices. High ROCE companies normally set objectives on sound basis like ROI and EPS; but low ROCE companies were trying to maximize aggregate earnings. Capital budgeting objective of high ROCE companies was `to increase ROI' with either same product-line expansion or verticle expansion. These strategies had actually brought results to them. Low ROCE companies were trying to achieve `growth' in investment. The target was to reduce costs through modernization. Like high growth companies high ROCE companies planned for a shorter period only. Idea generation, screening and sanctioning authority etc. were more decentralized in high ROCE companies. Low ROCE companies had only top-bottom approach in capital budgeting. High ROCE companies had professional approach in evaluation of product-line investment. Low ROCE companies generally used PBP method of evaluation due to shortage of liquid funds. Whereas High profit companies had a natural tendency to hike up the cut-off point, the low profit companies underestimated it. High profitability companies were doing risk analysis. Low profitability companies did not do such adjustment. High profit companies faced capital scarcity due to unwillingness of management to raise funds. Low profit companies found profit to be insufficient and that created bottlenecks in capital resources. The act of jettison of project was less among high ROCE companies. Post-completion audit of High ROCE companies was double in proportion as compared to low ROCE companies. High ROCE companies subscribed to `net working capital' concept unlike low ROCE companies. High ROCE companies had very clearly indicated their investment consciousness in working capital management function. They had followed integrated approach in planning and controlling all constituents of working capital. In financing of working capital the practices of both the groups were identical. High ROCE companies had regularly experienced stock out against absolutely no stock-out faced by low ROCE companies. This was due to investment consciousness shown by high ROCE companies. Management of all other components of working capital practices were comparable. High ROCE companies were following 5 years & 10 years plan period. High ROCE companies had shown their concern for `retention of control in company management' while determing their capital structure. Unlike their counterpart they, therefore, assigned lower priority to equity shares in their financing decision. High ROCE companies weighed more in favour of

retained earnings. As a result a little aggressiveness was shown by these companies in their all financing decisions. Dividend policy wise no eye catching distinction was found. But a lot many of low ROCE companies were forced to deviate from established dividend policy due to lack of sufficient profit and the need of internal funds for investment. High ROCE companies, obviously could declare bonus shares frequently and all the time bonus-ratio was attractive. Though Low ROCE companies attempted to issue bonus shares they could not make any impact due to low bonus-ratio. High ROCE companies were successful ones. They had more freedom in choosing policies. But for them dividend was not a primary decision. They kept investment aspect in the centre and thereby tried to achieve the goal of maximizing ROI. SUGGESTIONS: A gap between the theory and practices is omnipresent in every field of life. The gap is bound to exist more particularly in the field of management science because the new theory is being constantly coming up. The industry therefore, should pace up to advance their practices and make sure that the widening of gulf does not occur. It is really difficult to give suggestions which may be equally applicable to all companies irrespactive of their size, industry and other factors. However, the essence of the following section would throw enough light on the areas which can be improved by the companies. 1. `What the successful companies do must be effective, therefore, follow them' could be the obvious suggestion. However, it is not always right. 2. The need of the strategic planning and long term planning is always felt. All companies must go in for that, but it should not replace the short-term planning. It is possible to plan accurately over a short period only. Therefore, short term planning and review should not be dispensed with. 3. In many companies planning in proper spirit is lacking. Where planning efforts are visible the dearth of information is obvious. A systematic review of routine and non-routine operations and constant environmental scanning shall have no alternative for the purpose of information gathering and effective planning. 4. For the real effective planning well defined objective statement is inevitable. If `shareholders' wealth maximization' can not be followed for some reasons, the objectives should be expressed in terms of ROCE or EPS. A well defined objective statement can become the steering wheel of policies and practices.

5. Growth is the best strategy for the perpetual existence of business firm. However the pace of growth should be determined carefully. The desire of achieving a certain growth rate should get organisational support. 6. Since market price of shares are sensitive to the profit and profitability of companies in our country, the investment and cost consciousness is generally expected from companies. Every decision should be tested on the grounds of cost before going for its execution. 7. Despite good changes observed by companies during last decade in the investment field, a lot of scope exists for further improvement. (a) Use of better evaluation techniques along with the those used right now, for the time being, (b) proper decision regarding cut-off point using WACC based on target D/E ratio, and on the top of everything (c) greater involvement of people in idea generation, screening and sanctioning, are the need of the time. The resourceful companies can very easily follow these and achieve the goal. 8. A widest gap between theory and practices was found everywhere in the area of risk analysis. The fact that atleast some companies have been doing systematic risk analysis should be the motivating factor for others. Companies should fulfil two conditions for fruitful adoption of risk analysis viz. (a) information and wisdom is obtained from own and others' experiences, and (b) a proper organisation structure is provided in which people do not just bog down to the very thought of `risk'. 9. The investment consciousness is lacking particularly in the field of working capital. Inventory and receivable need more careful attention. Modernization for reducing imbalances of technology, developing suppliers, finding alternate items etc. could resolve many problems related to inventory. The inventory on hand should be viewed as investment of capital. Inventory control techniques should be adopted carefully for selected inventory items. 10. Credit policy of company should be based on the cost benefit analysis, only sales should not be kept in the centre. A close watch on credit sanction and actual collection period would help to ensure reduced investment in receivables. Faster collection and speedy transfer of cash through the modern banking should be adopted. 11. Setting norms for minimum cash can help maintain liquidity at the bare minimum investment in cash. Cash-to-cash cycle should rotate fast and smoothly. Operating cycle approach for planning and control and constant review of internal policies, methods and procedure for curtailing the size of cycle would result into a great deal of savings in cost and investment. Removal of internal constraints would take care of many of the problems related to working capital management. 12. Use of more debt fund is a welcome trend. But aggressive financing may not succeed without rope walking in terms of best management of cash flow. At the same time utilising the debt capacity not to the fullest extent at any point of time could be a very good strategy. Partly untapped debt capacity could make the funds available at times when company and financial market are facing rough weather.

13. The companies will become more sensitive to capital market because they prefer more borrowings and higher D/E ratio. At this point of time the capital market, like a fragile item, needs more attention from the government. So far the government has been playing a laudable role in this matter. It must mould its role in the dynamic situation. The government must restrictively support the leasing business. It would really work as a leverage for the companies passing through the temporary bad phase. 14. Companies have been following good dividend policies. But the companies must restrain themselves from declaring bonus shares if it is really not ripe. A lower bonus ratio is unimpressive and leaves behind the permanent moral obligation on the company. 15. The influence of management house on the policies and practices of family companies is not totally avoidable. However the differing size and nature of business would warrant some degree of autonomy in framing policies of group companies. A management house should keep a room for flexible policies for its family units. The suggestions mentioned above would make the planning and control of various finance functions more meaningful towards the achievement of better corporate financial goal of shareholders' wealth maximization. 16. A rapport of a company with all classes of society, more particularly with investor class has a definite meaning. Proper information to society regarding investment and financing plans and signalling some triggers from time to time would enhance the value of a firm. SUMMING UP: The observations indicate that there exists some gap between the sound polices and practices in the field of financial management. The practices in the area of capital investment have advanced a lot as compared to those in the area of working capital investment. The statement of corporate financial objectives also has improved. A cautious approach in financing has not become a deterrent in the way of increase in D/E ratio. Dividend policy is yet considered as the primary decision by all the companies. High growth companies have succeded because of sound policies. However, they have been believing in short term planning. They are using planning more as a monitoring weapon. High ROCE companies are, for obvious reasons, better off. There is enough scope for companies to make a headway in bridging the gulf between the sound financial polices and practices. Those days are not far when giant companies shall make the headway in the direction and ensure maximization of the wealth of their shareholders.