A Project Report Submitted to Marwari Colleg1

8/2/2019 A Project Report Submitted to Marwari Colleg1

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A PROJECT REPORT SUBMITTED TO MARWARI COLLEGE,

RANCHI, FOR SUMMER TRAINING PROGRAMME OF MBA

ON

STUDY AND ANALYSIS OF WORKING CAPITAL

MANAGEMENT OF MECON LIMITED

BY

Supriya Gautam

Roll No. 10MCRMC93041

Specialization: Finance

Marwari College, Ranchi

UNDER THE GUIDANCE OF

Mr. Pranjal Karmakar

Corporate Accounts & Treasury Management Group

MECON LIMITED

A government of India Enterprise

(An ISO: 9001:2000 COMPANY)


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PREFACE

To start any business, First of all we need finance and the success

of that business entirely depends on the proper management of

day-to-day finance and the management of this short-term capital

or finance of the business is called Working Capital

Management.

Working Capital is the money used to pay for the everyday

trading activities carried out by the business - stationery needs,

staff salaries and wages, rent, energy bills, payments for supplies

and so on.

I have tried to put my best effort to complete this task on the

basis of skill that I have achieved during the last one year study in

the institute.

I have tried to put my maximum effort to get the accuratestatistical data. However I would appreciate if any mistakes are

brought to my by the reader.


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ACKNOWLEDGEMENT

A work is never a work of an individual. I owe a sense of gratitude

to the intelligence and co-operation of those people who had been

so easy to let me understand what I needed from time to time for

completion of this exclusive project.

I am greatly indebted to my guides Prof. SANTOSH KUMAR,

faculty guide for Finance (summer internship) Marwari college &

Mr. Pranjal Karmakar, Senior Account Officer, Corporate Accounts

& Treasury Management Group, MECON LIMITED Ranchi for their

constant guidance, advice and help which enabled me to finish

this project report properly in time.

Last but not the least, I would like to forward my gratitude to my

friends & other faculty members who always endured me and

stood with me and without whom I could not have completed the

project.


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DECLARATION

I do hereby declare that this piece of project report entitled A

Study & Analysis on Working capital Management

practices in MECON for partial fulfillment of the requirementsfor the award of the degree of MASTER OF BUSINESS

ADMINISTRATION is a record of original work done by me

under the supervision and guidance of Prof. SANTOSH KUMAR,

Marwari College Ranchi .This project work is my own and has

neither been submitted nor published elsewhere.

PLACE: SIGNATURE OF

THE STUDENT

DATE:


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TO WHOM IT MAY CONCERN

This is to certify that Miss. SUPRIYA GAUTAM student of MBA 3 rd

semester bearing Marwari College Roll No 09MCRMC93041 has

successfully completed the project for the partial fulfillment of

Master of business administration session 2010-2012. She has

undergone 6 weeks project in the MECON LIMITED. On the topic

study and analysis of working capital management of

MECON LIMITED in finance Specialization.

1 .Co-Ordinator ..

(Department of

MBA)

2. Internal supervisor

(Department of MBA)

3. External supervisor


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TABLE OF CONTENT

Chapter- 1

Introduction of study Definition of Working Capital Concept Of Working Capital Need Of Working Capital Period Of Study Scope Of Study Limitation Of Study Review of Literature

1234567

Chapter- 2

Organization Profile Brief On MECON LIMITED Vision And Mission Quality Policy Areas Of Activities Range Of Services Offices In India ISO Certification

891011 1314 181920

Chapter

- 3

Competitors And Clients of MECON

Ltd Competitors Clients

21 2324 - 25

Chapter- 4

Importance of Working Capital Important things about Working

Capital Importance of Working Capital

262728 - 29


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Types of Working Capital Factors determining Working Capital

30 - 32

Chapter- 5

Analysis of Working Capital Changes in Net worth

Changes in Long Term Debt Changes in Non Current Assets Analysis of Working Capital

Composition

33

343536 - 37

Chapter- 6

MECON The Working CapitalManagement

Analysis of Working CapitalManagement

Sundry Debtors & Turnover Current Ratio Quick Ratio Current Asset Turnover Ratio Current Asset to Total Assets Working Capital Trend of MECON

Ltd. From yr. 2005- 2010

38 424344 454647

4849 - 52

Chapter- 7

Conclusion and Recommendations Conclusions Recommendations Scope for further Research

535455 - 56

ReferencesBibliography


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EXECUTIVE SUMMARY

The internship report of MECON is based on to practically

experience the Finance practices studied in our course of MBA, on

Study & Analysis of Working Capital of MECON Ltd., especially to

know Working Capital Management and other Operations followed

at MECON ltd. As, now days there is tough competition in the

different Sectors of India, and it is one of the best consultancy

company, so this forced me to do competitive analysis to gain

complete understanding of concerned Treasury practices..

This project is sequenced as firstly with the Introduction of the

organization and telling the purpose and scope of study including

the hierarchy of company & Finance department. This proceeds

with policies, challenges and Findings of project, which

summarizes the Financial Management Practices followed in

MECON & detailed elaboration of 5 years Working Capital & Trend

of MECON


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CHAPTER - 1

INTRODUCTION OF

STUDY


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1.1 CONCEPT:

Working capital means the funds which are required to meet thedaily transactions of the business .In other words it refers to thatpart of the firms capital which is required for financing currentassets such as cash, marketable securities, debtors andinventories. Thus working capital is very significant facet offinancial management. Every business concern should haveadequate working capital to run its operations smoothly. It shouldhave neither excess working capital nor inadequate working

capital because both of these have adverse effects on firmsprofitability and liquidity positions. Therefore, business concernsshould maintain adequate working capital. The basic objective ofworking capital is to manage the firms current assets and currentliabilities in such a way that that a satisfactory level of workingcapital is maintained. Working capital policies have a great effecton a firms liquidity and profitability. Therefore, the workingcapital should be managed in such a way which will ensure higherprofitability and proper liquidity to the business concern. Thesignificance of working capital management is to ensure that the

organization maintains a good fit with the changing environmentand strives to build the capability to cope with challenges.

CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:


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Balance sheet concept or traditional concept. Operating cycle concept.

BALANCE SHEET CONCEPT OR TRADITIONAL CONCEPT

It shows the position of the firm at a certain point of time. It iscalculated on the basis of balance sheet prepared at a specificdate. In this method there are two types of working capital.

Gross working capital Net working capital

GROSS WORKING CAPITAL

It refers to a firms investment in current assets. The sum of thecurrent assets is the working capital of the business. The sum ofthe current is quantitative aspect of working capital whichemphasizes more on quantity than on its quality, but it fails toreveal the true picture of the financial position of the businessbecause every increase in current liabilities will decrease thegross working capital.

NET WORKING CAPITAL

It is difference between the current assets and current liabilitiesor the excess of total current assets over total current liabilities. Itcan also be defined as that part of a firms current asset which isfinanced with long term funds. It may be either negative orpositive. When the current assets exceed the current liabilities,the working capital is positive and vice-versa.

OPERATING CYCLE CONCEPT

The duration or time required to complete the sequence of eventsright from the purchase of raw materials for cash to therealization of sales in cash is called operating cycle or workingcapital cycle. The operating cycle consists of three phases: In


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phase 1, cash gets converted into inventory. This would includepurchase of raw materials, conversion of raw materials into work-in-progress, finished goods and terminate in the transfer of goodsto stock at the end of the manufacturing process. In the case of

trading organization, this phase would be shorter as there wouldbe no manufacturing activity and cash will be converted intoinventory directly. The phase will, of course, be totally absent incase of service organizations.

In phase 2 of the cycle, the inventory is converted intoreceivables as credit sales are made to customers. Firms which donot sell on credit will obviously not have phase 2 of the operatingcycle.

The last phase, phase 3, represents the stage when receivablesare collected. This phase completes the operating cycle. Thus, thefirm has moved from cash to inventory, to receivables and to cashagain.


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1.2 NEED OF THE STUDY :

Any organization should always assess itself its performance forits survival and growth, more so in the present scenario ofglobalization and liberalized economy.

From a company's point of view, excess working capital meansoperating inefficiencies. Money that is tied up in inventory ormoney that customers still owe to the company cannot be used topay off any of the company's obligations. So, if a company is notoperating in the most efficient manner (slow collection), it willshow up as an increase in the working capital. This can be seenby comparing the working capital from one period to another;slow collection may signal an underlying problem in the

company's operations. Poor working capital management canlead to over-capitalization and overtrading.

Characteristics of over-capitalization are:

excessive stocks debtors cash Low return on investment with long term funds tied up in

non-earning short term assets.

Overtrading leads to escalating debtors and creditors, and ifunchecked, ultimately to cash starvation.

Planning for working capital management is an essential functionof management in any business. The inflow of funds cannot besynchronized completely, if these were possible, then it would notnecessary to maintain more than a minimum of cash or near cashresources. Broadly, the objective of this study is mainly

To analysis the structure of organization for management

of working capital. To see adequacy or inadequacy of working capital in the

organization and how the situation has been dealt with. To suggest the suitable policy measurement for effective

management of working capital.
http://basiccollegeaccounting.com/overcapitalization-and-its-tell-tales-signssymptoms/http://fmaccounting.com/overtrading-definition-causes-consequences-and-remedy/http://fmaccounting.com/overtrading-definition-causes-consequences-and-remedy/http://basiccollegeaccounting.com/overcapitalization-and-its-tell-tales-signssymptoms/


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1.3 PERIOD OF THE STUDY:

The study relates to the five (5) years period 2005 to 2010. Dueto turn around in the steel industry, the company started making

profit from 2006. Thus the period of selection for study is justifieddue to gradual upward boom in the core sector (steel) andsubsequent progressive turn around of the company from sickcompany to profit making company giving due impact of thebusiness environment in the present scenario.

1.4 SCOPE OF THE STUDY:

The scope of study covers in detail of the working capital inMECON LIMITED is being managed and the scope of improving thesame, if possible. An attempt has also been made to compare themanagement of working capital in manufacturing industries vis--vis in consultancy organization. Ratio analysis technique hasbeen employed in analysis of working capital management byusing the secondary data as available in the annual reports of theCompany.

1.5 LIMITATIONS OF THE STUDY:

The published financial statements of MECON LIMITED, is themajor source of data and hence conclusions are limited to theextent of information available in the published financialstatement. Some of the major limitations are listed.

Limitations of the Balance Sheet: Cognizance has to be taken of

the common limitations of financial statements. Firstly, thefinancial statements give expressions of exactness andcompleteness with regard to value shown in them. The real valueof assets can be found only if the assets are realized.

The inflationary impact of the values is not brought out in thesestatements. They reflect transactions that involve the values of


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the many dates and the value of money has gone downconsiderably during the past few years. The influence of thesechanges in Rupee value on the relationship of items and trendsfrom period to period has not been isolated for want of reliable

methods. This affects the comparability of data. The business ofMECON has changed over a period of time due to glut in the steelindustry and has to diversify to other fields like defence sectorand oil sector.

The other limitations being the co-operation from the respondentsdue to time pressure, authority problem, attitudinal problem.

1.6 REVIEW OF THE LITERATURE:

Working capital :

Working capital may be regarded as the life blood of business.Working capital is of major importance to internal and externalanalysis because of its close relationship with the current day-to-day operations of a business. Every business needs funds for twopurposes.

* Long term funds are required to create production facilitiesthrough purchase of fixed assets such as plants, machineries,

lands, buildings & etc* Short term funds are required for the purchase of raw materials,payment of wages, and other day-to-day expenses. . It is otherwise known as revolving or circulating capital

It is nothing but the difference between current assets andcurrent liabilities. i.e. Working Capital = Current Asset CurrentLiability.

Businesses use capital for construction, renovation, furniture,software, equipment, or machinery. It is also commonly used topurchase inventory, or to make payroll. Capital is also used oftenby businesses to put a down payment down on a piece ofcommercial real estate. Working capital is essential for anybusiness to succeed. It is becoming increasingly important tohave access to more working capital when we need it.

Importance of Adequate Working Capital


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A business firm must maintain an adequate level of workingcapital in order to run its business smoothly. It is worthy to notethat both excessive and inadequate working capital positions areharmful. Working capital is just like the heart of business. If it

becomes weak, the business can hardly prosper and survive. Nobusiness can run successfully without an adequate amount ofworking capital.

Danger of inadequate working capital

When working capital is inadequate, a firm faces the followingproblems. Fixed Assets cannot efficiently and effectively beutilized on account of lack of sufficient working capital. Lowliquidity position may lead to liquidation of firm. When a firm isunable to meets its debts at maturity, there is an unsound

position. Credit worthiness of the firm may be damaged becauseof lack of liquidity. Thus it will lose its reputation. There by, a firmmay not be able to get credit facilities. It may not be able to takeadvantages of cash discount.

Concept of working capital

1) Gross Working Capital = Total of Current Asset

2) Net Working Capital = Excess of Current Asset overCurrent Liability

Current Assets Current Liabilities


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Cash in hand / atbankBills ReceivableSundry Debtors

Short term loansInvestors/ stock

TemporaryinvestmentPrepaid expensesAccrued incomes

Bills PayableSundry CreditorsOutstanding expensesAccrued expenses

Bank Over draft

One of the most important areas of finance to monitor is yourcompany's working capital, which is the difference betweencurrent assets and current liabilities. As a small business owner,you must constantly be alert to changes in working capital andtheir implications; otherwise, you may miss some warning signsthat can lead to business failure. The most important componentof working capital is cash, far the most important asset of anybusiness, particularly a small business. Without it, the businesswill fail. So it is of paramount importance for you as the businessowner to control all cash transactions.

CHAPTER 2


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COMPANY PROFILE

ORGANISATION PROFILE: MECON LIMITED2.1 Brief on MECON LIMITED


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MECON LIMITED formally it was known as METTALURGICAL &ENGINEERING CONSULTANTS (INDIA) LIMITED is a Government ofIndia Public Sector undertaking under Ministry of Steel. MECONLTD, established in 1959 as Hindustan Steel Limited (HSL), IsIndias frontline engineering, consultancy and contractingorganization offering full range of services required for setting upof projects from Concept to Commissioning, including turnkeyexecution. HSL was transformed into Mecon Limited in 1973.MECON LTD is a multi disciplinary disciplinary designing, planning,

engineering, consultancy and contracting organization anestablished engineering & contracting, ISO 9001 companyemploys with qualified & experienced engineers, scientists,technical & supporting staff, possesses offices. Companyscorporate office at Ranchi is modern and equipped with a largecomputer network and laboratories for testing and makingmodels.

MECON has collaboration agreements with leading firms form theUSA, Germany, France, Italy, Russia, etc in various fields. Theorganization is quite familiar in working with collaborators whoprovide process known how and basic engineering. MECON is amulti disciplinary firm with 1030 experienced and dedicatedengineers, scientists and technologists, having a wide network ofoffices spread all over the country. Experienced in handling


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consultancy assignments and EPC projects. MECON LTD. Hasplayed a significant role in the development of the Indianindustry. MECON Ltd is an ISO 9001 : 2000 certified company andis registered with International financial institutions like the World

Bank, Asian Development Bank, African Development Bank andhas technological tie ups with worlds leading organizations

MECON played a pivotal role in the development and expansion ofthe Iron and Steel Industry of the country. Mecon hassubsequently diversified far beyond ferrous metallurgy andconsolidated its position in:

Non ferrous metallurgy

Defence Space Environment Power Petrochemical Oil/gas pipelines Infrastructure Other sectors

2.2 VISION AND MISSION OF MECON LIMITED:


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VISION

To provide appropriate state of the art technology as alsoquality services at competitive prices to customers.

To implement and maintain total quality management (TQM)

in all spheres. To optimize gross margin by operation through identified

strategic business units(SBU) To get more business from foreign markets To foster and sustain a competent and highly responsive

workforce Quantification of quality objectives under business related,

customer related performance related and improvementrelated issues.

MISSION

Developing into an internationally recognized centre ofexcellence for providing quality services in technical consultancy,design and engineering, design and supply of plant, equipmentand systems, Project implementation from concept tocommissioning for industrial development and up gradation

ventures, development of infrastructure and other servicesectors.


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2.3 QUALITY POLICY

MECON has the distinction of being the first engineeringconsultancy organization in the country to get ISO- 9001certification. Recently the organization has ventured into providingservices in ISO- 9000 Quality Management System and ISO-14000Environment management to its clients.


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2.4 AREAS OF ACTIVITIES

Mecon provides its services in the following areas:

METALS:

Iron Making Steel Making Rolling Mills Non ferrous By products and Mining Raw Materials & Mining Refectories Research & Development Beach Sand Mining

POWERS:

Thermal and Hydel Power Plant Transmission and Distribution Non-Conventional Energy

Sources Energy Management and Audit RLA and RMO Studies


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OIL AND GAS:

Oil and Gas pipelines

Petro chemicals andRefineries CNG stations and city Gas Distributions POL Depots LPG Bulk Storage, Bottling

And Transportation Off-Shore Platforms and

Marine Pipelines Retail Outlets

INFRASTRUCTURES: Civil and Structural

Engineering Architecture and Town

Planning Road, Bridges, Highways and

Fly overs Defence Related Projects Environmental Planning Hydro Engineering Information Technology


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BUSINESS

The CORE FOCUS OF Mecon is providing engineering consultancy

and project management services to its client, which are basicallyindustrial. Mecon has carved out a niche for providing itsengineering services for large scale projects globally. It is servinga large number of clients in the public and the private sector.

In view of the cyclic demand in the Steel Sector over the past fewyears. Mecon has made forays into a number of diversifiedsectors of the economy especially Oil and Gas, Power andInfrastructure.

Business procurement in the area of Engineering Consultancyservices has shown an upward trend. The company has thus laidmore emphasis on its operations in this area.

RANGE OF SERVICES :

Planning, Analysis and Feasibility Reports

Market Survey Site Selection Basic and Project Engineering Construction Management EIA/EMP reports Environmental Management System ISO : 14000 ISO 9001:2000 Quality System Implementation


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2.5 SWOT

STRENGTH

Experience in setting up of projects in green / brown fieldsfrom concept to commissioning on single point responsibilitybasis.

Consultancy, design and detailed engineering capabilities. Multidisciplinary highly experienced and capable pool of

engineers/technologists in various specialized technicaldisciplines.

Vast database and reference materials. Capability in equipment & system design and supply &

execution. Market recognition in core competence area of metals.

WEAKNESSES

Will take time to consolidate strength in new strategicbusinesses.

OPPORTUNITIES

Major investments in iron & steel sectors. Investments in diversified sectors Tie-ups with other vendors/contractors for synergizing

mutual strength Greater concern in the country for environment and ecology.

THREATS

Mushrooming of small consultancy firms. Trend of setting up in house consultancy outfits Stringent financial pre qualification criteria Stress for consortium bidding along with foreign partner in

lead Highly fluctuating business scenario in the metals sector


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2 .6 BUSINESS DIVERSIFICATION

In view of the cyclic demand/investments in the Steel sector overthe past several years, the company has made forays into anumber of diversified sectors of the economy especially oil & gas,power and infrastructure. This has been achieved by formation ofdistinct Strategic Business Units in the company. The companyhas gained substantial experience and recognition in some ofthese sectors and would like to build a strong portfolio of servicesto meet the growing demand of clients. This would also help the

company in adjusting to the sectorial market fluctuations byaligning itself towards the sectors having higher opportunities infuture. During the year 2008-09, consultancy business procuredfrom the diversified sectors (other than metal) has beensignificant. In Engineering and Consultancy, the companys orderbooking is 21.97% (previous year 17.53%) in the diversifiedsectors and 78.03% (previous year 82.47%) in metal sector. Incase of supply/turnkey projects, it is 12.16% (previous year1.83%) in the diversified sectors and 87.84% (previous year

98.17%) in metals sector.1.) BUSINESS PROCURED (CONSULTANCY): FOLLOWINGFIGURES ARE IN RS. CRORES:

Fig.-2 ,Source-PDF file of annual report of MECON 2009-2010.

2.) BUSINESS PROCURED (SUPPLY): FOLLOWING FIGURESARE IN RS. CRORES

Fig.-3, Source-PDF file of annual report of MECON 2009-2010NOTE: 2009-10 FIGURES ARE ESTIMATED/PROJECTEDSECTOR WISE BUSINESS PROCURED (CONSULTANCY)

The above bar graph shows that the supply is not in the sameratio of production. 3.)


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Fig.-4, Source-PDF file annual report of MECON 2008-2009

From the above pie-chart it is clear that the major businessprocured part is in the field of metals i.e 78%,and the power(8%),oil & gas(11%) and infrastructure(3%) only forms a minor part ofthe business of MECON


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2 .7 OFFICES IN INDIA :

HEAD OFFICE

Ranchi Vivekananda path,

Doranda Ranchi-834002

Jharkhand

OVERSEAS OFFICES

Logos, Nigeria Metallurgical &Engineering Consultancy (Nigeria)Limited

B-13, LSDPC Flats 24, AdelaOdeku Street P.O.-73001

Victoria Island, Logos , Nigeria

OTHER OFFICES

Adipur(Gujarat) Bangalore(Karnataka)

Bhilai (Chhattisgarh) Bhubaneshwar (Orissa)

Borako (Jharkhand) Chavara (Kerala)

Chennai (Tamil Nadir) Cochin (Kerala)

Delhi(Delhi) Duburi (Orissa)

Durgapur ( Westbengal) Jaipur (Rajasthan)

Jamnagar ( Gujrat) Kanpur ( UP)

Karwar ( Karnataka) Kolkata(West Bengal)

Mecheri (TamilNadu) Mangalore( Karnataka)

Mundra Nagapattnam(Tamil Nadu)

Navi Mumbai (Maharashtra) Neyveli (TamilNadu)

Rourkela (Orissa) Sambalpur(Orissa)

Secunderabad (Andhra Pradesh ) Trivandrum (Kerala)

Tuticorin (Kerala) Vazhakkala (Kerala)


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Vishakhapatnam (AP)

2 .8 ISO CERTIFICATION:

MECON is the first consultancy organization in the country to beaccredited with ISO Certification. MECON was certified in the year1994. MECON Ltd. Has received the ISO 9001: 2000 certificationfrom RWTUV of Germany. ISO stands for InternationalOrganization for Standardization which is the worlds largestdeveloper and publisher of International Standards. 9001 refers tothe series of certification standards, whereas 2000 refers to theyear in which the standards for certification were revised by theISO. The certificate is valid for 3 years from the date of

certification. The present certificate of MECON is valid upto jan2009. The certification necessitates the creation of QualityManagement System (QMS) to maintain the proper qualitystandards as per the requirement of ISO. Certain clauses whichrelate to the ISO Standards are explained in brief below:

Quality management System Management Responsibility Resource Management

Production Realization Measurement Analysis and Improvement


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CHAPTER-3

COMPETITOR ANDCLIENTS


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3.1 COMPETITORS AND CLIENTS OF MECON

This chapter discusses the conditions for perfect competition. Italso investigates the significance of competitive equilibrium in aperfectly competitive market. It explains the meaning of excessdemand and supply. To understand the complete effect of a shiftin demand or supply, it is necessary to consider both sides of themarket. Generally, the effect of any change in demand or supplydepends on the elasticitys with respect to price of both demandand supply. The time horizon is a key factor affecting theelasticitys of demand and supply. Prices are more volatile and

quantity adjustment takes relatively longer in industries whereproduction involves substantial sunk costs. Finally, it is importantto distinguish a receipt or payment from incidence. A payment orreceipt can be shifted from one to the other side of the market.Incidence is fundamental and depends only on the elasticitys ofdemand and supply.

MECON LIMITED is the first engineering consultancy organizationin the country to be accredited with ISO 9001. The company notonly provides consultancy services in the field of basicengineering, detailed engineering, project management etc., buthas also developed considerable expertise in the design andsupply of equipment for the ferrous, non-ferrous, oil and gas,petrochemical and other general industries. Plan outlay (IEBR) isfor renovation and expansion of office space/guest house atvarious locations.

ITS MAJOR COMPETITORS ARE THOSE WHICH ARE UNDER

THE MINISTRY OF STEEL AS FOLLOWING:

MSTC: The Company, a trading concern of Government of India,undertakes disposal of ferrous scrap and other secondary arisinggenerated in integrated steel plants disposal of scrap, surplusstores, etc. from other public sector enterprises and GovernmentDepartments. After decanalisation, the Company has no canalized


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item and arranges imports of scrap as well as other items as perthe needs of actual users in competition with the private sector.Outlay, to be met from IEBR, is for setting up a Joint Venture forLogistics.

1) FERRO SCRAP NIGAM: Earlier a Joint Sector Companybetween MSTC Ltd. and M/s Harsco Corporation Inc.USA,FSNL is now a 100% subsidiary of MSTC Ltd. with theacquiring of 40% equity shares held by M/s Harsco by MSTC.

The Company undertakes recovery and processing of scrapfrom steel plants Durgapur, Rourkela, Burnpur, Bhilai,Bokaro, Visakhapatnam and Dolvi. For processing the slagand reclaiming iron and steel from dumps the company has

to depend on various types of equipment and moderntechnology. Plan outlay is for AMR schemes and is to be metfrom IEBR of the company.

2) SPONGE IRON INDIA: The Sponge Iron Plant was set upwith UNDP/UNIDO assistance to establish the technoeconomic feasibility of producing Sponge Iron from LumpIron Ore and 100% non cooking coal. The Unit, which wentinto regular operation in November, 1980, has been

designed both for production and for R&D. No outlay hasbeen proposed for 2009-10 as Govt. of India has approvedmerger of SIIL with NMDC Ltd. and the Date of Merger hasbeen fixed as 30.6.2008. The merger process is likely to becompleted by March, 2009

3) HINDUSTAN STEELWORK CONSTRUCTION LIMITED:Incorporated in 1964, this Company has the expertise forundertaking complete construction of modern steel plants as

also projects in the infrastructure sector involving highdegree of co-ordination and modern sophisticatedtechniques. Plan budgetary support has been provided forprocurement and capital repair of construction equipmentsand machinery


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5) BHARAT REFRACTORIES LIMITED: It has four units Bhandaridah Refractories Plant, Ranchi Road RefractoriesPlant, Bhilai Refractories Plant and IFICO Refractories Plantunder its control. The company manufactures various kinds

of refractories for steel plants. Govt. of India on 24.4.2008approved the merger of BRL with SAIL. The merger isdeemed to have taken effect from1.4.2008 for all legal andaccounting purposes and the merger process is to becompleted by March, 2009. Outlay has provided been forAMR Schemes and is to be met from IEBR of the company.

6) NMDC LIMITED (formerly National MineralDevelopment Corporation): NMDC is the single largest

producer of iron ore and diamonds in the country. Thecompany is also entering into the field of producing highvalue products like Ferric Oxide, Iron Powder, etc. Planoutlay has been made for schemes/projects like BailadilaDeposit-11B, Windmill in Karnataka, 3 million tones SteelPlant in Chattisgarh, AMR/Township, Expansion of SIIL, R&Dschemes, etc. Total outlay will be met from IEBR of thecompany.

7) KUNDREMUKH IRON ORE COMPANY LIMITED: :KIOCL was set up to manufacture iron ore concentrates for

export to Iran. Consequent upon Irans inability to lift iron-ore concentrates as per agreement, a Pellet Plant to utilize 3million tones of concentrates was approved in May, 1981.

The Project, implemented at a cost of Rs. 116.65 crores,commenced commercial production in April, 1987. However,as per the directions of Honorable Supreme Court, thecompany had to stop mining at Kudremukh w.e.f.

31.12.2005. Plan outlay is mainly for AMR schemes(including P filters). Other schemes included in the outlay areDuctile Iron Spun Pipe Plant, infrastructure for receipt of ironore by rail at Mangalore, R&D/feasibility studies, Eco-Towndevelopment at Kudremukh, Coal Injection System. Outlay isbeing met from IEBR of the company.


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8) MANGANESE ORE( INDIA) : MOIL is jointly owned byGovernment of India and the Governments of MadhyaPradesh and Maharashtra. It is the largest indigenous

producer of manganese ore in the country. To improveprofitability, the company has diversified into manufacture ofvalue added products like Electrolytic Manganese Dioxideand Ferromanganese. Major portion of the outlay has beenallocated for investment in joint venture for FerroManganese/Silico Manganese Plant. Other schemes includedin the outlay are sinking of new vertical shaft at GudgeonMine, AMR schemes, township and R&D/feasibility studies.Plan outlay is being met from IEBR of the company.

9) BIRD GROUP: Bird Group of Companies, taken over by theGovernment of India in October, 1980, is mainly engaged inmining activities and activities related to sinking of deeptube wells and mineral exploration. Provision has been madefor afforestation & lease matters, Mineral & Ore basedindustries and AMR schemes. Except for Rs.1.00 crore Planbudgetary supports, outlay will be met from IEBR of thecompany.

CLIENTS

1) STEEL AUTHORITY OF INDIA(SAIL) : The major project ofMECON LIMITED zis SAIL. As It has five major steel plantslocated at Bokaro, Bhilai, Rourkela, Durgapur and Salem andAlloy Steels Plant at Durgapur. With effect from 16.2.2006,Indian Iron & Steel Company (IISCO), which has anintegrated steel plant at Burnpur and was a subsidiary ofSAIL, has been merged with SAIL and renamed as IISCOSteel Plant. Maharashtra Electros melt Ltd., which isengaged in the production of Ferro Alloys, is the onlysubsidiary of SAIL. The plan outlay of SAIL Plants/Units andits subsidiaries is being met from the IEBR of SAIL.


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2) BOKARO STEEL PLANT: Outlay covers expenditure onexpansion of Bokaro Plant, Re-building of COB No.1& 2,Installation of TB in Turbo Blower Station, Up gradation of BF

2 and other ongoing and new schemes.

3) BHILAI STEEL PLANT: Major portion (Rs.1100 crore) of thetotal outlay is for modernization and expansion of the Plant.

The balance outlay is for schemes like Rebuilding of CokeOven Battery (COB) No.5 & 6, Installation of Slab Caster,Main Step Down Station 5, 700 TPD Oxygen Plant and otherongoing and new schemes.

4) ROURKELA STEEL PLANT(RSP): Major scheme included

in the outlay is expansion of RSP (Rs.1400 crore).Otherschemes are Re-building of COB No.4, 700 TPD Oxygen,Plant, Simultaneous blowing of BOF Converters of SMS-II,etc.

5) DURGAPUR STEEL PLANT: Out of total outlay ofRs.650crore, Rs.500 crore is earmarked for expansion of thePlant. Other schemes covered under the outlay includeBloom Caster with associated facilities, Coal Dust Injection in

BF- 3 & 4 and expenditure relating to Steel Processing Unitat Srinagar.6) IISCO STEEL PLANT(ISP): Major portion of the outlay is

earmarked for Expansion of ISP (Rs.3100 crore).Provisionhas also been made for Re-building of BFNo.2, Re-building ofCOB-10, etc.

7) ALLOY STEEL PLANT: Outlay is for several completed andongoing schemes costing less than Rs.20 crore.

8) SALEM STEEL PLANT(SSP): Expansion of SSP(Rs.1002crore) accounts for major portion of the total outlayofRs.1020 crore.


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9) VISVESARIYA IRON LIMITED: Outlay covers small valuemiscellaneous schemes and installation of single strandBloom Caster in SMS.

National Aluminum Company Limited IOCL /HPCL/BPCL/IPCL GAIL ISRO Nevelli Lignite Corporation Limited Central Coalfields Limited, SECL, WCL Jindal Steel Limited Jharkhand State Electricity Board. Uttaranchal State Electricity Board

Oil & Natural Gas Commission Neelachal Ispat Nigam Limited Indraprastha Gas Limited Hindustan Zinc Ltd. Hindustan Copper Limited Essar Steel Limited Bhusan Steel Limited Ordinance Factory Board New Note Press & Mint, GOI, Ministry of Finance KIOSCL Govt. of W.B.- PHD & Forestry Deptt.

CHAPTER 4


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IMPORTANCE OFWORKING CAPITAL

4.1 IMPORTANT THINGS ABOUT WORKING CAPITAL:

1. Working Capital can be negative. At that time, we add oneword deficiency" in the back of working capital. It means if

Current Liabilities are more than current assets, it is knownas working capital deficiency or inverse working capital ornegative working capital.

2. Working capital can be easily adjusted, if Accounts managerknows different techniques of managing working capital. Hecan try to get short term loan or he can increase working


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capital by proper management of inventory and outstandingincomes and debtors.

3. Working capital can also change by Changing in CashConversion period. Cash conversion period is a period in

which company changes current assets into cash or bank.4. Working capital can also positive by increasing growth rate ofcompany. If company does not invest more money andincrease profit, the same amount will increase in the cashposition of company and with cash company can increasetheir working capital position.

4.2 IMPORTANCE OF WORKING CAPITAL: Some time, if creditors demand their money from company,

at this time company's high working capital saves companyfrom this situation. You know that selling of current assets iseasy in small period of time but Company can not sell theirfixed assets with in small period of time. So, if Company hassufficient working capital, Company can easily pay off thecreditors and create his reputation in market. But if acompany has zero working capital and then company can not

pay creditors in emergency time and either companybecomes bankrupt or takes loan at higher rate of Interest. Inboth condition, it is very dangerous and always Company'sAccount Manager tries to keep some amount of workingcapital for creating goodwill in market.

Positive working capital enables also to pay day to dayexpenses like wages, salaries, overheads and other operatingexpenses. Because sufficient working capital can not only paymaturity liabilities but also outstanding liabilities without any

more delay.

One of advantages of positive working capital is thatCompany can do every risky work without any tension of selfsecurity.

The adequate reserve of working capital ensures a steadyflow of raw materials to the production process.


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The adequate reserve of working capital indicates the goodsolvency position of the concern and helps it to get loan fromthe market at favorable terms.

The adequate stock of working capital makes it possible for a

concern to purchase the trading goods in cash and cashpurchase always carries the benefit of getting cash discount. A strong working capital base is probably the only remedy to

overcome the odd situations like dull market conditions,scarcity of raw materials and other components in case ofany emergency, sudden market fluctuations, etc.

A business concern can exploit the market opportunities withthe help of adequate working capital.

The regular flow of adequate working capital makes possibleefficient use of fixed assets, reduces wastage, ensures quick

replying of current assets, and establish a well- tunedworking environment.

A quick rotation of working capital cycle and an efficientmanagement of working capital reduce cost and increasesproduction and sales. The combined effect of all thesefavorably add to the profitability of the concern.

The adequate amount of working capital and its quick rotationincreases profit. The rate of dividend of the shareholders alsoincreases as a result of such increase in profit. Sufficient workingcapital helps in research and development to face the present eraof cut throat competition and quick technological advance

4.3 TYPES OF WORKIN G CAPITAL

TYPES OF WORKING CAPITAL


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Diagrammatic representation of the concept of workingcapital

FIXED/PERMANENT WORKING CAPITAL

To carry on business, a certain level of working capital isnecessary on a continuous and uninterrupted basis, for allpractical purpose, the requirement has to be met as with otherfixed assets. Permanent working capital represents the minimumlevel of raw materials, work-in-progress, finished goods, stores,accounts receivables and cash which are in circulation to ensure

ON THE BASIS OF CONCEPT ON THE BASIS OF TIME

OSS WORKING CAPITALNET WORKING CAPITALREGULAR WORKING CAPITALTEMPORARY WORKING

SPECIFIC WORKSEASONAL WORKING CAPITAL


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continuity of production. Permanent working capital is againdivided into two parts:

regular working capital reserve working capital

The portion of fixed working capital which is utilized to carry outthe cyclical operation of current assets in the form of conversionof liquid cash into raw materials, raw materials into finishedgoods, finished goods into debtors and debtors into liquid cash ina continuous manner is known as regular working capital. On theother hand, the portion of fixed working capital, which ispreserved for meeting uncertain and emergent working needs(like sudden price hike, abnormal scarcity in times of war, naturalcalamity, etc) is known as reserve working capital.

VARIABLE/TEMPORARY WORKING CAPITAL

Besides fixed working capital, a business may need additionalworking capital to meet the growing demands of busy seasons atstated intervals. If the demand for the products of the business

goes up at any time it needs additional funds to pay for morematerials, labor and other expenses and to meet the requirementof cash balance to be maintained in the changed situation. Thisadditional working capital needed to feed the operating cycle inbusy business periods is known as variable or temporary workingcapital. It is called variable or temporary because the businessdoes not need it always but it is required according to the need ofthe situation.

Generally the importance of variable working capital is more

acute in business concern having seasonal market demands.Variable or temporary working capital may be further sub- dividedinto

(a) seasonal working capital

(b) special working capital.


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The additional working capital required by a concern to carry outits operating activities in busy seasons of high market demands isknown as seasonal working capital. Businesses which mostly haveseasonal demands of their products like ice- cream, cold drinks,

wool and likely products manufacturing concern may need hugeamount of seasonal working capital. In other business concernstoo the market may rise to the peak in some particular timeperiod. So in all types of business a portion of working capital maybe preserved for meeting seasonal needs. On the other hand, theportion of working capital that is needed by a concern to meet theextraordinary requirements of special situations is known asspecial working capital. This is called special working capitalbecause it is needed in special situations and not in normalcircumstances.

Factors determining working capital requirements

Nature of business:

Working capital requirements of a firm or company are

basically influenced by the nature of business. Trading and

financial firms have a very small investment in fixed asset but

require a large sum of money to be invested in working

capital. Some manufacturing and construction firms also have

to invest substantially in working capital and a nominalaccount in fixed assets. The working capital requirements are

nominal because they have only cash sales and supply

services and not products.

Mecon is basically a service providing company so it may only

need a nominal amount of working capital for carrying out its

functioning.

Market and demand condition:


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Sales of product & services are the important factor in

determining the working capital needs of a firm. Generally a

substantial amount of current assets have to be employed

before growth takes place to support enlarge scale of

operations. But the sales depend on the demand conditions.Firms may experience seasonal & cyclic fluctuations in the

demand for their products & services. These business

variations affect the working capital requirements of the firm,

especially the temporary working capital requirements.

Mecon has experienced ups and downs in the demand of its

services, so it adopts different strategies for determining the

working capital requirements in the boom period or during the

upswing of the demand, the firm generally resorts to

substantial borrowing. On the other hand when there is a

decline in the level of inventories then debtors will also fall.

Most of the firms thus follow a policy of level of

production irrespective of the seasonal changes in demand

order to utilize its resources to the full extent. This is also

called as variable production policy.

Technology & production policy:

Non-manufacturing firms, service and financial enterprises do

not have a manufacturing cycle or inventory conversion cycle.

A firm may adopt a variable production policy, thereby varying

its production schedules in accordance with changing

demands. The production policy will differ from company to

company depending on the circumstances of the individualcompany.

Credit policy:


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The credit policy of the firm affects the working capital by

influencing the level of debtors. A liberal credit policy without

rating the credit worthiness of customers will be detrimental to

the firm and create a problem.

A high collection period will create a problem of : slack

condition will prompt everyone of tying of large funds in

debtors.

Availability of credit from suppliers:

The suppliers credit when used to finance the firms inventory

reduces the cash conversion cycle. In absence of suppliers thefirms generally borrow from the banks. Thus the availability of

credit at reasonable costs from the bank is crucial.

Operating efficiency:

The efficiency in controlling the operating costs and utilizing

fixed and current assets leads to operating efficiency.

Thus, the better utilization of resources improves profitability

and thus helps in releasing the pressure on working capital.

BANK FINANCE FOR WORKING CAPITAL

Banks are the main institutional sources of working capitalfinance. A bank considers a firms sales and production plans and

the desired levels of current assets in determine its working

capital requirements. The approved by the banks for the firms

working capital is called CREDIT LIMIT. Credit limit is the

maximum funds which a company can obtain from the banking


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system. In case of firms with seasonal businesses, bank may fix

separate limits for the peak level credit requirement and normal

non-peak level credit requirement.

Maximum Permissible Bank Finance (MPBF)

The tendon committee suggested the following three methods

of determining the permissible level of bank borrowings for

financing working capital gaps.In the first method, the borrower will contribute 25% of the

working capital gap; the remaining 75% can be financed from

the bank borrowings. This method will give a current rate

of1;1.

In the second method, the borrower will contribute 25% of the

total current assets. The remaining of the working capital (i.e.

the working capital gap less the borrowers contribution) can

be bridged from the bank borrowings. This method will give a

current ratio of 1.3:1.

In the third method, borrower will contribute 100% of the core

assets, as defined, and 25% of the balance of the current

assets. The remaining of the working capital gaps can be met

from the borrowings. This method will further strengthen the

current ratio.


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CHAPTER 5

ANALYSIS OF WORKING

CAPITAL MANAGEMENT


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ANALYSIS OF WORKING CAPITAL

Working-Capital-Analysis is not a technique likely to be usedfrequently. This analysis can prove invaluable in cases wherecredit risk is unusually high, or the amount of credit requested isvery large. Working capital is defined as the excess of currentassets over current liabilities. When similar amounts are added toor subtracted from both current assets and current liabilities[such as occurs with the purchase of inventory on open-accountterms] the amount of working capital does not change althoughthe activity does change the working capital ratio.

The purpose of working-capital-analysis is to identify the factorsthat cause changes in the actual amount of a firm's workingcapital, and these factors are always to be found below the"current" line on either side of the balance sheet. Moreover, theycan always be listed in one of three basic categories:

1. Changes in net worth. Any net increase in net worth fromone reporting period to the next is a source of funds increasing

working capital, and any net decrease is an application of fundsdecreasing working capital.

2. Changes in long-term debt. Any increase in long-term debtfrom one reporting period to the next is a source of funds


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increasing working capital, and any net decrease is an applicationof funds decreasing working capital.

3. Changes in non-current assets. Any net decrease in non-

current assets from one reporting period to the next is a source offunds for increasing working capita. Conversely, any net increaseis an application of funds decreasing working capital.

5 .1 Changes in Net Worth

The major changes affecting working capital usually involvechanges in net worth. If working capital increases, the most

common source is an increase in net worth- especially an increaseresulting from profitable operations. If working capital declines,the most common and most worrisome cause is a decline in networth resulting from operating losses. On occasion, a creditanalyst will also find changes in the amount of a firm's workingcapital caused by net worth changes that are the result of factorsother than operational profits or losses. Working capital mayincrease, for example, because of refunds on prior years' taxes,profits from the sale of fixed assets, or other profits which do not

appear on the income statement (such as profits of a non-recurring nature or those earned from operations in previousyears). Working capital may be reduced by certain additionaldebits to surplus, such as assessments on prior years' taxes.

5 .2 Changes in Long-Term Debt

When performing working capital analysis, it is important to guardagainst the assumption that anything that increases workingcapital is good. The creation or increase of long-term debt is asource of funds for working capital, but may not be as desirableas equity investments. There are several reasons for this:


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1. The payments that will have to be made to reduce the debtmust come from future earnings.

2. Some of the firm's assets may be pledged as security for thedebt.

3. Even if the loan is unsecured, it represents an additionalliability4. The more debt a company has the smaller the recovery to

unsecured creditors is likely to be if the company fails.5. The existence of the debt reduces the availability of short-term

financing to the company - and increases the cost of anyfinancing that can be obtained.

5 .3 Changes in Non- Current Assets

Working capital is reduced by any increase in non-current assets,particularly in fixed assets. If a credit professional learns that aprospective credit customer is enlarging or modernizing plantfacilities, he or she should find out if the undertaking isadequately financed. If there is enough working capital, the out ofpocket costs may come out of these funds and there will still beenough left over to pay other current liabilities. Otherwise, theexpansion will have to be financed either by obtaining additionalequity capital or by negotiating a long-term loan.

A reduction in fixed assets, which results in an increase in workingcapital, is usually the result of depreciation charges made duringthe year. Occasionally, an analyst may find the working capitalhas been increased by the sale of fixed assets, but normally thisis not a major source of cash. Other important changes to look forinclude:

Large increases in investments in a subsidiary or affiliatedconcerns,

The growth of loans to officers evidenced by an increase innotes receivable from officers, and

Increases in such intangible assets as research anddevelopment expenses, patents, and goodwill.


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5.4 Analysis of Working Capital Composition

Understanding factors that have caused changes in the amount of

a firm's working capital from one period to another in no waydiminishes the need to know the changes that have occurred inworking capital composition. The adequacy of any company'sworking capital depends on the proportion of current assets tocurrent liabilities-not on the dollar amount of working capital.

To discover changes in composition, credit analysts must shifttheir attention above the Current line of the balance sheet and tryto answer such questions as the following:

To what extent has any increase in receivables orinventories been financed by growth of working capital andto what extent by growth of current debt?

What has been the form of any important increases incurrent debt? Accounts payable?

Notes payable to the bank? What about current maturity on long-term debt? Has any decrease in receivables and inventories been

accompanied by a like decrease in current debts and by agrowth of the cash balance?

Has any decrease in receivables and inventories beenaccompanied by continued heavy current debt and byshrinkage in working capital?

The analysis of working capital can be conducted througha number of devices, such as:

Ratio analysis. Fund flow analysis. Budgeting.

1. RATIO ANALYSIS


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A ratio is a simple arithmetical expression one number toanother. The technique of ratio analysis can be employed formeasuring short-term liquidity or working capital position of afirm. The following ratios can be calculated for these purposes:

1. Current ratio.2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Payable turnover ratio.

7. Working capital turnover ratio.

8. Working capital leverage9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the studythe source from which additional funds were derived and the useto which these sources were put. The fund flow analysis consistsof:

Preparing schedule of changes of working capital Statement of sources and application of funds.

It is an effective management tool to study the changes infinancial position (working capital) business enterprise betweenbeginning and ending of the financial dates.

3. WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression ofbusiness plans and polices to be pursued in the future periodtime. Working capital budget as a part of the total budgetingprocess of a business is prepared estimating future long term andshort term working capital needs and sources to finance them,and then comparing the budgeted figures with actualperformance for calculating the variances, if any, so thatcorrective actions may be taken in future. He objective workingcapital budget is to ensure availability of funds as and needed,


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and to ensure effective utilization of these resources. Thesuccessful implementation of working capital budget involves thepreparing of separate budget for each element of working capital,such as, cash, inventories and receivables.

CHAPTER 6


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MECON- THE WORKINGCAPITAL MANAGEMENT

MECON THE WORKING CAPITAL MANAGEMENT

6.1 ANALYSIS OF WORKING CAPITAL : By Ratio AnalysisTechnique:

As we know working capital is the life blood and the centre of abusiness. Adequate amount of working capital is very muchessential for the smooth running of the business. And the mostimportant part is the efficient management of working capital inright time. The liquidity position of the firm is totally effected bythe management of working capital. So, a study of changes in theuses and sources of working capital is necessary to evaluate theefficiency with which the working capital is employed in abusiness. This involves the need of working capital analysis.

Some important ratios have been calculated for the last ten (10) financial years ofMECON LIMITED as shown in Table-1 below.

The analysis of working capital can be conducted through anumber of devices, such as:

1. Ratio analysis.

2. Fund flow analysis.


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3. Budgeting.

Ratio Analysis:

Ratio Analysis is the most commonly used technique for workingcapital analysis which deals practically with each and every

aspect of working capital analysis. In this technique, for eachaspect of analysis certain rations are computed and then resultsare drawn on the basis of trends shown by them against thosefixed as guide post

1. Current ratio.

2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Payable turnover ratio.

7. Working capital turnover ratio.

8. Working capital leverage

9. Ratio of current liabilities to tangible net worth.

Fund Flow Analysis:

Fund flow analysis is a technical device designated to the studythe source from which additional funds were derived and the useto which these sources were put. The fund flow analysis consistsof:

a. Preparing schedule of changes of working capital

b. Statement of sources and application of funds.

It is an effective management tool to study the changes in

financial position (working capital) business enterprise betweenbeginning and ending of the financial dates.

Working Capital Budget:

A budget is a financial and / or quantitative expression ofbusiness plans and polices to be pursued in the future periodtime. Working capital budget as a part of the total budgeting


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process of a business is prepared estimating future long term andshort term working capital needs and sources to finance them,and then comparing the budgeted figures with actualperformance for calculating the variances, if any, so that

corrective actions may be taken in future. He objective workingcapital budget is to ensure availability of funds as and needed,and to ensure effective utilization of these resources. Thesuccessful implementation of working capital budget involves thepreparing of separate budget for each element of working capital,such as, cash, inventories and receivables etc.

ANALYSIS OF SHORT TERM FINANCIAL POSITION OR TESTOF LIQUIDITY

The short term creditors of a company such as suppliers of goodsof credit and commercial banks short-term loans are primarilyinterested to know the ability of a firm to meet its obligations intime. The short term obligations of a firm can be met in time onlywhen it is having sufficient liquid assets. So to with the confidenceof investors, creditors, the smooth functioning of the firm and theefficient use of fixed assets the liquid position of the firm must bestrong. But a very high degree of liquidity of the firm being tied up in current assets. Therefore, it is important proper balance in

regard to the liquidity of the firm. Two types of ratios can becalculated for measuring short-term financial position or short-term solvency position of the firm.

Liquidity ratios. Current assets movements ratios

1. LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its currentobligations as and when these become due. The short-term

obligations are met by realizing amounts from current, floating orcirculating assts. The current assets should either be liquid ornear about liquidity. These should be convertible in cash forpaying obligations of short-term nature. The sufficiency orinsufficiency of current assets should be assessed by comparingthem with short-term liabilities. If current assets can pay off thecurrent liabilities then the liquidity position is satisfactory. On the


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other hand, if the current liabilities cannot be met out of thecurrent assets then the liquidity position is bad. To measure theliquidity of a firm, the following ratios can be calculated:

CURRENT RATIO

QUICK RATIO ABSOLUTE LIQUID RATIO

1.1 CURRENT RATIO

Current Ratio, also known as working capital ratio is a measure ofgeneral liquidity and its most widely used to make the analysis ofshort-term financial position or liquidity of a firm. It is defined asthe relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITES

The two components of this ratio are:

Current Assets Current Liabilities

Current assets include cash, marketable securities, billreceivables, sundry debtors, inventories and work-in-progresses.Current liabilities include outstanding expenses, bill payable,dividend payable etc.

A relatively high current ratio is an indication that the firm is

liquid and has the ability to pay its current obligations in time. Onthe hand a low current ratio represents that the liquidity positionof the firm is not good and the firm shall not be able to pay itscurrent liabilities in time. A ratio equal or near to the rule ofthumb of 2:1 i.e. current assets double the current liabilities isconsidered to be satisfactory.

1.2. QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current ratio.Quick ratio may be defined as the relationship betweenquick/liquid assets and current or liquid liabilities. An asset is saidto be liquid if it can be converted into cash with a short periodwithout loss of value. It measures the firms capacity to pay offcurrent obligations immediately.

QUICK RATIO = QUICK ASSET / CURRENT LIABILITES

Where Quick Assets are:


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Marketable Securities Cash in hand and Cash at bank.

W0RKING CAPITAL: RATIO ANALYSIS OF MECONLIMITED

TABLE -1

WORKING CAPITAL: RATIO ANALYSIS OF MECONLIMITED

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

Turnover25,379.0

8 36,561.56 46,621.37 55,244.31 60,477.53

Inventories 81.89 104.01 83.73 123.55 118.53Job-in-Progress 383.65 918.03 998.43 1,577.35 919.08Sundry Debtors 7895.86 7694.49 9,127.85 14,270.93 16,314.56Cash & Bank 12831.91 16,004.24 32,920.07 47,485.59 48,694.99Other Current Assets 511.07 705.14 7,545.16 3,115.75 8,683.34Loan & Advances 4140.1 5638.92 10,564.07 9,963.04 6,334.82

Total CurrentAssets

25,844.48 31,064.83 61,239.31 76,536.31 81,065.52

Less: CurrentLiabilities

22,861.31 25,078.82 44,861.38 44,519.38 45,669.61

Provisions 3,885.27 4,421.92 7,342.67 17,661.38 17,481.82

Total CurrentLiabilities

26,746.58 29,500.74 52,204.05 62,180.76 63,151.43

Net Working Capital -902.10 1,564.09 9,035.26 14,355.45 17,914.09

Total Assets35,616.3

8 39,489.55 69,042.79 84,544.24 89,098.69

Quick Assets25,378.9

4 30,042.79 60,157.15 74,835.31 80,027.71

Current Assets toTotal Assets

72.56% 78.67% 88.72% 90.53% 90.98%

Current Assets toCurrent Liabilities 96.63% 105.30% 117.31% 123.09% 128.37%


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Quick Assets toCurrent Liabilities 94.89% 101.84% 115.23% 120.35% 126.72%

Working Capital as a% of Turnover -3.55% 4.28% 19.38% 25.99% 29.62%

Working CapitalTurnover Ratio -28.13 23.28 5.16 3.85% 3.38

Sundry Debtors and Turnover

TABLE -2

SUNDRY DEBTORS ANDDEBTORS (in lakhs)

FinancialYear

Considered Good

ConsideredDoubtful

TotalDebts

Turnover

% ofTotalDebts toTurnover

% ofDoubtfulDebts toTotalDebts

2005-06 7,895.86 556.31 8,452.17 25,379.08 33.30% 6.58%

2006-07 7,694.49 844.53 8,539.02 36,561.56 23.36% 9.89%

2007-08 9,127.85 1,146.68 10,274.53 46,621.37 22.04% 11.16%

2008-09 14,270.93 1,486.07 15,757.00 55,244.31 28.52% 9.43%

2009-10 16,314.56 504.45 16,819.01 60,477.53 27.81% 3.00%

Sundry Debtors to turnover:

Doubtful Debts to Total Debts:

INTERPRETATION:


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After studying the above table we find that the turnover isincreasing every year after a dip in 2004-05. The increase is veryencouraging as the job procurement is more and execution of the

job is in time and its is the overall result of the work culture and

diversification made by the company but the overall position ofsundry debtors is not good as it is again rising and is around 150crores which should be checked and controlled and proper stepsshould be taken to realize the outstanding dues because theturnover is rising.

Current Ratio

The ratio of current assets to current liabilities is known as currentor working capital ratio. It is an index of solvency of the concernor enterprise. It shows the extent of which the current assetsmay diminish in value carrying any losses in respect of paymentto short term creditors. Thus, it is an indication of the ability of anenterprise with regards to meeting its current liabilities. This ratioshows the number of times current assets will pay off currentliabilities.

TABLE - 3

CURRENT RATIO

FINANCIALYEAR

TOTAL CURRENTASSETS

TOTAL CURRENTLIABILITIES

CURRENTRATIO

2005-06 25,844.48 26,746.58 0.97

2006-07 31,064.83 29,500.74 1.05

2007-08 61,239.31 52,204.05 1.17

2008-09 76,536.21 62,180.76 1.23

2009-10 81,065.52 63,151.43 1.28


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INTERPRETATION:

A current ratio of 2:1 is considered generally satisfactory forreference level and is better to have in between 1 to 2 formanufacturing organizations. In case of MECON LIMITED, it ismore than one with increasing trend which may be due toeffective utilization of working capital. After studying the abovetable we find that the current ratio is increasing every year. Theincrease is very encouraging with increase in turnover and its isthe overall result of the work culture and efficient working capitalmanagement

Quick Ratio or Acid Test:

The current ratio doesnt throw a light on the liquidity position ofa concern, and therefore, on the solvency position. It is possiblethat there may exist a good current ratio but the company maynot have funds for meeting its immediate obligation leading to asituation of business failure. It is therefore, the quick or the acidtest ratio which is used to tell the liquid position of an enterprise.

The quick ratio is the ratio of quick assets to current liabilities.The quick assets are like assets and represent all current assetsother than inventory.

TABLE - 4

QUICK RATIO


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FINANCIALYEAR

TOTAL QUICKASSETS

TOTALCURRENT

LIABILITIESQUICK RATIO

2005-06 25,378.94 26,746.58 0.95

2006-07 30,042.79 29,500.74 1.02

2007-08 60,157 52,204.05 1.15

2008-09 74,835.31 62,180.76 1.2

2009-10 80,027.71 63,151.43 1.27

INTERPRETATION:

A quick ratio of 1:1 is considered a fair indication of the goodcurrent financial condition of a business enterprise. Quickratio for MECON LIMITED has always greater than one which isan indication of better liquidity position.

Current Assets Turnover Ratio

It reflects efficiency in generating Sales by Current Assets.Higher the ratiobetter is the efficiency. The Current Assets

Turnover Ratio of MECON LIMITED is shown in Table-7 as under.

TABLE - 5

CURRENT ASSETS TURNOVER RATIO

FINANCIALYEAR

TOTAL CURRENTASSETS

TURNOVERTURNOVER /

CURRENT ASSETS

2005-06 25,844.48 25,379.08 0.98


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2006-07 31,064.83 36,561.56 1.18

2007-08 61,239.31 46,621.37 0.76

2008-09 76,536.21 55,244.31 0.72

2009-10 81,065.52 60,477.53 0.75

INTERPRETATION:

The Current Assets Turnover shows a fluctuating trend fromFY 2003-04 to FY 2009-10. The ratio was highest in the FY2006-07 and lowest in the year 2004-05. However, this ratiois far from satisfactory. It needs improvement.

Current Assets to Total Assets

In addition to efficiency & liquidity of working capital, thestructure health is also equally important for finding the state ofaffairs relating to the administration of working capital. One ofthese ratios is current asset to total assets ratio, which is in

increasing trend. This ratio has gone up from 0.68 in 2003-2004to 0.91 in 2009-2010.

TABLE - 6

CURRENT ASSETS TO TOTAL ASSETS

FINANCIALYEAR

TOTAL CURENTASSETS

TOTAL ASSETSCURRENTASSETS /

TOTAL ASSETS

2005-06 25,844.48 35,616.38 0.73

2006-07 31,064.83 39,489.55 0.79

2007-08 61,239.31 69,024.66 0.89

2008-09 76,536.21 84,544.25 0.91


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2009-10 81,065.52 89,098.69 0.91

Working Capital

The working capital of MECON LIMITED is the Net of Current

Assets and Current Liabilities. The Current Assets represents,

Inventories, Jobs-in-Progress, Sundry Debtors, Cash & Bank

Balances, Other Current Assets and Loans & Advances. The

Current Liabilities represents Current Liabilities and Provisions.

The various components of working capital is shown in Table-9 as

under.


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TABLE- 7

WORKING CAPITAL: BY RATIO ANALYSISMETHOD

(in lakhs)

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

Inventories 81.89 104.01 83.73 123.55 118.73Job-in-progress 383.65 918.03 998.43 1,577.35 919.08Sundy Debtors 7,895.86 7,694.49 9,127.85 14,270.93 16,314.56Cash & Bank 12,831.91 16,004.24 32,920.07 47,485.59 48,694.99Other CurrentAssets 511.07 705.14 7,545.16 3,115.75 8,683.34Loan &Advances 4,140.10 5,683.92 10,564.07 9,963.04 6,334.82

Total CurrentAssets

25.844.48

31,064.83

61,239.31

76,536.21

81,065.52

LESS: CurrentLiabiliies 22,861.31 25,078.82 44,861.38 44,519.38 45,669.61

Provisions 3,885.27 4,421.92 7,342.67 17,661.38 17,481.82

Total CurrentLiabilities

26,746.58

29,500.74

52,204.05

62,180.76

63,151.43

Net WorkingCapital -902.10 1,564.09 9,035.26

14,355.45

17,914.09

CHAPTER 7


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CONCLUSIONS ANDRECOMMENDATIONS

CONCLUSIONS AND RECOMMENDATIONS

The objective of this study was to find out how the working capitalin MECON is being managed and the scope of improving thesame, if possible. An attempt has also been made to compare the


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management of working capital in manufacturing industries vis--vis in consultancy organization. Ratios analysis technique hasbeen employed in analysis of working capital management byusing the secondary data as available in the annual reports of the

company. Following are the conclusion and recommendations toimprove the Working Capital Management in MECON.

7.1 CONCLUSIONS

Till few years back, the working capital in MECON was nottreated very seriously. After liberalization started in 1990and market forces started their dominance over the

economy through various means and the whole countrycame into its grip. MECON too started facing small operationcash crunches and subsequent misbalance in cash inflowsand outflows. Many times it had to defer its capitalprocurement schemes to meet its urgent obligations. Theprobable reason for not accorded the WCM its due weightage could be due to inherent difficulties of being in servicesector and may be due to it natural resistance for change.Moreover, since the company has the ample reserve and the

working capital is about one-fourth of the volume of thebusiness.

Some of the point in the working capital management as follows:

1. The basic problem in working capital management is tosynchronize the cash receipts and payments. Here inMECON, the payments are almost without delay; however,the receipts are delayed quite for longer period. The

company kept the target of lead time between raising theinvoices and receipts as more than five months. This seemstoo high and should be reduced considerably.

2. The component of working capital is having a wide gap. Asthis observed that since last few years, the volume ofworking capital is increasing with increase in business.


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However, the ratio of current assets to current liabilities isincreasing. This is a good sign for any organization.

3. Cash planning in the organization is not been its due as canbe seen from erratic cash flow position. This can only be

rectified by a full-fledged cash planning department.

4. One major are of neglect is sources of funds. It is evidentthat the company is using only banks as source of fund aswell as to keep the surplus funds. Company has never triedthe other sources of funds paying less interest and alsoother financial instrument to keep the surplus funds forbetter return.

5. It observed that MECON is still following the traditional

structure for handling its finance and accounts department.This is no longer generating a direction but only kept theorganization moving with flow. This requires proper thrustbetter positions towards achieving the goal of organization.

7.2 RECOMMENDATIONS

Considering all the above observations and with the change inIndian industrial scenario, it is felt that the company also mustreorient its philosophy for betterment. Those days are gone whenthe company used to have a lot of jobs on cost plus basis withalmost a monopoly market in the iron and steel sector.Nowadays, the company has to compete in the open market withall other private competitors and with the multinationals. Hence,the company must also act like business organization, its everyaction must be business oriented. Few specific suggestions basedon the findings of this study are mentioned below:

Lead time and cash flow monitoringThe lead time may be brought down to about 90 days. Inaddition to this, a continuous monitoring of collection mustbe looked after by the project coordinators to improve thecash inflows.


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Collection of Sundry DebtsTo avoid liquidity crisis in near future, the collection of debtsmust be given immediate attention. Top management can

review the position in this regards for better collection ofdebts.

Realistic BudgetingBudgeting system should be change to obtain a realisticbudget for optimum control over financial resources. Theprovision of revision for budget may be removed to stressthe importance on the original budget. The budget

preparation time may also be changed to December-Januaryinstead of present practice of August-September. By this wecan have more realistic estimate of future year.


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Sources of FundsIn todays market economy there are many sources of fund,which could be considered for reducing the interest burdenon company.

Organization StructureTo attend the financial activities as well as planning in thecomplex situation, there is a need for a full time Director,Finance.

8.3 SCOPE FOR FURTHER RESEARCH

The review of the past studies and the experience from thispresent study made the researcher offer the following areas forfurther study in this field.

Study may be conducted among the Strategic BusinessUnits (SBUs) of MECON LIMITED, and comparison can bemade between or among these SBUs. This will bring out theSBUs, needing effective working capital management.

A further study may be helpful for identifying the forces thatgovern this chronic nature of inefficiency present in thecompany in the matter of working capital management.

Econometrics can be applied to remove the influence ofextraneous factors on the performance of the company.

This will enable accurate measurement of the impact madeon the analysis of working capital.

It is hoped that the present study will be an inspiration forpursuing research in any of the above areas in the future.


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REFERENCES:

1. Mathur Satish B, Working Capital Management and Control:Principles and Practice, New Age International Pvt. Ltd., 1st

edition, 2003.

2. Murthy G Gopala Krishna, Towards Better Working CapitalManagement, ICFAI, February, 2007.

3. Gopalakrishnan P, Inventory and Working Capital ManagementHandbook, Macmilan Publishers India Ltd.

4. Bhattacharya, H., Total Management by Ratios, New Delhi,Sage Publication India Pvt. Ltd., 1997.

5. Bhattacharya, H., "Towards a Comprehensive theory of

working capital: A Techno-Financial Approach", Economicand Political Weekly, August 29, 1987, Pp. M-101 --110.

6. Dun & Bradstreet, Key Business Ratios, Dun & Bradstreet,New York, 1975.

7. Dulta, J.5. "Working Capital Management of Horticulture

Industry in H.P. -A case study of HPMC, Finance India, Vol.XV, No.2, June, 2001, pp 644- 657.


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8. Prasad, R.5., "Working Capital Management in PaperIndustry", Finance India, Vol. XV. No.1, March 2001. Pp.185-188.

9. Sarvanan, P., "A Study on working Capital Management inNon- banking Finance Companies", Finance India, Vol. XV ,No.3, September, 2001 Pp. 987 -994.

10. Srivastava, S.S. & Yadav, R.A., Management and Monitoringof Industrial Sickness, New Delhi, Concept PublishingCompany, 1986.

11. Yadav, R.A., "Working Capital Management- A ParametricApproach", The Chartered Accountant, May, 1986, p. 952

12. WEBSITE OF MECON LIMITED www.meconlimited.co.in

13. SEARCH ENGINE www.google.co.in
http://www.meconlimited.co.in/http://www.meconlimited.co.in/


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BIBLIOGRAPHY:

1. Agarwal, N.K. (2003), Management of Working Capital,

Sterling Publishers Pvt., Ltd., New Delhi.2. Anil Kumar (2000), Working Capital Management of Munjal

Shows Ltd; in M.Com Dissertation submitted to Universityof Rajasthan Jaipur.

3. Bucha Jooseeph and Koenigsbers ernest (1970), ScientificInventory Management, Prentice Hall of India, Pvt. Ltd.,New Delhi.

4. Chadda, R.S. (1991): Inventory Management in Irid.a,Bombay.

5.Foulka, Roy A (1959): How to Control Accounts Receivablefor Greater Profits, New York.

6. Hartley, W.C.F. (1967): Cash planning forecasting andControlling, London.

7. Howard, L.R. (1971): Working Capital its Managementand Control, Mcdonald and Evans Ltd., London.

8. Mallick, A.K. and Sur. D. (1991): Working CapitalManagement; A case study of Hindustan Lever Ltd.Finance India, Vol. XIII, Delhi.

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Hall Inc. Englewood clifft.10.Mishra R.K. (1975): Working Capital with Reference to

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A Project Report Submitted to Marwari Colleg1