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A
PROJECT REPORT
ON
“Working Capital Management”
SUBMITTED TO: SUBMITTED BY:Sonal saboo Pankaj Mandowara
1
ACKNOWLEDGEMENT
First and foremost, I would like to express my gratitude to all those people who helped me in completing my project at Chanderiya Lead Zinc Smelter Ltd at Chittorgarh. My project title is “working capital management”.
I have tried to give credit to all sources from where I have drawn material in this project. Still there may have remained unintended errors .I shall feel obliged if they are brought to my notice.
I am grateful to my project guide sonal saboo (Finance),chetan (-finance), at CLZS Ltd for their kind cooperation, support & guidance without which it would not have been possible for me to complete this project work at time.
I would like to express my gratitude to our respected professor kaushal kataria for the valuable guidance which helped me throughout the project.I would very much appreciate & sincerely acknowledge readers for improving the quality of this project.
Pankaj Mandowara
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BOARD OF DIRECTORS.
MR.AGNIVESH AGARWAL(chairman of Hindustan Zinc limited)
SMT.AJITA BAJPAI PANDE(DIRECTOR). SHRI S.K. MITTAL(DIRECTOR)SHRI A.K. SINGH(DIRECTOR)SHRI NAND KISHOR SHUKLA(DIRECTOR)SHRI ANIL AGARWAL(DIRECTOR)SHRI NAVIN AGARWAL(DIRECTOR)SHRI K.K. KAURA(DIRECTOR)SHRI TARUN JAIN(DIRECTOR)SHRI M.S. MEHTA(CEO & Whole-time Director )
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ExecutiveChairman SeniorIndependentDirector
Anil Agarwal Naresh Chandra
ExecutiveDirector Kuldip Kaura | Chief Executive Officer
Non-ExecutiveDirector Aman Mehta
4
5
OUR GROWTH HISTORY:-
Driven by the capability of 6,359 employees, Hindustan Zinc Limited is the world’s second largest zinc producer.1966: - Hindustan zinc limited was incorporated from erstwhile metal Corporation of India on 10 January 1966
1991: -Chanderiya Pyo-metallurgical lead zinc smelter and Rampura Agucha mine began production.
2002: -Acquired by Sterlite industries (India) Limited on 11 April 2002.
2003: -32,000 tonnes of zinc debottlenecking completed at Debari zinc smelter and vizag zinc smelter -Debottlenecking of Rampura Agucha Mine from 1.37million tones per annum to 2.30million tones per annum
2004: -35,000tonnes of zinc debottlenecking completed at Chanderiya Smelter Complex.
2005: -Commissioned 170,000 tonnes per annum of hydrometallurgical zinc smelter (Hydro)at Chanderiya smelter Complex. -Commissioned 2*77MW captive power plant at chanderiya smelter Complex. -Rampura Augucha Mine expansion from 2.30million tones per annum to 3.75million tones per annum.
2006: -Commissioned 50,000 tonnes per annum of Ausmelt Lead
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smelter at chanderiya smelter complex. -Sindesar Khurd Mine began production with an initial capacity of 0.3million tones per annum.
2007: -Commissioned 170,000 tonnes per annum of hydrometallurgical zinc smelter (Hydro)ina benchmark time of 20month at chanderiya smelter complex. -Commissioned 38.4MW of wind Energy farms at Gujarat.
2008: -88,000 tonnes per annum zinc debottlenecking completed at chanderiya smelter complex and debari zinc smelter .
-Rampura Augcha Mine expension from 3,75million tones per annum to 5.00million tones per annum . -Commissioned additional 68.8MW Wind energy farms making the company’s total Wind energy capacity to 107.2MWas on 31March 2008.
ENDURING VALUE THROUGH VALUE:
ENTERPRENEURSHIP: We foster an entrepreneurial spirit in our business and value the ability to foresee opportunities early in the cycle and act on them swiftly. Whether it is developing growth project or it is debottlenecking the exciting assets we ensure an entrepreneurial spirit in the heart of our employees.
GROWTH:We continue to deliver industry-leading growth and generate significant value for our shareholders. Our growth is unique and we are confident that we will continue ton deliver significant growth for shareholder in the future. We are not the only beneficiary of our growth. We see growth as a means to enhance the wealth and prosperity of the society at large.
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EXCELLENCE:Achieving excellent in all that we do is our way of life. We consistently deliver project ahead of schedule at industry-leading costs of construction and within budget. We are one the lowest cost of zinc producers and our ongoing initiatives should help us to further sharpen our cost performance. Equally important to us is achieving excellence in health, safety and environment performance.
TRUST:We value and cherish the trust reposed in us by our stakeholders. We recognize that we must responsibly deliver on the promises we make to earn that trust. We constantly strive to meet Stake holder expectations and try to deliver ahead of expectations. We always behave in a manner that is consistent and upholds our value system. Our desire and ability to act in a compentent manner would helps us to further build the trust of our stakeholders.
SUSTAINABILITY:We pursue sustainability within the framework of well defined governance structures and employees. Our sustainability team comprise of over 280 full time resources including field workers. With the use of appropriate technology and best in class practice, we always endeavour to minimize the damage to the environment , and we do not miss any opportunity to leave a positive mark. Our growth and business policy hinges around the philosophy of inclusive growth a clear focus on neighborhood communities.
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ZINC –DEMAND AND MARKET:
GLOBAL MARKET:
During 2007, global refined zinc consumption rose by 3% to 11.5 million tones, driven mainly by rapid growth of the China and Indian economy and rising production of galvanized sheets. There was a also strong zinc demand from Brazil and Russian. where the construction sector has been benefiting from higher government spends on infrastructure faster growth in demand from emerging market more than offset a slowdown in US, Japanese and European zinc demand.Global zinc mine production rose by 6% during 2007 to 11 million tones on the back of increased production in china, Kazakhstan, India and Australia , and starting of new mines in Peru, Bolivia, and Portugal. The largest increased in zinc metal output came from china, where refined zinc production grew by 17% to 3.7 million tones, or one-third of the world’s output. Refined zinc production also increased significantly in Russia, Mexico, Brazil, India. The market for zinc concentrates eased somewhat from the very tight level seen in the previous three year, enabling the smelters to improve capacity utilization and obtain higher TC.In 2008, global zinc consumption is expected to rise by 3.7% to 11.9 million tones, in response to the continuing strong demand arising out of Asia. Usage in china is expected to rise by another 10.4% primarily due to major investment in infrastructure projects. Demand is also expected to increase in India, Japan, the republic of Korea and Russia. In Europe, predicted rise in demand in Belgium, France, Poland, the Russian Federation and Spain will be partially offset by reductions in Germany and Italy, resulting in an overall increase of 0.9%. After falling by 11.85 % in 2007, demand in the US is forecast to rise by 4.8% in 2008. The increase demand of 2008 will be met from higher output of 2008 will be met from higher output of established mines and the opening of new sites. However the the newer mines are not coming into operation as quickly as originally envisaged, the marginal mines are
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proper in metal content and , hence, carry greater cost per tonne of concentrate. As a result the demand supply of zinc might reach equilibrium sooner than forecasted and zinc prices are also expected to stabilize sooner. World output of refined zinc metal is forecast to rise by 8.3% to 12.1million tones in 2008-thus maintaining a very narrow gap between metal demand and supply. The most significant increases are expected in India and china. Chart C gives the trend in average monthly LME zinc prices. It shows that while prices have come down from $4,405 in December 2006 to $2,511 in march2008, the long –term trend is upward.
INDIAN MARKET: ZINC
Spurred by industrialization and infrastructure demand, India has the potential to see high growth in zinc consumption. In 2007,India zinc demand rose strongly by 9.5%to 0.47 million tonnes, the increase in zinc demand is led by India fast growing galvanizing sector which accounted for about 70% of the total zinc demand. For 2008-09, the rise in demand of zinc is expected to remain robust driven by realty growth, manufacturing sector and infrastructure.
DECLARATION
This is to certify that all the work contained in this research report titled as “WORKING CAPITAL MANAGEMENT” is genuine work done by me as part of summer training project, Chittorgarh during June-July 2008. Wherever some material is taken from website or other published literature, suitable references are given and sources are acknowledged.
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Pankaj Mnadowara
PREFACE
About three decades ago, the scope of financial management was confined to the raising of funds ,whenever needed & little significance used to be attached to financial decision-making & problem solving.
Today, financial managers perform the passive role of scorekeepers of financial data, information & arranging funds, they occupy key positions in top management areas & play a dynamic role in solving complex management and financial problems. The main advantage of using cash management is to make the optimum level of cash in the organisation and investing the additional fund into other activities where it needed. And To minimize the amount locked up as cash balances in the company. And To meet the cash disbursement need as per the payment schedule .
The cash is uses in the company for the payment of day to day expenses which are occur in the organisation and and to protect the firm against uncertainties characterizing its cash flows. And Cash is the most important factor in financial management. It is also the most important current asset for the operation of the business. Every activity in an enterprise revolves round the cash.
While cash serves these functions, it is an idle resource which has
an opportunity cost. The liquidity provided by cash holding is at the
expense of profits sacrificed foregoing alternative opportunities.
Hence, the finance manager should carefully plan and control cash.
Cash is also helpful in maintaining the goodwill of the firm
in the market. The company can gain the profit to purchases the
material from the other firm on credit. And availing the cash discount
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to paid the payment in cash at the time . and it also help in managing
the good relationship with banks.
EXECUTIVE SUMMARY
There are two concept of working capital: gross working capital
and net working capital. Gross working capital is total of current
assets. Net working capital is the difference between current
assets and current liabilities.
Working capital management is a significant facet of financial
management.
In the management of working capital, two characteristics of
current assets must have borne in mind (I) short life span and
(II) swift transformation into other asset forms.
The factors influencing working capital needs are (I) nature of
business, (II) seasonally of operation, (III) production policy,
(IV) market condition and (V) condition of supply.
Several strategies are available to the firm for financing its
working capital requirement. An important one is based on the
matching point.
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The operating cycle of a firm begins with the acquisition of raw
materials and ends with the collection of receivables. If the
accounts payable is subtracted from the operating cycle, one get
the cash cycle.
Information about the operating cycle is helpful in (me)
forecasting working capital, and (II) control of working capital.
The cash requirement for working capital needs may be
estimated with the help of a two-step procedure: (I) Estimate the
cash cost of various current assets required by the firm, (II)
Deduct the spontaneous current liabilities from cash cost of
current assets.
CHAPTER 1
COMPANY PROFILE
13
Hindustan Zinc Limited (HZL) is India’s leading zinc producer. A
vertically integrated Mining & Smelting company, HZL, is currently
gearing up to becoming a global lowest- cost producer. AS a part of
Vedanta resources, a London listed metals and mining major with
Aluminum, Copper and Zinc operations in UK, India and Australia,
HZL takes advantage of its mineral resources and related core
competencies and believes it has growth opportunities for increasing
products and improving returns.
. It is one of the biggest concern which was
earlier own by the government but now it has become a private
under the group of STERILITE. It owns various mines and
smelting projects in India. The company produces zinc, lead and
other by- products including sulphuric acid, silver and cadmium It
has achieved an all time high with a record output of 283698
tones zinc and 889007 tones of record production of zinc
concentrate during 2005-06.
1.1:- Hindustan Zinc Limited’s
Main Product:-
Good Ordinary Brand (GOB) zinc
Special High Grade (SHG) zinc
Lead
By- Product:-
Cadmium
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Silver
Sulphuric acid
Copper
1.2:- Vision:-
Be a world-class zinc company, creating value, leveraging mineral
resources and related core competencies.
1.3:- Mission:-
Be a lowest cost Zinc producer on a global scale, maintaining
market leadership
Produce One Million Tones/Year of Zinc & lead by 2010
Be innovative, customer oriented and eco-friendly, maximizing
stake-holder value
1.4:- Highlights:-
Only fully integrated Zinc- lead producer in India
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Refined Zinc production capacity 411,000 tpa
Refined Lead production capacity 85,000tpa
Ore treatment capacity 5.85 Mtpa
Having three lead- Zinc mines, three smelters in Rajasthan &
one at Vizag.
Turnover Rs. 3877Cr with EBITDA of Rs.2418Cr for the
FY2006.
Market leader with 68% market share of country’s Zinc
demand(05-06)
Providing employment to over 12,000 people.
Stimulating with atmosphere
1.5:- History:-
Hindustan Zinc Ltd. was created from the erstwhile Metal
Corporation of India (MCI) on 10th January 1966 as a Public Sector
Undertaking. In April 2002, the Government of India, disinvested its
majority stake in HZL, and it became a part of the fast growing
Sterlite group. Since then HZL has been growing from strength to
strength.
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HZL produces Zinc, Lead and other by-products including Sulphuric
Acid, Silver and Cadmium. HZL achieved an all-time high with a
record output of 2, 83,698 tones Zinc and a record production
8,88,007 tones of Zinc concentrate during 2005-06.Today HZL is
India’s leading base metal producer. HZL is a vertically integrated
Mining & Smelting company, gearing up to:
Harnessing mining resources to help India achieve self-sufficiency in
Zinc.
Become a global leader in Zinc.
Create value for all entities whether it is Customers, Investors or
Employees.
Constant innovation, meticulous attention to detail, extensive
investments in R&D and technology are the hallmarks of HZL
making it a multi-unit and multi-product company.
1.6:- Corporate Philosophy:-
To uphold a reputation for integrity, honesty, straight forward &
just dealing.
To be committed to the quality of its products.
To be committed to its customers
To be innovative in approach & thoughts.
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To be open, friendly, sincerely & humane in behaviour &
attitude.
To contribute to the community as a part of our social
responsibility.
To maintain & improve working environment by eco friendly.
Processing
To be a market leader
1.7:-Zinc Product’s & Its Usages:-
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Tab: - 1.1 Zinc Product’s & Its Usages
First Use End-Use
Corrosion
Protection(galvanizing, zinc
thermal spraying, electro
plating, zinc rich paintings)
Building/construction,
energy/power, streel furniture,
agriculture automotive/transport.
Brass (copper-zinc alloys)
aluminums alloys, magnesium
alloys
Building/construction, fittings
automotive and electrical
equipments.
Rolled Zinc Building/ construction.
Batteries Automotive/transport, computers
medical equipment, construction
products.
Zinc Compounds Food industry, animal feed,
fertilizers, pharmaceutical
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industry, cosmetics industry.
Zinc Oxide Paint pigments, ceramic glazes
electrostatic copying paper.
1.8:- Mines & Smelting Project of Hindustan Zinc Limited in
India
SMELTERS
Hindustan Zinc Ltd. (HZL) operates smelters using the ISP™ pyrometallurgical (Chanderiya Lead Zinc Smelter), RLE hydrometallurgical (Debari, Vizag and Chanderiya Smelters and Ausmelt™ (Chanderiya Lead Smelter) process routes.
Chanderiya Lead Zinc smelters
Commissioned
1991
Location 120 km east of Udaipur, Rajasthan, India
Capacity 105,000 tpa of refined Zinc, 35,000 tpa of refined Lead – pyrometallurgical lead – zinc smelter.170,000 tpa of refined Zinc - Hydrometallurgical zinc smelter.50,000 tpa of refined Lead – Ausmelt™ lead smelter.
Details A pyrometallurgical smelter using
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ISP™ technology. Main by-products are Sulphuric Acid and SilverA hydrometallurgical smelter using the state-of-the-art RLE technology commissioned in the year 2005-06. Main by-product is Sulphuric Acid. An Ausmelt™ lead smelter commissioned in February 2006
Certifications
ISO 9001:2000, ISO 14001:1996, OHSAS 19001:1999 (For Pyro Plant)
Captive Power Generation
Coal based 154 MW captive power plant commissioned in 2005.
Debari Zinc smelter
Commissioned
1969
Location 12 km east of Udaipur, Rajasthan, India
Capacity 90,000 tpa of refined Zinc
Details A hydrometallurgical smelter using RLE technology. Main by-products are Sulphuric Acid and Cadmium. Plant is equipped with 29 MW of captive power generation capacity.
Certifications
ISO 9001:2000, ISO 14001:1996, OHSAS 19001:1999
21
1.9 HZL Milestone at a Glance
Tab.:- 1.2 HZL Milestone at a Glance
2005-06
Chanderiya hydrometallurgical zinc plant begins
production.
Chanderiya Ausmelt leadplant begins production.
April
2005
Commissioning of 170,000t New Zinc Hydro Smelter at
Chanderiya.
March
2005
Commissioning of 154MW captive Power Plant at
Chanderiya.
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Vizag Zinc smelter
Commissioned
1977
Location 17 km from Vishakhapatnam, Andhra Pradesh, India
Capacity 56,000 tpa of refined Zinc
Details A hydrometallurgical smelter using RLE technology. Main by-products are Sulphuric Acid and Cadmium. The plant obtains part of its power requirement at low-cost due to shareholding in a gas utility company in Andhra Pradesh.
Certifications
ISO 9001:2000, ISO 14001:1996, OHSAS 19001:1999
March
2005Expansion of RA Mine & Mill to 3.75 MT
2003-04Sterlite acquires additional shares of 18.92% from Govt. of
India under call option.
2002-03
Sterlite acquires 26% and management control in HZL
from the Government of India in privatization. A further
20% is bought from market through open offer.
April
2002
Disinvestment, Taken over by Sterlite Group Current
shareholding:64.92%
2001-02 Stoppage of Maton Rock phosphate Mine.
2001-02 Stoppage of Sargipuli Lead Mine.
2001-02 Expansion of Vizag Zinc Smelter to 40,000 TPA.
2001-02Expansion of Debari Zinc Smelter from 49,000 TPA to
59,000 TPA
July
1999
Stoppage of Vizag leads smelter.
1991-92Disinvestment of 20% equity share to financial
institution.
1991-92Commissioning of Chanderiya Smelter of 70,000 TPA
Zinc & 35000 TPA Lead.
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1990-91 Commissioning of Rampura Agucha Mine of 3000 TPA
1984-85 Expansion of Debari Smelter to 49,000 TPA Zinc
1978-79 Take over of Agnigundala Mine from HCL
1976-77 Expansion of Tundoo Smelter to 8000 TPA lead
1945 Metal Corporation of India (MCI)
1938 Mewar Mineral Corporation.
1.10:- Chanderiya Lead Zinc smelter
Tab. 1.3 Location of Chanderiya Lead Zinc smelter
Commissioned 1991
Location 120 km east of Udaipur, Rajasthan, India
Capacity 105,000 tpa of refined Zinc, 35,000 tpa of refined
Lead – Pyrometallurgy Plant.
170,000 tpa of refined Zinc – Hydrometallurgy
Plant.
50,000 tpa of refined Lead – Ausmelt Technology
Plant.
Details A pyrometallurgical smelter using ISP
24
technology. Main by-products are Sulphuric Acid,
Silver and Cadmium.
A hydrometallurgical smelter using the state-of-
the-art RLE technology commissioned in the year
2005-06. Main by-products are Sulphuric Acid
and Cadmium
25
1.11:- Award List
Tab: - 1.4 Award List
S.No. Name Of Award Year
1 OHSAS 18001 1996
2 ISO 14000 1999
3 ISO 9000 2000
4 National Safety Award 2003
5 Greentech Safety Awards 2003-04
6 Greetech Safety 2004-05
7 EMS Certification(International
Award)
2005-06
8 Safety Award 2005-06
9 Robert W Campbell
Award(International)
2005-06
10 Business World FICCI SEDF
CSR Commendation Award
2006
11 State level Bhamashah Award 2005
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1.12 Board of Directors of Hindustan Zinc Limited
1. Agnivesh Agarwal, Chairman
2. Shri M.S. Mehta, CEO & Whole-time Director
3. Sujit Gulati, Director
4. Ajita Bajpai Pande, Director
5. A.C. Wadhawan, Director
6. Nand Kishore Shukla, Director
7. Anil Agarwal, Director
8. Navin Agarwal, Director
9. Tarun Jain, Director
10. K.K. Kaura, Director
Company Offices of Hindustan Zinc Limited
Yashad Bhawan
Udaipur - 313004
India
Tel. no. 0294- 2529182-84
Exports & Marketing :
Solitaire Corporate Park, Business Square
‘C’ Wing, 2nd Floor, Andheri Kurla Road,
Chakala, Andheri (East), MUMBAI – 400
Regional Office:
Northern Regional Office
Hindustan Zinc Limited
Scope Office Complex, Core - 6
27
093
India
Tel 0091-22-
56434500
Fax 0091-22-
56434640
Em
ail:
exportzinc@ved
anta.co.in
II nd Floor,
7, Lodi Road,
New Delhi - 110003.
Tel +91 011-24364988/24367261
Fax +91 011-24365421
Email [email protected]
Hindustan Zinc Limited
SSAndheri Kurla Road,
Chakala, Andheri (East),
MUMBAI – 400 093
T
el
0091-22-
56434500
F
ax
0091-22-
56434640
E
m
ail
:
Puneet.jagatram
in
Southern Regional Office
Hindustan Zinc Limited
No. 3332, 12th 'A' Main,
6th Cross
H.A.L. 2nd Stage,
Indira Nagar,
Bangalore - 560008.
Tel +91 080- 51152659 / 25205003
Fax +91 080-25203003
Email: [email protected]
28
Acid Sales:Yashad Bhawan
Udaipur - 313 004
India
Tel +91 294- 2529182/ 84
Eastern Regional Office
Hindustan Zinc Limited
Flat No. 9/10,
Chatterjee International Centre,
Jawaharlal Nehru Road,
Kolkata - 700071.
Tel +91 033-2217763/22262627
Fax +91 033-22262627
Email:[email protected]
Investor Relation office :
Company Secretary Yashad Bhawan
Udaipur - 313 004
India
Tel +91 294- 2525621
Western Regional Office
Hindustan Zinc LimitedSolitaire Corporate Park
Business Square
‘C’ Wing, 2nd Floor,
Andheri Kurla Road,
Chakala, Andheri (East),
MUMBAI – 400 093
Tel 0091-22-56434500
Fax 0091-22-56434640
Email: [email protected]
29
CHAPTER - 2
ABOUT WORKING CAPITAL
- CONCEPTUAL FRAME WORK
2.1 Introduction
30
Working capital could be defined as the portion of assets in
current operations. Working capital is also called net current assets. It
is the excess of current assets over current liabilities. All
organizations have to carry working capital in one form or the
other. Efficient management of working capital is more important
from the point of view both liquidity and profitability. Poor
management of working capital means that funds are
unnecessarily tied up in the idle assets hence reducing the
liquidity and also the ability to invest in productive assets such
as plant and machinery so effecting the profitability.
Working Capital Management refers to the management of
working capital or the management of current assets. The need
of working capital management arises from two considerations :
Existence of working capital is imperative in any company. The
working capital involves investments of the funds of the
company.
Working capital = Current Assets – Current Liabilities
Current assets are those which are convertible in cash or
equivalent within a period of one year.
Example: cash, debtors, bank, bills receivables etc.
Current liabilities are those which can be paid in cash or
equivalents within a period of one year.
31
Example: creditors, bank overdraft, bills payable etc. The movement
of funds from working capital to income and profits and back
to working capital is one and the most important characteristics
of business. This cyclical operation is concerned with utilization
of funds with the hope that they will return an additional
amount called income. If the operation of a company are to run
smoothly a proper relationship between fixed capital and current
capital has to be maintained.
2.2 Importance Of Working Capital
Quick Payment to Suppliers
Increase in debt capacity and goodwill
Cash Discount
Easy availability of Bank Loan`
Exploitation of favorable Opportunities
Meeting Unseen Contingencies
Distribution of Adequate Dividends
It creates a feeling of security and confidence
It increase Fixed Assets Efficiency
Increase Production Efficiency
2.3 Sources Of Working Capital
32
1. Issue of shares.
1. Debentures 1. Depreciation funds
1. Trade Credit
2. Retained Earnings of Credit
2. Long-term Debts
2. Provision for Taxation
2. Letters
3. Sale of Fixed Assets
3. Outstanding payments
3. Bank Credit
4.Retiring Current Liabilities below Book-value
4. Public Deposits
5. Reserves 5. Advance form Customers
6. Finance Companies
7. Native Moneylenders
2.4 Factors Influencing Working Capital Requirements
The working capital needs of a firm are influenced by numerous
factors. The important ones are
33
SOURCES OF WORKING CAPITAL
Long-term Sources Short-term Sources
Borrowed Sources Internal Sources External SourcesOwned Sources
Nature of business
Seasonality of operation
Production policy
Market condition
Condition of supply
2.4.1 Nature of Business
The working capital requirement of a firm is closely related to the
nature of its business. A service firm, like electricity undertaking or
Transport Corporation, which has a short operating cycle and which
sells predominantly on cash basis, has a modest working capital
requirement. On the other hand, a manufacturing concern likes a
machine tools unit, which has a long requirement.
2.4.2 Seasonality of Operation
Firms, which have marked Seasonality in their operation usually, have
highly fluctuating working capital requirements. Consider firm
manufacturing ceiling fans. The sales of ceiling fans reach a peak
during the summer months and drops sharply in the winter period.
The working capital need of such a firm is likely to increase
considerably in summer months and decrease significantly during the
winter period. On the other hand, a firm manufacturing a product like
lamps, which have fairly even sales round the year, tends to have
stable working capital needs.
34
2.4.3 Production Policy
A firm marked by pronounced seasonal fluctuation in its sales may
pursue a production policy, which may reduce the sharp variations in
working capital requirements. For example in ceiling fans industry
may maintain a steady production throughout the year rather than
intensify the production activity during the peak business season.
Such a production policy may dampen the fluctuations in working
capital requirements.
2.4.4 Market Conditions
The degree of competition prevailing in the market place has
important bearing on working capital needs. When competition is
keen, a larger inventory of finished goods is required to promptly
serve customers who may not be inclined to wait because other
manufacturers are ready to meet their needs. Further, generous credit
terms may have to be offered to attract customers in a highly
competitive market. Thus, working capital needs tend to be high
because of greater investment in finished goods inventory and
accounts receivable.
2.4.5 Condition of Supply
The inventory of raw material, spares and stores depends on the
conditions of supply is prompt and adequate; the firm can manage
with small inventory. However, if supply unpredictable and scant then
the firm, to ensure continuity of production, would have to acquire
35
stocks as and scant when they are available and carry larger inventory
on an average. A similar policy may have to be followed when the
raw material is available only seasonally and production operation
operations are carried out round the year.
2.5 Need for the Study
Working capital management is the process of planning and
controlling the level and mix of current assets of the firm as well as
financing these assets. Specifically, working capital management
36
requires financial managers to decide what quantities of cash. Other
liquid assets, accounts receivables and inventories the firm will hold
at any point in time. In addition, financial managers must decide how
their current assets are to be financed.
This high degree of divisibility has two important implications
for the management so chooses, working capital, first, if the
management so chooses, working capital can be acquired piecemeal
to meet immediate needs as they arises, which have advantages of
reducing the average investment in working capital, thereby
minimizing the interest charges, insurance expenses and storage fees
necessary to carry the investment
The second implication of divisibility, which follows logically
from the first, concerns the appropriate methods for financing
working capital investment. The fact that working capital only
amounts to few months’ supply means that the working capital cycle
running from cash to inventories, inventories to receivables and
receivables to cash, is measures in months rather in years. The
liquidity of working capital allows the management a corresponding
flexibility in its financing decisions.
To know, the given level of sales and the relevant cost
considerations, what are optimal amounts of cash assets, accounts
receivable and inventories that a firm should maintain? What is the
most economical way to finance these working capital investments?
To produce the best possible returns, firms should keep no
unproductive assets and should finance with the cheapest available
37
sources of funds. Why? In general, it is often advantageous for the
firm to invest in short-term assets and to finance with short-term
liabilities
2.6 Flow of Working Capital
38
External financingCash
Cash
Return to Capital
Used in
Used in
Used in
Used in
Direct Labour & Material
Cash& MarketableSecurities
Suppliers of Capitals
Accrued fixed operating EXP.
Fixed Assets
Production Process
Account receivable
Inventory
Techniques & Analysis of Working Capital
(1) Schedule of change in Working Capital
(2) Ratio Analysis
(3) Fund Flow Analysis
(4) Cash flow Statement
(5) By preparing Working Capital Budget
CHAPTER – 3
RESEARCH METHODOLOGY
Research is common parlance to refer to a search for knowledge. We
can also define research as “Scientific ad systematic search for
pertinent information on a specific topic” Research is careful
investigation or inquiries for new facts in any branch of knowledge.
Researches are basically systematic inquiry with customer’s critical
examination with objectives to search new facts or interpret know
facts in new light.
39
3.1 Objective of Research :-
The main objective of study is to analyses the working
capital management of Hindustan Zinc Limited.
Working capital management is very important in
modern business. When we analyze and interpret
the financial statement analysis of working
capital is very useful for short term
management of funds.
Working involves investment of funds of the
company.
To make the analysis of elements or
components of working capital to identify the
items responsible for changes in working
capital.
To study the liquidity position of the company.
3.2 Research Design :- Analytical
3.3 Data collection :- Secondary data sources
3.4 Scope of data :- For ratio analysis, Researcher got only seven
years data ( 2001-02 to 2007-08) trough company’s annual reports.
3.5 Research tools :-
3.5.1 Ratio Analysis
Ratio analysis is indispensable tool for credit appraisal. It has been
defined as the relationship between two or more things.
40
Ratio analysis is a standard for evaluation of the performance of the
company and is also an indicator of the financial position.
Business ratio is the guiding starts for the management of enterprise.
They provide their target and standards. They are helpful to manager
in directing them towards most beneficial long term strategies as well
as towards affective short term decision making.
Nature of Ratio Analysis
In financial analysis a ratio is used as a benchmark for
evaluating the financial position and performance of a firm The
relationship between two accounting figures, expressed is known as
ratio analysis. Ratio helps to summaries the large quantities of
financial data to make qualitative judgement about the firm’s
financial performance. The ratio in indicates a quantitative
relationship, which can be, in turn used to make a qualitative
judgment. A single ratio in itself does not indicate favorable or
unfavorable condition. It should be compared with some standard.
Liquidity Ratio
Liquidity refers to a firm’s ability to meet it’s current financial
obligation As they arise by this ratio. Company comparing the
value of current liabilities. The parties interested in the liquidity
ratio would be employees, bankers and short term Creditors.
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-Current ratio
Acid test
Super Quick ratio
Net Working Capital
This ratio establishes the relationship between net working capital and
net sales or cost of goods sold. This ratio is used to assess the
efficiency with which the Working Capital is being used in the
business. A high Working Capital ratio indicates efficient
management of Working Capital or over trading.
Working capital = Current Assets – Current Liabilities
Current Ratio
Current ratio is a measure of the firm’s short term solvency. It
indicates the availability of current assets in rupees for every
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one rupee of current liability. The ideal ratio is 2:1. And by
comparing both the years the ratio for the current year is more than
previous year because of increase in loan and advances than previous
year. This ratio shows that the firms’ creditors are fully secured.
Current Ratio = Current Assets Current Liabil it ies
Acid Test Ratio
Acid Test Ratio = Current Assets – (Stock + Prepaid expenses) Current Liabilities
This ratio is explaining the relationship between liquidity assets and current liabilities. The ratio measures the firms’ ability to convert its current assets quickly into cash in order to meet its current liability.
(Liquid assets include cash in hand, cash at bank, realizable security and bills receivable within a month. Ideal Quick ratio is 1:1 and if it is more it is considered better.)
Super Quick Ratio
It indicates the ability of a firm to pay its current liabilities within the period of a month. Idle ratio is 0.5:1.This ratio is the most rigorous and conservative test of the firm’s liquidity position.
Super Quick Ratio = Cash + Bank + Marketable Securities Current Liabilities
43
Current Assets To Total Assets Ratio
This ratio express the relationship between the amount of current assets and the amount of investment in total assets. It helps to assess the importance of current assets of a concern. The idle ratio is 61% of total assets.
Current Assets to Total Assets Ratio = Current assets Total assets
Current Assets to Sales Ratio This ratio indicates the efficiency with which working capital turns into sales. The analysis of this ratio over a period of time shows the overall efficiency of working capital management of a firm.
Current assets to sales ratio = Current assets Sales
3.5.2 Trend analysis :- The trends discussed so far were plotted on
arithmetic scales. Trends may also be plotted on semi-logarithmic
chart in the form of straight line or a non liner curve. A straight line
on the semi-log chart shows the increase of Y values of a time series
at a constant rate and is not approaching some paper limit, it usually
approximated least by an exponential curve. It should be noted that
here we are talking of constant rate and not constant absolute amount.
Also semi-logarithmic model is suggested whenever a scatter diagram
of the data point of the series on semi-log graph paper indicate a
straight line. When it is non-linear curve on the semi-log chart an up
44
word curve of the slopes-the steeper the slope, the higher is the rate of
increase.
The types of tend usually computed by logarithms are:-
1 Exponential Trend.
2 Growth curves.
CHAPTER - 4
DATA ANALYSIS AND INTERPRETATION
4.1Analytical Tools
The data gathered from various departments and the relevant data are
taking into consideration and solved to acquire the working capital of
the Hindustan Zinc.
Tab.:- 4.1 Analytical Tools
45
Part A: Current Assets
Inventories Raw Material & Components Work-in-Process Finished goods OthersTrade Debtors Loans & AdvancesInvestment (short-term)Cash & Bank Balances.
Part B: Current Liabilities
Sundary CreditorTrade AdvanceBorrowing Commercial Bank OtherProvision
WORKING CAPITAL = Part A- Part B
4.2Methodology Of The Study
The data of Hindustan Zink Limited for year 2002-2008 used in the study has been taken from secondary sources for e.g. published annual reports of the company. Editing classification of the financial data which are collected from the above mentioned sources, have been done as per the requirement of the study. For assessing the performance of the working capital position, in this study the technique of ratio analysis have been used.
46
4.3 Net Working Capital Turnover Ratio
Tab.4.3.1:- Statement of Working capital
(Rs
in crore)
Year 2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Current Assets
692.880
736.574
1116.00
736.89
1309.38
1480.95
2711.63
Current Liability
294.544
299.432
446.887
511.73
603.18
826.76 898.44
Working Capital
398.336
437.142
669.113
225.16
706.20
654.19 1813.19
Sales 1418.407
1608.722
2079.013
2456.11
4326.26
9220.45
8736.91
Working Capital T/o Ratio
3.56 3.68 3.11 10.91 6.13 14.09 4.82
Chart no. 4.3.1:WORKING CAPITAL TURNOVER RATIO
47
Working Capital T/o Ratio
0
2
4
6
8
10
12
14
16
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Working Capital T/oRatio
Interpretation: It measures the efficiency with which the working
capital is being used by a firm. Higher ratio indicates effective
utilization of working capital. Minimum ratio is of 3.11 in the year
2003-04 and the maximum is 14.09 in the year 2006-07. Increase in
the ratio during the study period shows that the working capital has
been utilized efficiently .The trend line shows upward trend in this
ratio; which indicates that company can utilize working capital
effectively in near future.
4.4 Current Ratio
Chart.4.4.1:- Statement of Current Ratio (Rs in Crore)
48
0
0.5
1
1.5
2
2.5
3
3.5
Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Interpretation: It measures the efficiency with which the current
liabilities are used by firm. Higher ratio indicates effective utilization
of current liabilities. Current ratio of the company increased during
the study period. Minimum ratio is of 1.44 in the year 2004-05 and
the maximum is 3.02 in the year 2007-08.The standard norms of
current ratio (2:1) may vary from industry. If the ratio is less than 1:1
would certainly be undesirable in an industry as at least some safety
margin is required to protect the interest of the creditors.
HZL has increased ratio in 2007-08is 3.02 which is good .There is
increasing trend of the ratio.
49
4.5 Acid Test Ratio
Tab. 4.5.1 Statement of Acid Test Ratio (Rs in Crore)
Year 2001-
022002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Current Assets
692.880 736.574 1116.00 736.89 1309.38 1480.95 2711.63
Stock+ pre-paid exp.
442.763 306.177 322.582 334.31 383.10 499.28 518.1
Current Liability
294.544 299.432 446.887 511.73 603.18 826.76 898.44
Acid Test Ratio
0.85 1.44 1.78 0.79 1.54 1.19 2.44
Chart 4.5.1 ACID TEST RATIOAcid Test Ratio
0
0.5
1
1.5
2
2.5
3
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Acid Test Ratio
Interpretation: It refers to the ability of firm to pay its short term
obligation. Acid test ratio of the company during the period of study
is fluctuating. In 2001-02 the ratio is .085 year 2007-08 the ratio is
2.44. The standard norms of acid test ratio are (1:1). If in case of the
50
quick ratio 2001-02&2004-05 less than the standard norm the
company would find it difficult to pay its current liability. In, 2003,
2006, 2007, 2008years have satisfactory ratio and the company can
easily meet all current claims where Company’s short term liquidity
position is satisfactory for the creditors. The trend is upward; which is
signal of healthy financial position.
4.6 Super Quick Ratio
Tab.4.6.1:- Statement of Super Quick Ratio (Rs in Crore)
Year 2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Cash + Bank + Marketable security
53.48 256.91 404.613 22.11 74.03 119.7 1362.78
Current Liability
294.544 299.432 446.887 511.73 603.18 826.76 898.44
Super Quick Ratio
0.181 0.857 0.905 0.043 0.123 0.145 1.517
Chart no. 4.6.1 Super Quick Ratio
51
Super Quick Ratio
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Super Quick Ratio
Interpretation: The ideal ratio is 0.5:1.As per the table we can see
that the absolute liquid ratio is not in a satisfactory position. In the
year 2002,2005,2006,2007 is0.181, 0.043, 0.123, 0.145which is below
the idle ratio. It is clear that the company’s cash and bank balance was
low in current assets. It means that the policy of the company was to
maintain a lower level of cash and bank balance and more utilization
of bank resources.
In year 2003, 2004, 2008 company maintain higher level of cash
and bank balance
4.7 Current Assets to Total Assets Ratio
Tab 4.7.1 Statement of Current Assets to Total Assets Ratio (Rs in Crore)Year 2001-
022002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Current Assets
692.880
736.574
1116.00
736.89
1309.38
1480.95
2711.63
52
Total Assets
1385.091
1607.58
2627.195
3268.91
4832.36
8754.84
13206.7
C.A. to T.A. Ratio
0.50 0.46 0.42 0.23 0.27 0.17 0.21
Chart no.4.7.1 Current Assets to Total Assets Ratio
C.A. to T.A. Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
C.A. to T.A. Ratio
Interpretation: It helps to assess the importance of current assets.
From the table it is clear that the proportion of current asset in total
asset is decreasing day by day. This indicates that during the period of
the study major portion of total investment of the company has not
been made for working capital purpose. There has been fluctuation in
proportion of current assets to total assets. The trend is downward:
indicator of large sized plant.
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4.8 Current Assets to Total Sales Ratio
Tab.4.8.1:- Statement of Current Assets to Sales Ratio
Year 2001-02 2002-03 2003-04 2004-05
2005-06
2006-07
2007-08
Current Assets
692.880 736.574 1116.00 736.89 1309.38 1480.95 2711.63
Sales 1418.407 1608.722 2079.013 2456.11 4326.26 9220.45 8736.91C.A. to Sales Ratio
0.488 0.458 0.537 0.300 0.303 0.161 0.310
(Rs in Crore)
Chart no.4.8.1 Current Assets to Total Sales Ratio
C.A. to Sales Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
C.A. to Sales Ratio
Interpretation: It indicates the efficiency with which the gross
working capital turns into sales. A lower ratio indicates more efficient
use of funds. The ratio increased from 0.488 in 2001-02 to 0.310 in
54
the year 2007-08 which is positive from efficiency point of view and
it positively affects the gross working capital utilization.
It indicates that the working capital is being efficiently managed by
the company. The downward trend of this ratio is of good financial
perspective.
4.9 Analysis of Liquidity Position
Liquidity refers to the ability of the concern to meet its current
obligation as and when they become due. If current assets can pay off
current liability then the liquidity position will be satisfactory
otherwise the company’s liquidity position will be unsatisfactory.
The liquidity position of Hindustan Zinc Limited has been
analyzed through the following table:
Tab 4.9.1 Analysis of Liquidity PositionYear Current
AssetCurrent Liability
Working Capital
Increase / Decrease
2001-2002 692.880 294.544 398.336 -378.82002-2003 736.574 299.432 437.142 +38.8062003-2004 1116.00 446.887 669.113 +231.9712004-2005 736.89 511.73 225.16 -443.9532005-2006 1309.38 603.18 706.20 +481.042006-2007 1480.95 826.76 654.19 -52.012007-2008 2711.63 898.44 1813.19 +1159Mean 1254.901 554.4247 700.4759 -
55
It is observed from the table that current assets have been increased
from 692.880 to 2711.63crore from the year 2001-02 to 2007-2008. It
Mean of current assets is 1254.901.
It is clear from the table that current liabilities has increased from
294.544 to 898.44 crore from the year 2001-02 to 2007-2008. It Mean
of current liabilities is 554.4247 crore.
Current Assets & Current Liabilities of the company has increased during the study period. The current assets are more than the current liabilities which shows that the current assets are enough to pay off the current liability which signifies that the liquidity position of the company is satisfactory.
CHAPTER – 5
Finding & Conclusions
Finding From the point of view of conventional standard of working
capital ratio, acid test ratio, super quick ratio, current assets to total assets ratio, current assets to total sales ratio, the short term liquidity position of the company is satisfactory.
It means percentage of current assets to total assets is 22%, which shows that the proportion of current assets in the total assets is less and major portion of total investment of the company has not been made for working capital.
Proportion of cash and bank balance to current assets is low, which shows that the company’s policy is to maintain a low
56
level of cash and bank balance and more utilization of bank resources.
Current assets of the company are more than the current liabilities from current asset of the company, which shows that the liquidity position of the company is satisfactory.
From the point of view of conventional standard of working capital ratio, acid test ratio, super quick ratio, current assets to total assets ratio, current assets to total sales ratio, the short term liquidity position of the company is satisfactory.
CONCLUSIONS From the view point of conventional standard of Net
working capital is the short term liquidity is very much
satisfactory.
Position of debtors, as compare to sales is very less which
shows that the major portion of sales is in cash. It should be
maintain in future.
Current assets of the company are more than the
current liabilities which shows that the company can pay
off its current liabilities.
Firm’s creditors are fully secured.
Firm is committed for providing total customer satisfaction
by supplying products meeting regulatory requirement and
required quality at the right place.
Firm is committed to conserve and protect the environment
through continual improvement, involvement and
participation of all employees.
57
Total product management for doubling the productivity.
CHAPTER – 6
Suggestions:-
6.1 Suggestion to finance manager:-
1. About working capital turnover ratio:-overall trend about this
ratio is good indication but recent trend is downwards so finance
manager should manage working capital efficiently for overall
betterment.
2. About current ratio: - trend is upward. The manager should try
to manage the level as per the industry bench mark.
3. About acid test ratio: - this ratio is tending to high. So finance
manager should make provision for maintaining the ratio near
about ideal state.
4. 4. About super quick ratio:-chart shows that the ratio is
fluctuating very much. In year 2003, 2004 or 2008 company
maintaining higher of cash and bank balance.Company should
possess only adequate level of cash and make investment of idle
cash.
5. About current assets to total assets: - here the trend is
downwards.
6. It means company is trying to make more and more fixed assets
or investment. All that position may dangerous if company is
investing in fixed assets and is current assets are lower level
58
than company will incur large desperation amount in its future
balance sheet. Which will narrow its net profit?
7. And investing in security will affect the company’s market
value according to money and capital market risk.
8. About current assets to total sales: - company is going on right
path. Finance manager should try to maintain this trend.
6.2 Suggestion for top management: - top management should
diversify the business area of Hindustan Zinc Limited.
They should explore there business in many lead acid batteries, dry
sells for, and fertilizer to make more profit from thereon product and
by product,
It will also be prove helpful to escape from deprecation losses of
father.
6.3Suggestion for future researches: -
1. Future research should be done with more year data to find more
precious trend line.
2. Other research tool (viz. correlation, regression) should be also
used by future researcher
59
3. Future researcher should never deviate from his research work in
organizational setting.
REFERENCES & BIBLIOGRAPHY
1. Prasanna Chandra (1993) ‘Fundamental of Financial Management’, Tata McGraw-Hill publishing company Ltd, third edition, pp 18.1-19.13, 21.1-22.17.
2. Bhalla V. K.(2003) ‘Working Capital Management’, Anmol Publication, fifth edition, pp. 1-71, 45.
60
3. Kothari C. R. (2005) ‘RESEARCH METHODOLOGY’ New age international Ltd, fifth edition pp.1-2, 31, and 95.
4. Journals of Hindustan Zinc Limited
5. Jain , Khandelwal , Pareek (2003) ‘COST ACCOUNTING’
Ajmera
Book Company, Third edition
6. Hingorani , Ramanathan , Grewal (2003) ‘MANAGEMENT
ACCOUNTING’ Sultan Chand & Sons, Fifth edition
7. Khan , Jain (2004) ‘MANAGEMENT ACCOUNTING’
Tata
McGrow-Hill Publishing Company Limited, Third edition.
8. Pillai R.S.N. & Bagavathi, “Management Accounting,“
S.Chand &
Company Limited, Eight Edition
9. Pandey, “Financial Management”, Vikas Publishing House Ltd.
Eighth Edition.
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ANNEXURE
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