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Analysis of Working CapitalManagement
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A
PROJECT REPORT
ON
Analysis of Working CapitalManagement
-A Study in Bhilai Steel Plant-
Submitted in the partial fulfillment
Of
Master of Business Administration
An integrated plant of SAIL
Steel Authority of India limited
Guided By:- Submitted By:-
Mr,R.C.Shrivastava Swati Mahajan
Manager (F&A) MBA 3rdsem
Bhilai Steel Plant Roll No-1170553
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CERTIFICATEThis is to certify that the project done on A STUDY OF
ADVERTISING AND SALES PROMOTION HERO MOTO
CORP submitted KD RUNGTA COLLEGE OF SCIENCE AND
TECHNOLOGY, RAIPUR by BHUNESHWAR KUMAR in
partial fulfillment of the requirement for the award of
Degree Bachelor Of Business Administration is a bonafide
work carried out by him under my supervision and
guidance. This work has not been submitted anywhere else
for any degree/diploma. The original work was carried out
during 15-03-2013 to 31-03-2013 in LAXMI AUTO CARE.
Date-
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Name of Guide:-
WAZID KHAN
(Sales Manager)
HERO MOTO CORP
DECLARATION
I, the student of Bachelor of Business Administration, KD
RUNGTA COLLEGE OF SCIENCE AND TECHNOLOGY,
RAIPUR, hereby declare that this project report Study of
Advertising and Sales Promotion- A Study of Hero
Moto Corp prepared, is my original work, which I hadsubmitted in LAXMI AUTO CARE, to my guide Mr. WAZID
KHAN ( Manager SALES department)
All the information and data given in my project are authentic
to the best of my knowledge and taken from reliable sources.
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Date:31.03.2013 BHUNESHWAR KUMAR
Place: DALLI RAJHARA
Counter Sign by Guide
Mr.Wazid khan
Manager (sales)
ACKNOWLEDGEMENT
Every researcher in pursuit of his/her objective collects enormousempirical debt of gratitude to others and I am no exception to it.Completing a task is never one mans effort; it is often the result ofinvaluable contribution of no. of individuals in- direct or indirect way in
shaping success on achieving it. Here I take the opportunity to extendmy sincere gratitude to Mr.R.C.Shrivastava (Manager- F&A Dept.)allowing me to experience great work environment in their esteemedorganization at Bhilai Steel Plant, Bhilai.
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BSP:-
Mr. R.C Shrivastava
Manager (F&A)
IIST College MBA Deptt
Dr B.B.Patil (Principal)
Mr. Sanjay Sharma (Project Guide)
Dr R.C.Singh
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PREFACE
Theres a little bit of SAIL in everybodys life.
STEELis the basic framework which has built nations, and it is on
this strength that nation stand apart. This man-made metal has an
extraordinary quality of contributing to every aspect of life while it
keeps the wheels of industry turning. It also lends ever-lasting quality
to all kinds of structure and infrastructure.
SARDAR VALLABH BHAI PATEL
Many students may have done work on this project in different
ways/styles. I have also tried to work on this project in a different
way. It was for the first time I got the opportunity to work in such a
prestigious and well-known organization and things which I have
experienced in my training period are going to help me through out
my life time. I have worked on this project with great enthusiasm and
zeal. I have tried to cover almost all the things, which I have
experienced and learned during the training period. To run a giant
organization each and every department has to play its roleeffectively. In this era of cut-throat competition there is no room for
complacency. Steel is the basic framework which has built nation, it
contributes every aspect of life.
The main goal of my project is the Analysis of Working capital-
A Study ofBhilai Steel Plant Bhilai. It would be my great
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pleasure, if this project can help this company to achieve its goal
higher. This project has been undertaken to study the procedures and
practices followed in Finance and Accounts department. The Finance
& Accounts Department of Bhilai Steel Plant is divided into various
sections and each section specializes in different activities. This report
is prepared on the basis of the extensive study carried out at Finance &
Accounts Department of SAIL, Bhilai Steel Plant.
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TABLE OF CONTENT
Chapter 1: INTRODUCTION..
1-1 Industry Analysis
The Global Steel Industry
1-2 Company Analysis
1-2-1Steel Authority of India Limited (SAIL)
1-2-2 Bhilai Steel Plant (BSP)
1-2-3 Finance & Accounts Departments
1-3 Introduction of F & A Dept
1-3-1 -Organizational Chart of F & A Dept
Chapter 2: ISSUE ANALYSIS ..
Scope of Study
2-1-1 Working Capital
2-1-2 The Investment decision
2-1-3 The financing decision
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2-1-4 Current assets
2-1-5 Analysis of current assets
2-1-6 Current liabilities
2-1-7 Analysis of current liabilities
2-1-8 Working capital management
2-1-9 Amount of working capital
2-1-10 Working capital management of B.S.P
2-1-11 Concept of working capital
2-1-12 Kinds of working capital2-1-13 Determinants of working capital
2-1-14 Working capital cycle
2-1-15 Method of analysis of working capital
2-1-16 Circulation of working capital
2-1-17 Operating cycle
2-1-18 Calculation of operating cycle
Chapter 3 : DATA COLLECTION
3-1-1 Data analysis and interpretation
Chapter 4: RESEARCH
4-1-1 Research Methodology
4-1-2 Research Design
Chapter 5: FINDINGS
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Chapter 6: CONCLUSION
Chapter 7: BIBLOGRAPHY
7-1-1 List of websites
7-1-2 list of books
7-1-3 list of reference
Chapter 1:
INTRODUCTION
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& economic progress. Whether it is construction or industrial goods,
steel is the basic raw material.
Global steel production grew enormously in the 20 th century from a
mere 28 MT at the beginning of the century to 780 MT at the end. That
was the period when the steel industry developed in Western Europe &
the USA followed by the Soviet Union, Eastern Europe & Japan.
However, steel consumption in the developed countries has reached a
high stable level & growth has tapered off.
Attention has now shifted to the developing regions. In the West, steel
referred to as a sunset industry. In the developing countries, the sun is
still rising, for most it is only a dawn. Towards the end of the last
century, growth of steel production was in the developing countries
such as China, South Korea, Brazil & India.
In 2007 World Crude Steel output at 1342.1 Million MT was 5.9% more
than the previous year. (Source: IISI).
China remained the worlds largest Crude Steel producer in 2007 also
(349.4 Million MT) followed by Japan (112.47 Million Metric Tons) &
USA (93.89 Million Metric Tons). India occupied the 8th position (38.08
Million Metric Tons). (Source: IISI).
The International Iron & Steel Institute (IISI) in its forecast for 2007
has confirmed the trend of recent years of increase in steel use in-line
with the economic growth & with the fastest growth occurring in the
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countries with the highest GDP growth such as India & China. Apparent
world-wide Steel Demand is forecast to grow to between1,040 & 1,053
MT in 2008 from a total of 972 MT in 2006. This is a growth of 4-5%
over the two year period. However, according to IISI the cost of raw
material & energy would continue to represent a major challenge for the
world steel industry.
The healthy world economic growth & demand in emerging market
countries, notably in Asia, where major infrastructure projects wereunder way, acted as the key trigger to the significant production rise.
But this trend seems rather transitory. The Organization for Economic
Corporation & Development in November opined, while steel prospects
for 2007 remained relatively sound, on increase in output capacity
especially in Asia, could lead to overproduction & fall in prices.
Some important points regarding Global Steel Industry are
as follows:
During 2007, the world crude steel production reached a level of
1244 Million Tons.
It shows a growth of 9.0% over 2006 crude steel production
level at 1142 Million Tons.
China retained its No.1 position by producing around 422
Million Tons, followed by Japan with production of 116 Million
Tons & USA with production at around 98 Million Tons.
India with production of 44 Million Tons ranked 7 th amongst
world steel producing countries.
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Company Analysis
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STEEL AUTHORITY OF INDIA LIMITED (SAIL)
HISTORY:
Steel Authority of India (SAIL) was established in 1973 to manage the
operations of state-owned steel companies Hindustan Steel (established in
1954) and Bokaro Steel (established in 1964). In 1978, SAIL was restructured
as an operating company.
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A new Steel company, Bokaro Steel Limited, was incorporated in January
operate the steel plant at Bokaro. The 1 MT phases of Bhilai and Rourkela
completed by the end of December 1961. The 1 MT phase of Durgapur Steel
completed in January 1962 after commissioning of the wheel and axis plant
production of HSL went up from .158 MT (1959-60) to 1.6 MT. T he second
plant was completed in September 1967 after commissioning of the wire of the
1.8 MT phase of Rourkela- the Tandem Mill was commissioned the 1.6 MT
stage of Durgapur Steel Plant was completed in August 1969 the
Furnace in SMS. Thus with the completion of the 2.5 MT stage at Bhilai
and 1.6 MT at Durgapur, the total crude steel production capacity of
HSL 1968-69 and subsequently to 4 MT in 1972-73.
Key Facts Table No:-1
INTRODUCTION:
Steel Authority of India Limited (SAIL) is the leading steel-
making company in India. It is a fully integrated iron and
steel maker, producing both basic and special steels for
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domestic construction, engineering, power, railway,
automotive and defense industries and for sale in export
markets.
Ranked amongst the top ten public sector companies in India in terms
of turnover, SAIL manufactures and sells a broad range of steel
products, including hot and cold rolled sheets and coils, galvanized
sheets, electrical sheets, structural, railway products, plates, bars and
rods, stainless steel and other alloy steels.
SAIL produces iron and steel at five integrated plants and three special
steel plants, located principally in the eastern and central regions of
India and situated close to domestic sources of raw materials, including
the Company's iron ore, limestone and dolomite mines. The company
has the distinction of being Indias largest producer of iron ore and of
having the countrys second largest mines network. This gives SAIL acompetitive edge in terms of captive availability of iron ore, limestone,
and dolomite, which are inputs for steel making.
The Environment Management Division and Growth Division of SAIL
operate from their headquarters in Kolkata. Almost all our plants and
major units are ISO Certified.
SAIL VISION:
Tobe a respected world-class corporation and leader in India
steel business in quality, productivity, profitability, and
customer satisfaction.
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YEAR TOTAL (Rs./Crs.)2007-2008 21812008-2009 5233
2009-2010 106062010-2011 112802011-2012 11021
M
Much has happened ever since SAILs Corporate Plan was announced in 2004.
Investment plans for the three specialty steel plants have been firmed up.
Company has grown in size with the amalgamation of IISCO (now renamed as
IISCO Steel Plant). Production targets have been revised from 19 million
tonnes (MT) of steel to about 24 MT. Estimated investments has increased
from Rs 25,000 crore to around Rs 40,000 crore. And the time period has been
squeezed by two years, bringing the targeted year of completion of major
projects from 2012 to 2010.
SAILS GROWTH PLAN
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Saleable Steel Capacities (MT)
PLANT 2012
Bhilai Steel Plant 3153
Durgapur Steel Plant 1586
Rourkela Steel Plant 1671
Bokaro Steel Plant 3780
IISCO Steel Plant 314
Alloy Steels plant 0.43
Salem Steel Plant 0.36
Visvesvaraya Iron &
Steel Plant0.22
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Durgapur Steel Plant (DSP) in West Bengal
Rourkela Steel Plant (RSP) in Orissa
Bokaro Steel Plant (BSL) in Jharkhand
IISCO Steel Plant (ISP) in West Bengal
Special Steel Plants
Alloy Steels Plants (ASP) in West Bengal
Salem Steel Plant (SSP) in Tamil Nadu
Visvesvaraya Iron and Steel Plant (VISL) in Karnataka
Maharashtra Elektrosmelt Limited (MEL) in Maharashtra
JOINT VENTURES
SAIL has promoted joint ventures in different areas ranging from power
plants to e-commerce.
NTPC SAIL Power Company Pvt. Ltd: A 50:50 joint vnture
between Steel Authority of India Ltd. (SAIL) and National
Thermal Power Corporation Ltd. (NTPC Ltd.),it manages the
captive power plants at Rourkela, Durgapur and Bhilai with a
combined capacity of 314 (MW).
Bokaro Power Supply Company Pvt.Ltd.: This 50:50 joint
venture between SAIL and the Damodar Valley Corporation
formed in January 2002 is managing the 302-MW power
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generation and 1880 tonnes per hour steam generation facilities
at Bokaro Steel Plant.
Mjunction Services Ltd.: A joint venture between SAIL and
TATA Steel on 50:50 basis, this company promotes e-commerce
activities in steel and related areas.
SAIL-Basel Service Center Ltd.: SAIL has formed a joint
venture with BMW industries Ltd. on 40:60 basis to promote a
service center at Bokaro with the objective of adding value o steel.
Bhilai JP Cement ltd.: SAIL has also incorporated a joint
venture company with M/s Jaiprakash Associates Ltd to set up a
@.2 MT cement plant at Bhilai.
SAIL has signed an MOU with Manganese Ore India Ltd (MOIL)
to set up a joint venture company to produce Ferro-manganese at
Bhilai.
North Bengal Dolomite Ltd: A joint venture between SAILand West Bengal Mineral Development Corporation Ltd. on 50:50
basis was formed for development o Jayanti Dolomite
Deposit,Jalpaiguri for supply of dolomite to DSP and other plants.
Romelt_SAIL (India) Ltd.: A joint venture between SAIL,
National Mineral Development Corporation (NMDC) and Russian
promoters for marketing Romelt Technology developed by Russiafor reducing of iron bearing materials, which is carried out with
carbon in single stage reactor with the use of oxygen.
SAIL today is one of the largest industrial entities in India. Its strength
has been the diversified range of quality steel products catering to the
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domestic, as well as the export markets & large pool of technical &
professional expertise.
Ownership and Management
The Government of India owns about 86% of SAIL's equity and retains
voting control of the Company. However, SAIL, by virtue of its
Navratna status, enjoys significant operational and financial
autonomy.
OTHER UNITS:
SAIL Consultancy Division.
Center of engineering & Technology.
Management training Institute.
Safety Organization.
Environmental Management Division.
Raw Material Division.
Growth Division.
Central Power Training Institute.
Central Marketing Organization.
MAJOR CAPITAL SCHEMES:
Bhilai steel Plant:
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Rebuilding of Coke O.
Coke Oven batteries.
Modernization of BFs (including Gas Cleaning Plant).
Installation of new Slab Caster, RH Degasser & Ladle Furnace.
Revamping of existing Slab Casters in phased manner.
New Pipe Plant of 0.2 million tones capacity.
New Bar & Rod Mill ( 1 million tones).
Logistics & Infrastructures.
Durgapur Steel Plant:
Bloom Caster & associated facilities.
Rebuilding of coke oven battery.
Installation of a new Billet Caster.
Up gradation of BFs &CDI (Coal Dust injection) in BFs.
Rourkela Steel Plant:
Rebuilding of Coke Oven battery.
New Blast Furnace-2000m3.
CDI & Reconstruction of BFs.
Revamping of sinter Plant including Pollution Control scheme.
Bokaro Steel Plant:
New 2.5 million tones hot strip mill & 0.6 million tones cold
rolling mill.
Installation of Slab Caster.
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Installation of New modern BOFs.
IISCO Steel Plant:
Modernization of Steel Making Facility.
New Multi purpose section mill/universal mill.
Development of collieries.
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SWOT Analysis of SAIL
STRENGTH
Largest player in the Indian Steel industry.
Strong backward integration like iron ore and power.
Very aggressive expansion plans.
The single largest rail manufacturer in the world.
Merger with IISCO would boost its profitability, as SAIL would
have access to IISCOs underutilized iron ore and coalmines.
All its plants are a profit centers.
SAIL is a virtually Debt-Free Company.
The approved acquisitions and merger of NINL, NISCO and MEL
would result in synergy benefits, operating efficiencies, cost
savings and thus higher profit.
WEAKNESS
Concern in obtaining new mining leases and renewal of old leases.
Low liquidity in Stock Exchange (85.82% shares is held by GOI
itself).
Heavily dependent on import of raw materials (coking coal).
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High cost of energy.
Big ticket investment by POSCO and Mittal could swallow the
market (specifically export). Cyclical nature of Steel Industry.
Deficit infrastructure.
High ash coal.
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main items viz. Hot Metal, Crude Steel and Saleable Steel. BSP is the
first steel plant in India to have crossed the annual production of 5MT
crude steel in the year 2005-06.
In order to meet the challenges of Corporate Plan 2012 and to maintain
the leadership position of BSP in Indian steel industry, the leadership
has taken bold steps to make significant investments for breakthrough
improvements in efficiency, resource management, knowledge and skill
by deploying world class tools. This year is a milestone in BSP journey
when new tools have been introduced viz. ERP, Knowledge
Management, Six Sigma, Multi-skilling etc.
The Organization
Bhilai Steel Plant functions as a unit of SAIL with its corporate office at
New Delhi. SAIL is governed by a Board consisting of function
Directors, Managing Directors and government nominee Directors,
85.62% of the shares of SAIL are with Indian Government and balance
are with financial institutions, mutual funds, Indian Public and others,
Table: Main Products & Expected Market Share 2011-12
Main ProductsCurrent Market
Share
Expected Domestic
Market Share
Rails 100% 100%
Plates 24% 30%
Bars, Rods &
Structural.4.8% 10%
HR Coils / Sheets Nil 6%
Pipes Nil 6%
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corporate office formulate Policies, strategies and overall guidelines for
its unit, central organization like CMO (Central Marketing
Organization) RDCIS (Research and Development Center for Iron &
Steel ) CET ( Center for engineering and Technology ) look after the
relevant activities for the plates under SAIL.
Over the years, Bhilai Steel Plant has developed an organizational
culture that run forces its commitment to values and stimulates
continuous improvements and higher levels of performance. The chiefexecutives at Bhilai is the Managing director (MD) who is in overall
control of the operations of the plant, township and the mines,
Managing Director is assisted by his DROS i.e. the functional heads
(Executive directors/General Manager) concept of Zonal heads and
HODS helps in integrating various functions with clear accountability
for achieving corporate vision, company goals and objectives.
Bsps Organizational Objectives
To encage customer satisfaction through:-
Improvement in productivity and product quality.
Skill enhancement of our people by competence commitment and
culture-building.
Production as per customer requirements.
Table :
PRODUCT-MIX TONNES/ANNU
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M
Semis 5,33,000
Rail & Heavy Structural 7,50,000Merchant Products
(Angles, Channels, Round & TMT bars)5,00,000
Wire Rods (TMT, Plain & Ribbed) 4,20,000
Plates (up to 3600 mm wide) 9,50,000
Total Saleable steel 31,53,000
Captive mines:
Iron-Ore - Dalli-Rajhara Iron Ore Complex, 80 kms from
Bhilai
Limestone - Nandini, 23 kms from Bhilai
Dolomite - Hirri, 150 kms from Bhilai
Rail & Structural Mill: Capacity - 7, 50,000 T
Wire Rod Mill: Capacity - 4, 20,000 T
Product Mix: Saleable Steel Production:
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Major suppliers of Bhilai steel plant:
1. Apollo industrial corporation Mumbai.
2. Ashok Leyland Chennai.
3. BHEL Bhopal and Mumbai.
4. Bharat petroleum gas Nagpur.
5. Birla corporation limited kolkotta.
6. Cimmco Birla limited new Delhi.
7. Dunlop India limited kolkotta.
8. Siemens casting limited Mumbai.
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9. Simplex casting limited Raipur.
10.HMT ltd. Ranchi.
Major buyers:
1. Indian railways.
2. Vizard profiles limited.
3. High pressure boiler plant BHEL Trichy.
4. NTPC super thermal power project.5. Jindal steel and power limited Raigarh.
6. NTPC limited New Delhi.
7. Common India limited Delhi.
8. Chandigarh industrial journalism and development corporation
Chandigarh.
9. Cropro international Italy.
10.Sangyong corporation Japan.
Competitors:
1. Ispat industries limited.
2. Lloyds steel limited.
3. Essar steel limited.
4. Jindal steel and power limited.
5. Jindal strips limited.
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TURNOVER
GM (IT)
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Record production of4.49 Million Tons of Saleable Steel ,
surpassing the previous best of4.43 Tachieved in 10 - 11 and
registering a growth of1.4% over the previous Year.
Production of Total Crude Steel ('000T)
4581.7
5053.7
4798.4
5054.6
5183.5
4000
4240
4480
4720
4960
5200
2006-07 2007-08 2008-09 2009-10 2010-11
Production of Saleable Steel ('000T)
3935.1
4285.64222.9
4428.9
4491.6
3500
3700
3900
4100
4300
4500
2006-07 2007-08 2008-09 2009-10 2010-11
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Record production of 3604.6 Thousand Tonnes Finished
Steel, surpassing the previous best of 3603.1 Thousand
Tonnes in 2009-10.
Lowest ever coke Rate at Blast Furnaces at491.0 Kg/THM,
against previous best of497 Kg/THMin 2007-08.
Production of Finished Rails ('000T)
868.4855.2
880.9
916.1
978.7
700
760
820
880
940
1000
2006-07 2007-08 2008-09 2009-10 2010-11
Coke Rate at BFs ( Kg/THM )
499
497
508.9 509.2
491
490
494
498
502
506
510
2006-07 2007-08 2008-09 2009-10 2010-11
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Lowest ever Specific Water consumption of3.04 M3 /TCS
against previous best of3.06 M3 /TCSin 2007-08 .
Best ever production of430,494 Tons of TMT Bars from
Merchant Mill, surpassing the previous best of417,591 Tons
in 09 -10 , registering a growth of3.1% over previous year.
Spaecific Water Consumption ( M3/TCS )
3.97
3.79
3.19
3.06 3.04
3
3.4
3.8
4.2
4.6
5
2006-07 2007-08 2008-09 2009-10 2010-11
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Best ever production of403,175Tons of TMT Rods from Wire
Rod Mill, surpassing the previous best of277,488Tons in 09 -
10, registering a growth of 45.3% over previous year.
Production of TMT Bars ('000T)Merchant Mill
187.1
156.7
210.6
417.6 430.5
0
100
200
300
400
500
2006-07 2007-08 2008-09 2009-10 2010-11
Production of TMT Wire Rods ('000T)Wire Rod Mill
109.5 107.2 109.8
277.5
403.2
0
100
200
300
400
500
2006-07 2007-08 2008-09 2009-10 2010-11
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Best ever production of 814,805 Tons of UTS-90 Rails,
surpassing the previous best of 791,541 Tons in 09 - 10 ,
registering a growth of2.9% over previous year.
Best ever loading of213,652 Tonnes of26 metre rails and
106,284 Tof130 &260 metre rails, surpassing the previous
best of197,708 Tonnes and101,104 T, respectively in 2009-
10.
NEW PROJECTS:-
A Capital Expenditure exceeding Rs 800 crore was incurred by
BSP during the Financial Year 2010-11.
During the year 2008-09, Turnkey projects of Rs 3959 crore,
projects under Capital Budget of Rs 67.43 crore & projects under
Revenue of Rs 2.87 crore have been signed.
Production of HT (H/S) Plates ('000T)
110106.1
98.2 99.4
122.8
0
30
60
90
120
150
2006-07 2007-08 2008-09 2009-10 2010-11
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Project Website and Online Contract Billing & Accounting System
have been launched.
MAJOR PROJECTS COMPLETED:-
COB-5 (Pkg-I) Battery Proper & Oven Machine.
Slab Caster in SMS-II.
Installation of MSDS-VI.
End Forging Plant for Thick Web in RSM.
ONGOING PROJECTS:-
COB-11, New Coal Handling Plant, CDCP.
Rebuilding of COB-6 (Battery Proper).
Augmentation of Plate Mill capacity.
Basic Oxygen Furnace Shop SMS-III.
MSDS-7.
Compressed Air Station-4.
Ore Handling Plant Plant-A.
Electro Magnetic Stirrer in Bloom Caster in SMS-II.
Implementation of ERP.
Installation of 30 MLD Sewerage Treatment Plant with Recycling
facilities at Township. This will enable recycling of sewerage water
from 10 residential sectors and Indira place Market area for
industrial use.
Hot Metal Desulphurization for SMS-III.
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Installation of MSDS-V.
Up gradation of Nitrogen Network.
6.6 KV Switchgear for Substation 21 of SP-II.
Enabling works for 7 MT expansions.
Repl. Of DN 3000 Blast Furnace Header from BF-1 to BF-6.
Repl. Of Main Drives MG sets by Thyristor Converters at Plate
Mill.
700 TPD (ASU 4) Unit with associated facility at OP-2.
2*150 T capacity in-motions Weigh Bridge in Peripheral Yard 7
Raw Material Station.
SPU at Ujjain, Hoshangabad & Gwalior..
UPCOMING PROJECTS:-
Implementation of Manufacturing Executing System.
Augmentation of Coal Grinding facility for CDI unit at BF-6 & BF-
7.
7 numbers WDS-6 Loco & 1 no WDG-3A Loco.
Installation of 2nd Sinter M/c in Sinter Plant-III (320 m2).
New Blast Furnace 8 (4060 cu m).
Continuous Casting Shop SMS III.
o 2*6 Strand Billet Casters.
o 1*4 Strand Bloom-cum-Billet Casters.
o 183 Strand Beam Blank Caster.
New Bar 7 Rod Mill (0.90 MT Capacity).
New Universal Rail Mill (1.2 MT Capacity).
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Universal Beam Mil (1.0 MT Capacity).
New 2 *1250 TPD Oxygen Plant on BOO basis.
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Finance and
Accounts Department
Of
Bhilai Steel Plant
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Introduction:
Finance and accounts department of Bhilai Steel Plant is one of the key
department in the total organization .it has two main functions i.e.
Finance and Accounts. These functions are carried out by various
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Excise and sales tax section
Central accounts and assets.
ORGANISATIONAL STRUCTURE OF
FINANCE AND ACCOUNT DEPARTMENT OF
BHILAI STEEL PLANT
Bifurcation and coordination of Finance and Accounts
department
Financeand
accountsdepartme
nt
Finance
andaccountsdepartme
nt
Invoicingng
Invoicingng
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Issue
Analysis
SCOPE OF PROJECT
OBJECTIVE
METHODOLOGY
RESEARCH DESIGN
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SCOPE OF PROJECT ;
Working Capital is the capital available for conducting the day-to-day
operations of an organization, normally, the excess of current assets
over current liabilities.
In accounting terms this is a static balance sheet concept referring to
the excess at a particular moment in time of permanent capital plus
long-term liabilities over the fixed assets of the business. As such it
depends on accounting rules, such as what is capital and what is
revenue, what constitutes a retained profit, the cut-off between long
term and short term (12 months from the balance sheet date), and when
revenue should be recognized.
If working capital thus defined exceeds net current operating assets
(stocks plus debtors less creditors) the company has a cash surplus
(usually represented by bank deposits and investments); otherwise it
has a deficit (usually represented by a bank loan and/or overdraft). On
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this basis, therefore, the control of working capital can be sub divided
into areas dealing with stocks, debtors, creditors and cash.
A business must be able to generate sufficient cash to meet its
immediate obligations and therefore continue trading. Unprofitable
business can survive for quite some time if they have access to sufficient
liquid resources, but even the most profitable business will quickly go
under without adequate liquid resources. Working capital is therefore
essential to the companys long-term success and development, and thegreater the degree to which current assets cover the current liabilities,
the more solvent the company. Efficient managing of working capital is
important from the points of view of both liquidity and profitability.
Poor managing of working capital means that the funds are
unnecessarily tied up in idle assets, hence reducing liquidity, and also
reducing the ability to invest in productive assets as plant and
machinery, so affecting the profitability. A companys working capital
policy is a function if two decisions:
~ The appropriate level of investment in, and mix of current assets to be
decided upon, for a set level of activity - this is the investment decision.
~ The methods of financing this investment - the financing. Decision.
The Investment Decision
All businesses, to one degree or another need working capital. The actual
amount of working capital will depend on many factors like age of the firm,
the type of business activity, credit policy and also time of the year. There is no
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permanent base of assets. This has much lower returns but also is much
safer.
Management must be concerned with all aspects of the firms
operations including production of goods and delivery of services, sales
and marketing activities, and supporting functions, such as personal
training and data processing to handle these responsibilities, most firms
make extensive use of financial data and reports. As businesses become
larger and more complex, finance assumed the responsibility of dealing
with problems and decisions associated with managing the firmsassets. Inventories constitute the major element in the working capital
of many business enterprises. For instance, inventories on an average
constitute 60 percent of current assets in public limited companies in
INDIA. It is, therefore, necessary to manage inventories efficiently and
effectively to avoid unnecessary investments in them .Inventories have
a direct Impact on the profits of the firm. Profit is affected by
inventories in several ways. Firstly, too much, or too little inventory
affects the firms rate of return on investment. Secondly, the rate at
which the inventories move through the production on distribution
process also affects the cost of doing business. It is therefore, necessary
to formulate and initiate inventory policies which will serve as guides in
determining the correct level of inventory to maintain and the correct
amount of working capital to invest in inventory. To develop adequate
inventory plan, it is necessary to have thorough knowledge of the
objectives of inventory management and inventory management
techniques. A firm neglecting the management of inventories will be
jeopardizing its long-run profitability and may fail ultimately. It is
possible for a company to reduce its levels of inventories to a
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considerable degree e.g., 10 to 20 percent, without any adverse effect on
production and sales, by using simple inventory planning and control
techniques. The reduction in excessive inventories carries a favorable
impact on company profitability.
Current Assets
It consists of cash of cash, investments, inventory and receivables and
other market securities. Current assets are normally converted into cashwithin a year.
These assets consist of:
1) Cash and bank balance
2) Investments
Government and other trustees securities.
Fixed deposits of banks, which are not earned, marked for any specific
purpose, maturing within one year.
3) Receivables
a) Sundry debtors arising out of sales other deferred receivables.
b) Bills discounted.
c) Investments of deferred receivables due within one year.
4) Inventory
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a) Raw materials and components include those in transit.
b) Stock in process including semi finished goods.
c) Finished goods including goods in transit.
d) Consumable stores and spares.
5)Other Current Assets
a) Advanced payment of tax.
b) Advance for the purpose of raw materials, components and stores.
Total Inventories (in
Rs.crores)
Particulars
Inventories:
2008-
2009
2009-
2010
2010-
2011
2011-
2012
Stores and
Spares570.51 592.19 805.28 717.73
Raw
materials
Stock
484.18 588.77 579.33 667.79
Semi/Finishe
d goods
1828.4
5
1430.9
6
1790.7
4
1725.2
4
Total2883.1
42611.92 3175.35
3110.7
6
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Interpretation
Inventories are a major part of current asset. The inventories has
increased by 21.57% in the year 2010-2011 but for the accounting year
2011-2012 the inventories has decreased by 2.03%.
Total current assets :
(In Crores)
Particular
s
2008-
2009
2009-
2010
2010-
2011
2011-
2012Total
inventorie
s
2883.14 2611.92 3175.35 3110.76
Sundry
debtors
13.42 19.08 13.93 4.36
Cash and
bank
balances
43.14 51.40 54.35 60.39
Other
current
assets
10.81 10.11 8.62 358.90
Loans toOthers
473.74 947.65 1488.03 1575.18
Total 3424.25 3640.16 4740.28 5109.59
Interpretation
There is a nominal increase of 7.80% in the year 2011 - 2012 in current
asset with respect to a increase of 30.22% in the year 2010 - 2011. This
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slow increase is due to decrease of level of inventories by 2.03% in the
year 2011-2021 with respect to year 2010-2011.Although a nominal
increase , but increase in current asset shows the liquidity soundness of
company.
Analysis of current asset.
Inventories-They consist of tangible assets held for sale in business,
for process of production, or currently consumed in the production of
goods or services for sale. Raw materials are basically used in
manufacture of the project, finished goods are final goods for sale and
semi finished goods are goods in process of production.
The constituents of inventory carrying cost are interest, storage,
insurance, physical deterioration and obsolescence. Inventory
procurement also involves ordering cost consisting of number of
deliveries multiplied by the cost of delivery. These two costs make up
the total cost of inventory. The economic order quantity or lot size is to
be found where the total inventory cost is minimal.
Cash-Cash is the important component of current assets, which iskept to meet running expenses and meet expenses and meet
emergencies. It is the most liquid of current assets and its level is
determined by the liquidity of other assets. Cash is kept in the bank
deposits or readily convertible temporary investments.
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d) Interest and other charges accrued but not due for payment.
e) Advance/progress payments from customers
f) Deposits from dealers, selling agents etc.
3)Statutory liabilities:
a) Provident fund dues
b) Provision for tax.
c) Sales taxes, excise etc
4)Miscellaneous current liabilities:
a) Dividends
b) Liabilities for expenses
c) Gratuity payable within one year.
Current Liabilities of B.S.P (In Rs. Crores)
Particulars2008-
2009
2009-
2010
2010-
20112011-2012
Sundry
creditors737.95 1115.78 1212.16 782.62
Security
deposits59.06 63.52 68.59 96.80
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Other
liabilities1730.69 1400.81 1859.27 2180.50
Totalcurrent
liabilities
2527.70 2580.11 3140.02 3059.92
Interpretation
Current liabilities shows company short term debts pay to outsiders. In
the accounting year 2009-2010 the current liabilities decreases by
2.55%
Analysis of Current Liabilities
They comprise of borrowing from banks, trade credits, assessed tax and
unpaid dividends. The share of each constituent to total currentliabilities partly determines the availability of working capital. There is
very little scope of maneuvering current liabilities.
Working Capital Management
It involves the management the administration of current assets
liabilities. It consists of optimizing the levels of current assets in a
partial equilibrium context. Investment in current assets should be
made in such a manner similar to NVP approach used in making
investment decision in fixed assets. Current assets constitute a
continuously fluctuating level of liquid assets that is rapidly
transformed from one form to another.
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The basic goal of working capital management is to ensure that a firm is
able to continue its operations and that it has sufficient ability to satisfyboth maturing short-term debt and upcoming operational expenses.
The management of working capital involves managing inventories,
accounts receivable, accounts payable and cash.
Concept of Working Capital
Gross working capital :It refers to the firms investment in current asset. Current assets are theassets, which can be converted into cash within in an accounting year or
within an operating cycle. You can include here cash, short-termsecurities, debtors (account receivable and book debts), and bills
receivable and stock.
Net working capital:
The net working capital refers to the difference between current assetsand current liabilities. Current liabilities are those claims of outsiders,
which are expect to mature for payment within an accounting year andinclude creditors, bills payable and the outstanding expenses. In otherwords we can say the this is the excess of current assets over currentliabilities.
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NET WORKING CAPITAL
= CURRENT ASSET - CURRENT LIABILITIES
Kinds of working capital:
1. Permanent working capital:
Permanent working capital is the minimum amount of current assets, which is
needed to conduct a business even during the dullest season of the year. The
minimum level of current assets is called permanent or fixed working capital
CURRENT ASSETS CURRENT LIABILITIES
CASH ACCOUNTS
ACCOUNTS RECEIVABLES
NOTES RECEIVABLES
MARKETABLE SECURITIES
INVENTORY
PERPAID EXPENSES
PAYABLE
NOTES PAYABLE
ACCURED EXPENSES
TAXES PAYABLE
SHORT TERM LOANS
BANK OVERDRAFT
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as this part is permanently blocked in current assets. This amount varies from
year to year, depending upon the growth of the company and the stage of the
business cycle in which it operates.
2. Temporary working capital
Temporary working capital represents a certain amount of fluctuations in the
total current assets during a short period. These fluctuations are increased or
decreased and generally cyclical in nature. Additional current assets are
required at different times during the operating year. Variable working capitalis the amount of additional current assets that are required to meet the seasonal
needs of a firm, so is also called as the seasonal working capital.. For ex-
additional inventory will be required for meeting the demand during the period
of high sales when the peak period is over variable working capital starts
decreasing or very little during the normal period.
1
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2
Diagrammatic representation of temporary and variableworking capital.
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REGULAR PAYMENT OF SALARIES,WAGES AND
OTHER DAY TO DAY COMMITMENTS:It leads to the satisfaction
of the employees and raises the morale of its employees,increases their
efficiency,reduces wastage and costs and enhances production and
profits.
EXPLOITATION OF FAVOUABLE MARKET
CONDITIONS:If a firm is having adequate working capital then it can
exploit the favourable market conditions such as purchasing its
requirements in bulk when the prices are lower and holdings its
inventories for higher prices.
ABILITY TO FACE CRISES:A concern can face the situation
during the depression.
QUICK AND REGULAR RETURN ON
INVESTMENTS:Sufficient working capital enables a concern to pay
quick and regular of dividends to its investors gains comfidence of the
investors and can raise more funds in future.
HIGH MORALE: Adequate working capital brings an
environment of securities, confidence, high morale which results in
overall efficiency in a business.
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To maintain the inventories of the raw material, work-in-
progress ,stores and spares and finished stock.
For studying the need of working capital in a business, one as to study
the business under varying circumstances such as a new concern
requires a lot of funds to meet its initial requirements such as
promotion and formation etc. These expenses are called preliminary
expenses and are capitalized .The amount needed for working capital
depends upon the size of the company and ambitions of its promoters.
Greater the size of the business unit, generally larger will be the
requirements of the working capital.
The requirement of the working capital goes on increasing with the
growth and expensing of the business till it gains maturity. At maturitythe amount of working capital required is called normal working
capital.
Determinants of working capital
1. Nature of BusinessThis is one of the main factors. Usually in trading businesses the
working capital needs are higher as most of their investment isconcentrated in stock or inventory. Manufacturing businesses also needa good amount of working capital to meet their productionrequirements. Whereas, those companies that sell services and notgoods, on a cash basis require least working capital because there is norequirement on their part to maintain heavy inventories.
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2. Size of Business
Size of business is another influencing factor. As size increases, the
working capital requirement is also more and vice versa.
3.Credit Terms / Credit Policy
buy on credit and sell on credit, working capital is medium
Credit terms greatly influence working capital needs. If terms are:
buy on credit and sell by cash, working capital is lower
buy on cash and sell on cash, working capital is medium
buy on cash and sell on credit, working capital is higher.
Prevailing trade practices and changing economic condition dogenerally exert greater influence on the credit policy of concern.
a. A liberal credit policyif adopted more trade debtors would resultand when the same is tightened, size of debtors gets slim.
b. Credit periods also influence the size and composition of workingcapital. When longer credit period is allowed to debtors as against theone extended to the firm by its creditors, more working capital isneeded and vice versa.
c. Collection policyis another influencing factor. A stringentcollection policy might not only deter away some credit customers, but
also force the existing customers to be prompt in settling dues resultingin lower level of working capital. The opposite holds well with a liberalcollection policy.
d. Collection procedure also influences the working capital needs. Adecentralized collection of dues from customers and centralizedpayments to suppliers shall reduce the size of working capital.Centralized collections and centralized payments would lead tomoderate level of working capital. But with centralized collections and
decentralized payments, the working capital need would be the highest.
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3.Seasonality
Seasonality of Production
Agriculture and food processing and preservation industries have aseasonal production. During seasons, when production activities are intheir peak, working capital need is high.
Seasonality in supply of raw materials
This also affects the size of working capital. Industries that use rawmaterials which are available during seasons only, have to buy andstock those raw materials. They cannot afford to buy these items in aphased way, since either supplies would get reduced or prices would behigher. Also, from the point of view of quality of raw materials, it paysto buy in bulk during the seasons. Hence the high level of workingcapital needed when season exists for raw materials.
Seasonality of demand for finished goods
In case of products like umbrella, rain-coats and other seasonal items,the demand is high during peak seasons. But the production of theseitems has to be continuous throughout the year to meet the highdemand during peak seasons. Thus, working capital requirement would
be higher.
5.Trade Cycle
Trade cycle refers to the periodic turns in business opportunities fromextremely peak levels, via a slackening to extremely tough levels and
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lower, resulting in further drop in the level of working capital. On theother hand, if laborintensive technology is adopted, less investment in fixed assets and
more investment in current assets which would lead to higherrequirement of working capital.
Working capital cycle
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WORKING CAPITAL OF B.S.P (In Rs.
Crores)
Particulars2008-
2009
2009-
2010
20010-
20112011-2012
Total
current
assets (F)
3424.25 3640.16 4740.28 5109.59
Total
current
liabilities
(G)
2527.70 2580.11 3140.02 3059.92
Working
capital(F-
G=H)
896.55 1060.05 1600.26 2049.67
Interpretation
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Working capital is required to finance day to day operations of a firm.
There should be an optimum level of working capital. It should not be
too less or not too excess. In the company there is increase in working
capital by 28.08% with respect to 2011-2012. The increase in working
capital arises because the company has expanded its business.
Methods of analysis of working capital
Analysis of working is significant for both management and short-termcreditors. Management can assess the efficiency of the workingemployed in the business. Such an analysis helps management to detecttrends and initiate corrective measures. It helps the shareholders and
creditors to determine the prospects of payment of dividend andinterest. The analysis of working capital helps in determining the abilityof the company to repay its current debt promptly, assess theeffectiveness of management of working capital, adequacy of workingcapital and to undertake credit ratings. Analysis of working capitalrelates to an examination of circulation, liquidity, level and structuralaspects of working capital. In analysis of working capital the tools usedare ratio analysis and funds flow analysis of the company.
Ratio analysis
To analyze the current financial position of a company, ratio computedon the basis of the figure appearing in the balance sheet is compared
with norms set for the ratios. Depending upon the purpose, varies ratiosare used. The ratio discussed here relate to liquidity, circulation level
and structure of working capital.
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Liquidity ratios
1. Net working capital to total assets: It is the ratiobetween net working capital and the total assets of a
company
Liquidity ratios of B.S.P.
Net working capital to assets:
1. For (2008-2009) = 896.55 / 3424.25 = 0.26182:1
2. For (2009-2010) = 1060.05 / 3640.16 = 0.29120:1
3. For (2010-2011) = 1600.26 / 4740.28 = 0.3375:1
4. For (2011-2012) = 2049.67 / 5109.59 = 0.4014:1
INTERPRETATION
Liquidity refers to the ability of firm to meet its current obligations as
and when these become due. The short-term obligations are met by
realizing amounts from current, floating or circulating assets. The
current assets should either be liquid or near about liquidity. These
should be convertible in cash for paying obligations of short-term
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nature. The sufficiency or insufficiency of current assets should be
assessed by comparing them with short-term liabilities. If current assets
can pay off the current liabilities then the liquidity position is
satisfactory. On the other hand, if the current liabilities cannot be met
out of the current assets then the liquidity position is bad.
To measure the liquidity of a firm, the followingratios can be calculated:
CURRENT RATIO
QUICK RATIO
ABSOLUTE LIQUID RATIO
1. Current ratio: It is the ratio between a firms current assetsand its current liabilities. it is the most frequently used ratio
also called working capital ratio. It is considered as an index of
solvency of a company. It indicates the ability of a company to
meet its current obligation. Changes in current ratio can be
misleading. If a company raises money through commercial
paper and invests the amount in marketable securities, net
working capital is unaffected but the current ratio changes.
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a) Current Ratio
Current ratio = Current assets
Current liabilities
1. For(2008-2009)=3424.25/2527.70=1.3546:1
2. For (2009-2010) = 3640.16 / 2580.11 = 1.4108:1
3. For (2010-2011)= 4740.28 / 3140.02 = 1.5096:1
4. For (2011-2012) = 5109.59 / 3059.92 = 1.6698:1
INTERPRETATION
As we know that the ideal current ratio for any firm that ideal current
ratio is 2:1.If we see the current ratio of the company for last three
years it is less than the ideal ratio.This signifies that the company
does not have a sound liquidity position.Its current assets is less
than that of its current liabilities.
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These ratio shows that company carries a small amount of cash. But
there is nothing to be worried about the lack of cash because company
has reserve, borrowing power & long term investment. In India, firms
have credit limits sanctioned from banks and can easily draw cash.
Circulation of working capital
An analysis of circulation aspect throws light on the efficiency with which
working capital is being utilized in a firm. Various turnover ratios
covering each component of current assets have been developed to analyze
the efficiency in the use of working capital. The higher the turnover of
these components, the lower will be the need of working capital. The
higher the turnover of these components, the lower will be the need of
working capital. These ratios may be divided into 4 categories as:
Inventory turnover ratios
Receivables turnover ratios
Current assets turnover ratio
Working capital turnover ratio
1. Inventory turnover ratios: Inventory turnover ratio shows the extent of
use of working capital funds in different types of inventory. These ratio
includes-
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Turnover of aggregate inventory:It is obtained bydividing net sales in a year by the value of aggregate inventory at
the end of the year. A high turnover quickens the flow of fundsfrom inventory.
Turnover of current assets: This ratio measures the turnoverof total current assets used in business operations. The ratio is obtained
by dividing cost of goods sold by total current assets. A lower turnover
indicates utilization of working capital.
Current assets turnover ratio:
Sales
Avg.Current Assets
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C.A.T.R =
INTERPRETATION:Funds are invested in various assets in business to make sales and earn
profits. The efficiency with which assets are managed directly affects the
volume of sales. The better the management of assets, large is the
amount of sales and profits.
Current assets movement ratios measure the efficiency with which a
firm manages its resources. These ratios are called Turnover Ratios
because they indicate the speed with which assets are converted or
turned over into sales.
Year Openingbalance
Closingbalance
Averagecurrentassets
Sales Currentasset
turnoverratio
2008-2009
2259.79 3424.25 2842.02 16452.02 5.78times
2009-2010 3424.25 3640.16 3532.205 15069.41 4.26times
2010-2011
3640.16 4740.28 4190.22 16181.90 3.86Times
2011-2012
4740.28 5109.59 4924.935 17108.89 3.47Times
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Or
= Net sales/Average inventory.
Inventory Conversion Period
INTERPRETATION
This ratio shows how rapidly the inventory is turning in to receivable
through sales.In 2010-2011 the company has low inventory turnover
ratio but in 2011-2012 it has increased to 9.89 times .This shows that
YearOpening
balance
Closing
balance
Average
inventory
Inventory
turnover
ratio
Inventory
holding
period2008-
20091712.90 2883.79 2298.35
6.298
times58 days
2009-
20102883.79 2611.92 2747.85 4.15 times 62 days
2010-
2011
2611.92 3175.35 2893.64 5.02 times 72 days
2011-
20123175.35 3110.76 3143.05 9.89 times 36 days
I.C.P = 360
Inventory Turnover
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Creditors payment period = avg. trade credit
Credit purchase per
NOTE: In B.S.P we do not have debtors and creditors turnover as the
finished goods produced in all the plants of SAIL are directly
transferred to CENTRAL MARKETING ORGANISATION ( C M O)
headquarters were further marketing of these finished goods occurs,
so B.S.P has nothing to do with creditors and debtors.
2) Working capital turnover ratio:
Working capital turnover ratio indicates the velocity of utilization of net
working capital. This ratio indicates the number of times the working
capital is turned over in the course of the year. This ratio measures the
efficiency with which the working capitaland alow ratio indicates
otherwise. But a very high working capital turnover is not a good
situation for any firm.
Working capital = current assets current liabilities
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Working capital turnover ratio:
W.C.T.R = Sales X 100
Working capital
Year Opening
balance
Closing
balance
Average
net W.C.
W.C.Turnove
r ratio2008-
2009
561.47 896.55 729.01 22.56
2009-
2010
896.55 1060.05 978.3 15.40
2010-
2011
1060.05 1600.26 1300.15 12.44
2011-
2012
1600.06 2049.67 1824.97 9.37
Year Current assets (C.A)
Currentliabilities
(C.L.)
Workingcapital
=C.A-C.L
Gross salesto working
capitalratio
2008-2009
3424.25 2527.70 879.55 21.02 times
2009-2010
3640.16 2618.76 951.88 16.67 times
2010-2011 4740.28 3140.08 1600.26 10.11 times
2011-2012 5109.59 3059.92 2049.67 8.35 times
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INTERPRETATION
This ratio indicates low much net working capital requires for sales .In
2011-2012,the ratio is 9.3. Thus this ratio is helpful to forecast the
working capital requirement on the basis of sale.
Operating cycle
There is a difference between current assets and fixed assets in theterms of their liquidity. A firm requires many years to recover the initialinvestment in fixed assets such as plant and machinery or land and
buildings. On the contrary investment in current assets in turned overmany times in a year. Investment in current assets such as inventories
and debtors ( accounts receivable) is realized during the firmsoperating cycle, which is usually less than a year. Operating cycle is thetime duration required to convert resources or inventories into salesand then into cash.
The operating cycle of a manufacturing companyinvolves threephases:
1.Acquisition of resources - such as raw material, labour, power
and fuel etc.
2.Manufacture of the product which includes conversion of
raw material into work in progress into finished goods
3.Sales of the product either for cash or on credit. Credit sales
create account receivable for collection.
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How is the length of an operating cycle determined?
The length of the operating cycle of a manufacturing firm is the
sum of:
i. Inventory Conversion Period (ICP) and
ii. Debtors Conversion Period (DCP)
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Here the inventory conversion period is the total time needed for
producing and selling the product. Typically, it includes:
a) Raw material conversion period (RMCP)
b) Work-in-progress Conversion Period (WIPCP)
c) Finished Goods Conversion Period (FGCP)
Operating Cash Conversion Cycle:
To measure the time taken for the initial cash flows for goods and
services to be realized as cash inflows from sales, the device of he
operating cash conversions cycle is used. Conversion cycle capture the
fact that different components of working capital have different life
expectancies and are transformed to liquidity flows at different rates.
The imbalance between cash inflows and outflows necessitates
investments in current assets. The net cash conversion rate identified
with the help of cash converting cycle has to be finance by workingcapital.
Computation of Operating Cycle
Formulae:
1. RMCP = (RMI*360)/RMC
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2. WICP = (WIPI*360)/COP
3. FGCP = (FGI*360)/COGS
4. DCP = (DRS*360)/Cr. Sales
5. PDP = (CRS*360)/Cr. Purchases
6. GROSS OP. CYCLE = ICP+DCP
7. ICP = RMCP+WIPCP+FGCP
8. NET OP. CYCLE = GOC-PDP
Where RMC is the consumption of raw material.
RMI is the closing stock of raw material inventory.
WIPI is the closing stock of work-in-process inventory.
FGI is the closing stock of finished goods inventory.
COP is the cost of production.
COGS are the cost of goods sold.
Calculation of operating cycle
1. Raw material conversion period = Raw material X360
Raw material
consumption
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2008 2009 2010 2011 2012
(284.73*360)
/4718.58
=21.7
(484.18*360)
/7401.72
=23.5
(588.77*360)
/6400.2
=33.11
(579.33*360)
/7707.16
=27.06
(667.79*360
)/8314.16
=28.91
INTERPRETATIONRaw material conversion period refers to the period in which raw
materials gets converted into finished goods or semi finished goods. The
period has gradually increased to 28.9, which indicates inefficiency in
the management.
1. Work in progress conversion period
= work in progress inventory X
360
Cost of production
Note-In BSP the WIPCP is not calculated, as they dont go for the hot
metal cost.
2. Finished goods conversion period
= finished good conversion period X 360
Cost of goods sold
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2008 2009 2010 2011 2012
(962.42*360)
/9486.45
=36.52
(1828.4*360)
/12097.53
=54.40
(1430.96*360)
/11424.89
=45.08
(1790.74*360)
/12276.26
=52.51
(1725.24*36o)
/13810.77
=44.97
INTERPRETATIONFinished goods conversion period indicates the time or the period in
which finished goods gets converted into sales as cash. The figure shows
an increasing trend till 2011,but for the year 2012 it has decreased
by ,indicating an efficient look of the management on this.
A good co-ordination between raw material conversion period and
finished goods conversion period has to be maintained by the
organization.
3. Debtors conversion period = debtor X 360Credit sales
4. Creditors deferral period = creditors X 360Debit sales
Note- BSP doesnt go for the calculation of DCO AND CDP as both thethings are dealt in corporate office; hence due to this reason workingcapital management is not done in BSP
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A Comparative Study of SAIL, Contribution of
B.S.P in SAIL Profit Financial Accounts
a) UNDERSTANDING PROFIT & LOSS ACOOUNT
PROFIT AFTER TAX (PAT)=Profit before tax-Tax
Particulars SAIL (Rs./Crores) BSP (Rs./Crores)
PBT 5150.87 2714.75
LESS : TAX 1608.15 -
PAT 3542.72 2714.75
INTERPRETATION
The company SAIL has achieved a profit of Rs 3542.72crs (profit after
tax) in SAIL profit the Bhilai Steel Plant comprises for 76% of Profit
contributing the most.
CASH PROFIT=Profit Before Tax (PBT)
+Depreciation
Depreciation is added because it is not actual cash outflow, it is an
appropriation of fund future replacement of old assets with new assets.
DEPRECIATION IS CHARGED AT THE RATE PRESCRIBED
UNDER SCHEDULE XIV OF THE COMPANY ACT,1956
Particulars SAIL (Rs./ Crs. ) BSP (Rs./Crs.)
Profit Before Tax 5150.87 2714.75
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(PBT)
Add: Depreciation 1567.03 321.33
Cash Profit 6717.90 3036.08
INTERPRETATION
Adding depreciation to the profit after tax the cash profit of SAIL is
found to be Rs.6717.90crs.The Bhilai Steel plant alone contributes acash profit of Rs.3036.)8crs. i.e., approximately 45% of the total cash
profit.
OPERATING PROFIT
OPERATING PROFIT = PROFIT BEFORE TAX + INTEREST &
FINANCE CHARGES
Particulars SAIL (Rs. /Crs.) BSP (Rs. /Crs.)
Profit Before Tax
(PBT)
5150.87 2714.75
Add:Int.&Fin.Charges 983.99 262.04
Operating Profit 6134.86 2976.79
GROSS MARGIN
GROSS MARGIN = PROFIT BEFORE TAX + INTEREST +
DEPRECIATION
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Particulars SAIL (Rs./Crs.) BSP (Rs./Crs.)
Profit before Tax
(PBT)
5150.87 2714.75
Add:Int.&Fin.Charges 983.99 262.04
Depreciation 1567.03 321.33
Gross Margin 7701.89 3298.12
PROFITABILITY RATIO
Gross Profit/Margin Ratio = Gross
Margin/turnover*100
Net Profit Ratio = Operating Profit/Turnover*100
Operating Ratio = Operating profit/Turnover*100
Profitability Ratios
Particulars SAIL (Rs./Crs.) B.S.P (Rs./Crs.)
Turnover (Sales) 44574.87 17108.89
Gross Margin 7701.89 3298.12
Operating Profit 6134.86 2976.79
Profit Before Tax
(PBT)
5150.87 2714.75
Gross Margin Ratio 17.27% 19.27%
Operating Ratio 13.76% 17.40%
Net Profit Ratio 7.95% 15.86%
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INTERPRETATION
As seen in the graph the net profit has decreased year by year.
OBJECTIVE
To ensure a balance between liquidity and profitability.
To ensure proper flow of funds for current operations.
To speed up the flow of fund.
To produce best quality product in minimum cost.
To study and to analyze the various financial statements.
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Facilitating cost and expenditure control with
appropriate data and analysis.
Efficient and effective management of funds throughproper planning and control.
Research methodology
Research in common parlance to a search forknowledge. One can also define research as ascientific and systematic search for pertinentinformation on a specific topic.
Research methodology is a way to systematically solve the researchproblem. Research methodology just does not deal research method butalso consider the logic behind the method. It facilitates the researcher
with reason for evaluating the research problem.
Definition:
According toRedman and Mory Research is systematized effort to gain new knowledge.
According to Clifford Woody
Research comprises defining and redefining problems, formulating
hypothesis or suggested solutions, collecting organizing and evaluating
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It must be flexible enough
o Appropriate and efficiency must lie in the report.
o It should minimize bias and maximize the reality of the data
collected.
The design must be suitable be suitable
Research methodology
Research in common parlance to a search for knowledge. One can alsodefine research as a scientific and systematic search for pertinentinformation on a specific topic.
Research methodology is a way to systematically solve the researchproblem. Research methodology just does not deal research method butalso consider the logic behind the method. It facilitates the researcher
with reason for evaluating the research problem.
Definition:
According toRedman and Mory Research is systematized effort to gain new knowledge.
According to Clifford Woody Research comprises defining and redefining problems, formulating
hypothesis or suggested solutions, collecting organizing and evaluatingdata, making deductions and reaching conclusions and at last carefullytesting the conclusions to determine whether they fit he formulatinghypothesis.
It has also defined as a careful investigation or inquiry especiallythrough search for new fact in any branch of knowledge.
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Research comprises defining research problems, formulates thehypothesis, research design including sample designing, data collection,
analysis of data, interpretation, conclusion on the basic ofinterpretation. Apart from it suggestions and recommendations are alsothe part of research.
The research methodology is through secondary data:
Journals
Plant visit
Personal discussion and interaction
Research design
The formidable problem that follows the task of defining the researchproblem is the design of the research project, popularly known as the research design.To define the term research design it can be said a research design isthe arrangement of conditions for collection and analysis of data in amanner that aims to combine relevance to the research purpose witheconomy in procedure.
In fact the research design is the conceptual structure within whichresearch is conducted, it constitute the blueprint for the collection,measurement and analysis of data. As such the design includes anoutline of what the researcher will do from writing the hypothesis andits operational implications to the final analysis of data.
Features of a good design:
It must be flexible enough
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o Appropriate and efficiency must lie in the report.
o It should minimize bias and maximize the reality of the data
collected.
o The design must be suitable be suitable as per the requirement ofthe case.
Important concept relating to research design:
o Dependent and independent variables.o Extraneous variables.
o Control.o Confounded relationship.o Research hypothesis.o Experimental and non- experimental hypothesis- testing
research.o Experimental and control groups.o Treatment
o Experiments.o Experimental units.
Research design used in this report
Literature research : analysis with the help of available data.
Experience survey: consulting with the experienced officials for aquick summary of the main issue.
FINDINGS
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Findings during undergoing the project work on topic
Analysis of Working Capital with -
A Study in Bhilai Steel Plant.
1. In BSP the coordination among the various sections of the
Finance & Accounts department is very nice, as the Finance &
Accounts department is a big department consisting of near
about 32 sections. It is the work force of the Finance &
Accounts department, which makes it possible.
2. In the BSPs there not to create debtors they generally deal with
first to receive the cash or cheque, and then they supply the
finished material.
3. In the BSPs there working capital management is very good, they
use the MMIS & SAP system to manage the overall activity.
4. During the study I find that their is no huge variation in budgetdecided and the actual one.
5. Bills of store handling contracts and freights payments are not
processed through MMIS. As a result records of these payments
are not available in the system, which makes task tedious and
hence ERP is to be implemented to resolve the problem.
6. Government is not having the commercial approach regarding
the implementation of taxes.
7. The taxation policy is to be made flexible because of which
bulkiness of the work is to be removed.
8. The tendering process time is to be minimized so that the current
market price benefits if any can be availed.
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9. Monthly return filling is not on line process, hence sales and
excise department face problem.
10. Online inventory valuation can be implemented.
11. The departmental policies is to made flexible which leads to
decrease in the work flow process as well as it leads in better
profits.
CONCLUSION
Bhilai Steel Plant a major unit of sail has been generating continuous
profits as compared to previous year with current year. To summaries,
working capital at a plant level, this mainly involves forecasting and
monitoring of various components, which is done systematically.
Where by major portions of receivables are managed by central
marketing organization for all plants level. Other important
components of working capital are bill payables and borrowings of
funds monitored by corporate level.
Finance Department of Bhilai Steel Plant and various individual units
decides the amount of funds requirement during the preparation of
operation budget, and then requirement of fund