a summer project report on

8/8/2019 A SUMMER PROJECT REPORT ON

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CHAPTER-I

INTRODUCTION

1.1 Subject

1.2 Reasons for selecting the topic

1.3 Importance of this topic


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INTRODUCTION Management of working capital is one of the most important areas in the

day to day corporate life. Working capital management is the functionalarea of finance that covers all the current accounts of the firm. It is

concerned with management of the level of individual current assets as well

as the management of total working capital. Procurement of funds is firstly

concerned for financing working capital requirements of the firm and

secondly for financing fixed assets.

Working capital refers to the funds invested in current asset, i.e.,

investment in stocks, sundry debtors, cash and other current assets. The

investment on the purchase of raw material is identified as working capital.

It is obvious that a certain amount of fund is always tied up in raw materialinvestment, work in- progress, finished goods, consumable stores, sundry

debtors and day to day cash requirements. However, the organization also

enjoys credit facilities from his suppliers who may supply raw material on

credit. Similarly, an organization may not pay immediately for various

expenses for instance; the labours are paid only periodically. Therefore,

certain amount of funds is automatically available to finance the current

assets requirement. However, the requirements of current assets are

usually greater than the amount of funds payable through current

liabilities. In other words, the current assets are to be kept at higher level

than the current liabilities.

WORKING CAPITAL MEANING

Capital is required for a business can be classified under two categories viz.

1. Fixed capital

2. Working capital

Every business needs funds for two purposes for establishment of business

and to run day to day operations. Long term funds are required to create

production facilities through purchase of fixed assets such as plant and

machinery, land, building, furniture etc. investment in these assets is

blocked on a permanent or fixed basis is called fixed capital. Funds needed

for short term purposes for the purchase of raw material, payment of

wages and other day to day operations and expenses etc. is known as


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working capital. So, working capital refers to that part of firms capital

which is required for financing short term or current assets such as cash,

marketable securities, debtors, inventories.

REASONS FOR SELECTING THE TOPIC

I have chosen this topic i.e. Working Capital Management, because

working capital is essential for the existence of the business. All day to day

operations have to be properly financed otherwise the firm cannot run

smoothly. Since a large firm has many departments and every department

have various functions. So to properly manage those functions every

company requires funds. Here these funds requirement is Working Capital

requirement.

Since I want to know the total functioning of day to day operations thistopic is suitable for me. This will bring an opportunity for me to know the

total financial activity of a company. Again I want to know how an

organization manage to finance its day to day activities, from where it get

the funds. To know all these things working capital management is the

appropriate subject.

Another reason for choosing this topic to know more insight about the

financial activates of a company. Since working ca pital includes current

asset, current liabilities and working capital ratios. Companys operating

cycle, I can know all these things together.

One more reason is that I want to know the liquidity position of a company.

Whether the company can give its short term obligation or not. Because

this can lead or spoil its popularity.

Since working capital management is a job of middle level management it

is going to beneficial for me in the future. Since I have taken specialization

in Finance my topic should be under this specialization.

So due to the above factors I choose Working Capital Management.


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RESEARCH METHODOLOGY

INTRODUCTION

Research methodology is a way to systematically solve the research

problem. It may be understood as a science of studying now research isdone systematically. In that various steps, those are generally adopted by a

researcher in studying his problem along with the logic behind them.

It is important for research to know not only the research method but also

know methodology. The procedures by which researchers go about their

work of describing, explaining and predicting phenomenon are called

methodology. Methods comprise the procedures used for generating,

collecting and evaluating data. All this means that it is necessary for the

researcher to design his methology for his problem as the same may differ

from problem to problem.

Data collection is important step in any project and success of any project

will be largely depend upon how much accurate you will be able to collect

and how much time, money and effort will be required to collect that

necessary data, this is also important step.

Data collection plays an important role in research work. Without proper

data available for analysis you cannot do the research work accurately.

TYPES OF DATA COLLECTION

The data or information has been collected from two sources :

Primary Data

Secondary Data

PRIMARY DATA

Primary data are those data collected from individuals, officials, guide,

views from heads of Finance department. These data are collected throughobservation of records and files.

SECONDARY DATA Secondary data are those which are alreadygathered and available. There may be internal sources within plant.


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Externally these sources include books, periodicals, published reports etc.

For collection of data, I have consulted the following secondary data:

y Books on the subject

yAnnual Reports

y Published reports relevant to the subject

y Commercial data

y Files and records of the plant

y Broachers provided by the Finance Department.

OBJECTIVE OF THE STUDY

The present study is made as a part of the MBA programmed for summer

training with following activities.

y To know the financial position of RSP.

y The organization has the strength to fulfill its current obligations or

not.

y Find out the strength and weakness of RSP.

y To identify the factors influencing the working capital management

operation at RSP.

y To access the working capital requirement.

y To find out alternative source.

y To find out opportunity to RSP for the investment of surplus funds

and to examine the various opportunity.

SCOPE OF THE STUDY:

The company will be able to assess the process of working capital

management. It is following and it will give a clear picture to the

management about the technicalities of its adopted process of working

capital management.


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The data and information were gathered during training.

The scope is limited to the secondary data only.

LIMITATION

RSP is a large organization. It has a lot of department. Since this

study is limited to six months it is not possible to calculate working

capital for each department.

The study is restricted to the application of working capital

management only.

Here data is collected mainly from annual reports and publicized

reports only.


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CHAPTER-III

PROFILE OF STEEL SECTOR

3.1 Indian steel sector

3.2 SAIL in steel sector of India

3.3 Organization profile history of industry

3.4 Product mix

3.5 SAIL records


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INDIAN STEEL SECTOR

India is the only world over to post a positive overall growth in crude steel

production at 1.01 per cent for the January-March period of 2009. The

recovery in steel production grew at 1.2 per cent in the January -March

quarter of 2008-09 over the same period last year. The fourth quarter sawmost of the large steel companies such as SAIL, Tata Steel, Essar and JSW

operating at full capacity.

The National Steel Policy has a target for taking steel production up to 110

MT by 2019-20. Nonetheless, with the current rate of ongoing green field

and brown field projects, the Ministry of Steel has projected Indias steel

capacity is expected to touch 124.06 MT by 2011-12. In fact, based on the

status of Memoranda of Understanding (MOUs) signed by the private

producers with the various state governments, Indias steel capacity is

likely to be 293 MT by 2020.

Steel Minister, Ram Vilas Paswan, has said that an investment worth US$

176.49 billion is likely to go into the steel sector by 2020.

DOMESTIC STEEL SCENARIO

Indias finished steel production has increased from 35.4 mn tonnes in FY

03 to 52.8 mn tones in FY 08, registering a CAGR of 8.3%. During the

same period, finished steel consumption has grown at an incrementalCAGR of 11.9. Demand of steel in the country has been growing at a

multiplication factor of approximate 1.2x-1.3x of the growth rate of the

economy. Construction sector in the country is the largest consumer of steel

and accounted for about 52% of the total finished steel consumption in FY

08.

Indias exports of finished steel have remained almost stagnant in the range

of

4-5 mn tones in the past six years. But import of finished steel has grown

from 1.5 mn tones in FY 03 to 6.5 mn tones in FY 08, registering a CAGR

of 33.8%. In FY 08, India turned into a net importer of finished steel as

countrys import rose by almost 46% on YoY basis.


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INPUT SCENARIO

India has self sufficiency in iron ore but for coking coal it has to mainly

rely on imports. Iron ore production in the country has increased from 123mn tones in FY 04 to 204 mn tones in FY 08, registering a CAGR of 13.9%.

In FY 08, India produced about 204 mn tones of iron ore, out of which the

county consumed about 100 mn tones and 104 mn tones of iron ore was

exported out of which about 80% of exportswere made to China. Countrys

coking coal import has increased almost two fold in the past six years. In

FY 08, India imported about 22 mn tones of coking coal. Coke which can

be directly used in BF is also not available in plenty in the country. Imports

of coke in the country have increased from 2.2 mn tones in FY 03 mn tones

in FY 07.

Consumption: India is the fifth largest consumer of steel in the world. Itconsumes about 1.5 MT of stainless steel a year with around 70 per cent

accounting for kitchenware. However, its use in railway coaches, wagons,

airports, hotels and retail stores is growing immensely. Demand for steel in

India is likely to grow at around 12 per cent against the global average of 5 -

6 per cent. Steel consumption grew at 3.8 per cent in the January -March

quarter of 2008-09 over the same period last year.

A Credit Suisse Group study states that Indias steel consumption willcontinue to grow by 16 per cent annually till 2012, fuelled by demand for

construction projects worth US$1 trillion. The scope for raising the total

consumption of steel is huge, given that per capital steel consumption is

only 35 kg compared to 150 kg across the world and 250 kg in China.

Exports

Out of Indias annual iron ore production of more than 200 MT, about 50

per cent is exported.

Iron ore exports increased 17 per cent to 12.6 MT in February 2009 from

10.8 MT in the same month a year ago, owing to a moderate revival in

demand from Chinese steel producers, as per the latest data complied by a

group of top Indian mining firms.


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Earlier, according to a study, with the rise in demand for steel in China,

Indias iron ore exports went up by 38 per cent to reach 13.6 MT in

December 2008 against 9.8 MT in December 2007. Around 50-60 per cent

of Indias iron ore is exported to China.

Indias exports during April-December 2008 were 64.4 MT. Thegovernment has reduced export duty on iron ore lumps from 15 per cent to

5 per cent, which has given a further fillip to exports. Further, the

reduction in railway freight has also benefited the domestic iron ore

miners.

Investments

A host of steel companies have lined up major investment proposals.

Furthermore, with an expanding consumer market, the Indian steelindustry is likely to receive huge domestic and foreign investments.

According to the Investment Commission of India investments of over US$

30 billion in steel are in the pipeline over the next 5 years.

Japans Sumitomo Metal Industries is planning to build a blast furnace

steel plant in India with mid-tier producer Bhushan Steel, investing as

much as US$3 billion.

Arcelor-Mittal, the largest steel maker of the world, is planning to set up a

captive port near Paradip in Orissa. The port will be used to serve two

mega integrated steel plants of the company proposed in Orissa and

Jharkhand.

Government Initiative

Subsequent to the recent fall in international prices of commodities and to

protect Indian producers, the Indian government has announced some

changes in customs duty rates, which were effective from November 2008.

The government has removed full exemption of customs duty on some

industrial and agricultural commodities. Iron and steel products like pig

iron, spiegeleisen, semi-finished products, flat products and long products

are now subject to a basic custom duty of 5 per cent ad valorem.


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The Indian government plans to invest over US$350 billion in industri es

related to infrastructure and construction which will give a fillip to the steel

sector.

Road ahead

While the demand for steel will continue to grow in traditional sectors such

as infrastructure, construction, housing automotive, steel tubes and pipes,

consumer durables, packaging, and ground transportation, specialized steel

will be increasingly used in hi-tech engineering industries such as power

generation, petrochemicals, fertilizers, etc. The new airports and railway

metro projects will require a large amount of stainless steel.

According to an estimate, with the growing need for oil and gas

transportation infrastructure, a US$ 118 billion opportunity is waiting tobe tapped by steel manufacturers in the next five years. Indian steel makers

are set to make the most of booming global demand for steel pipes and

tubes with the government withdrawing the 10 per cent duty on the exports

of these products. According to a study by ICICI Direct, Indian steel

companies are likely to get 19 per cent of the total global demand in the

years to come.

Prices

Globally, unprecedented demand growth of steel from China in the past

few years has played a major role in the movement of international steel

prices. Till the first half of CY 2008, globally, steel prices showed a rising

trend. Post this period, due to global economic meltdown, steel prices have

softened to the extent of US$ 500-600 per tonne.

Domestically, due to government interventions, steel producers were

unable to hike steel prices in line with the rise in international steel prices.

After voluntarily decline in price by steel companies in the month ofMay

08, steel prices in the country have remained almost stable during June-September 2008 quarter. Thereafter to maintain the import price parity

and limit steel imports, domestic steel manufacturers slashed steel prices in

the first week of November 2008 in the range of about Rs. 4,000 to Rs.

6,000 per tonne. As a result, margins of steel players are under pressure in

FY 09.


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Demand for steel is expected to slow down but to grow at a CAGR

of 8.0% in FY 09-11

CARE Research estimates that during FY 09-11, demand for steel in the

domestic market would grow at a CAGR of 8.0%. After registering a

healthy CAGR of 11.9% during FY 01-08, the growth would slow down

due to the impending downturn in the manufacturing sector and lower

economic growth rate. Steel demand from the construction sector is

expected grow at a lower CAGR of 9.5%. Poor performance of automobiles

sector is expected to result in a fall in steel demand from this sector in FY

09 and remain more or less stable in the narrow range of 2.1 to 2.3 mn

tones till FY 11.

Internationally, contract prices of coking coal are expected to come down

by about 40-50% for the year 2009-10. Also, expected decline in

international contract prices of iron ore would lead NMDC to revise

domestic iron ore prices downwards. This is expected to provide relief to

domestic steel manufacturers especially the non-integrated ones by way of

reduction in the cost of production and turn to improve profitability in FY

10 compared to the previous year.

Indian Steel Industry 2009: Squeezed, but strong?

At the Mining to Steel Summit 2009 organized by Indian Chambers of

Commerce (ICC) here. Sounding an optimistic note, the report states that

though the world steel scenario is grim, India has the potential to grow at

double digit rates and should target a production of 125 mm tones in the

medium term.

During a parallel with China, it goes on to say that during the 1998-2003

period, when the finished global steel production grew at a compounded

annual growth rate (CAGR) of 1.6%, the Chinese steel demand were

massive infrastructure development and high level of urbanization,

escalating demand from housing, automobile and white goods sectors, says

the report.

Says Navin Vohra, Partner & National Leader? Metals & Mining Practice

for Ernst & Young? The current Indian scenario is very similar to that of


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China in 1998 and we expect significant investments here towards large-

scale public infrastructure, urbanization, auto and white goods. Further in

the long term capacity in the commodity industry has to move to low-cost

centres and India is well placed with abundant high quality iron ore,

qualified manpower and competitive capital costs due to low l and and

construction costs.

According to the report, while the near -to-medium term future of the

global steel industry is challenging, the outlook for India is also

encouraging because unlike the last bear phase during 1993-94 to 2001-02

when the domestic sector was reeling under a supply overhang the supply

demand scenario is more balanced this time.

On the related question of whether the Indian steel industry is prepared for

the expected demand growth, the report ahs suggested certain proactive

measures to boost supply additions such as priority sector status for credit

availability, clear and unambiguous mine allocation and land acquisition

policies. Steel prices remain under pressure in near -term.

According to the report, the near term outlook for the industry is

challenging as the growth in key end-user industries such as construction,

automobiles and manufacturing has taken a backseat. The downturn has

also led to a decline in the prices for raw materials such as iron ore and

coking coal, albeit at a lower rate than the dip in steel prices. Further,

prices are expected to decline in 2009 as consumption levels are projected

to continue plummeting.

As steel manufacturers have undertaken production cuts, this is likely to

result in a surplus of iron ore and resulting weakening of ore prices. It is

expected that the domestic steel companies will try to drive hard bargains

for iron ore, though the consolidated nature of the raw material industry

ensures that generally it is the input suppliers who have better bargaining

power than the steel manufacturers, thereby impacting operating margins,

says the report. Similarly, the coking coal market is also expected to turn

into a surplus on account of the production cuts in the industry.

Over the last three years, the Indian steel industry has witnessed 44 merger

& acquisition (M&A) transactions aggregating USD 16.8 bn. A majority of

these were outbound deals and acquisition of steel processing units.

Achieving resource security has been a primary driver behind these deals.

Further, geographical expansion, increased market share and an improved

cost structure have been governing these transactions.


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SAIL IN STEEL SE T OF INDIA

Steel Authority of Indi Li ited (SAIL i one of the l rgest steel makers in

India. With a turnover of Rs. 45,555 crores, the company is among the top

five highest profit earning corporate of the country. It is a public sector

undertaking wholly owned by Government of India and acts like anoperating company. Incorporated on January 24, 1973, SAIL has more

than 131,910 employees. The companys current Chairman is S.K Roongta.

With an annual production of 13.5 million metric tons, SAIL is the 16th

largest steel producer in the world.

ajor plants owned by SAIL are located at Bhilai, Bokaro, Durgapur,

Rourkela, Burnpur (near Asansol and Salem. SAIL is a public sector

company, owned and operated by the Government of India. According to a

recent survey, SAILis one of Indias fastest growing Public Sector Units.

E panding Hori on (1959-1973)

Hindustan Steel (HSL) was initially designed to manage only plant that was

coming up at Rourkela. For Bhilai and Durgapur Steel Plants, the

preliminary work was done by the Iron and Steel inistry. From April

1957, the supervision and control of these two steel plants were also

transferred to Hindustan Steel. The registered office was originally in New


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Delhi. It moved to Calcutta in July 1956 and ultimately to Ranchi in

December 1959.

A new steel company, Bokaro Steel Limited, was incorporated in January

1964 to construct and operate the steel plant at Bokaro. The 1 MT phases

of Bhilai and Rourkela Steel Plants were completed by the end ofDecember 1961. The 1 MT phase of Durgapur Steel Plant was completed in

January 1962 after commissioning of the Wheel and Axle Plant. The crude

steel production of HSL went up from 158 MT (1959-60) to 1.6 MT. The

second phase of Bhilai Steel Plant was completed in September 1967 after

commissioning of the Wire Rod Mill. The last unit of the 1.8 MT phase of

Rourkela the Tandem Mill was commissioned in February 1968, and

the 1.6 MT stage of Durgapur Steel Plant was completed in August 1969

after commissioning of the Furnace in SMS. Thus, with the completion of

the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT at Durgapur,

the total crude steel production capacity of HSL was raised to 3.7 MT in1968-69 and subsequently to 4 MT in 1972-73.

Holding Company

The Ministry of Steel and Mines drafted a policy statement to evolve a new

model for managing industry. The policy statement was presented to the

Parliament on December 2, 1972. ON this basis the concept of creating a

holding company to manage inputs and outputs under one umbrella was

mooted. This led to the formation of Steel Authority of India Ltd. Thecompany, incorporated on January 24, 1973 with an authorized capital of

Rs. 2000 crores, was made responsible for managing five integrated steel

plans at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel

Plant and the Salem Steel Plant. In 1978 SAIL was restructured as an

operating company.

Since its inception, SAIL has been instrumental in laying a sound

infrastructure for the industrial development of the country. Besides, it has

immensely contributed to the development of technical and managerial

expertise. It has triggered the secondary and tertiary waves of economicgrowth by continuously providing the inputs for the consuming industry.

SAIL Today

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 domestic,


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as well as the export markets and a large pool of technical and professional

expertise.

Today, the accent in SAIL is to continuously adapt to the competitive

business environment and excel as a business organization, both within and

outside India.

SAIL Into the Future

SAILs Growth Plant 2010

Much has happened ever since SAILs Corporate Plan was announced in

2004. Investment plans for the three speciality steel plans have been firmedup. Company has grown in size with the amalgamation of IISCO (now

renamed as IISCO Steel Plant). Production targets have been revised from

19 million tones (MT) of steel to about 24 MT. Estimated investment 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.

Saleable Steel Capacities (MT)

PLANT 2010

Bhili Steel Plant 6.21

Durgapur Steel Plant 2.85

Rourkela Steel Plant 2.90

Bokaro Steel Plant 6.50

IISCO Steel Plant 2.37

Alloy Steel Plant 0.43

Salem Steel Plant 0.36

Visvesvaraya Iron & Steel Plant 0.22


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The key technological up-gradations undertaken during the growth period

is expected to achieve the following :

01. 100% production of steel through BOF route

02. 100% processing of steel through continuous cast route

03. Gradual implementation of alternative fuel injection methods like

coal dust/tar injection in all the blast furnaces.

04. State-of-the-art process control computerization / automation

05. State-of-the-art online testing and quality control facilities

06. Gradual implementation of Enterprise Resource Planning (ERP)

across its plants.

SAIL into the future

Modernization and Expansion Plant of SAIL

The Corporate Plan was reviewed by Honble Minister of Steel in Jul 06,

wherein it was decided to take up the Expansion of Integrated Steel Plants

and Special Steel Plant in one go based on Composite Project Feasibility

Report (CPFR).

By that time Expansion of IISCO Steel Plant and Salem Steel Plant was

already approved in principle based on the Techno-Economic Feasibility

Report (TEFR) of MECON. For the Expansion of other four integrated

Steel Plants, MECON was assigned the job of preparation of CPFR in

Aug06. The CPFR for the four integrated steel plants was prepared by

MECON.

In-principle approval has been accorded by SAIL Board for the

expansion plans of IISCO Steel Plant (Jul 06), Salem Steel Plant (Jun 06),

Bokaro Steel Plant (Dec 06), Bhilai Steel Plant (Apr 07), Rourkela Steel

Plant (May 07) and Durgapur Steel Plant (Jul 07).


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Item2006-07

(Actual)

Capacity as per

Expansion Plans

Hot Metal 14.61 26.18

Crude Steel 13.51 24.59

Saleable Steel 12.58 23.13

Plant-wise Capacity Envisaged after Expansion (MTPA)

Plant Hot Metal Crude Steel Saleable Steel

BSP 7.5 7.0 6.53

DSP 3.5 3.0 2.83

RSP 4.5 4.2 3.8

BSL 7.44 7.00 6.53

ISP 2.91 2.5 2.37

SSP - 0.18 0.34

ASP - 0.48 0.43

VISL 0.33 0.23 0.22

Total 26.18 24.59 23.13

Objective of Growth Plan

y 100% production of steel through Basic Oxygen Furnace (BOF)

route

y 100% processing of steel through continuous casting

y Value addition by reduction of semi finished steel


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y Auxiliary fuel injection system in all the Blast Furnaces

y State-of-art process control computerization / automation

y State-of-art online testing and quality control

y Energy saving schemes

y Secondary refining

y Adherence to environment norms

The investment for modernization and expansion programme of SAIL

estimated at about Rs. 54,333 crores.

Plant ExpansionSustenance/

On-goingTotal

BSP 11,262 1,716 12,978

DSP 5,549 114 5,663

RSP 7,668 1,121 8,789

BSL 8,958 2,167 11,119

ASP - 49 49

SSP 1,902 - 1,902

VISL - 121 121

ISP 12,743 494 13,237

MINES - 195 195

OTHERS - 280 280

TOTAL 48,076 6,257 54,333

% 88 12 100


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PLANT-WISE EXPENDITURE IN EXPANSION (RS. CRORE)

Plant

2006-07 2007-08

TotalActual RE Actual

BSP 12.66 35.95 66.63 79.29

DSP - 10.00 16.09 16.09

RSP - 20.00 36.85 36.85

BSL 12 11.17 28.92 40.92

ISP 72.69 340.00 495.70 568.39

SSP 3.26 40.00 35.75 39.01

ASP - - - -

VISL - - - -

TOTAL 100.61 457.12 679.94 780.55

ORGANIZATION PROFILE

HISTORY OF INDUSTRY

1959-1973

SAIL traces its origin to the Hindustan Steel Limited (HSL) which was set

up on January 19,1954. HSL was initially designed to manage only one

plant that was coming up at Rourkela. For Bhilai and Durgapur Steel

Plants, the preliminary work was done by the Iron and Steel Ministry.

From April 1957, the supervision and control of these two steel plants were

also transferred to Hindustan Steel. The registered office was originally in

New Delhi. It moved to Calcutta in July 1956, and ultimately to Ranchi in

December 1959.


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A new steel company, Bokaro Steel Limited, was incorporated in January

1964 to construct and operate the steel plant at Bokaro. The 1 MT phases

of Bhilai and Rourkela Steel Plants were completed by the end of

December 1961. The 1 MT phase of Durgapur Steel Plant was completed in

January 1962 after commissioning of the Wheel and Axle plant. The crude

steel production of HSL went up from 1.58 MT (1959-60) to 1.6 MT. Thesecond phase of Bhilai Steel Plant was completed in September 1967 after

commissioning of the Wire Rod Mill. The last unit of the 1.8 MT phase of

Rourkela the Tandem Mill was commissioned in February 1968, and

the 1.6 MT stage of Durgapur Steel Plant was completed in August 1969

after commissioning of the Furnace in SMS. Thus, with the completion of

the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT at Durgapur,

the total crude steel production capacity of HSL was raised to 3.7 MT in

1968-69 and subsequently to 4 MT in 1972-73.

1973 presentThe Ministry of Steel and Mines drafted a policy statement to evolve a new

model for managing industry. The policy statement was presented to the

Parliament on December 2, 1972. On this basis the concept of creating a

holding company to manage inputs and outputs under one umbrella was

mooted. This led to the formation of Steel Authority of India Ltd. The

company, incorporated on January 24, 1973 with an authorized capital of

Rs. 2000 crore, was made responsible for managing five integrated steel

plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel

Plant and the Salem Steel Plant. In 1978 SAIL was restructured as an

operating company.

Since its inception, SAIL has been instrumental in laying a sound

infrastructure for the industrial development of the country. Besides, it has

immensely contributed to the development of technical and managerial

expertise. It has triggered the secondary and tertiary waves of economic

growth by continuously providing the inputs for the consuming industry.

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 domestic,

as well as the export markets and a large pool of technical and professionalexpertise.

SCOPE OF PRODUCTS AND SERVICES

SAIL has a well-equipped Research and Development Centre for Iron and

Steel (RDCIS) at Ranchi which helps to produce quality steel and develop

new technologies for the steel industry. Besides, SAIL has its own in-house


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Centre for Engineering and Technology (CET), Management Training

Institute (MTI) and safety Organisation at Ranchi. Our captive mines are

under the control of the Raw Materials Division in Calcutta. The

Environment Management Division and Growth Division of SAIL operate

from their headquarters in Calcutta. Almost all our plants and major units

are ISO Certified.

Major Units:

SAIL Integrated Steel Plants

Rourkela Steel Plant (RSP) in Orissa set up with German collaboration

(The first integrated steel plant in the Public Sector in India, 2010).

Bhilai Steel Plant (BSP) in Chhattisgarh set up with Soviet collaboration

(1959)

Durgapur Steel Plant (DSP) at Durgapur, West Bengal set up with British

collaboration (1965).

Bokaro Steel Plant (BSL) in Jharkhand (1965) set up with Soviet

collaboration (The plant is hailed as the countrys first Swadeshi steel

plant, built with maximum indigenous content in terms of equipment,

material and know-how).

IISCO Steel Plant (ISP) at Burnpur, West Bengal.

Special Steel Plants

1. Alloy Steel Plants (ASP), Durgapur, West Bengal

2. Salem Steel Plant (SSP), Tamil Nadu.

3. Visvesvaraya Iron and Steel Limited (VISL) at Bhadravathi, Karnataka.

Subsidiaries

y Maharashtra Elektrosmelt Limited (MEL) in Maharashtra.

Raw Materials

SAIL has the second largest mining outfit in the country after Coal India

Limited. Spread over the states of Jharkhand, Orissa and Madhya

Pradesh, the mines of SAIL started their operations as captive sources of


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Plates

Steel plates are used mainly for the manufacturer of bridges, steel

structures, ships, large diameter pipes, storage tanks, boilers, railway

wagons and pressure vessels. The company is also produces weather proof

steel plates for the construction of railcars. The company currently thelargest producer of steel plates in India with a domestic market share of

more than 80 per cent for these products. The company is the only

producer of wide and heavy plate products in India.

Cold Rolled Products

Cold rolling of hot rolled products produces a superior surface finish,

improves the physical properties of the steel, such as tensile strength, and

reduces its thickness to precise gauges. As a result, cold rolled products

generally command higher prices than hot rolled products. The products of

the cold rolling mill include cold rolled sheets and coils, which are usedprimarily for precision tubes, containers, bicycles, furniture and for use by

the automobile industry to produce car body panels. Cold rolled products

are also used for further processing, including for colour coating,

galvani ing and tinning. The company also produces further processed cold

rolled products, including galvani ed sheets and tin plates.

Railway Products

Railway products including rails, wheels and axles, sleeper and fish plates

(which are used to connect and strengthen rails) are produced through aprocess of hot rolling blooms in the finishing mills and forging ingots and

blooms in the finishing mills and forging ingots and blooms in the forging

press or hammer. Railway products are used primarily to upgrade and

expand the existing railway networkin India.


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Bars and Rods

The company produces steel bars and rods through a process of hot rolling

billets in the finishing mills. Reinforcement steel and wire rods are

primarily used by the construction indus try. The company is one of the

largest producers of reinforcement bars in India which are primarily soldto the construction industry.

Product Mix

The following is the information about the annual production of various

types of products.

PRODUCT-MIX TONNES/ANNUM

Plate Mill Plates 2,99,000

HR Plates 92,500

HR Coils 3,98,000

ERW Pipes 75,000

SW Pipes 55,000

CR Sheets & coils 4,33,000

Galvanized Sheets (GP &

GC)

1,60,000

Electrolytic Tin-Plates 85,000

Silicon Steel Sheets 73,500

Total Saleable Steel 16,71,000

SAIL records Rs. 1487 Cr. PAT in Q4 of FY 09

y Q4 turnover Rs. 13008 cr., PBT Rs. 2287 cr.

y Sales up 54% in Q4 over Q3


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7,000 crore, of which more than Rs. 6,000 crore was on account of coking

coal.

The steel industry witnessed unprecedented developments during the year

with prices of steel reaching historic peaks in the first half of the year,

followed by a sharp drop in H-2 in the face of global economic meltdown.There were sharp increases in costs of major inputs, especially coking coal

going up by over 200%.

The SAIL Board has recommended final dividend payment to company

share holders at 13% of paid-up equity, with total dividend payout

(including interim dividend of 13%) for the year 2008 -09 at 26%

amounting to Rs. 1,073.9 crore.

During financial year 2008-09, SAIL produced 12.5 million tones of

saleable steel by achieving 113% capacity utilization. Production of hot

metal at 14.4 million tones and of crude steel at 13.4 million tones wasmaintained at the previous years levels. Production through the energy-

efficient continuous casting route was highest ever at 66% of crude steel.

Product-mix improved significantly with 11% growth over the previous

year; share of value-added steel in overall production grew to 30% during

the year as compared to 27% in 2007 -08. Techno-economic parameters

achieved during 2008-09 have been best ever so far. Improvements were

recorded in all major indices coke rate at 521 kg/thm (2%) and specific

energy consumption at 6.74 Gcal/Tcs (3%).

With best-ever sales of 4.45 million tones of long products, SAIL achievedtotal sales of 11.32 million tones during FY 09. Supplies to projects of

national importance reached a new high during the year with sales to the

power sector, telecom sector and the Railways growing by 44%, 58% and

4% respectively. The companys distribution network was further

expanded SAIL having the unique distinction of being present in every

district of the country, with 2,500 authorized dealers. Sales of

reinforcement steel for construction through the dealer network was at 5.2

lakh tones, going by 50% over CPLY. With a view to provide value-added

steel for general construction, production of higher grade earthquake

resistant steel was commercialized during the year with 90% of total TMTbar production now in this quality.

The thrust on rationalizing manpower continued during the year. There

was an overall reduction of over 7,500 in the companys manpower

strength during 2008-09 after accounting for around 1,300 fresh additions


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to improve skill and age-mix. This thrust will continue in the current year

as well. The company has made full provision to the tune of over Rs. 5,000

crore on account of wage revisions which are due with effect from 01.01.07,

in its financial accounts for the year 2007-08 and 2008-09.

Capital expenditure by the company during 2008 -09 touched Rs. 5,233

crore 2.5 times higher than in the previous year. It is expected that capex

in the current year may touch Rs. 10,000 crore. To meet the o ngoing

modernization & expansion schemes, SAIL raised Rs. 735 crore from the

market through long-term bonds during 2008-09. SAILs debt-equity ratio

as on 31.03.2009 is 0.27:1 compared to 0.13:1 as on 31.03.08. Major units

commissioned during the year include 250 MW power plant in joint

venture with NTPC at Bhilai; a second unit of 250 MW is likely to go on

stream in the current financial year. Construction of 2.2 million tone salg -

based cement plant as JV is in full progress and the plant is likely to be

commissioned within a year. Slab caster along with secondary steel making

facilities at Bhilai, oxygen plant and cold dust injection in two blast

furnaces at Durgapur, pipe coating plant at Rourkela, up -gradation of Hot

Strip Mill and oxygen plant at Bokaro were also commissioned during the

year.

The above performance has been achieved in the backdrop of the company

holding its price line for three months in H -1 of FY 09, when market

conditions were buoyant, and coping with unprecedented rise in input

costs, higher manpower costs and the adverse impact of global meltdown inH-2.

Commenting on the companys performance, Mr. S.K. Roongta,

Chairman, SAIl said: SAIL has proved its resilience in facing the

challenges thrown up due to unprecedented developments in the steel

industry and overall business environment. The revival in steel demand

began in Q4 and trends in the current quarter are also encouraging. With

major boost to infrastructure building in the offing, we expect steel demand

in the country to grow further in the current financial year.


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CHAPTER-IV

PROFILE OF ROURKELA STEEL PLANT

4.1 Introduction

4.2 RSP at a glance

4.3 Features

4.4 Facilities

4.5 Analysis of RSP

4.6 Mission of company

4.7 Vision of company


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revamped for effecting substantialimprovement in the quality of products,

reducing the cost and ensuring cleaner environment.

RSP was the first plant in India to incorporate LD technology of steel

making. It is also the first steel plant in SAIL and the only one presently

where 100% of the slabs rolled are produced through the cost effective and

quality centered continuous casting route. RSP is the only plant in SAIL to

produce silicon steels for the power sector, high quality pipes for the oil and

gas sector and tin plates for the packaging industry. Almost all major units

of the plant are covered under ISO:9002 certification, while its Silicon Steelill and Sintering Plant II have been awarded ISO:14001 certification for

Environment anagement.

The present capacity of the plant is 2 million tones of Hot etal, 1.9 million

tons of Crude Steel and 1.671 million tons of Saleable Steel. Its wide and

sophisticated product range includes various flat, tubular and coated

products.


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FACILITIES

Major Units

Raw materials play the most vital role in RSPs production of 1.9 million

tones (MT) of steel per annum. Each year, 2.3 MT of cocking coal, 1.5 MT

of Boiler Coal, 1.8 MT of Iron Ore Lumps, 1.5 MT of Iron Ore Fines, 1.6

MT of Fluxes and other materials viz. Tin, Zinc, Aluminium and

Ferroalloys constitute RSPs input requirements.

Ore Bedding and Blending Plant

The Ore Bedding and Blending Plant has a base mix preparation system

with on-ground bedding, blending and conveying facilities. Set up under

the modernization programme to provide pre -mix feedstock to Sinter Plant

I & Sinter Plant II, the plant has a dispatch capacity of 5,00,000T of

material per annum. The facilities includes major installations like Wagon

unloading (tipplers & track hoppers), Iron Ore Crushing and Screening

System, raw material storage yard, rod mills and roll crushers for flux and

coke crushing, proportioning bins and elaborate conveying system s.

Coke Oven

The 4.5 meter tall coke oven batteries produce coke as the input for Blast

Furnaces. The coke ovens are quipped with wagon tipplers, automatic

handling and conveying facilities, coal blending provisions, coke wharf age

crushing together with screening and conveying systems.

Sintering Plant

RSPs two sinter plants feed sinter to the blast furnaces with a combined

capacity of 3.07 million tones per annum. Set up as part of the

modernization drive, Sintering Plant-II is operating at more than its rated

capacity since the year 2000. This has facilitated the increased usage of

sinter in blast furnace burden.


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discontinuation of the ingot route, the S S-I produces slabs through

casting machine.

S S II

The Shop is provided with the latest steel making, secondary refining (ladlefurnace and argon rinsing) facilities and two single strand slab casters to

produce 1,355,000 tones of steel slabs annually. This is the biggest unit set

up under the moderni ation programme. The shop is provided with

automation through three levels of computeri ed control, LD gas cleaning

and recovery, power distribution system, water and utility services.

Plate ill

This 3.1 T wide, 4 high reversing millis equipped with on-line thickness

measurement facilities. Facilities for inspection by customers nominees,

on-line ultrasonic testing and checking ensure the quality of plates

dispatched to the customers. A new walking beam type furnace with a

capacity of 100 Tones/hour was installed during the moderni ation

programme for slab heating. The mill has a production capacity of 2,99,000tones per annum.

Hot Strip ill

The facilities of the 1.440 illion tone per annum mill were augmented

during moderni ation with the installation of:


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y Two new waling beam type reheating furnace (225 TPH)

y Roughing / sizing stand RoVo with automaton

y Automated coil box

y Quick roll chane system in Roughing Stand-I and finishing mills

y Coil marking, sampling and conveying systems.

Cold Rolling Mill

This features a modern 5-stand tandem mill and a 4-high 1700 mm

reversing mill. The tandem mill is equipped with automatic gauge control,

x-ray gauge, data logging and thyristorisation. It produces about 6,78,000tone per annum of cold rolled sheet.

Electrolytic Tinning Line

The continuous electrolytic tinning line produces a shining tin-coated

surface in a variety of coating thickness. The tinplate shearing lines are

equipped with sensitive pinhole detectors and an automatic sorting system.

Galvanizing Lines

Two continuous hot-dip galvanizing lines are equipped with jet -coatingfacilities. There are 2 multi-roller-corrugating machines, which produce

corrugated sheets.

Silicon Steel Mills

This unit produces steel for the electrical industry through various

operations carried out in sophisticated, continuous/semi-continuous

processing lines and a 4-high reduction mill. Advanced process control and

product testing facilities ensure product quality.

Pipe Plants

A highly sophisticated Spiral Welded Pipe Plant (SWPP) is equipped with

submerged arc welding process and produces large diameter pipes.

Hydrostatic pressure testing, ultrasonic testing and eddy current testing

are some of the features, which ensure quality control. The Electric

Resistance Weld Pipe Plant (ERWPP) caters to the smaller diameter pipe


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consumers. This plant has been recently upgraded to enable it to produce

API grade pipes.

Traffic & Raw MaterialThe Traffic and Raw Material department deals with procurement and

supply of raw materials to various user departments, internal movement of

in-process and other material from one unit to another and dispatch of

finished products to outside parties or SAIL stocky yards in railway

wagons. The department maintains 350 wagons, 40locomotives and a

network of 240 kilometers rail tracks all over the plant.

Environment Management

RSP has invested about Rs. 340 crores on environment protection measuresin 95 schemes, since 1990-91. By formulating and implementing a strategy

of 3-Rs namely, Re-use, Recycle and Reduce, RSP is now able to achieve

the twin objectives of generating resources as well as controlling pollution.

Since its inception, RSP has so far planted 37 lakh saplings in and around

the steel city and in 2005 RSP has planted 70,000 saplings in and around

Rourkela.

Computerization

Rourkela Steel Plant has introduced an on-line system names as ProductionPlanning and Control System (PPCS), which connects various functional

departments of RSP into a single network system. Developed and executed

in-house by a team of dedicated professionals of the Information

Technology and Production Planning and Control Department with the

support of the Works and Projects Units.

Human Resources Development Centre (HRDC)

The Human Resources Development Centre of Rourkela Steel Plant was set

up in the late 1950s and it consists of the Management Development

Programme wing, auditoriums, well equipped workshops, skill upgradation shops, lecture halls for act apprentices and a well equipped

library on a plethora of Technical and Managerial subjects.


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6. Water sources are near by i.e. Brahmani and Koel rivers.

7. Extensive and wide marketing network.

8. Adaptation to new technologies, E.R.P to be installed from April, 2008

and already present online auctioning at metaljunction.com are some good

examples.

9. The changing work culture. Workers participation in management and

mass communication programme are examples of the changing positive

work culture.

10. Availability of quality trainees and employees Rourkela i s also home to

one of the National Institute of Technology. The Indian Institute of

Production Management is also nearby. Various engineering and I.T.I

colleges are located in the vicinity.

Mission

We aspire to achieve business excellence through:

The spirit of entrepreneurship and innovation

Optimum utilization of resources

Sustainable environment friendly procedures and practices

The highest ethics and standards

Hiring, developing and retaining the best people

Maximizing returns to stakeholders

Positive impact on the communities we touch

Vision

To be a globally admired organization that enhances the quality of life of

all stakeholders through sustainable industrial and business development.


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CHAPTER-V

ANALYSIS OF WORKING CAPITAL MANAGEMENT

A.THEORITICAL ASPECT

5.1 Introduction

5.2 Concepts

5.3 Types of working capital

5.4 Advantages of adequate working capital

5.5 Disadvantages of excessive working capital

5.6 Disadvantages of inadequate working capital

5.7 Objectives of working capital

5.8 Factors determining working capital

5.9 Techniques for assessment of working capital

5.10 Sources of funds for working capital

5.11 Working capital ratios

5.12 Working capital analysis and interpretation


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WORKING CAPITAL MANAGEMENT

INTRODUCTION

Working Capital Management involves deciding upon the amount and

composition of current assets and the manner in which finance them.Determining the appropriate levels of working capital involves

fundamental decisions with regard to the firms liquidity and trade offs

between risk and profitability. The greater the amount of working capital

level maintained, the lesser the risk of running out of cash, although

profitability will be less. In case of lower level of working capital the

profitability will be greater but the risk of running out of capital to meet

day to day requirement will be more.

Hence every firm needs to maintain optimum level of Working Capital by

bringing trade off between risk and profitability.

CONCEPTS

Concept of working capital

There are two concepts of working capital.

1. Gross working capital :It refers to the firms investment in total current

assets or circulating assets.

2. Net working capital (defined in two ways):It is the excess of current

assets over current liabilities.

It is that portion of a firms current assets which is financed by long-term

funds.

Types of working capital

Can be divided into two categories on the basis of time :-

1. Permanent working capital

2. Temporary or Variable working capital


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1. Permanent Working Capital:

This refers to that minimum amount of investment in all current

assets which is required at all times to carry out minimum level of business

activities. It represents the current assets required on a continuing basis

over the entire year.

Tandon Committee has referred to this type of working capital as core

current assets.

The following are the characteristics of this type of working

capital:-

a. Amount of permanent working capital remains in the business in one

form or another. This is particularly important from the point of view of

financing. The suppliers of such working capital should not expect its

return during the lifetime of the firm.

b. It also grows with the size of the business.

Permanent working capital is permanently needed for the business and

therefore it should be financed out of long-term funds. This is the reasonwhy the current ratio has to be substantially more than 1.

2. Temporary or Variable Working Capital :

The amount of such working capital keeps on fluctuating from time to time

on the basis of business activities. In other words, it represents additional

current assets required at different times during the operating year.


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ADVANTAGES OF ADE UATE WORKING CAPITALWorking capital is the life blood and nerve centre of a business. Just as

circulation of blood is essential in the human body for maintaining life,

working capital is essential to maintain the smooth running of a business.

No business can run successfully without an adequate amount of working

capital. The main advantages of maintaining adequate amount of working

capital are as follows:

1. Solvency of the business- adequate working capital helps inmaintaining solvency of the business by providing uninterrupted flow of

production.

2. Goodwill- sufficient working capital enables a business concern tomake prompt payment and hence helps in creating and maintaining

goodwill.


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3. Easy loans- a concern having adequate working capital, high solvencyand good credit standing can arrange loans from banks and others on easy

and favourable terms.

4. Cash discounts- adequate working capital also enables a concern to

avail cash discounts on the purchases and hence it reduces costs.

5. Regular supply of raw materials- sufficient working capital ensuresregular supply of raw materials and continuous production.

6. Regular payment of salaries, wages and other day-to-day

commitments- a company which has ample working capital can makeregular payment of salaries, wages and other day-to-day commitments

which raises the morale of its employees, increases their efficiency, reduces

wastages and costs and enhances production and profits.

DISADVANTAGES OF EXCESSIVE WORKING CAPITAL

1. Excessive Working Capital means idle funds which earn no profits for

the business and hence the business cannot earn a proper rate of return on

its investments.

2. When there is a redundant working capital, it may lead to unnecessary

purchasing and accumulation of inventories causing more chances of t heft,

waste and losses.

3. It may result into overall inefficiency in the organization.

4. Due to low rate of return on investments, the value of shares may also

fall.

5. Excessive working capital implies excessive debtors and defective credit

policy which may cause higher incidence of bad debts.

6. When there is excessive working capital, relations with banks and other

financial institutions may not be maintained.

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

1. A concern which has inadequate working capital cannot pay its short

term liabilities in time. Thus it will lose its reputation and shall not be able

to get credit facilities.


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2. It cannot buy its requirements in bulk and cannot avail of discounts

3. It becomes difficult for the firm to exploit favorable market conditions

and undertake profitable projects due to lack of working capital.

4. The rate of return on investments also falls with the shortage of working

capital.

5. It becomes impossible to utilize efficiently the fixed assets due to non

availability of liquid funds.

OBJECTIVE OF WORKING CAPITAL

1. For purchase of raw materials, components and spares.

2. Payment of wages and salaries.

3. Toincur day-to-day expenses and overhead costs such as fuel, power and

office expenses.

4. To meet the selling costs as packing, advertising.

5. To provide credit facilities to the customers.

6. To maintain the inventories of raw material, work-in-progress, stores

and spares and finished stock.

Factors determining Working Capital

Factors are given below:

Nature of Business :

Requirement of working capital depend upon the nature of business. Its

requirement is more in a public utility business like railways.

Importance of labour :

In case of labour intensive industries more working capital is required as

the wage bill is more and in case of capital intensive industries less working

capital is required.


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Cost of raw material :

If raw material requirement is more then more working capital is needed.

Credit policy :

When suppliers of raw materials give credit facility for a longer term, the

requirement of working capital is less, and if the company gives credit to its

customers and buy raw materials for cash. The working capital required is

high.

TECHNIQUES FOR ASSESSMENT OF WORKING CAPITAL

REQUIREMENTS :-

1. Estimation of Components of Working Capital Method :-

Since working capital is the excess of current asses over current liabilities,

an assessment of the working capital requirements can be made by

estimating the amounts of different constituents of working capital e.g.

inventories, accounts receivable, cash accounts payable etc.

2. Percent of Sales approach :-

This is a traditional and simple method of estimating working capital

requirements. According to this method, on the basis of past experience

between sales and working capital requirements, a ratio can be determined

for estimating the working capital requirements in future.

3. Operating Cycle approach :-

According to this approach, the requirements of working capital depend

upon the operating cycle of the business. The operating cycle begins with

the acquisition of raw materials and ends with the collection of receivables.

It may be broadly classified into the following four stages viz.

1. Raw materials and stores storage stage.

2. Work-in-progress stage.

3. Finished goods inventory stage.

4. Receivables collection stage.


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The duration of the operating cycle for the purpose of estimating working

capital requirements is equivalent to the sum of the durations of each of

these stages less the credit period allowed by the suppliers of the firm.

Symbolically the duration of the working capital cycle can be put as follows

O=R+W+F+D-C, Where

O = Duration of operating cycle;

R = Raw materials & stores storage period;

W = Work-in-progress period;

F = Finished stock storage period;

D = Debtors collection period;

C = Creditors payment period.

Each of the components of the operating cycle can be calculated

as follows :

R = Average stock of raw materials and stores

Average raw materials and stores consumptions per day

W = Average work-in-progress inventory

Average cost of production per day

D = Average book debts

Average credit sales per day

C = Average trade creditors

Average credit purchases per day

After computing the period of one operating cycle, the total

number of operating cycles that can be computed during a year can be

computed by dividing 365 days with number of operating days in a cycle.

The total expenditure in the year when year when divided by the number

of operating cycles in a year will give the average amount of the working

capital requirement.


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Sources of funds for Working Capital

RSP uses both long term and short term sources of funds to meet the day to

day operations. Generally RSP uses long term sources of funds like long

term debt from financial institution. Only for capital expansion and short

term sources of funds like short term bank loan for Working capitalrequirement.

During the last two / three years company has earned a lot of profit after

giving taxes also. So it has cash surplus. And thats why it gathers funds for

working capital through self financing. And also this source is economical

as there is no burden of interest.

WORKING CAPITAL RATIOS

The following, easily calculated, ratios are important measures of working

capital utilization.

Ratio Formulate Result Interpretation

Current Ratio Total current

Assets/ total

CurrentLiabilities

= xtimes

Current Assets are assets that you can

readily turn in to cash or will do so

within 12 months in the course of

business. Current Liabilities are amount

you are due to pay within the coming 12months.

Quick Ratio (Total CurrentAssets -

Inventory)/

Total Current

Liabilities

= xtimes

Similar to the Current Ratio but takesaccount of the fact that it may take time

to convert inventory into cash

Inventory

Turnover (indays)

Average Stock

* 365/ Cost ofGoods Sold

= x days On an average, your stock turnover is in

x days. Obsolete stock, slow moving lineswill extend overall stock turnover days

Receivables

Ratio (in days)

Debtors * 365/

Sales

= x days It takes your average x days to collect

receivables due to you. Effective debtor

management will minimize the days

Payable Ratio

(in days)

Creditors *

365/ Cost of

Sales (or

Purchases)

= x days On an average, you pay your suppliers

every x days. If you negotiate better

credit terms this will increase. If you pay

earlier, say, to get a discount this will

decline.


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FIG-1 CURRENT ASSETS & CURRENTLIABILITIES

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Total Current Assets 68587 72710 96512 114208 114718

Total Current Liabilities 64818 45216 47046 56459 86687

FIG-2 TOTAL WORKING CAPITAL

Year 2005-06 2006-07 2007-08 2008-09 2009-10

Working Capital 3769 27584 49466 57749 28031

0

20000

40000

60000

80000

100000

120000

2005-06 2006-07 2007-08 2008-09 2009-10

Current Assets

Current Liabilities

0

10000

20000

30000

40000

50000

60000

70000

2005-06 2006-07 2007-08 2008-09 2009-10

East


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Interpretation:

1. The liquidity of the company has improved due to significant increase of

1563 lakhs in cash.

2. There is a rise in inventory level but not in finished goods.

3. The credit policy has increased the debtors.

4. Loans and advances and other assets have decreased.

5. A short fall in short term creditors and security and deposits is seen.

6. Provisions amount have a steep fall which shows that provisions is not

being entertained.

* Working Capital has increased which financial soundness of the

company.


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SCHEDULE OF CHANGES IN WORKING CAPITAL

(2006-07 --- 2007-08)

(Rs. In Lakhs)

PARTICULARS 2006-07 2007-08 Increase Decrease

A-CURRENT ASSETS

CASH & BANK BALANCE 1575 1722 147

RAW MATERIALS 12232 12261 29

STORES & SPARES 16656 20208 3552

FINISHED/SEMI-FINISHED PRO. 21156 39342 18186

SUNDRY DEBTORS 1244 1460 216

LOAN & ADVANCES 19593 21272 1679

OTHER CURRENT ASSETS 254 2247 7

TOTAL (A) 72710 96512

B-CURRENT LIABILITIES

SUNDRY CREDITORS 23889 23304 585

SECURITY & OTHER DEPOSITS 3450 2708 742

OTHERS 12735 16077 3342

PROV. (EXCL. GRATUITY, LEAVE

ENCASH, POST RET. MEDICAL BEN)

5052 4957 95

TOTAL (B) 45126 47046

WORKING CAPITAL (A B) 27584 49466

INCREASE/DECREASE IN WORKING

CAPITAL OVER PREVIOUS YEAR

21882 21882

49466 49466 25231 25231


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Interpretation :

1. The liquidity position has not brought a significant change as the there is

only 147 lakh increase in cash position.

2. The overall inventory level has improved but much improvement is been

noticed in the case of finished goods as it is nearly doubled.

3. Better credit policy lead to increase in debtors level.

4. Good credit standing position of the firm shows increase in loan amount.

5. Sundry creditors and security position has fallen.

6. Other liability have increased to 26.24%.

* Working Capital has shown an increased which shows a good

solvency position.


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(2007-08 --- 2008-09)

(Rs. In Lakhs)


A-CURRENT ASSETS



STORES & SPARES 20208 28395 7659



LOAN & ADVANCES 21272 23094 1822


TOTAL (A) 96512 114208




OTHERS 16077 15958 119



4957 8006 3049

TOTAL (B) 47046 56459




8283 8283

57749 57749 18043 18043


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Interpretation:

1. A minute increase in the cash position is seen like the previous year.

2. A very steep rise in inventory level has been noted in raw materials,

stores and spares and finished goods level nearly about 22%.

3. Certain regulations on credit policy have reduced the debtors.

4. Loans and advances have shown an increase of about 8.56%.

5. Sundry creditors have increased due to increase in raw materials and

stores and spare even which shows that the purchase has been more or less

on credit.

6. Provision has also increased nearly 61.51%.

* There is a small rise in the working capital.


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(2008-09 --- 2009-10)

(Rs. In Lakhs)


A-CURRENT ASSETS



STORES & SPARES 28395 30064 2197



LOAN & ADVANCES 23094 24315 1221


TOTAL (A) 114208 114718




OTHERS 15958 19859 3901



8006 32709 24703

TOTAL (B) 56459 86687




29718 29718

57749 57749 33323 33323


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Interpretation:

1. There is a gradual rise been observed in the level of cash of about 187

lakhs.

2. The closing stock of raw material and finished goods of this year is low

compared to last year reveals that this year there is decrease in purchase

level of raw materials and healthy sales lead decrease in the level of

finished goods.

3. As the sales level has increased the company to promote sales employed

better cash discounts and trade discounts which lead to rise in the level of

debtors.

4. Loans and advances and other current assets have increased to level of

5.28% and 13.67% respectively.

5. Creditors level rise shows that creditor are offering lucrative offers

which is been utilized by the company.

6. Provisions have shown a remarkable rise also the security deposits.

* The rise in the current liability amount was higher than the rise

in current assets level, which leads to fall in working capital.


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Operating Cycle

Calculation of Net / Cash Operating Cycle

A. Raw material conversion period = Average stock of raw material

inventory

Raw material consumed per day

(Rs. In Lakhs)

Particulars 2006-07 2007-08 2008-09 2009-10

Raw material inventory 9094.5 12246.5 14858.5 17393.5

Raw material consumed per day 354.8 466.83 595.74 642.17

Raw material conversion period 25.63 26.23 24.94 27.08

Notes:

Raw material inventory amount taken from working capital table.

Raw material consumed amount taken from profit/lost account.

B .Finished goods conversion period = Average finished goods inventory

Cost of goods sold per day

(Rs. In Lakhs)

Particulars 2006-07 2007-08 2008-09 2009-10

Finished goods inventory 23154.5 30249 40623.5 40761.5

Cost of goods sold per day 736 817 1055.77 1423.14

Finished goods conversion

period 31.45 37.02 38.48 28.64

Notes:

Finishes goods inventory amount taken from working capital

Cost of goods sold = sales Gross profit


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Inventory Conversion Period : The inventory conversion period is thelength of time from the purchase of inventory to the time the sales are

made on credit. Here Inventory includes Raw material and finished goods.

C. Debtors conversion period = Average debtors

Credit sales per day

(Rs. In Lakhs)

Particulars 2006-07 2007-08 2008-09 2009-10

Debtors 1050.5 1352 1378 1231

Credit Sales 64.99 63.7 87.99 101.69

Debtor conversion period 16.16 21.22 15.66 12.11

Notes :

Debtors amount taken from Working Capital table.

Credit sales have been assumed to be 5% of Gross Sales.

Debtors conversion period :

The Debtors conversion period is the average number of days it takes to

collect on accounts receivable.

D. Creditors conversion period /

Payable Deferral Period = Average Creditors

Credit purchase per day

(Rs. In Lakhs)

Particulars 2006-07 2007-08 2008-09 2009-10

Creditors 24382 23596.5 26263.5 30008.5

Credit purchase per day 437.9 569.85 477.57 621.12

Creditors conversion period 55.68 41.41 54.99 48.31


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FINANCIAL RATIOS:

1. Current Ratio:It is the relation between current assets and currentliabilities. This is also called as working capital ratio. It is a measure of

general liquidity and to analyze short term financial liquidity position of

the firm. The figures oflast four years is given below.

Particulars 2006-07 2007-08 2008-09 2009-10

Current Assets 72710 96512 114208 114718

Current Liabilities 45126 47046 56459 86687

Current Ratio 1.61 2.051 2.02 1.323

Working Note:

Current Ratio = Current Asset / Current Liabilities

INTERPRETATION

From the above graph it can be seen that the current ratio after the year

2006-07 has nearly reached the standard ratio i.e. 2:1. This indicates that

firm has two times current assets then its current liabilities to meet currentobligations. Though RSPs current ratio in the year 2006-07 and 2007-08

were below the standard ratio, it does not make a great impact because as

RSP invests heavily in their fixed assets and it is successful. It can be able to

pay current liabilities. Also as the products of RSP are metal which has

intrinsic value i.e. whose demand will not change fast, the low current ratio

does not make any great impact.

0

0.5

1

1.5

2

2.5

2006-07 2007-08 2008-09 2009-10

RATIO

YEAR


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Quick Ratio

This ratio is concerned with the relationship between liquid asset and

liquid liabilities to supplement the information given by the working capital

ratio. It is calculated as follows:

Quick ratio = quick asset

Current liabilities

Here quick asset = current asset inventory

Now following data regarding quick ratio is given.

(Rs. In Lakhs)

Particulars 2006-07 2007-08 2008-09 2009-10

Current Asset 72710 96512 114208 114718

Current Liabilities 45126 47046 56459 86687

Inventories 50044 71811 87756 87013

Quick Asset 22666 24701 26452 27705

Quick Ratio .502 .525 .468 .319

The above finding of quick ratios of over the last four years is given belowgraphically.

0

0.1

0.2

0.3

0.4

0.5

0.6

2006-07 2007-08 2008-09 2009-10

Quick Ratio


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From the above figure it can be seen that there was gradual increase in

quick ratio from 2006-07 and 2007-08. But during the year 2008-09 it

decreased to a small extent. And in the year 2009-10 it has a sharp fall and

quick ratio is 0.319. Every year the quick ratio is below the standard ratio

i.e. 1:1, which says that firms liquidity position is not good. However a

quick ratio does not always mean bad liquidity position as the RSP is withfast moving inventories is sufficient enough to meet the current obligation.

Since the cash management is done centrally at corporate level the low

quick ratio has no impact on RSPs solvency.

Working Capital Turnover Ratio

This ratio indicates a measurement comparing the depletion of workingcapital to the generation of sales over a given period. This provides some

useful information as to how effectively a company is using its working

capital to generate sales. Here turnover means both sales and purchase.

The following are the working capital turnover r atio of the last four years.

WC.T Ratio = Sales

Working Capital

(Rs. In Lakhs)

Particulars 2006-07 2007-08 2008-09 2009-10

Sales 412123 383867 546191 630965

Working Capital 15676.5 38525 53607.5 42890

Working Capital

Turnover Ratio26.28 9.96 10.18 14.71

This can be better presented in a graph.


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Interpretation

The working capital turnover ratio is used to analyze the relationship

between the money used to fund operations and the sales generated from

these operations. In a general sense, the higher the working capital

turnover, the better because it means that the company is generating a lot

of sales compared to the money it uses to fund the sales. What this ratio

tries to highlight is how effectively working capitalis being used in terms of

the turnover it can help to generate.

From the above graph it is clear that the working capital turnover ratio has

decreased consistently till the year 2006-07. After that it increased slightly.

It means the working capital during 2005-06, 2006-07 and 2007-08 was

used less effectively to generate sales. But in the year 2008-09 the increase

in this ratio indicates that company tries to utilize the huge amount of

working capital funds to generate sales effectively.

Inventory Turnover Ratio

Inventory turnover ratio indicates how fast inventory is sold. This is

calculated as below:

Inventory Turnover ratio = Cost of goods sold

Average inventory

26.28

9.96 10.18

14.71

0

5

10

15

20

25

30

2006-07 2007-08 2008-09 2009-10


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This ratio of RSP for the last four years is given below :

(Rs. In Lakhs)

Particulars 2006-07 2007-08 2008-09 2009-10

Sales 412123 383867 535357 620366

Gross Profit 147163 89701 166112 178515

Cost of Goods Sold 264960 294166 369245 441851

Avg. Inventory 50044 71811 87756 87013

Inventory Turnover Ratio 5.29 4.09 4.21 5.08

Inventory turnover ratio can better be explained in graphical way.

From the above figure it is clear that the inventory turnover ratio has

decreased continuously from 2006-07 and 2007-08. In the next year i.e.

2008-09 it has slightly increased. This ratio is minimum in the 2007-08

because the cost of goods sold is not much times greater than avg.

inventory. In the next year 2008-09 cost of goods sold increased by 27%where as avg. inventory increased by only 22%. As a result the ratio

increased. In the year 2889-10 ratio increased as in the year the cost of

goods sold increased to near about 20%.

0

1

2

3

4

5

6

2006-07 2007-08 2008-09 2009-10

5.29

4.09 4.21

5.08


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CHAPTER-VI

RECOMMENDATION

CONCLUSIONS AND

BIBLIOGRAPHY


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CONCLUSION:-

This project work in the finance sector is going to help me a lot in

future. I got to learn many financial aspects of the organization. It was

great opportunity for me to do my Summer Project at RSP. Since it is both

labour and capital intensive industry, the Working Capital requirement isquite essential and hence my job was to analyze the trend of working

capital over the past years.

I have put up the best in me and left no stone un-turned to reveal the facts

and figures that carry equal importance for ac curate analysis. I have spent

a considerable time and effort in analyzing, conceptualizing and designing

this project.

This project contains several features are visibly apparent with some subtle

findings and exploration. For instance, I have described th eoretical

concepts and specialized analysis techniques in simple and lucid terms,

without any technical jargons. This project report contains data and

calculations in readable and comprehensible framework.

I have streamlined the chapters to move thoughtfull y and pondering to

important points and thereby making the entire project quite concise

precise.

RSP is a profitable organization. Though it made losses in 2003-04, it made

a speedy comeback in the next year. It comes under NAVARATNA PSU. It

provides maximum benefits not only to its owners but to the society.


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RECOMMENDATION

Recommendation can be used by the firm for the betterment increased of

the firm after study and analysis of project report on study and analysis of

working capital.

I would like to recommend:

Company should raise funds through short term sources for short

term requirements of funds, which comparatively economical as

compare to long term funds.

Company should take control on debtors collection period which is

major part of current assets.

Company has to take control on cash balance because cash is non

earning assets and increasing cost of funds.

Company should reduce the inventory holding period with use of

zero inventory concepts.

Over all company has good liquidity position and sufficient funds to

repayment of liabilities. Company has accepted conservative financial

policy and thus maintaining more current assets balance. Company isincreasing sales volume per year which supported to company for

sustaining a good position in the world.


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BIBLIOGRAPHY:-

BOOKS:

Financial Management: Gupta, Sharma and Gupta.

Financial Management: Pandey I.M.

Financial Management: Rastogi R.P.

REPORTS AND MANNUALS:

Annual Report of SAIL/RSP

Annual Accounts of RSP

WEBSITES:

www.sail .co.in

www.goole .com

a summer project report on

Documents