WORKING CAPITAL MANAGEMENT

BOKARO STEEL CITY, JHARKHAND

STEEL AUTHORITY OF INDIA LTD. (SAIL) – There’s little-bit of SAIL in everybody’s life

SAIL is India’s largest integrated steel and iron producing company with a turnover of Rs.48,681 crore – a growth of 7%.

The company is among the four Maharatnas of the country’s Central Public Sector Enterprises.

It has five integrated steel plant at ROURKELA, BHILAI, BOKARO, DURGAPUR & BURNPUR and three special plants at DURGAPUR, BHADRAVATI and SALEM. A subsidiary MEL- Maharastra Elektrosmelt Ltd. at Chandrapura.

It produces the widest specturm of steel products in the country and is also a global player in products like HR Coil and plates.

Business of the company: Manufacturing and marketing Steel, Iron and its allied products.

BOKARO STEEL PLANT (BSL) It is the fourth integrated plant in public sector. It started taking shape in

1965 in collaboration with the SOVIET UNION.

It was originally incorporated as a limited company on 29th jan.1964, was later merged with SAIL, first as subsidiary and then as a unit.

The plant is hailed as country’s first Swadeshi steel plant, built with maximum indigenous content in terms of equipments and materials.

BSL produces top quality of HR products that are well accepted in global market.

Bokaro Steel is working towards becoming a one-stop-shop for world-class flat steel in India. The modernization plans are aimed at increasing the liquid steel production capacity, coupled with fresh rolling and coating facilities.

Actual capacity: 4.02 Mtpa, after expansion: 7.44 Mtpa

WORKING CAPITAL MANAGEMENT Working capital is the life blood and nerve centre of a business as it is the core to

the whole system.

It shows the operational efficiency of the company.

Working capital means the funds which are required to meet the daily transactions of the business.

Neither excess working capital nor inadequate working capital is good.

The significance of working capital management is to ensure a ‘good fit’ of the organization with the changing environment and capability to cope with challenges.

The basic objective of working capital is to manage the firm’s current assets and current liabilities in such a way that a satisfactory level of working capital is maintained.

OBJECTIVE OF THE STUDY BROAD OBJECTIVES: To find out the efficiency of working capital management in

Bokaro Steel Plant. To have a practical experience of the functioning of the Finance

Department of a steel producing company. To study how working capital management practices plays an

important role in supporting other activities of an integrated steel plant.

SPECIFIC OBJECTIVES: To judge the success of the management in carrying on the daily

transactions of the company. To find out the difference between the theoretical and practical

aspect of working capital management. To study and come out with any solution for improvement of

working capital management at Bokaro Steel Plant.

PRIMARY DATA:Some data had been collected through meetings and interviews with

various managers and employees of the finance department. Main Accounts Department Operation Finance Department Cost & Budget Department Sales Invoicing & Accounting Department Project Finance Department

SECONDARY DATA:Apart from the primary data certain secondary data were required for

this project. Following are the sources of secondary data:- Annual Reports Inventory Reports Cash Report

METHODOLOGY

ANALYSIS

YEAR 2007-08 2008-09

CURRENT RATIO 1.21 1.15

QUICK RATIO

NET WORKING CAPITAL RATIO

CAPITAL TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO

FIXED TURNOVER RATIO

0.43 0.28

0.11 0.08

4.63 4.66

38.11 39.67

4.53 3.46

Current ratio is decreasing because of increase in provisions, security & other deposits and decrease in loans and advances.

Quick ratio decreases due to increase in inventory and provisions.

Net working capital decreases due to decrease in working capital and huge investment in fixed assets.

Capital turnover ratio is slightly increases because of decrease in net block and working capital.

Working capital turnover ratio increase because of decrease in working capital.

Fixed turnover ratio decreases because of huge investment in fixed assets.

FINDINGS

Four years comparative studies

0

50000

100000

150000

200000

250000

2006 2007 2008 2009

current assets(a)currentliabilities (b)workingcapital (a-b)

0%

20%

40%

60%

80%

100%

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

Other Current Assets

Cash & BankBalancesRaw Material

Stores and Spares

Finished/Semi-Finished GoodsSundry Debtors

Loans & Advances

0%

20%

40%

60%

80%

100%

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

Other Liabilities

Sundry Creditors

Securities & OtherdepositsAdvances Received

Provisions

RECOMMENDATIONS There has been decrease in working capital but the production is all time

high. This shows that working capital at BSL is managed well. Still there is a scope of improvement.

The working capital has shown decreasing trend and the current ratio is below the ratio of 2:1. At this moment BSL performed very well but in this case of contingency BSL will face problem in paying the dues.

Quick ratio decreased though there has been increase in the amount, in this case the management should try to decrease its current liabilities especially creditors.

One of the cause of losses incurred by an enterprise can be imprudent management of working capital. To earn best possible rate of return on capital invested, effective and efficient utilization of working capital is very necessary.