PROJECT – REPORT

On

WORKING CAPITAL MANAGEMENT

At

BAJAJ STEEL INDUSTRIES LTD

Submitted towards the partial fulfillment of the requirement for the award of the

degree of

MASTER OF MANAGEMENT STUDIES

Submitted by External GuideAMAR V. JAMNEKAR FINANCE MANAGER

STERLING INSTITUTE OF MANAGEMENT STUDIESNERUL, NAVI MUMBAI

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ACKNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful completion of any task would be, but incomplete without mentioning the people who made it possible, whose constant guidance encouraging crowned my effort with success.

I would like to begin with a special note of gratitude and heartfelt thanks to (FINANCE MANAGER), who gave me the opportunity to complete my summer project at Bajaj steel industries ltd, Nagpur (Maharashtera).

I am extremely grateful to the President MR. M.K.SHARMA for his constant encouragement and valuable suggestions throughout my summer training and project for his cooperation extended to me.

I am extremely indebted to him for sharing his valuable time, comments and encouraging suggestions which guided and inspired me throughout the preparation of the project.

I express my special thanks to Mrs. Suneet Menon (HR Manager) for giving me their valuable opinions time to time.

At last but not the least, I am very thankful to all the staff members of Finance department also.

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DECLARATION

I AMAR V.JAMNEKAR student of M.M.S. III Semester of STERLING INSTITUTE OF MANAGEMENT STUDIES, NAVI MUMBAI (Affiliated to Mumbai University) hereby declare that the Summer Internship Training Report on “WORKING CAPITAL MANAGEMENT” of Bajaj steel industries ltd, Nagpur (Maharashtera) is my original work and has not been submitted by any other person.

I also declare that I have done my work sincerely and accurately eve then if any mistake or error had kept in it, I request the readers to point out these error and guide me to remove these errors in future.

Signature of the Candidate

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PREFACE

Practical work experience is the integral part of individual learning. An individual who is learning managerial concepts has to undergo this practical experience for being a future executive.

Master of Management Studies is a two-year programme that inserts management knowledge in an individual to make that individual completely professional for which practical experience is must.

BAJAJ STEEL INDUSTRIES LTD is the market leader in manufacturing and trading cotton ginning machinery. BSI offered me a project on Working Capital Management to understand the current position through dates provided by them.

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INTRODUCTION

Summer Internship is the most crucial aspect for a management

student. It is the first rendezvous of the student with the industry. It

gives the students a chance to apply the fundamentals they have

learnt in the first year into actual practice. For students without

work experience, it provides an opportunity to get the first taste of

working life. Also it helps students in deciding the kind of

specialization they want to pursue. Finally, from the Company’s

point of view, it provides them with a great opportunity to

prejudge a candidate. So the summer internship has a direct impact

on the final placements of the students.

I did my Summer Internship at, BAJAJ STEEL INDUSTRIES

LIMITED at NAGPUR. The internship period was 1th May to 25th

June, 2011 which was highly enriching.

My Industry Guide was Bharti Karamchandani

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This Summer Internship had benefited me in the following

manner:

It bridged the gap between theory and practical. Many of the

theoretical aspects were clearly understood.

Despite the work experience, it was my first hand experience

in the field of Banking & Finance sector.

It gave me an opportunity to explore the career field of

interest.

It enhanced my skills and habits required to be successful in

this particular field.

It may open the doors of opportunity for me to debut in the

field of Banking & Finance sector.

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C O N T E N T S

Chapter No. Particulars

CertificateAcknowledgementDeclarationPrefaceExecutive summaryContents

1)1.11.21.31.4

1.51.6

Introduction of companyHistory of the companyBSIL an overviewVision and missionManagement teamProducts

Accounting policyInfrastructureInstallations

2)2.12.22.3

Research MethodologyIntroductionTypes of data collectionObjective of study

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3) 3.13.23.33.43.5 3.6

Working Capital ManagementIntroductionTypes of working capitalFeatures of working capitalDeterminants of working capitalComponents of working capitalWorking capital cycle

4)4.14.24.34.44.54.64.74.8

Analysis of Working Capital IntroductionRole of ratio analysisLimitations of ratio analysisMethods of working capital ratioRatio analysis Profit & lossCash flow statementBalance sheet

5)

5.15.25.3

WORKING CAPITAL – A TOOL FOR DECISION MAKING Receivables managementInventory managementCash management

6)7)8)

Limitation of studyConclusion Bibliography

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BAJAJ STEEL INDUSTRIES LIMITED

BAJAJ STEEL INDUSTRIES LIMITED, a significant part of Bajaj Group of Industries, Nagpur was established in the year 1961, as a manufacturer and exporter of cotton pressing and ginning machines. Under the guidance of Mr. M. K. Sharma, the President of the organization, we have set a strong foothold in the global market. His experience and knowledge has assisted us in achieving specialization in the manufacturing of Ginning and Pressing Equipment. Today, we are counted among the Decorticating Machines Suppliers and Hull Beater Exporters in India.

HISTORY

The company was established by Late Shri Gangabisenji Bajaj in 1961 and is now run under able guidance of his son Shri Hargovind Bajaj. The group is having wide experience in the fields of engineering, cotton, plastics and various other activities.

The company has been pioneer in double roller cotton ginning technology with largest market share in the segment. The company has grown rapidly and now expanded its manufacturing, fabrication and assembly facilities manifold. Earlier company was having only factory at Imambada Nagpur, now it is having four major manufacturing facilities.

The company has recently entered into technical collabration for manufacturing of saw gin, rotobar gin and other equipments earlier manufactured by Continental Eagle Corporation, USA to manufacture them in India.

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AN OVERVIEW OF COMPANY

Bajaj Steel Industries Limited (BSIL), Nagpur, India, established in 1961, is a public limited company, listed on Bombay Stock Exchange. The company is having world class engineering setup in its various plants situated in and around Nagpur. The present activities of the company are as below:

A) Manufacturing

Largest and Modern Cotton Ginning & Pressing Machinery Manufacturer in India

World class Delinting and Decorticating machinery manufacturing

World class machining of components and parts for various applications

All types of electrical panels to meet various industrial needs High quality structural fabrication for buildings and machinery

applications etc. Manufacturing of various other machineries, components and

parts as per drawings High quality mechanical conveyors and elevators Pneumatic conveying, dust / waste handling systems and

humidification systems Engineering and construction projects Hydraulic cylinders, Power packs & Manifolds for various

applications

Bajaj is the only company in the world producing machineries for all cotton ginning technologies i.e. Double Roller, Saw Gin & Rotobar, all Pressing technologies i.e. Down Packing, Up Packing & Horizontal Packing, as well as

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Seed Cleaning, Delinting & Decorticating, apart from general engineering fabrication, machining, intelligent electrical panel manufacturing and various other engineering activities. The company is on high growth path and adding various items to its fold consistently yoy.

Company is having extensive facilities for following:

1. Engineering Designs

2. Machining

3. Fabrication

4. Assembly

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B) TradingCotton Trading: Domestic and Exports

ENDEAVOR

Bajaj Group of Industries are starting a new “Cotton Export Division" at Nagpur to widen their horizon in the field of Cotton Export, to serve buyers across the globe and thus making a mark in the cotton world.

We Endeavor to put in our hardest and best of efforts, to provide the best quality cotton to the world.

Dealing in all types of Raw Cotton ranging from short staple to extra long staple, according to the specifications & parameters of the buyers, at most affordable and attractive terms.

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VALUES

People contribute when they relate to an organization and they relate, when they understand the organization. People understand an organization through its values, by experiencing the culture that values create and by using the systems and processes that values define. In large organizations, such share understanding can not be created through leadership of individuals alone; it requires leadership of principles, of beliefs, of conviction.

Integrity Commitment Passion Seamlessness Speed

These together constitute what we call our “Values”.

Integrity :- Acting and taking decisions in a manner that these are fair, honest, following the highest standards of professionalism and are also perceived to be so. Integrity for us means not only financial and intellectual integrity, but in all other forms as are commonly understood.

Commitment: - On the foundation of integrity, doing whatever it takes to deliver values to all stakeholders. In the

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process, taking ownership for our own decisions and actions, those of our team and that part of the organization that we are responsible for.

Passion: - A missionary zeal is arising out of emotional engagement with the organization that makes work joyful and inspires each one to give his or her best.

Seamlessness: - Thinking and working together across functional silos, hierarchies, businesses and geographies.

Speed: - Responding to internal and external customers with a sense of urgency.

Board Of Directors of Bajaj Steel Industries Ltd

Chairman Shri Hargovind Bajaj

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Managing Director Shri Rohit Bajaj

Executive Director Shri Sunil Bajaj

Whole-time Director Shri Ashish Bajaj

Directors Shri Vinodkumar BajajShri Lalchand MuthaShri Ramadevi RuiaShri Kamal Kishore KelaShri Mohan AgrawalShri Alok GoenkaShri Raj Kumar LohaiShri Rajiv RankaShri R.G. Dwivedi

Company Secretary Shri Jagdish Shirke

Auditors B.Chhawchharia & Co.

Bankers/Financial SICOM LIMITEDInstitution State Bank of India

Axis Bank Limited

Main Products of Bajaj Steel Industries Ltd

Ginning Machine

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This is well reckoned as one of the overruling Double Roller Ginning Machine Exporters based in India. Our Ginning Machine is widely used to gin the lint in small as well as bulk quantity. Use of technically advanced machines for the manufacturing of rotating parts of Cotton Ginning Machine assures high tolerance and best finish ensuring high durability. Availability with various user-friendly features ensures ease of operation and maintenance of Cotton Ginning Machine.

Cotton Baling Press

This provides a wide range of high technology Cotton Baling Press that includes fully automatic, Medium Capacity (15-18Bales) and High capacity (30-35 Bales). Our Automatic Cotton Baling Press is designed to offer low cost as well as power consumption per bale. Robust construction of

our Cotton Baling Press ensures long lasting life with no maintenance. High-pressure power pack based on German Technology assures high performance of our Cotton Baling Press. Today, we have carved a niche as one of the

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distinguished Hydraulic Cotton Baling Press Exporters based in India.

Cotton Pre-Cleaner

The advanced Cotton Pre Cleaner is ideally suited for removing yellow/ pre-matured bolls, stones, and various other impurities from raw cotton. Cotton Pre cleaning Machine offered by us is prefect to improve the quality of the raw cotton before ginning. It protects the fiber quality and gin from any kind of damage from impurities. With its efficiency, our Pre Cleaner enhances the performance of the ginning and reduces the maintenance cost of ginning machines. We have firmly propositioned ourselves as one of the key Cotton Pre cleaner Manufacturers based in India.

Lint Cleaner

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Today, the company stands among the major Lint Cleaning Machine Manufacturers and Suppliers based in India. Our Lint Cleaner is precisely designed to efficiently remove leafy matters, seed coasts etc. from ginned lint and clean the Cotton Fiber. Cotton Lint Cleaner offered by us is perfect to improve the grade as well as appearance of lint. With high quality grid and spade system, it protects the quality of the fiber and reduces the trash content. Available in a variety of models with various feeding systems, our Lint Cleaner is easy to operate and maintain.

Auto Feeder

They have firmly positioned themselves as one of the chief Automatic Feeder Manufacturers and suppliers based in India. Our Auto Feeder for Ginning Machine is manufactured from the advanced technology parts to increases productivity from 15% to 20%. Electric Auto Feeder offered by us is perfect to save labor. With high technology, it assures low consumption of electricity. Ensuring

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proper feeding of Cotton to the Gin Machine, our Electric Auto Feeder is easy to operate and maintain

Cotton Seed Delinting Machine

They provide high capacity Cotton Seed Delinting Machine that is highly appreciated in the national and international markets. We have carved a niche as one of the key Mechanical Cottonseed Delinter Manufacturers and Suppliers based in India.

Energy Saving Features

Efficient Roll Box design minimizes drag for an easier flow of seed Mass.

176 Saw Blanks made of superior & special steel material. Lowest Energy – to capacity ratio in the Industry

Mechanical Advantages

Saw Mandrel made of mechanical tubing provides smooth operation.

Electric motors are conveniently located for ventilation & easy maintenance.

Positive tooth belt drives eliminate slippage & provides efficient power transmission.

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Decorticator

Today, they are one of the leading Decorticating Machine Manufacturers and Suppliers based in India. A Proven Winner since 1962

CEC was the first to envision and implement the modern twin-roll hulling design since 1962.

First to incorporate a decorticator with a basket beater and high-speed separation.

First to successfully process undelinted cottonseed with lowest oil losses.

Highest Capacity per meter width of twin roll drum.

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Hull Beater

The high capacity Hull Beater is unsurpassed in efficiency as well as performance. The model 4620 Double Drum Hull Beater is uniquely designed with a built in tailing beater eliminating the need for additional conveying systems. Capable of handling capacities in excess of 200 tons per day of delinted & undelinted cottonseed, the model 4620 is unequaled in the industry. When combined with the CEC/BAJAJ decorticator/separator system, oil in hulls is maintained at a low level, even with 12 % to 14% lint on hulls. Today, we stand among the leading Industrial Hull Beater Manufacturers and Suppliers based in India.

Cotton Seed Cleaner

They offer fine Cotton Seed Cleaner that is first and the foremost designed to be the main machine in seed cleaning. Cotton Seed Cleaning Machine offered by us is available with Material feed roller as well as Aspiration chamber fitted with trash conveyors that enhance its efficiency. Today, we

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stand among the prominent Cotton Seed Processor Exporters based in India.

Linter Cleaner

Linter is discharged from a cyclone to the top chamber of the LC-410D Linter Cleaner. This chamber consists of two x 3 Meter' long, 500 MM diameter cylindrical beaters operating side by side in 550MM dia. Half round screen sections. Linter enters at one end of one beater, is conveyed to the opposite end and transferred to the opposite beater section. From this point, the Linter is once again conveyed over the screen section for the length the top section. Cleaned Linter discharged from the top section is pneumatically conveyed to the bale press

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ACCOUNTING POLICY

i) Accounting Convention: The financial statements are prepared under the historical cost convention in accordance with applicable Accounting Standards. ii) Valuation of Fixed Assets: Fixed assets are stated at cost without deducting capital grants which are shown separately in the accounts. iii) Method of depreciation: Depreciation is provided on Written Down Value Method in accordance with the provisions of Schedule XIV to the Companies Act, 1956. iv)Treatment of expenditure during construction: The expenditure incurred during the period of construction is charged to capital work-in-progress and on completion the cost is allocated to the respective fixed assets.

v) Valuation of Inventories: Inventories are valued as follows: Raw Materials, Stores, Spares and Fuel:- Lower of cost and net realizable value. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost.

Cost is determined on FIFO basis. Semi finished goods and finished goods:- Lower of cost and net realizable value. Cost includes direct materials and labour and a proportion of

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manufacturing overheads based on normal operation capacity. vi) Obsolescence and damaged materials: The inventories are periodically reviewed to ascertain dormant/obsolescence materials and necessary adjustments are made thereof. vii) Investments: Long Term investments are valued at cost except that provision is made to recognize the permanent diminution in their value. Investment sin tended to be held for less than one year are classified as current investments and are valued at lower of cost and market value. viii) Foreign Exchange Variations: Closing balances of current assets and current liabilities relating to foreign currency transactions are converted into Rupees at prevailing rates or at the rate of forward cover. Export sales are recorded in rupee amount by applying the exchange rate existing at the time of discounting the bills of exchange with the bankers or at closing rate of exchange. ix) Sales and other income: a) Sales include excise duty and exclude sales taxA/alue Added Tax.

b) Revenue recognition is postponed to a later date only when it is not possible to estimate it with reasonable accuracy. x) Employees Benefits:

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a) Short term employee benefits are charged off at

the undiscounted amount in the year in which the related service is rendered.

b) Post employment and other long term employee benefits are charged off in the year in which the employee has rendered services. The amount charged off is recognized at the present value of the amounts payable determined using actuarial valuation techniques. Actuarial gain and losses in respect of post employment and other long term benefits are charged to Profit and Loss Account. xi) Taxes on Income:

a) Current tax is determined as the amount of tax payable in respect of taxable income for the year.

b) Deferred Tax is recognized, subject to consideration of prudence, in respect of deferred tax assets/liabilities arising on timing differences, being the difference between taxable incomes and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. xii) Impairment of assets: Impairment loss in the value of assets as specified in Accounting Standard 28 is recognized whenever carrying value of such assets exceeds the market value or value in use, whichever is higher.

xiii) Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires estimates/ exemptions to be made that affect the reported amount of assets and liabilities on the date of financial statements and the reported amount of revenues and expenses during the

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reporting period. Difference between actual results and estimates are recognized in the period in which the results are known/ materialized.

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The well-equipped design center and state of the art manufacturing facilities are spread over an area of 12 acres. We have CNC Turning Centers from Taiwan, CNC Planomillers, Drilling & Assembly Centers that assure of the development of technically sound machines. Moreover, our two factories one having plot area of 7.5 Acre with 11000 Sq. Mtr. builtup workshop and other having plot area of 5.5 Acre with builtup area about 9000 Sq. Mtr. are our strength. Our manufacturing facilities are ISO 9002 & TS 16949 certified that ensure reliability.

Bajaj Steel - IMAMBADA PLANT

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New Bajaj Plant at MIDC Hingna, Nagpur

Highly equipped machine shop has a large number of advance CNC machines and all kind of fabrication & assembly facility.

Committed and trained personnel, all facility of metal cutting, machining, welding, sheet metal work etc. under one roof.

Proven track record and world class setup for designing, machining, fabrication and assembly of various industrial engineering equipments, components, parts and structures.

Facilities

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Well equipped machine shop with more than 20 advance CNC machines and all kind of fabrication facility.

Committed and trained personnel, All facility of metal cutting,machining,welding,sheet metal work etc.

under one roof. We meet the requirements of the customer to his full satisfaction

under one roof for machined components

Advantages

LOGISTIC ADVANTAGES

Inland Container Depot (ICD)

Construction of International Cargo Hub at Nagpur Export clearance by customs at Nagpur Shipping Agents, C&F Agents have full fledged operations at

Nagpur Not far from sea port (JNPT-Bombay) No congestion problems faced by large sea ports Excellent Rail and Road connections to JNPT directly. Regular International and national air connection from Nagpur.

LOCATION ADVANTAGES

Large empty container inventory at ICD

Distance of ICD 14Km from the plant. Container on Call, no transit time, Excellent in-house facilities like cranes, fork-lifts and other

equipment to handle Sea Containers at ICD Direct Rail siding in the premises of ICD

Photo Gallery

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Bajaj Steel's equipped machine shop has more than 20 advance CNC machines and all kind of fabrication facility.

Committed and trained personnel, All facility of metal cutting, machining, welding, sheet metal work etc. under one roof.

We meet the requirements of the customer to his full satisfaction under one roof for machined components.

HIGHLIGHTS

Location –C108, HINGNA MIDC, NAGPUR – 440 028 (M.S.) INDIA

Trained manpower – More than 400 Total area – 27456 sq. meters. Plant build-up area – 8640 sq. meters. Twenty (20) CNC machines with multi floor CNC setup, Plasma

cutting machines, more than 50 conventional machines and a big set up of fabrication facility with all kind of welding and sheet metal cutting.

Other supporting QA equipments, Infrastructure ready for expansion. Process of recertification of ISO/TS 16949 is in process due to

relocation of the plant.

Strength

Analysis for customers requirements.

Simultaneous Engineering to define Customer’s requirement.

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Use of CAD-Inventor, computer simulation, for developing first time right machined component.

Minimize process cost, manpower and variables. Quality built at every stage. Create product to exceed customer expectations. 100 % committed just-in-time deliveries. A good set up for all kind of tool room machines for in house

development of jigs and fixtures.

This is ISO 9001:2008 Certified Company.Its installed facilities support:

1) Designing

2) Machining

3) Fabrication

4) Assembly

Bajaj has successfully developed a very professional team with many years of experience built upon extensive & comprehensive installations of both automatic & semi automatic cotton ginning & pressing plants.

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Bajaj has given services to more than 4000 plants running successfully in India & Abroad. Bajaj provides installation services to all of it's works & also consultancy for the same is available. Bajaj employs a multi-crafted work force that performs no of services from plant maintenance to Turnkey equipments installations. Our installation work also includes.

a) System teardowns and rebuilds.b) Response to emergency shut-down.c) Installation of upgrade components.d) New system assembly.

Its installation includes both mechanical & electrical installations of the components manufactured by bajaj steel.

Some of its Installations:

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RESEARCH METHODOLOGY

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When we talk of research methodology, we not only talk of the research methods but also the comparison of the logic behind the methods, we used in this context of our research study and explain why we are using a particular method or technique and why using the others. Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done systematically. In this, we study the various steps that are generally adopted by researcher in studying his research problem along with the logic behind them.

“The present study is based upon the case study method of research to investigate procedures at micro level”.As the study is analyzing probing in nature, thus, entirely based on the secondary data gathered through the annual reports of the industry. Therefore it provides a historical perspective of decisions.

RESEARCH

Research refers to search for knowledge. Research is an original contribution to the existing stock of knowledge making for its advancement. It is the pursuit of truth with the help of study, observation, comparison and experiment. In short, the search for knowledge through objective and systematic method of finding solution of the problem is

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research. The advance learner’s dictionary of current English gives the meaning of research “a careful investigation or inquiry especially through search for new facts in any branch of knowledge”.

RESEARCH METHODS

Research methods may be understood as those methods/techniques that are used for conduction of research. All those methods which are used by the researcher during the course of studying his research problem, are termed as research methods. Keeping in view, the research methods can be put into following three groups:

In the first group we include those methods which are concerned with the collection of data. These methods will be used where the data already available are sufficient to arrive at the required solution.

The second group consists of those statistical techniques which are used to establish relationships between the data and the unknown.

The third group consists of those methods which are used to evaluate the accuracy of the obtained results.

COLLECTION OF DATA

There are several ways of collecting the appropriate data which differ considerably in context of money, cost, time and other sources at the disposable of the researcher.There are two types of data:• Primary data• Secondary data

Primary data

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Primary data are those which are collected afresh and for the first time, and thus happen to be original in character. In case of descriptive research, researcher performs survey whether sample survey or census survey, thus we obtain primary data either through• Observation• Direct communication with respondent• Personal interview

Secondary data

Secondary data are those which have already been collected by someone else and have already been passed through statistical process. In this project report, both types of data have been used. Mainly, secondary data is used such as annual reports of last two years of Bajaj steel industries.

OBJECTIVES OF THE STUDY

Study of the working capital management is important because unless the working capital is managed effectively, monitored efficiently planed properly and reviewed periodically at regular intervals to remove bottlenecks if any the company can not earn profits and increase its turnover. With this primary objective of the study, the following further objectives are framed for a depth analysis.

To study the working capital management of Jain Irrigation Systems Ltd.

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To study the optimum level of current assets and current liabilities of the company.

To study the liquidity position through various working capital related ratios.

To study the working capital components such as receivables accounts, cash management, Inventory position

To study the way and means of working capital finance of the Jain Irrigation System Ltd.

To estimate the working capital requirement of Jain Irrigation System Ltd

To study the operating and cash cycle of the company.

WORKING CAPITAL AT A GLANCE

INTRODUCTION

TYPES

FEATURES

DETERMINANTS

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COMPONENTS

WORKING CAPITAL CYCLE

INTRODUCTION

A successful sales program is necessary for earning profits by any business enterprise. Sales don’t convert into cash instantly. There is a time lag between the sale of goods and receipt of cash.

Therefore, there is a need for working capital in the form of current assets to deal with the problem arising out of the lack of immediate realization of cash against goods sold. Therefore sufficient working capital is necessary to sustain sales activity.

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Defination of Working Capital:-

According to C.W. Gestenbergh-

“Working capital is ordinarily defined as the excess of the current assets over current liabilities”.

According to Lawrence. J. Gitmen

“The most common defination of working capital is the difference of the firm’s current assets and current liabilities.”

Defination of working capital management:-

“Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.”

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-From WWW.STUDYFINANCE.COM

Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These require managing the current assets - generally cash and cash equivalents, inventories and debtors. There are also a variety of short term financing options which are considered.

• Cash management – Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs

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• Inventory management - Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials and hence increases cash flow; see Just in Time (JIT) and Economic order quantity (EOQ). • Debtors management - Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances.

• Short term financing - Inventory is ideally financed by credit granted by the supplier; dependent on the cash conversion cycle, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

TYPES OF WORKING CAPITAL

Working capital can be classified either on the basis of concept or on the basis of periodicity of its requirement.

ON THE BASIS OF CONCEPT

On the basis of concept working capital is of 2 types.

A) Gross working capital - Gross working capital is represented by the total Current assets.

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Gross working capital = Total current assets

B) Net working capital - Net working capital is the excess of current assets over current liabilities.

Net working capital = Current assets – Current liabilities

ON THE BASIS OF REQUIREMENT

On the basis of requirement working capital is also of 2 types.

A) Permanent working capital - It is that amount of investment which should always be there in the fixes or

minimum current assets like inventory, accounts receivables or cash balance etc. to carry out business smoothly. Such an amount cant be reduced if the firms

wants to carry on business operations without interruption.

B) Variable working capital - The excess the amount of working capital over permanent working capital is known as variable working capital. It may also be subdivided into two parts.

a) Seasonal working capital - Such capital is required to meet out the seasonal demands of busy periods occurring at stated intervals. b) Special working capital - Such capital is required to meet out the extraordinary needs for contingencies. Events like strike, fire, unexpected competition, rising

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price tendencies, or initiating a big advertisement campaign require such capital.

FEATURES OF WORKING CAPITAL

1) Working capital is regarded as the excess of current assets over current liabilities.

2) Working capital indicates circular flow of funds in the day-to-day activities of business. That’s why it is also called circulating capital.

3) Working capital represents the minimum amount of investment in raw materials, work-in progress, finished goods, stores and spares, accounts receivables and cash balance.

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DETERMINANTS OF WORKING CAPITAL

1) Nature of business – The effect of the general nature of the business on working capital requirements can’t be exaggerated. Rail, roads and other public utility services have large fixes investment so they have the lower requirements of current assets. Industrial and manufacturing enterprises, on the other hand, generally require a large amount of working capital.

2) Production policies – if the production is evenly spread over the entire year, working capital requirements are greater, because the inventories will be unnecessarily accumulated during of season period. But if the production Schedule favors a varying production plan as per the seasonal requirements; working capital is required to a

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greater extent during a specified season only. The production policies are affected by so many factors availability of raw materials, labour, stocking facility etc & therefore, whatever the productions policies are, the firm has to arrange its working capital requirements accordingly.

3) Proportion of the cost of raw materials to total cost - In those industries where cost of proportion is a large proportion of total cost of the goods produced, requirements of working capital will be comparatively large.

4) Length of period of manufacturing – The time which elapses between the commencement and end of the manufacturing process has an important bearing upon the requirements of working capital. The manufacturing cycle may be shorter for certain concerns & longer for others- it depends on the type of the product to be manufactured, work to be done through machine labour & hand labour, degree of rationalization of manufacturing procedures through times, motion & fatigue studies etc.

5) Terms of purchase - If suppliers allow continuous credit, payment can be postponed for some time and can be made out of the sale proceeds of the goods produced. In such a case, the requirements of working capital will be reduced.

6) Dynamic Attitudes – As a company grows, it is logical to expect the large amount of working capital will be required.

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7) Business cycles – Requirement of working capital also varies with the business. When the price level is up due to boom conditions, the inflationary conditions create demand for more working capital. During depression also a heavy amount of working capital is needed due to the inventories being locked unsold and book debts uncollected.

8) Requirement of cash - The working capital requirements of a company are also influenced by the amount of cash required by it for various purposes. The greater the requirement of cash, the higher will be the working capital needs of the company.

9) Dividend policy of concern – If the management follows a conservative dividend policy the needs of working capital can be met with the retained earnings. The relationship between dividend policy and working capital is well established and mostly companies declare dividend after a careful study of their cash requirements

10) Other Factors - Other factors, which affect the requirement of working capital, are lack of co-operation in production and distribution policies, transport and communication facilities, the fiscal and tariff policies of the government etc.

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COMPONENTS OF WORKING CAPITAL

Main components of working capital are as follows:

1) Cash – Cash is the most liquid and important component of working capital. Holding cash involves cash in the sense that the present worth of cash held for a year is less than the value of cash on today. During inflationary situations as exist today the cost of holding includes the deterioration in the value of the cash due to inflation. Cash, therefore, results in enhanced liquidity, but lower profitability. Despite in the cost involved it is pertinent to hold cash because it facilitates the attainment of some important motives.

2) Marketable Securities – Though marketable securities provides a such lower yield that the firm’s operation assets. They serve two useful functions. Firstly, they act as a substitute for cash, and secondly, are used as temporary investment. Where these securities are held in lieu of the cash balance, they act as a substitute for transactional or precautionary balances. Normally, these aren’t used as

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speculative balances, but only as a guard against the possible shortage of bank credit.

Marketable securities (as temporary investment) may be held for one of the following reasons:

• Seasonal or cyclical operations• To meet known financial requirements. Construction of an additional plant.• Immediately after the sale of long-term securities.

3) Account Receivable - Though accounts receivable are a vital investment of any business organization, little analytical work as been done to determine credit policies. Maintaining account receivable has its cost implications in that thefirm’s monetary resources are tied up. This is of greater significance in the inflationary economy, because of the depreciation in the value of money. Basically, this is a two-step account. When goods are shipped, inventories are reduced and accounts receivable is created. When payment is made, this account is reduced and the cash level increases. Accounts receivables are, therefore a function of the volume of credit sales and the average length of time between sales and collections.

4) Inventory – Inventories represent a substantial amount of a firm’s current assets. Management of inventories should be efficiently carried out so that this investment doesn’t become too large, as it would result in blocked capital which could put to productive use elsewhere. On the other hand, having too small an inventory could result in loss of sale or loss of customer goodwill. An optimum level of inventory should therefore be maintained.

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WORKING CAPITAL CYCLE

Working capital cycle indicates the length of time between firms’s paying for materials entering into stock and receiving the cash from sale of finished goods. In a manufacturing firm, the duration of time required to complete the sequence of events is called operating cycle. In case of a manufacturing company, the operating cycle is the length of time necessary to complete the following cycle of events: -

1) Conversion of cash into raw materials2) Conversion of raw materials into work-in-progress3) Conversion of work-in-progress into finished goods4) Conversion of finished goods into accounts receivable5) Conversion of accounts receivable into cash

The above operating cycle is repeated again & again over the period depending upon the nature of the business & type of product etc. the duration of the operating cycle for the purpose of estimating working capital is equal to the sum of duration allowed by the suppliers.

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Working capital cycle can be expressed as: R+W+F+D-C Where R=Raw Material Storage Period = Avg. Stock of Raw Material / Avg. Cost of Production per day

W=Work in Progress Holding Period = Avg. Work in Progress Inventory /Avg. Cost of Production per day

F=Finished Goods Storage Period = Avg. Stock of Finished Goods / Avg. Cost of Goods Sold per day

D=Debtors Collection Period = Avg. Book Debts/ Avg. Credit Sales per day

C=Credit Period Availed = Avg. Trade Creditors/Avg. Credit Purchases per day

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OPERATING CYCLE OF MANUFACTURING BUSINESS

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THEORTICAL ASPECTS OF WORKING CAPITAL MANAGEMANT

WORKING CAPITAL MANAGEMENT

NATURE OF WORKING CAPITAL MANAGEMENT

Working capital management is three dimensional in nature-

1) It is concerned with the formulation of policies with regard to profitability, liquidity and risk.

2) It is concerned with the decisions about the composition and level of current assets.

3) It is concerned with the decisions about the composition and level of current liabilities.

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GOAL OF WORKING CAPITAL MANAGEMENT

Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them.

The term current assets refer to those assets which is the ordinary course of business can be converted into cash within one year. Major current assets are cash, marketable securities, accounts receivable and inventory.

Current liabilities are those liabilities, which are intended, at their inception, to be paid in the ordinary course of business within a year, out of the current assets or earnings of the concern. Current liabilities are accounts payable, bills payable, bank overdraft, and outstanding expenses. Working capital is that portion of firm’s assets which is financed by long-term funds.

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Interaction between current assets and current liabilities is the main theme of the theory of working capital management.

Goal of working capital management is to manage the firm’s current assets and liabilities in such a way so that a satisfactory level of working capital is maintained.

The second important segment of working capital management is deciding the optimum level of investment in various current assets. There are three important current assets cash, accounts receivables and inventory.

RECEIVABLES MANAGEMENT

INTRODUCTION

The term receivable is defined as “debt owed to the firm by customers arising from sale of goods or services in the ordinary course of business”. When a firm makes an ordinary sale of goods or services and doesn’t receive payment, the firm grants trade credit accounts receivable, which could be collected in the future.

Receivables Management is also called trade credit management.

OBJECTIVE The objective of receivables management is “to promote sales and profits until that point is reached where the return on investment in further funding receivables are less than the cost of funds raised to finance that additional credit”.

BENEFITS

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Investments in receivables involve both benefits and costs. The extension of trade credit has a major impact on sales, costs and profitability. Other things being equal, a relatively liberal policy and, therefore, higher investments in receivables, will produce larger sales. However, costs will be higher with liberal policies than with more stringent measures.

Therefore, accounts receivables management should aim at a trade-off between profit (benefit) and risk (cost).

CREDIT POLICY

The credit policy of a firm provides the framework to determine:

1) Credit standards2) Credit terms3) Credit Analysis

Credit StandardThe term credit standards represent the basic criteria for the extension of credit to those customers to whom goods could be sold on credit. If a firm has more slow-paying customers, its investment in accounts receivables will increase. The firm will also be exposed to higher risk of default.

Credit TermsCredit terms specify duration of credit and terms of payment by customers. Investment in accounts receivables will be high if customers are allowed extended time period for making payments.

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Credit AnalysisCredit analysis and investigation is an aspect of credit policies of a firm. Two basic steps are involved in the credit investigation process:

A. Obtaining credit informationB. Analysis of credit information

It is on the basis of credit analysis that the decisions to grant credit to a customers as well as the quantum of credit would be taken.

INVENTORY MANAGEMENT

INTRODUCTION

Inventories constitute the principal item in the working capital of the majority of trading and industrial companies. In inventory we include raw materials, finished goods, work-in-progress, supplies and other accessories. To maintain the continuity in the operations of business enterprises, a minimum stock of inventory is required.

Management of inventory is designed to regulate the volume of investment in goods on hand and the types of goods carried in stock to meet the needs of production and sales while at the same time, the investment in them is to be kept at a reasonable level.

CONCEPT

The inventory management” is used in two ways- Unit Control and Value Control. Production and purchase officials use this word in term of unit control whereas in accounting this word is used in term of value control .Investment in

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inventory is one the largest asset item of business enterprises particularly those engaged in manufacturing.

The proper management and control of the capital invested in the inventory should be the prime responsibility of accounting department because resources invested in inventory aren’t earning a return for the company. Rather, on the other hand, they are costing the firm money both in terms of capital costs being incurred and loss of opportunity income that is being foregone.

TECHNIQUES OF INVENTORY CONTROL

1) The Selective Inventory Control or ABC System of Control

2) Maximum Stock Limit3) Minimum Stock Limit4) Re-ordering Level5) Economic Order Quantity

ABC System of Control

The various inventory items are, according to this system, categorized into three classes-I. AII. BIII. C The item included in-group involve the largest investment. Therefore, inventory control should be the most rigorous and intensive and the most sophisticated inventory control techniques should be applied to these items. The C group

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consists of items of inventory which involve relatively small investments although the numbers of items is fairly large. These items deserve minimum attention. The B group stands midway. It deserves less attention than A but more than C. It can be controlled by employing less sophisticated techniques.

Maximum Stock Limit

This represents the quantity if inventory above which it should not be allowed to be kept. The following formula may be applied to calculate the maximum stock- Maximum Stock = Reorder Level – Minimum Consumption during Minimum Lead Time + Lot Size.

Minimum Stock Limit

This represents the quantity below which stock should not be allowed to fall. The main purpose of this level is to ensure that production isn’t held up due to storage of any material.

Minimum Stock Limit = Re-order Level – Normal storage during Lead Time

Re- Ordering Level

It is the point at which if stock of the material in store reaches, the storekeeper should initiate the purchase requisition for fresh supplies of the material. This level is fixed somewhere between the maximum and minimum levels in such away that the difference of quantity of the material between the reordering level and the minimum

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level will be sufficient to meet requirements of production up to the time of fresh supply of the material.

The reorder point = Lead time in days * Average daily usage of inventory

Economic Order Quantity

It is the quantity of inventory, which can be reasonably ordered at a time and purchased economically. It is also known as Standard Order Quantity or Economic Lot Size. By definition “Economic Order Quantity is that size or order at which the total cost of ordering and holding are the minimum.

In determining the economic order quantity the problem is one to set a balance between two opposing costs, namely, namely ordering costs and carrying costs. The ordering costs are basically the costs of getting an item into the firm’s inventory.

Carrying costs, sometimes also known as holding costs are the costs of possessing the materials. These costs are combined known as “Associated Costs”.

Hence, the management tries to reconcile them and this reconciliation point is economic order quantity.

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MANAGEMENT OF CASH

Cash is common purchasing power or medium of exchange. As such, it forms the most important component of working capital. The term cash with reference to cash management is used in two senses, in narrow sense it is used broadly to cover cash and generally accepted equivalent of cash such as cheques, draft and demand deposits in banks. The broader view of cash also induce hear- cash assets, such as marketable sense as marketable securities and time deposits in banks. The main characteristics of this deposits that they can be really sold and convert in to cash in short term. They also provide short term investment outlet for excess and are also useful for meeting planned outflow of funds. We employ the term cash management in the broader sense. Irrespective of the form in which it is held, a distinguishing feature of cash as assets is that it was no earning power. Company have to always maintain the cash balance to fulfill the dally requirement of expenses. There are four primary motive for maintain the cash as follow

Motive of holding cash

There are four motives for holding cash as follow1) Transaction motive2) Precautionary motive3) Speculative motive4) Compensating motive

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Transaction motive

Cash balance is necessary to meet day-to-day transaction for carrying on with the operation of firms. Ordinarily, these transactions include payment for material, wages, expenses, dividends, taxation etc. there is a regular inflow of cash from operating sources, thus in case of JISL there will be two-way flow of cash- receipts and payments. But since they do not perfectly synchronize, a minimum cash balance is necessary to uphold the operations for the firm if cash payments exceed receipts. Always a major part of transaction balances is held in cash, a part may be held in the form of marketable securities whose maturity conforms to the timing of anticipated payments of certain items, such as taxation, dividend etc.

Precautionary Motive

Cash flows are somewhat unpredictable, with the degree of predictability varying among firms and industries. Unexpected cash needs at short notice may also be the result of following:

1) Uncontrollable circumstances such as strike and natural calamities.

2) Unexpected delay in collection of trade dues.

3) Cancellation of some order for goods due unsatisfactory quality.

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4) Increase in cost of raw material, rise in wages, etc.The higher the predictability of firm’s cash flows, the lower will be the necessity of holding this balance and vice versa. The need for holding the precautionary cash balance is also

influenced by the firm’s capacity to have short term borrowed funds and also to convert short term marketable securities into cash.

Speculative motive:

Speculative cash balances may be defined as cash balances that are held to enable the firm to take advantages of any bargain purchases that might arise.While the precautionary motive is defensive in nature, the speculative motive is aggressive in approach.However, as with precautionary balances, firms today are more likely to rely on reserve borrowing power and on marketable securities portfolios than on actual cash holdings for speculative purposes.

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ANALYSIS OF WORKING CAPITAL MANAGEMENT

OBJECTIVES OF THE STUDY

To study the various proportions of working capital of Bajaj steel industries.

To find out different ratios related with working capital.

To check the impact of cash flows on working capital of Bajaj steel industries.

To know the current trend of Assets and Liabilities.

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INTRODUCTION

Ratio analysis is the powerful tool of financial statements analysis. A ratio is define as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things”. The absolute figures reported in the financial statement do not provide meaningful understanding of the performance and financial position of the firm. Ratio helps to summaries large quantities of financial data and to make qualitative judgment of the firm’s financial performance

ROLE OF RATIO ANALYSIS

Ratio analysis helps to appraise the firms in the term of there profitability and efficiency of performance, either individually or in relation to other firms in same industry. Ratio analysis is one of the best possible techniques available to management to impart the basic functions like planning and control. As future is closely related to the immediately past, ratio calculated on the basis historical financial data may be of good assistance to predict the future. E.g. On the basis of inventory turnover ratio or debtor’s turnover ratio in the past, the level of inventory and debtors can be easily ascertained for any given amount of sales.Similarly, the ratio analysis may be able to locate the point out the various arias which need the management attention in order to improve the situation. E.g. Current ratio which shows a constant decline trend may be indicate the need for further introduction of long term finance in order to increase the liquidity position. As the ratio analysis is concerned with

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all the aspect of the firm’s financial analysis liquidity, solvency, activity, profitability and overall performance, it

enables the interested persons to know the financial and operational characteristics of an organization and take suitable decisions.

LIMITATION OF RATIO ANALYSIS

1) The basic limitation of ratio analysis is that it may be difficult to find a basis for making the comparison.

2) Normally, the ratios are calculated on the basis of historical financial statements. An organization for the purpose of decision making may need the hint regarding the future happiness rather than those in the past.The external analyst has to depend upon the past which may not necessary to reflect financial position and performance in future.

3) The technique of ratio analysis may prove inadequate in some situations if there is differs in opinion regarding the interpretation of certain ratio.

4) As the ratio calculates on the basis of financial statements, the basic limitation which is applicable to the financial statement is equally applicable In case of technique of ratio analysis also i.e. only facts which can be expressed in financial terms are considered by the ratio analysis.

5) The technique of ratio analysis has certain limitations of use in the sense that it only highlights the strong or problem arias, it dose not provide any solution to rectify the problem arias

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METHODS OF WORKING CAPITAL ANALYSIS

There are so many methods for analysis of financial statements but BAJAJ STEEL INDUSTRIES LTD used the following techniques:-

Comparative size statements Trend analysis Cash flow statement Ratio analysis

A detail description of these methods is as follows:-

COMPARATIVE SIZE STATEMENTS:-When two or more than two years figures are compared

to each other than we called comparative size statements in order to estimate the future progress of the business, it is necessary to look the past performance of the company. These statements show the absolute figures and also show the change from one year to another.

Benefits of this method to the BSI:-

To indicate the trends, these statements show the change in production, sales, and expenses.

To make the data simple and more understandable.

TREND ANALYSIS:-

To analyze many years financial statements BSI uses this method. This indicates the direction on movement over the long time and help in the financial statements.

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Procedure for calculating trends:-

1. Previous year is taken as a base year.2. Figures of the base year are taken 100.3. Trend % are calculated in relation to base year.

Benefits:-

It is beneficial to find out the long run changes. It is helpful in future forecasting.

CASH FLOW STATEMENT:-

Cash flow statements are the statements of changes in the financial position prepared on the basis of funds defined in cash or cash equivalents. In short cash flow statement summaries the cash inflows and outflows of the firm during a particular period of time.

Benefits for the BTM:-

? To prepare the cash budget? To compare the cash budgets? To show the position of the cash and cash equivalents

RATIO ANALYSIS:-

Ratio analysis is the process of the determining and presenting the relationship of the items and group of items in the statements .According to Batty j. management accounting “Ratio can assists management in its basics functions of forecasting, planning, coordination, control and communication”.

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Benefits of ratio analysis to BTM:-

1. Helpful in analysis of financial statements.2. Helpful in comparative study.3. Helpful in locating the weak spots of the BSI.4. Helpful in forecasting.5. Estimate about the trend of the business.6. Fixation of ideal standards.7. Effective control.8. Study of financial soundness.

Types of ratio:-

Liquidity ratio: They indicate the firm’s ability to meet its current obligation out of current resources.

Current ratio:- Current assets / Current liabilities Quick ratio:- Liquid assets / Current liabilities

Liquid assets =Current assets – Stock -Prepaid expenses

Leverage or Capital structure ratio: This ratio discloses the firm’s ability to meet the interest costs regularly and long term solvency of the firm.

Debt equity ratio:- Long term loans / Shareholders funds or net Worth

Debt to total fund ratio:- Long terms loans/ share holder funds +long term loan

Proprietary ratio:- Shareholders fund/ shareholders

fund+long term loan

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Activity ratio or Turnover ratio: - They indicate the rapidity with which the resources available to the concern are being used to produce sales.

Stock turnover ratio: - Cost of good sold/Average stock

(Cost of good sold= Net sales/ Gross profit,average stock=Opening stock+closing stock/2)

Debtors turnover ratio: - Net credit sales/ Average debtors+Average B/R

Average collection period: - Debtors+B/R /Credit sales per day(Credit sales per day=Net credit sales of the year/365)

Creditors Turnover Ratio: - Net credit purchases/ Average Creditors + Average B/P

Average Payment Period: - Creditors + B/P/ Credit purchase per day.

Fixed Assets Turnover ratio:- Cost of goods sold/Net fixed Assets (Net Fixed Assets = Fixed Assets – depreciation)

Working Capital Turnover Ratio:- Cost of goods sold/ Working Capital

(Working capital= current assets – current liability)

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Profitability Ratios or Income ratios: - The main objective of every business concern is to earn profits. A business must be able to earn adequate profit in relation to the risk and capital invested in it.

Gross profit ratio:- Gross profit / Net Sales * 100(Net sales= Sales – Sales return)

Net profit Ratio:- Net profit / Net sales * 100(Operating Net Profit= operating net profit/ Net Sales *100 or operating Net profit= gross profit – operating expenses)

Operating Ratio: - Cost of goods sold + Operating Expenses/Net Sales * 100

(Cost of goods sold = Net Sales – Gross profit,Operating expenses = office & administration expensesSelling & distribution expenses + discount + bad debtsinterest on short term loans)

Earning per share(E.P.S.) :- Net Profit – dividend on perShare / No. of equity shares

Dividend per share (D.P.S.):- Dividend paid to equity shareHolders / No. of equity shares *100.

Dividend Payout ratio (D.P.):- D.P.S. / E.P.S. *100

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RATIO ANALYSIS

Key Financial Ratios of Bajaj Steel Industries

-------- in Rs. Cr. ---------

Mar '08 Mar '09

Investment Valuation Ratios    Face Value 10.00 10.00Dividend Per Share 2.00 2.00Operating Profit Per Share (Rs) 67.21 122.07Net Operating Profit Per Share (Rs) 851.45 1,041.24Free Reserves Per Share (Rs) 87.54 153.90Bonus in Equity Capital 23.18 23.18

Profitability Ratios    

Operating Profit Margin(%) 7.89 11.72Profit Before Interest And Tax Margin(%) 6.66 9.70Gross Profit Margin(%) 6.72 9.84Cash Profit Margin(%) 4.48 7.49Adjusted Cash Margin(%) 4.48 7.49Net Profit Margin(%) 3.63 6.50Adjusted Net Profit Margin(%) 3.63 6.50Return On Capital Employed(%) 25.44 38.33Return On Net Worth(%) 31.25 41.31Adjusted Return on Net Worth(%) 28.66 35.81Return on Assets Excluding Revaluations 6.78 14.84

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Return on Assets Including Revaluations 6.78 14.84Return on Long Term Funds(%) 30.00 42.57

Liquidity And Solvency Ratios    

Current Ratio 1.22 1.36Quick Ratio 0.86 1.07Debt Equity Ratio 1.57 0.84Long Term Debt Equity Ratio 1.18 0.66

Debt Coverage Ratios    

Interest Cover 3.56 5.84Total Debt to Owners Fund 1.57 0.84Financial Charges Coverage Ratio 4.06 6.73Financial Charges Coverage Ratio Post Tax 3.22 5.34

Management Efficiency Ratios    

Inventory Turnover Ratio 6.00 9.59Debtors Turnover Ratio 11.03 13.45Investments Turnover Ratio 6 9.59Fixed Assets Turnover Ratio 4.5 4.1Total Assets Turnover Ratio 3.32 3.4Asset Turnover Ratio 4.5 4.1     Average Raw Material Holding 48.79 41.97Average Finished Goods Held 8.54 6.45Number of Days In Working Capital 59.7 47.97

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Profit & Loss Account Ratios    

Material Cost Composition 72.61 67.16Imported Composition of Raw Materials Consumed 19.13 18.11Selling Distribution Cost Composition 2.99 1.93Expenses as Composition of Total Sales 10.42 7.16

Cash Flow Indicator Ratios    

Dividend Payout Ratio Net Profit 7.49 3.4Dividend Payout Ratio Cash Profit 5.68 2.64Earning Retention Ratio 91.84 96.08Cash Earning Retention Ratio 93.94 97.05Adjusted Cash Flow Times 4.06 1.76

Mar '08 Mar '09

Earnings Per Share 31.24 68.7Book Value 99.94 166.31

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COMPARATIVE PROFIT & LOSS ACCOUNT

Profit & Loss account of Bajaj Steel Industries

---------- in Rs. Cr. ----------

  Mar '08 Mar '09

  12 mths 12 mths

Income    Sales Turnover 212.21 256.02Excise Duty 24.89 26.95Net Sales 187.32 229.07Other Income 2.28 5.42Stock Adjustments 3.84 -8.33

Total Income 193.44 226.16

Expenditure    Raw Materials 136.02 153.87Power & Fuel Cost 1.38 1.09Employee Cost 7.81 12.52Other Manufacturing Expenses 18.07 13.34Selling and Admin Expenses 9.36 8.92Miscellaneous Expenses 3.73 4.15Preoperative Exp Capitalized 0.00 0.00Total Expenses 176.37 193.89  Mar '08 Mar '09

  12 mths 12 mths

Operating Profit 14.79 26.85

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PBDIT 17.07 32.27Interest 4.07 4.47PBDT 13.00 27.80Depreciation 2.18 4.31Other Written Off 0.00 0.00Profit Before Tax 10.82 23.49Extra-ordinary items 0.03 -0.15PBT (Post Extra-ord Items) 10.85 23.34Tax 3.98 8.23

Reported Net Profit 6.87 15.11

Total Value Addition 40.35 40.02Preference Dividend 0.00 0.00Equity Dividend 0.44 0.44Corporate Dividend Tax 0.07 0.07Per share data (annualized)    Shares in issue (lakhs) 22.00 22.00

Earning Per Share (Rs) 31.24 68.70

Equity Dividend (%) 20.00 20.00Book Value (Rs) 99.94 166.31

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CASH FLOW STATEMENT

Cash Flow of Bajaj Steel Industries

------ in Rs. Cr. ----------

  Mar '08 Mar '09

  12 mths 12 mths

Net Profit Before Tax 10.85 23.34

Net Cash From Operating Activities 12.62 18.22

Net Cash (used in)/from

-5.49 -12.37Investing ActivitiesNet Cash (used in)/from Financing Activities 4.22 -4.14

Net (decrease)/increase In Cash and Cash Equivalents 11.36 1.71

Opening Cash & Cash Equivalents 3.03 14.39

Closing Cash & Cash Equivalents 14.39 16.10

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BALANCE SHEET

Balance Sheet of Bajaj Steel Industries

----------- in Rs. Cr. ----------

  Mar '08 Mar '09

  12 mths 12 mths

Sources Of Funds    Total Share Capital 2.20 2.20Equity Share Capital 2.20 2.20Share Application Money 0.00 0.00Preference Share Capital 0.00 0.00Reserves 19.79 34.39Revaluation Reserves 0.00 0.00

Networth 21.99 36.59Secured Loans 14.00 8.80Unsecured Loans 20.43 21.93

Total Debt 34.43 30.73

Total Liabilities 56.42 67.32  Mar '08 Mar '09

  12 mths 12 mths

Application Of Funds    Gross Block 41.58 55.91Less: Accum. Depreciation 27.11 25.36

Net Block 14.47 30.55Capital Work in Progress 9.23 4.60

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Investments 1.65 1.65Inventories 37.46 27.39Sundry Debtors 18.04 16.02Cash and Bank Balance 3.41 3.30Total Current Assets 58.91 46.71Loans and Advances 6.13 5.56Fixed Deposits 10.98 12.80Total CA, Loans & Advances 76.02 65.07Deffered Credit 0.00 0.00Current Liabilities 42.19 31.42Provisions 2.77 3.13Total CL & Provisions 44.96 34.55

Net Current Assets 31.06 30.52Miscellaneous Expenses 0.00 0.00

Total Assets 56.41 67.32Contingent Liabilities 3.76 1.62Book Value (Rs) 99.94 166.31

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LIMITATION OF STUDY

Following limitations were encountered while preparing this project:

1) Limited data:-This project has completed with annual reports; it just constitutes one part of data collection i.e. secondary. There were limitations for primary data collection because of confidentiality.

2) Limited period:-This project is based on five year annual reports. Conclusions and recommendations are based on such limited data. The trend of last five year may or may not reflect the real working capital position of the company

3) Limited area:-Also it was difficult to collect the data regarding the competitors and their financial information. Industry figures were also difficult to get.

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CONCLUSION

Working capital management is important aspect of financial management. The study of working capital management of Jain Irrigation system ltd. has revealed that the current ration was as per the standard industrial practice but the liquidity position of the company showed an increasing trend. The study has been conducted on working capital ratio analysis, working capital leverage, working capital components which helped the company to manage its working capital efficiency and affectively.

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BIBLIOGRAPHY

FINANCE MANAGER

ASST. MANAGER ACCOUNTS

Annual Report of Bajaj Steel Industries.2007-082008-09

www.bajajngp.com www.studyfinance.com www.google.com www.wikipedia.com

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