Working Capital Management SWATI MAHAJAN

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Analysis of Working CapitalManagement

A study in Bhilai SteelPlant


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A

PROJECT REPORT

ON


-A Study in Bhilai Steel Plant-

Submitted in the partial fulfillment

Of

Master of Business Administration

An integrated plant of SAIL

Steel Authority of India limited

Guided By:- Submitted By:-

Mr,R.C.Shrivastava Swati Mahajan

Manager (F&A) MBA 3rdsem

Bhilai Steel Plant Roll No-1170553
http://www.sail.co.in/index.htm


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CERTIFICATEThis is to certify that the project done on A STUDY OF

ADVERTISING AND SALES PROMOTION HERO MOTO

CORP submitted KD RUNGTA COLLEGE OF SCIENCE AND

TECHNOLOGY, RAIPUR by BHUNESHWAR KUMAR in

partial fulfillment of the requirement for the award of

Degree Bachelor Of Business Administration is a bonafide

work carried out by him under my supervision and

guidance. This work has not been submitted anywhere else

for any degree/diploma. The original work was carried out

during 15-03-2013 to 31-03-2013 in LAXMI AUTO CARE.

Date-


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Name of Guide:-

WAZID KHAN

(Sales Manager)

HERO MOTO CORP

DECLARATION

I, the student of Bachelor of Business Administration, KD

RUNGTA COLLEGE OF SCIENCE AND TECHNOLOGY,

RAIPUR, hereby declare that this project report Study of

Advertising and Sales Promotion- A Study of Hero

Moto Corp prepared, is my original work, which I hadsubmitted in LAXMI AUTO CARE, to my guide Mr. WAZID

KHAN ( Manager SALES department)

All the information and data given in my project are authentic

to the best of my knowledge and taken from reliable sources.


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Date:31.03.2013 BHUNESHWAR KUMAR

Place: DALLI RAJHARA

Counter Sign by Guide

Mr.Wazid khan

Manager (sales)

ACKNOWLEDGEMENT

Every researcher in pursuit of his/her objective collects enormousempirical debt of gratitude to others and I am no exception to it.Completing a task is never one mans effort; it is often the result ofinvaluable contribution of no. of individuals indirect or indirect way in

shaping success on achieving it. Here I take the opportunity to extendmy sincere gratitude to Mr.R.C.Shrivastava (Manager- F&A Dept.)allowing me to experience great work environment in their esteemedorganization at Bhilai Steel Plant, Bhilai.


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BSP:-

Mr. R.C Shrivastava

Manager (F&A)

IIST College MBA Deptt

Dr B.B.Patil (Principal)

Mr. Sanjay Sharma (Project Guide)

Dr R.C.Singh


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PREFACE

Theres a little bit of SAIL in everybodys life.

STEELis the basic framework which has built nations, and it is on

this strength that nation stand apart. This man-made metal has an

extraordinary quality of contributing to every aspect of life while it

keeps the wheels of industry turning. It also lends ever-lasting quality

to all kinds of structure and infrastructure.

SARDAR VALLABH BHAI PATEL

Many students may have done work on this project in different

ways/styles. I have also tried to work on this project in a different

way. It was for the first time I got the opportunity to work in such a

prestigious and well-known organization and things which I have

experienced in my training period are going to help me through out

my life time. I have worked on this project with great enthusiasm and

zeal. I have tried to cover almost all the things, which I have

experienced and learned during the training period. To run a giant

organization each and every department has to play its roleeffectively. In this era of cut-throat competition there is no room for

complacency. Steel is the basic framework which has built nation, it

contributes every aspect of life.

The main goal of my project is the Analysis of Working capital-

A Study ofBhilai Steel Plant Bhilai. It would be my great


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pleasure, if this project can help this company to achieve its goal

higher. This project has been undertaken to study the procedures and

practices followed in Finance and Accounts department. The Finance

& Accounts Department of Bhilai Steel Plant is divided into various

sections and each section specializes in different activities. This report

is prepared on the basis of the extensive study carried out at Finance &

Accounts Department of SAIL, Bhilai Steel Plant.


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TABLE OF CONTENT

Chapter 1: INTRODUCTION..

1-1 Industry Analysis

The Global Steel Industry

1-2 Company Analysis

1-2-1Steel Authority of India Limited (SAIL)

1-2-2 Bhilai Steel Plant (BSP)

1-2-3 Finance & Accounts Departments

1-3 Introduction of F & A Dept

1-3-1 -Organizational Chart of F & A Dept

Chapter 2: ISSUE ANALYSIS ..

Scope of Study

2-1-1 Working Capital

2-1-2 The Investment decision

2-1-3 The financing decision


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2-1-4 Current assets

2-1-5 Analysis of current assets

2-1-6 Current liabilities

2-1-7 Analysis of current liabilities

2-1-8 Working capital management

2-1-9 Amount of working capital

2-1-10 Working capital management of B.S.P

2-1-11 Concept of working capital

2-1-12 Kinds of working capital2-1-13 Determinants of working capital

2-1-14 Working capital cycle

2-1-15 Method of analysis of working capital

2-1-16 Circulation of working capital

2-1-17 Operating cycle

2-1-18 Calculation of operating cycle

Chapter 3 : DATA COLLECTION

3-1-1 Data analysis and interpretation

Chapter 4: RESEARCH

4-1-1 Research Methodology

4-1-2 Research Design

Chapter 5: FINDINGS


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Chapter 6: CONCLUSION

Chapter 7: BIBLOGRAPHY

7-1-1 List of websites

7-1-2 list of books

7-1-3 list of reference

Chapter 1:

INTRODUCTION


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& economic progress. Whether it is construction or industrial goods,

steel is the basic raw material.

Global steel production grew enormously in the 20 th century from a

mere 28 MT at the beginning of the century to 780 MT at the end. That

was the period when the steel industry developed in Western Europe &

the USA followed by the Soviet Union, Eastern Europe & Japan.

However, steel consumption in the developed countries has reached a

high stable level & growth has tapered off.

Attention has now shifted to the developing regions. In the West, steel

referred to as a sunset industry. In the developing countries, the sun is

still rising, for most it is only a dawn. Towards the end of the last

century, growth of steel production was in the developing countries

such as China, South Korea, Brazil & India.

In 2007 World Crude Steel output at 1342.1 Million MT was 5.9% more

than the previous year. (Source: IISI).

China remained the worlds largest Crude Steel producer in 2007 also

(349.4 Million MT) followed by Japan (112.47 Million Metric Tons) &

USA (93.89 Million Metric Tons). India occupied the 8th position (38.08

Million Metric Tons). (Source: IISI).

The International Iron & Steel Institute (IISI) in its forecast for 2007

has confirmed the trend of recent years of increase in steel use in-line

with the economic growth & with the fastest growth occurring in the


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countries with the highest GDP growth such as India & China. Apparent

world-wide Steel Demand is forecast to grow to between1,040 & 1,053

MT in 2008 from a total of 972 MT in 2006. This is a growth of 4-5%

over the two year period. However, according to IISI the cost of raw

material & energy would continue to represent a major challenge for the

world steel industry.

The healthy world economic growth & demand in emerging market

countries, notably in Asia, where major infrastructure projects wereunder way, acted as the key trigger to the significant production rise.

But this trend seems rather transitory. The Organization for Economic

Corporation & Development in November opined, while steel prospects

for 2007 remained relatively sound, on increase in output capacity

especially in Asia, could lead to overproduction & fall in prices.

Some important points regarding Global Steel Industry are

as follows:

During 2007, the world crude steel production reached a level of

1244 Million Tons.

It shows a growth of 9.0% over 2006 crude steel production

level at 1142 Million Tons.

China retained its No.1 position by producing around 422

Million Tons, followed by Japan with production of 116 Million

Tons & USA with production at around 98 Million Tons.

India with production of 44 Million Tons ranked 7 th amongst

world steel producing countries.


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Company Analysis


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STEEL AUTHORITY OF INDIA LIMITED (SAIL)

HISTORY:

Steel Authority of India (SAIL) was established in 1973 to manage the

operations of state-owned steel companies Hindustan Steel (established in

1954) and Bokaro Steel (established in 1964). In 1978, SAIL was restructured

as an operating company.


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

operate the steel plant at Bokaro. The 1 MT phases of Bhilai and Rourkela

completed by the end of December 1961. The 1 MT phase of Durgapur Steel

completed in January 1962 after commissioning of the wheel and axis plant

production of HSL went up from .158 MT (1959-60) to 1.6 MT. T he second

plant was completed in September 1967 after commissioning of the wire of the

1.8 MT phase of Rourkela- the Tandem Mill was commissioned the 1.6 MT

stage of Durgapur Steel Plant was completed in August 1969 the

Furnace in SMS. Thus with the completion of the 2.5 MT stage at Bhilai

and 1.6 MT at Durgapur, the total crude steel production capacity of

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

Key Facts Table No:-1

INTRODUCTION:

Steel Authority of India Limited (SAIL) is the leading steel-

making company in India. It is a fully integrated iron and

steel maker, producing both basic and special steels for


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domestic construction, engineering, power, railway,

automotive and defense industries and for sale in export

markets.

Ranked amongst the top ten public sector companies in India in terms

of turnover, SAIL manufactures and sells a broad range of steel

products, including hot and cold rolled sheets and coils, galvanized

sheets, electrical sheets, structural, railway products, plates, bars and

rods, stainless steel and other alloy steels.

SAIL produces iron and steel at five integrated plants and three special

steel plants, located principally in the eastern and central regions of

India and situated close to domestic sources of raw materials, including

the Company's iron ore, limestone and dolomite mines. The company

has the distinction of being Indias largest producer of iron ore and of

having the countrys second largest mines network. This gives SAIL acompetitive edge in terms of captive availability of iron ore, limestone,

and dolomite, which are inputs for steel making.

The Environment Management Division and Growth Division of SAIL

operate from their headquarters in Kolkata. Almost all our plants and

major units are ISO Certified.

SAIL VISION:

Tobe a respected world-class corporation and leader in India

steel business in quality, productivity, profitability, and

customer satisfaction.


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YEAR TOTAL (Rs./Crs.)2007-2008 21812008-2009 5233

2009-2010 106062010-2011 112802011-2012 11021

M

Much has happened ever since SAILs Corporate Plan was announced in 2004.

Investment plans for the three specialty steel plants have been firmed up.

Company has grown in size with the amalgamation of IISCO (now renamed as

IISCO Steel Plant). Production targets have been revised from 19 million

tonnes (MT) of steel to about 24 MT. Estimated investments has increased

from Rs 25,000 crore to around Rs 40,000 crore. And the time period has been

squeezed by two years, bringing the targeted year of completion of major

projects from 2012 to 2010.

SAILS GROWTH PLAN


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Saleable Steel Capacities (MT)

PLANT 2012

Bhilai Steel Plant 3153

Durgapur Steel Plant 1586

Rourkela Steel Plant 1671

Bokaro Steel Plant 3780

IISCO Steel Plant 314

Alloy Steels plant 0.43

Salem Steel Plant 0.36

Visvesvaraya Iron &

Steel Plant0.22


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Durgapur Steel Plant (DSP) in West Bengal

Rourkela Steel Plant (RSP) in Orissa

Bokaro Steel Plant (BSL) in Jharkhand

IISCO Steel Plant (ISP) in West Bengal

Special Steel Plants

Alloy Steels Plants (ASP) in West Bengal

Salem Steel Plant (SSP) in Tamil Nadu

Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Maharashtra Elektrosmelt Limited (MEL) in Maharashtra

JOINT VENTURES

SAIL has promoted joint ventures in different areas ranging from power

plants to e-commerce.

NTPC SAIL Power Company Pvt. Ltd: A 50:50 joint vnture

between Steel Authority of India Ltd. (SAIL) and National

Thermal Power Corporation Ltd. (NTPC Ltd.),it manages the

captive power plants at Rourkela, Durgapur and Bhilai with a

combined capacity of 314 (MW).

Bokaro Power Supply Company Pvt.Ltd.: This 50:50 joint

venture between SAIL and the Damodar Valley Corporation

formed in January 2002 is managing the 302-MW power


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generation and 1880 tonnes per hour steam generation facilities

at Bokaro Steel Plant.

Mjunction Services Ltd.: A joint venture between SAIL and

TATA Steel on 50:50 basis, this company promotes e-commerce

activities in steel and related areas.

SAIL-Basel Service Center Ltd.: SAIL has formed a joint

venture with BMW industries Ltd. on 40:60 basis to promote a

service center at Bokaro with the objective of adding value o steel.

Bhilai JP Cement ltd.: SAIL has also incorporated a joint

venture company with M/s Jaiprakash Associates Ltd to set up a

@.2 MT cement plant at Bhilai.

SAIL has signed an MOU with Manganese Ore India Ltd (MOIL)

to set up a joint venture company to produce Ferro-manganese at

Bhilai.

North Bengal Dolomite Ltd: A joint venture between SAILand West Bengal Mineral Development Corporation Ltd. on 50:50

basis was formed for development o Jayanti Dolomite

Deposit,Jalpaiguri for supply of dolomite to DSP and other plants.

Romelt_SAIL (India) Ltd.: A joint venture between SAIL,

National Mineral Development Corporation (NMDC) and Russian

promoters for marketing Romelt Technology developed by Russiafor reducing of iron bearing materials, which is carried out with

carbon in single stage reactor with the use of oxygen.

SAIL today is one of the largest industrial entities in India. Its strength

has been the diversified range of quality steel products catering to the


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domestic, as well as the export markets & large pool of technical &

professional expertise.

Ownership and Management

The Government of India owns about 86% of SAIL's equity and retains

voting control of the Company. However, SAIL, by virtue of its

Navratna status, enjoys significant operational and financial

autonomy.

OTHER UNITS:

SAIL Consultancy Division.

Center of engineering & Technology.

Management training Institute.

Safety Organization.

Environmental Management Division.

Raw Material Division.

Growth Division.

Central Power Training Institute.

Central Marketing Organization.

MAJOR CAPITAL SCHEMES:

Bhilai steel Plant:


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Rebuilding of Coke O.

Coke Oven batteries.

Modernization of BFs (including Gas Cleaning Plant).

Installation of new Slab Caster, RH Degasser & Ladle Furnace.

Revamping of existing Slab Casters in phased manner.

New Pipe Plant of 0.2 million tones capacity.

New Bar & Rod Mill ( 1 million tones).

Logistics & Infrastructures.

Durgapur Steel Plant:

Bloom Caster & associated facilities.

Rebuilding of coke oven battery.

Installation of a new Billet Caster.

Up gradation of BFs &CDI (Coal Dust injection) in BFs.

Rourkela Steel Plant:

Rebuilding of Coke Oven battery.

New Blast Furnace-2000m3.

CDI & Reconstruction of BFs.

Revamping of sinter Plant including Pollution Control scheme.

Bokaro Steel Plant:

New 2.5 million tones hot strip mill & 0.6 million tones cold

rolling mill.

Installation of Slab Caster.


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Installation of New modern BOFs.

IISCO Steel Plant:

Modernization of Steel Making Facility.

New Multi purpose section mill/universal mill.

Development of collieries.


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SWOT Analysis of SAIL

STRENGTH

Largest player in the Indian Steel industry.

Strong backward integration like iron ore and power.

Very aggressive expansion plans.

The single largest rail manufacturer in the world.

Merger with IISCO would boost its profitability, as SAIL would

have access to IISCOs underutilized iron ore and coalmines.

All its plants are a profit centers.

SAIL is a virtually Debt-Free Company.

The approved acquisitions and merger of NINL, NISCO and MEL

would result in synergy benefits, operating efficiencies, cost

savings and thus higher profit.

WEAKNESS

Concern in obtaining new mining leases and renewal of old leases.

Low liquidity in Stock Exchange (85.82% shares is held by GOI

itself).

Heavily dependent on import of raw materials (coking coal).


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High cost of energy.

Big ticket investment by POSCO and Mittal could swallow the

market (specifically export). Cyclical nature of Steel Industry.

Deficit infrastructure.

High ash coal.


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main items viz. Hot Metal, Crude Steel and Saleable Steel. BSP is the

first steel plant in India to have crossed the annual production of 5MT

crude steel in the year 2005-06.

In order to meet the challenges of Corporate Plan 2012 and to maintain

the leadership position of BSP in Indian steel industry, the leadership

has taken bold steps to make significant investments for breakthrough

improvements in efficiency, resource management, knowledge and skill

by deploying world class tools. This year is a milestone in BSP journey

when new tools have been introduced viz. ERP, Knowledge

Management, Six Sigma, Multi-skilling etc.

The Organization

Bhilai Steel Plant functions as a unit of SAIL with its corporate office at

New Delhi. SAIL is governed by a Board consisting of function

Directors, Managing Directors and government nominee Directors,

85.62% of the shares of SAIL are with Indian Government and balance

are with financial institutions, mutual funds, Indian Public and others,

Table: Main Products & Expected Market Share 2011-12

Main ProductsCurrent Market

Share

Expected Domestic

Market Share

Rails 100% 100%

Plates 24% 30%

Bars, Rods &

Structural.4.8% 10%

HR Coils / Sheets Nil 6%

Pipes Nil 6%


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corporate office formulate Policies, strategies and overall guidelines for

its unit, central organization like CMO (Central Marketing

Organization) RDCIS (Research and Development Center for Iron &

Steel ) CET ( Center for engineering and Technology ) look after the

relevant activities for the plates under SAIL.

Over the years, Bhilai Steel Plant has developed an organizational

culture that run forces its commitment to values and stimulates

continuous improvements and higher levels of performance. The chiefexecutives at Bhilai is the Managing director (MD) who is in overall

control of the operations of the plant, township and the mines,

Managing Director is assisted by his DROS i.e. the functional heads

(Executive directors/General Manager) concept of Zonal heads and

HODS helps in integrating various functions with clear accountability

for achieving corporate vision, company goals and objectives.

Bsps Organizational Objectives

To encage customer satisfaction through:-

Improvement in productivity and product quality.

Skill enhancement of our people by competence commitment and

culture-building.

Production as per customer requirements.

Table :

PRODUCT-MIX TONNES/ANNU


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M

Semis 5,33,000

Rail & Heavy Structural 7,50,000Merchant Products

(Angles, Channels, Round & TMT bars)5,00,000

Wire Rods (TMT, Plain & Ribbed) 4,20,000

Plates (up to 3600 mm wide) 9,50,000

Total Saleable steel 31,53,000

Captive mines:

Iron-Ore - Dalli-Rajhara Iron Ore Complex, 80 kms from

Bhilai

Limestone - Nandini, 23 kms from Bhilai

Dolomite - Hirri, 150 kms from Bhilai

Rail & Structural Mill: Capacity - 7, 50,000 T

Wire Rod Mill: Capacity - 4, 20,000 T

Product Mix: Saleable Steel Production:


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Major suppliers of Bhilai steel plant:

1. Apollo industrial corporation Mumbai.

2. Ashok Leyland Chennai.

3. BHEL Bhopal and Mumbai.

4. Bharat petroleum gas Nagpur.

5. Birla corporation limited kolkotta.

6. Cimmco Birla limited new Delhi.

7. Dunlop India limited kolkotta.

8. Siemens casting limited Mumbai.


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9. Simplex casting limited Raipur.

10.HMT ltd. Ranchi.

Major buyers:

1. Indian railways.

2. Vizard profiles limited.

3. High pressure boiler plant BHEL Trichy.

4. NTPC super thermal power project.5. Jindal steel and power limited Raigarh.

6. NTPC limited New Delhi.

7. Common India limited Delhi.

8. Chandigarh industrial journalism and development corporation

Chandigarh.

9. Cropro international Italy.

10.Sangyong corporation Japan.

Competitors:

1. Ispat industries limited.

2. Lloyds steel limited.

3. Essar steel limited.

4. Jindal steel and power limited.

5. Jindal strips limited.


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TURNOVER

GM (IT)


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Record production of4.49 Million Tons of Saleable Steel ,

surpassing the previous best of4.43 Tachieved in 10 - 11 and

registering a growth of1.4% over the previous Year.

Production of Total Crude Steel ('000T)

4581.7

5053.7

4798.4

5054.6

5183.5

4000

4240

4480

4720

4960

5200

2006-07 2007-08 2008-09 2009-10 2010-11

Production of Saleable Steel ('000T)

3935.1

4285.64222.9

4428.9

4491.6

3500

3700

3900

4100

4300

4500

2006-07 2007-08 2008-09 2009-10 2010-11


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Record production of 3604.6 Thousand Tonnes Finished

Steel, surpassing the previous best of 3603.1 Thousand

Tonnes in 2009-10.

Lowest ever coke Rate at Blast Furnaces at491.0 Kg/THM,

against previous best of497 Kg/THMin 2007-08.

Production of Finished Rails ('000T)

868.4855.2

880.9

916.1

978.7

700

760

820

880

940

1000

2006-07 2007-08 2008-09 2009-10 2010-11

Coke Rate at BFs ( Kg/THM )

499

497

508.9 509.2

491

490

494

498

502

506

510

2006-07 2007-08 2008-09 2009-10 2010-11


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Lowest ever Specific Water consumption of3.04 M3 /TCS

against previous best of3.06 M3 /TCSin 2007-08 .

Best ever production of430,494 Tons of TMT Bars from

Merchant Mill, surpassing the previous best of417,591 Tons

in 09 -10 , registering a growth of3.1% over previous year.

Spaecific Water Consumption ( M3/TCS )

3.97

3.79

3.19

3.06 3.04

3

3.4

3.8

4.2

4.6

5

2006-07 2007-08 2008-09 2009-10 2010-11


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Best ever production of403,175Tons of TMT Rods from Wire

Rod Mill, surpassing the previous best of277,488Tons in 09 -

10, registering a growth of 45.3% over previous year.

Production of TMT Bars ('000T)Merchant Mill

187.1

156.7

210.6

417.6 430.5

0

100

200

300

400

500

2006-07 2007-08 2008-09 2009-10 2010-11

Production of TMT Wire Rods ('000T)Wire Rod Mill

109.5 107.2 109.8

277.5

403.2

0

100

200

300

400

500

2006-07 2007-08 2008-09 2009-10 2010-11


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Best ever production of 814,805 Tons of UTS-90 Rails,

surpassing the previous best of 791,541 Tons in 09 - 10 ,

registering a growth of2.9% over previous year.

Best ever loading of213,652 Tonnes of26 metre rails and

106,284 Tof130 &260 metre rails, surpassing the previous

best of197,708 Tonnes and101,104 T, respectively in 2009-

10.

NEW PROJECTS:-

A Capital Expenditure exceeding Rs 800 crore was incurred by

BSP during the Financial Year 2010-11.

During the year 2008-09, Turnkey projects of Rs 3959 crore,

projects under Capital Budget of Rs 67.43 crore & projects under

Revenue of Rs 2.87 crore have been signed.

Production of HT (H/S) Plates ('000T)

110106.1

98.2 99.4

122.8

0

30

60

90

120

150

2006-07 2007-08 2008-09 2009-10 2010-11


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Project Website and Online Contract Billing & Accounting System

have been launched.

MAJOR PROJECTS COMPLETED:-

COB-5 (Pkg-I) Battery Proper & Oven Machine.

Slab Caster in SMS-II.

Installation of MSDS-VI.

End Forging Plant for Thick Web in RSM.

ONGOING PROJECTS:-

COB-11, New Coal Handling Plant, CDCP.

Rebuilding of COB-6 (Battery Proper).

Augmentation of Plate Mill capacity.

Basic Oxygen Furnace Shop SMS-III.

MSDS-7.

Compressed Air Station-4.

Ore Handling Plant Plant-A.

Electro Magnetic Stirrer in Bloom Caster in SMS-II.

Implementation of ERP.

Installation of 30 MLD Sewerage Treatment Plant with Recycling

facilities at Township. This will enable recycling of sewerage water

from 10 residential sectors and Indira place Market area for

industrial use.

Hot Metal Desulphurization for SMS-III.


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Installation of MSDS-V.

Up gradation of Nitrogen Network.

6.6 KV Switchgear for Substation 21 of SP-II.

Enabling works for 7 MT expansions.

Repl. Of DN 3000 Blast Furnace Header from BF-1 to BF-6.

Repl. Of Main Drives MG sets by Thyristor Converters at Plate

Mill.

700 TPD (ASU 4) Unit with associated facility at OP-2.

2*150 T capacity in-motions Weigh Bridge in Peripheral Yard 7

Raw Material Station.

SPU at Ujjain, Hoshangabad & Gwalior..

UPCOMING PROJECTS:-

Implementation of Manufacturing Executing System.

Augmentation of Coal Grinding facility for CDI unit at BF-6 & BF-

7.

7 numbers WDS-6 Loco & 1 no WDG-3A Loco.

Installation of 2nd Sinter M/c in Sinter Plant-III (320 m2).

New Blast Furnace 8 (4060 cu m).

Continuous Casting Shop SMS III.

o 2*6 Strand Billet Casters.

o 1*4 Strand Bloom-cum-Billet Casters.

o 183 Strand Beam Blank Caster.

New Bar 7 Rod Mill (0.90 MT Capacity).

New Universal Rail Mill (1.2 MT Capacity).


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Universal Beam Mil (1.0 MT Capacity).

New 2 *1250 TPD Oxygen Plant on BOO basis.


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Finance and

Accounts Department

Of

Bhilai Steel Plant


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Introduction:

Finance and accounts department of Bhilai Steel Plant is one of the key

department in the total organization .it has two main functions i.e.

Finance and Accounts. These functions are carried out by various


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Excise and sales tax section

Central accounts and assets.

ORGANISATIONAL STRUCTURE OF

FINANCE AND ACCOUNT DEPARTMENT OF

BHILAI STEEL PLANT

Bifurcation and coordination of Finance and Accounts

department

Financeand

accountsdepartme

nt

Finance

andaccountsdepartme

nt

Invoicingng

Invoicingng


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Issue

Analysis

SCOPE OF PROJECT

OBJECTIVE

METHODOLOGY

RESEARCH DESIGN


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SCOPE OF PROJECT ;

Working Capital is the capital available for conducting the day-to-day

operations of an organization, normally, the excess of current assets

over current liabilities.

In accounting terms this is a static balance sheet concept referring to

the excess at a particular moment in time of permanent capital plus

long-term liabilities over the fixed assets of the business. As such it

depends on accounting rules, such as what is capital and what is

revenue, what constitutes a retained profit, the cut-off between long

term and short term (12 months from the balance sheet date), and when

revenue should be recognized.

If working capital thus defined exceeds net current operating assets

(stocks plus debtors less creditors) the company has a cash surplus

(usually represented by bank deposits and investments); otherwise it

has a deficit (usually represented by a bank loan and/or overdraft). On


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this basis, therefore, the control of working capital can be sub divided

into areas dealing with stocks, debtors, creditors and cash.

A business must be able to generate sufficient cash to meet its

immediate obligations and therefore continue trading. Unprofitable

business can survive for quite some time if they have access to sufficient

liquid resources, but even the most profitable business will quickly go

under without adequate liquid resources. Working capital is therefore

essential to the companys long-term success and development, and thegreater the degree to which current assets cover the current liabilities,

the more solvent the company. Efficient managing of working capital is

important from the points of view of both liquidity and profitability.

Poor managing of working capital means that the funds are

unnecessarily tied up in idle assets, hence reducing liquidity, and also

reducing the ability to invest in productive assets as plant and

machinery, so affecting the profitability. A companys working capital

policy is a function if two decisions:

~ The appropriate level of investment in, and mix of current assets to be

decided upon, for a set level of activity - this is the investment decision.

~ The methods of financing this investment - the financing. Decision.

The Investment Decision

All businesses, to one degree or another need working capital. The actual

amount of working capital will depend on many factors like age of the firm,

the type of business activity, credit policy and also time of the year. There is no


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permanent base of assets. This has much lower returns but also is much

safer.

Management must be concerned with all aspects of the firms

operations including production of goods and delivery of services, sales

and marketing activities, and supporting functions, such as personal

training and data processing to handle these responsibilities, most firms

make extensive use of financial data and reports. As businesses become

larger and more complex, finance assumed the responsibility of dealing

with problems and decisions associated with managing the firmsassets. Inventories constitute the major element in the working capital

of many business enterprises. For instance, inventories on an average

constitute 60 percent of current assets in public limited companies in

INDIA. It is, therefore, necessary to manage inventories efficiently and

effectively to avoid unnecessary investments in them .Inventories have

a direct Impact on the profits of the firm. Profit is affected by

inventories in several ways. Firstly, too much, or too little inventory

affects the firms rate of return on investment. Secondly, the rate at

which the inventories move through the production on distribution

process also affects the cost of doing business. It is therefore, necessary

to formulate and initiate inventory policies which will serve as guides in

determining the correct level of inventory to maintain and the correct

amount of working capital to invest in inventory. To develop adequate

inventory plan, it is necessary to have thorough knowledge of the

objectives of inventory management and inventory management

techniques. A firm neglecting the management of inventories will be

jeopardizing its long-run profitability and may fail ultimately. It is

possible for a company to reduce its levels of inventories to a


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considerable degree e.g., 10 to 20 percent, without any adverse effect on

production and sales, by using simple inventory planning and control

techniques. The reduction in excessive inventories carries a favorable

impact on company profitability.

Current Assets

It consists of cash of cash, investments, inventory and receivables and

other market securities. Current assets are normally converted into cashwithin a year.

These assets consist of:

1) Cash and bank balance

2) Investments

Government and other trustees securities.

Fixed deposits of banks, which are not earned, marked for any specific

purpose, maturing within one year.

3) Receivables

a) Sundry debtors arising out of sales other deferred receivables.

b) Bills discounted.

c) Investments of deferred receivables due within one year.

4) Inventory


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a) Raw materials and components include those in transit.

b) Stock in process including semi finished goods.

c) Finished goods including goods in transit.

d) Consumable stores and spares.

5)Other Current Assets

a) Advanced payment of tax.

b) Advance for the purpose of raw materials, components and stores.

Total Inventories (in

Rs.crores)

Particulars

Inventories:

2008-

2009

2009-

2010

2010-

2011

2011-

2012

Stores and

Spares570.51 592.19 805.28 717.73

Raw

materials

Stock

484.18 588.77 579.33 667.79

Semi/Finishe

d goods

1828.4

5

1430.9

6

1790.7

4

1725.2

4

Total2883.1

42611.92 3175.35

3110.7

6


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Interpretation

Inventories are a major part of current asset. The inventories has

increased by 21.57% in the year 2010-2011 but for the accounting year

2011-2012 the inventories has decreased by 2.03%.

Total current assets :

(In Crores)

Particular

s

2008-

2009

2009-

2010

2010-

2011

2011-

2012Total

inventorie

s

2883.14 2611.92 3175.35 3110.76

Sundry

debtors

13.42 19.08 13.93 4.36

Cash and

bank

balances

43.14 51.40 54.35 60.39

Other

current

assets

10.81 10.11 8.62 358.90

Loans toOthers

473.74 947.65 1488.03 1575.18

Total 3424.25 3640.16 4740.28 5109.59

Interpretation

There is a nominal increase of 7.80% in the year 2011 - 2012 in current

asset with respect to a increase of 30.22% in the year 2010 - 2011. This


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slow increase is due to decrease of level of inventories by 2.03% in the

year 2011-2021 with respect to year 2010-2011.Although a nominal

increase , but increase in current asset shows the liquidity soundness of

company.

Analysis of current asset.

Inventories-They consist of tangible assets held for sale in business,

for process of production, or currently consumed in the production of

goods or services for sale. Raw materials are basically used in

manufacture of the project, finished goods are final goods for sale and

semi finished goods are goods in process of production.

The constituents of inventory carrying cost are interest, storage,

insurance, physical deterioration and obsolescence. Inventory

procurement also involves ordering cost consisting of number of

deliveries multiplied by the cost of delivery. These two costs make up

the total cost of inventory. The economic order quantity or lot size is to

be found where the total inventory cost is minimal.

Cash-Cash is the important component of current assets, which iskept to meet running expenses and meet expenses and meet

emergencies. It is the most liquid of current assets and its level is

determined by the liquidity of other assets. Cash is kept in the bank

deposits or readily convertible temporary investments.


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d) Interest and other charges accrued but not due for payment.

e) Advance/progress payments from customers

f) Deposits from dealers, selling agents etc.

3)Statutory liabilities:

a) Provident fund dues

b) Provision for tax.

c) Sales taxes, excise etc

4)Miscellaneous current liabilities:

a) Dividends

b) Liabilities for expenses

c) Gratuity payable within one year.

Current Liabilities of B.S.P (In Rs. Crores)

Particulars2008-

2009

2009-

2010

2010-

20112011-2012

Sundry

creditors737.95 1115.78 1212.16 782.62

Security

deposits59.06 63.52 68.59 96.80


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Other

liabilities1730.69 1400.81 1859.27 2180.50

Totalcurrent

liabilities

2527.70 2580.11 3140.02 3059.92

Interpretation

Current liabilities shows company short term debts pay to outsiders. In

the accounting year 2009-2010 the current liabilities decreases by

2.55%

Analysis of Current Liabilities

They comprise of borrowing from banks, trade credits, assessed tax and

unpaid dividends. The share of each constituent to total currentliabilities partly determines the availability of working capital. There is

very little scope of maneuvering current liabilities.

Working Capital Management

It involves the management the administration of current assets

liabilities. It consists of optimizing the levels of current assets in a

partial equilibrium context. Investment in current assets should be

made in such a manner similar to NVP approach used in making

investment decision in fixed assets. Current assets constitute a

continuously fluctuating level of liquid assets that is rapidly

transformed from one form to another.


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The basic goal of working capital management is to ensure that a firm is

able to continue its operations and that it has sufficient ability to satisfyboth maturing short-term debt and upcoming operational expenses.

The management of working capital involves managing inventories,

accounts receivable, accounts payable and cash.

Concept of Working Capital

Gross working capital :It refers to the firms investment in current asset. Current assets are theassets, which can be converted into cash within in an accounting year or

within an operating cycle. You can include here cash, short-termsecurities, debtors (account receivable and book debts), and bills

receivable and stock.

Net working capital:

The net working capital refers to the difference between current assetsand current liabilities. Current liabilities are those claims of outsiders,

which are expect to mature for payment within an accounting year andinclude creditors, bills payable and the outstanding expenses. In otherwords we can say the this is the excess of current assets over currentliabilities.


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NET WORKING CAPITAL

= CURRENT ASSET - CURRENT LIABILITIES

Kinds of working capital:

1. Permanent working capital:

Permanent working capital is the minimum amount of current assets, which is

needed to conduct a business even during the dullest season of the year. The

minimum level of current assets is called permanent or fixed working capital

CURRENT ASSETS CURRENT LIABILITIES

CASH ACCOUNTS

ACCOUNTS RECEIVABLES

NOTES RECEIVABLES

MARKETABLE SECURITIES

INVENTORY

PERPAID EXPENSES

PAYABLE

NOTES PAYABLE

ACCURED EXPENSES

TAXES PAYABLE

SHORT TERM LOANS

BANK OVERDRAFT


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as this part is permanently blocked in current assets. This amount varies from

year to year, depending upon the growth of the company and the stage of the

business cycle in which it operates.

2. Temporary working capital

Temporary working capital represents a certain amount of fluctuations in the

total current assets during a short period. These fluctuations are increased or

decreased and generally cyclical in nature. Additional current assets are

required at different times during the operating year. Variable working capitalis the amount of additional current assets that are required to meet the seasonal

needs of a firm, so is also called as the seasonal working capital.. For ex-

additional inventory will be required for meeting the demand during the period

of high sales when the peak period is over variable working capital starts

decreasing or very little during the normal period.

1


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2

Diagrammatic representation of temporary and variableworking capital.


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REGULAR PAYMENT OF SALARIES,WAGES AND

OTHER DAY TO DAY COMMITMENTS:It leads to the satisfaction

of the employees and raises the morale of its employees,increases their

efficiency,reduces wastage and costs and enhances production and

profits.

EXPLOITATION OF FAVOUABLE MARKET

CONDITIONS:If a firm is having adequate working capital then it can

exploit the favourable market conditions such as purchasing its

requirements in bulk when the prices are lower and holdings its

inventories for higher prices.

ABILITY TO FACE CRISES:A concern can face the situation

during the depression.

QUICK AND REGULAR RETURN ON

INVESTMENTS:Sufficient working capital enables a concern to pay

quick and regular of dividends to its investors gains comfidence of the

investors and can raise more funds in future.

HIGH MORALE: Adequate working capital brings an

environment of securities, confidence, high morale which results in

overall efficiency in a business.


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To maintain the inventories of the raw material, work-in-

progress ,stores and spares and finished stock.

For studying the need of working capital in a business, one as to study

the business under varying circumstances such as a new concern

requires a lot of funds to meet its initial requirements such as

promotion and formation etc. These expenses are called preliminary

expenses and are capitalized .The amount needed for working capital

depends upon the size of the company and ambitions of its promoters.

Greater the size of the business unit, generally larger will be the

requirements of the working capital.

The requirement of the working capital goes on increasing with the

growth and expensing of the business till it gains maturity. At maturitythe amount of working capital required is called normal working

capital.

Determinants of working capital

1. Nature of BusinessThis is one of the main factors. Usually in trading businesses the

working capital needs are higher as most of their investment isconcentrated in stock or inventory. Manufacturing businesses also needa good amount of working capital to meet their productionrequirements. Whereas, those companies that sell services and notgoods, on a cash basis require least working capital because there is norequirement on their part to maintain heavy inventories.


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2. Size of Business

Size of business is another influencing factor. As size increases, the

working capital requirement is also more and vice versa.

3.Credit Terms / Credit Policy

buy on credit and sell on credit, working capital is medium

Credit terms greatly influence working capital needs. If terms are:

buy on credit and sell by cash, working capital is lower

buy on cash and sell on cash, working capital is medium

buy on cash and sell on credit, working capital is higher.

Prevailing trade practices and changing economic condition dogenerally exert greater influence on the credit policy of concern.

a. A liberal credit policyif adopted more trade debtors would resultand when the same is tightened, size of debtors gets slim.

b. Credit periods also influence the size and composition of workingcapital. When longer credit period is allowed to debtors as against theone extended to the firm by its creditors, more working capital isneeded and vice versa.

c. Collection policyis another influencing factor. A stringentcollection policy might not only deter away some credit customers, but

also force the existing customers to be prompt in settling dues resultingin lower level of working capital. The opposite holds well with a liberalcollection policy.

d. Collection procedure also influences the working capital needs. Adecentralized collection of dues from customers and centralizedpayments to suppliers shall reduce the size of working capital.Centralized collections and centralized payments would lead tomoderate level of working capital. But with centralized collections and

decentralized payments, the working capital need would be the highest.


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3.Seasonality

Seasonality of Production

Agriculture and food processing and preservation industries have aseasonal production. During seasons, when production activities are intheir peak, working capital need is high.

Seasonality in supply of raw materials

This also affects the size of working capital. Industries that use rawmaterials which are available during seasons only, have to buy andstock those raw materials. They cannot afford to buy these items in aphased way, since either supplies would get reduced or prices would behigher. Also, from the point of view of quality of raw materials, it paysto buy in bulk during the seasons. Hence the high level of workingcapital needed when season exists for raw materials.

Seasonality of demand for finished goods

In case of products like umbrella, rain-coats and other seasonal items,the demand is high during peak seasons. But the production of theseitems has to be continuous throughout the year to meet the highdemand during peak seasons. Thus, working capital requirement would

be higher.

5.Trade Cycle

Trade cycle refers to the periodic turns in business opportunities fromextremely peak levels, via a slackening to extremely tough levels and


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lower, resulting in further drop in the level of working capital. On theother hand, if laborintensive technology is adopted, less investment in fixed assets and

more investment in current assets which would lead to higherrequirement of working capital.

Working capital cycle


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WORKING CAPITAL OF B.S.P (In Rs.

Crores)

Particulars2008-

2009

2009-

2010

20010-

20112011-2012

Total

current

assets (F)

3424.25 3640.16 4740.28 5109.59

Total

current

liabilities

(G)

2527.70 2580.11 3140.02 3059.92

Working

capital(F-

G=H)

896.55 1060.05 1600.26 2049.67

Interpretation


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Working capital is required to finance day to day operations of a firm.

There should be an optimum level of working capital. It should not be

too less or not too excess. In the company there is increase in working

capital by 28.08% with respect to 2011-2012. The increase in working

capital arises because the company has expanded its business.

Methods of analysis of working capital

Analysis of working is significant for both management and short-termcreditors. Management can assess the efficiency of the workingemployed in the business. Such an analysis helps management to detecttrends and initiate corrective measures. It helps the shareholders and

creditors to determine the prospects of payment of dividend andinterest. The analysis of working capital helps in determining the abilityof the company to repay its current debt promptly, assess theeffectiveness of management of working capital, adequacy of workingcapital and to undertake credit ratings. Analysis of working capitalrelates to an examination of circulation, liquidity, level and structuralaspects of working capital. In analysis of working capital the tools usedare ratio analysis and funds flow analysis of the company.

Ratio analysis

To analyze the current financial position of a company, ratio computedon the basis of the figure appearing in the balance sheet is compared

with norms set for the ratios. Depending upon the purpose, varies ratiosare used. The ratio discussed here relate to liquidity, circulation level

and structure of working capital.


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Liquidity ratios

1. Net working capital to total assets: It is the ratiobetween net working capital and the total assets of a

company

Liquidity ratios of B.S.P.

Net working capital to assets:

1. For (2008-2009) = 896.55 / 3424.25 = 0.26182:1

2. For (2009-2010) = 1060.05 / 3640.16 = 0.29120:1

3. For (2010-2011) = 1600.26 / 4740.28 = 0.3375:1

4. For (2011-2012) = 2049.67 / 5109.59 = 0.4014:1

INTERPRETATION

Liquidity refers to the ability of firm to meet its current obligations as

and when these become due. The short-term obligations are met by

realizing amounts from current, floating or circulating assets. The

current assets should either be liquid or near about liquidity. These

should be convertible in cash for paying obligations of short-term


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nature. The sufficiency or insufficiency of current assets should be

assessed by comparing them with short-term liabilities. If current assets

can pay off the current liabilities then the liquidity position is

satisfactory. On the other hand, if the current liabilities cannot be met

out of the current assets then the liquidity position is bad.

To measure the liquidity of a firm, the followingratios can be calculated:

CURRENT RATIO

QUICK RATIO

ABSOLUTE LIQUID RATIO

1. Current ratio: It is the ratio between a firms current assetsand its current liabilities. it is the most frequently used ratio

also called working capital ratio. It is considered as an index of

solvency of a company. It indicates the ability of a company to

meet its current obligation. Changes in current ratio can be

misleading. If a company raises money through commercial

paper and invests the amount in marketable securities, net

working capital is unaffected but the current ratio changes.


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a) Current Ratio

Current ratio = Current assets

Current liabilities

1. For(2008-2009)=3424.25/2527.70=1.3546:1

2. For (2009-2010) = 3640.16 / 2580.11 = 1.4108:1

3. For (2010-2011)= 4740.28 / 3140.02 = 1.5096:1

4. For (2011-2012) = 5109.59 / 3059.92 = 1.6698:1

INTERPRETATION

As we know that the ideal current ratio for any firm that ideal current

ratio is 2:1.If we see the current ratio of the company for last three

years it is less than the ideal ratio.This signifies that the company

does not have a sound liquidity position.Its current assets is less

than that of its current liabilities.


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These ratio shows that company carries a small amount of cash. But

there is nothing to be worried about the lack of cash because company

has reserve, borrowing power & long term investment. In India, firms

have credit limits sanctioned from banks and can easily draw cash.

Circulation of working capital

An analysis of circulation aspect throws light on the efficiency with which

working capital is being utilized in a firm. Various turnover ratios

covering each component of current assets have been developed to analyze

the efficiency in the use of working capital. The higher the turnover of

these components, the lower will be the need of working capital. The

higher the turnover of these components, the lower will be the need of

working capital. These ratios may be divided into 4 categories as:

Inventory turnover ratios

Receivables turnover ratios

Current assets turnover ratio

Working capital turnover ratio

1. Inventory turnover ratios: Inventory turnover ratio shows the extent of

use of working capital funds in different types of inventory. These ratio

includes-


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Turnover of aggregate inventory:It is obtained bydividing net sales in a year by the value of aggregate inventory at

the end of the year. A high turnover quickens the flow of fundsfrom inventory.

Turnover of current assets: This ratio measures the turnoverof total current assets used in business operations. The ratio is obtained

by dividing cost of goods sold by total current assets. A lower turnover

indicates utilization of working capital.

Current assets turnover ratio:

Sales

Avg.Current Assets


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C.A.T.R =

INTERPRETATION:Funds are invested in various assets in business to make sales and earn

profits. The efficiency with which assets are managed directly affects the

volume of sales. The better the management of assets, large is the

amount of sales and profits.

Current assets movement ratios measure the efficiency with which a

firm manages its resources. These ratios are called Turnover Ratios

because they indicate the speed with which assets are converted or

turned over into sales.

Year Openingbalance

Closingbalance

Averagecurrentassets

Sales Currentasset

turnoverratio

2008-2009

2259.79 3424.25 2842.02 16452.02 5.78times

2009-2010 3424.25 3640.16 3532.205 15069.41 4.26times

2010-2011

3640.16 4740.28 4190.22 16181.90 3.86Times

2011-2012

4740.28 5109.59 4924.935 17108.89 3.47Times


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Or

= Net sales/Average inventory.

Inventory Conversion Period

INTERPRETATION

This ratio shows how rapidly the inventory is turning in to receivable

through sales.In 2010-2011 the company has low inventory turnover

ratio but in 2011-2012 it has increased to 9.89 times .This shows that

YearOpening

balance

Closing

balance

Average

inventory

Inventory

turnover

ratio

Inventory

holding

period2008-

20091712.90 2883.79 2298.35

6.298

times58 days

2009-

20102883.79 2611.92 2747.85 4.15 times 62 days

2010-

2011

2611.92 3175.35 2893.64 5.02 times 72 days

2011-

20123175.35 3110.76 3143.05 9.89 times 36 days

I.C.P = 360

Inventory Turnover


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Creditors payment period = avg. trade credit

Credit purchase per

NOTE: In B.S.P we do not have debtors and creditors turnover as the

finished goods produced in all the plants of SAIL are directly

transferred to CENTRAL MARKETING ORGANISATION ( C M O)

headquarters were further marketing of these finished goods occurs,

so B.S.P has nothing to do with creditors and debtors.

2) Working capital turnover ratio:

Working capital turnover ratio indicates the velocity of utilization of net

working capital. This ratio indicates the number of times the working

capital is turned over in the course of the year. This ratio measures the

efficiency with which the working capitaland alow ratio indicates

otherwise. But a very high working capital turnover is not a good

situation for any firm.

Working capital = current assets current liabilities


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Working capital turnover ratio:

W.C.T.R = Sales X 100

Working capital

Year Opening

balance

Closing

balance

Average

net W.C.

W.C.Turnove

r ratio2008-

2009

561.47 896.55 729.01 22.56

2009-

2010

896.55 1060.05 978.3 15.40

2010-

2011

1060.05 1600.26 1300.15 12.44

2011-

2012

1600.06 2049.67 1824.97 9.37

Year Current assets (C.A)

Currentliabilities

(C.L.)

Workingcapital

=C.A-C.L

Gross salesto working

capitalratio

2008-2009

3424.25 2527.70 879.55 21.02 times

2009-2010

3640.16 2618.76 951.88 16.67 times

2010-2011 4740.28 3140.08 1600.26 10.11 times

2011-2012 5109.59 3059.92 2049.67 8.35 times


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INTERPRETATION

This ratio indicates low much net working capital requires for sales .In

2011-2012,the ratio is 9.3. Thus this ratio is helpful to forecast the

working capital requirement on the basis of sale.

Operating cycle

There is a difference between current assets and fixed assets in theterms of their liquidity. A firm requires many years to recover the initialinvestment in fixed assets such as plant and machinery or land and

buildings. On the contrary investment in current assets in turned overmany times in a year. Investment in current assets such as inventories

and debtors ( accounts receivable) is realized during the firmsoperating cycle, which is usually less than a year. Operating cycle is thetime duration required to convert resources or inventories into salesand then into cash.

The operating cycle of a manufacturing companyinvolves threephases:

1.Acquisition of resources - such as raw material, labour, power

and fuel etc.

2.Manufacture of the product which includes conversion of

raw material into work in progress into finished goods

3.Sales of the product either for cash or on credit. Credit sales

create account receivable for collection.


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How is the length of an operating cycle determined?

The length of the operating cycle of a manufacturing firm is the

sum of:

i. Inventory Conversion Period (ICP) and

ii. Debtors Conversion Period (DCP)


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Here the inventory conversion period is the total time needed for

producing and selling the product. Typically, it includes:

a) Raw material conversion period (RMCP)

b) Work-in-progress Conversion Period (WIPCP)

c) Finished Goods Conversion Period (FGCP)

Operating Cash Conversion Cycle:

To measure the time taken for the initial cash flows for goods and

services to be realized as cash inflows from sales, the device of he

operating cash conversions cycle is used. Conversion cycle capture the

fact that different components of working capital have different life

expectancies and are transformed to liquidity flows at different rates.

The imbalance between cash inflows and outflows necessitates

investments in current assets. The net cash conversion rate identified

with the help of cash converting cycle has to be finance by workingcapital.

Computation of Operating Cycle

Formulae:

1. RMCP = (RMI*360)/RMC


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2. WICP = (WIPI*360)/COP

3. FGCP = (FGI*360)/COGS

4. DCP = (DRS*360)/Cr. Sales

5. PDP = (CRS*360)/Cr. Purchases

6. GROSS OP. CYCLE = ICP+DCP

7. ICP = RMCP+WIPCP+FGCP

8. NET OP. CYCLE = GOC-PDP

Where RMC is the consumption of raw material.

RMI is the closing stock of raw material inventory.

WIPI is the closing stock of work-in-process inventory.

FGI is the closing stock of finished goods inventory.

COP is the cost of production.

COGS are the cost of goods sold.

Calculation of operating cycle

1. Raw material conversion period = Raw material X360

Raw material

consumption


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2008 2009 2010 2011 2012

(284.73*360)

/4718.58

=21.7

(484.18*360)

/7401.72

=23.5

(588.77*360)

/6400.2

=33.11

(579.33*360)

/7707.16

=27.06

(667.79*360

)/8314.16

=28.91

INTERPRETATIONRaw material conversion period refers to the period in which raw

materials gets converted into finished goods or semi finished goods. The

period has gradually increased to 28.9, which indicates inefficiency in

the management.

1. Work in progress conversion period

= work in progress inventory X

360

Cost of production

Note-In BSP the WIPCP is not calculated, as they dont go for the hot

metal cost.

2. Finished goods conversion period

= finished good conversion period X 360

Cost of goods sold


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2008 2009 2010 2011 2012

(962.42*360)

/9486.45

=36.52

(1828.4*360)

/12097.53

=54.40

(1430.96*360)

/11424.89

=45.08

(1790.74*360)

/12276.26

=52.51

(1725.24*36o)

/13810.77

=44.97

INTERPRETATIONFinished goods conversion period indicates the time or the period in

which finished goods gets converted into sales as cash. The figure shows

an increasing trend till 2011,but for the year 2012 it has decreased

by ,indicating an efficient look of the management on this.

A good co-ordination between raw material conversion period and

finished goods conversion period has to be maintained by the

organization.

3. Debtors conversion period = debtor X 360Credit sales

4. Creditors deferral period = creditors X 360Debit sales

Note- BSP doesnt go for the calculation of DCO AND CDP as both thethings are dealt in corporate office; hence due to this reason workingcapital management is not done in BSP


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A Comparative Study of SAIL, Contribution of

B.S.P in SAIL Profit Financial Accounts

a) UNDERSTANDING PROFIT & LOSS ACOOUNT

PROFIT AFTER TAX (PAT)=Profit before tax-Tax

Particulars SAIL (Rs./Crores) BSP (Rs./Crores)

PBT 5150.87 2714.75

LESS : TAX 1608.15 -

PAT 3542.72 2714.75

INTERPRETATION

The company SAIL has achieved a profit of Rs 3542.72crs (profit after

tax) in SAIL profit the Bhilai Steel Plant comprises for 76% of Profit

contributing the most.

CASH PROFIT=Profit Before Tax (PBT)

+Depreciation

Depreciation is added because it is not actual cash outflow, it is an

appropriation of fund future replacement of old assets with new assets.

DEPRECIATION IS CHARGED AT THE RATE PRESCRIBED

UNDER SCHEDULE XIV OF THE COMPANY ACT,1956

Particulars SAIL (Rs./ Crs. ) BSP (Rs./Crs.)

Profit Before Tax 5150.87 2714.75


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(PBT)

Add: Depreciation 1567.03 321.33

Cash Profit 6717.90 3036.08

INTERPRETATION

Adding depreciation to the profit after tax the cash profit of SAIL is

found to be Rs.6717.90crs.The Bhilai Steel plant alone contributes acash profit of Rs.3036.)8crs. i.e., approximately 45% of the total cash

profit.

OPERATING PROFIT

OPERATING PROFIT = PROFIT BEFORE TAX + INTEREST &

FINANCE CHARGES

Particulars SAIL (Rs. /Crs.) BSP (Rs. /Crs.)

Profit Before Tax

(PBT)

5150.87 2714.75

Add:Int.&Fin.Charges 983.99 262.04

Operating Profit 6134.86 2976.79

GROSS MARGIN

GROSS MARGIN = PROFIT BEFORE TAX + INTEREST +

DEPRECIATION


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Particulars SAIL (Rs./Crs.) BSP (Rs./Crs.)

Profit before Tax

(PBT)

5150.87 2714.75

Add:Int.&Fin.Charges 983.99 262.04

Depreciation 1567.03 321.33

Gross Margin 7701.89 3298.12

PROFITABILITY RATIO

Gross Profit/Margin Ratio = Gross

Margin/turnover*100

Net Profit Ratio = Operating Profit/Turnover*100

Operating Ratio = Operating profit/Turnover*100

Profitability Ratios

Particulars SAIL (Rs./Crs.) B.S.P (Rs./Crs.)

Turnover (Sales) 44574.87 17108.89

Gross Margin 7701.89 3298.12

Operating Profit 6134.86 2976.79

Profit Before Tax

(PBT)

5150.87 2714.75

Gross Margin Ratio 17.27% 19.27%

Operating Ratio 13.76% 17.40%

Net Profit Ratio 7.95% 15.86%


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INTERPRETATION

As seen in the graph the net profit has decreased year by year.

OBJECTIVE

To ensure a balance between liquidity and profitability.

To ensure proper flow of funds for current operations.

To speed up the flow of fund.

To produce best quality product in minimum cost.

To study and to analyze the various financial statements.


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Facilitating cost and expenditure control with

appropriate data and analysis.

Efficient and effective management of funds throughproper planning and control.

Research methodology

Research in common parlance to a search forknowledge. One can also define research as ascientific and systematic search for pertinentinformation on a specific topic.

Research methodology is a way to systematically solve the researchproblem. Research methodology just does not deal research method butalso consider the logic behind the method. It facilitates the researcher

with reason for evaluating the research problem.

Definition:

According toRedman and Mory Research is systematized effort to gain new knowledge.

According to Clifford Woody

Research comprises defining and redefining problems, formulating

hypothesis or suggested solutions, collecting organizing and evaluating


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It must be flexible enough

o Appropriate and efficiency must lie in the report.

o It should minimize bias and maximize the reality of the data

collected.

The design must be suitable be suitable

Research methodology

Research in common parlance to a search for knowledge. One can alsodefine research as a scientific and systematic search for pertinentinformation on a specific topic.

Research methodology is a way to systematically solve the researchproblem. Research methodology just does not deal research method butalso consider the logic behind the method. It facilitates the researcher

with reason for evaluating the research problem.

Definition:

According toRedman and Mory Research is systematized effort to gain new knowledge.

According to Clifford Woody Research comprises defining and redefining problems, formulating

hypothesis or suggested solutions, collecting organizing and evaluatingdata, making deductions and reaching conclusions and at last carefullytesting the conclusions to determine whether they fit he formulatinghypothesis.

It has also defined as a careful investigation or inquiry especiallythrough search for new fact in any branch of knowledge.


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Research comprises defining research problems, formulates thehypothesis, research design including sample designing, data collection,

analysis of data, interpretation, conclusion on the basic ofinterpretation. Apart from it suggestions and recommendations are alsothe part of research.

The research methodology is through secondary data:

Journals

Plant visit

Personal discussion and interaction

Research design

The formidable problem that follows the task of defining the researchproblem is the design of the research project, popularly known as the research design.To define the term research design it can be said a research design isthe arrangement of conditions for collection and analysis of data in amanner that aims to combine relevance to the research purpose witheconomy in procedure.

In fact the research design is the conceptual structure within whichresearch is conducted, it constitute the blueprint for the collection,measurement and analysis of data. As such the design includes anoutline of what the researcher will do from writing the hypothesis andits operational implications to the final analysis of data.

Features of a good design:

It must be flexible enough


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o Appropriate and efficiency must lie in the report.

o It should minimize bias and maximize the reality of the data

collected.

o The design must be suitable be suitable as per the requirement ofthe case.

Important concept relating to research design:

o Dependent and independent variables.o Extraneous variables.

o Control.o Confounded relationship.o Research hypothesis.o Experimental and non- experimental hypothesis- testing

research.o Experimental and control groups.o Treatment

o Experiments.o Experimental units.

Research design used in this report

Literature research : analysis with the help of available data.

Experience survey: consulting with the experienced officials for aquick summary of the main issue.

FINDINGS


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Findings during undergoing the project work on topic

Analysis of Working Capital with -

A Study in Bhilai Steel Plant.

1. In BSP the coordination among the various sections of the

Finance & Accounts department is very nice, as the Finance &

Accounts department is a big department consisting of near

about 32 sections. It is the work force of the Finance &

Accounts department, which makes it possible.

2. In the BSPs there not to create debtors they generally deal with

first to receive the cash or cheque, and then they supply the

finished material.

3. In the BSPs there working capital management is very good, they

use the MMIS & SAP system to manage the overall activity.

4. During the study I find that their is no huge variation in budgetdecided and the actual one.

5. Bills of store handling contracts and freights payments are not

processed through MMIS. As a result records of these payments

are not available in the system, which makes task tedious and

hence ERP is to be implemented to resolve the problem.

6. Government is not having the commercial approach regarding

the implementation of taxes.

7. The taxation policy is to be made flexible because of which

bulkiness of the work is to be removed.

8. The tendering process time is to be minimized so that the current

market price benefits if any can be availed.


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9. Monthly return filling is not on line process, hence sales and

excise department face problem.

10. Online inventory valuation can be implemented.

11. The departmental policies is to made flexible which leads to

decrease in the work flow process as well as it leads in better

profits.

CONCLUSION

Bhilai Steel Plant a major unit of sail has been generating continuous

profits as compared to previous year with current year. To summaries,

working capital at a plant level, this mainly involves forecasting and

monitoring of various components, which is done systematically.

Where by major portions of receivables are managed by central

marketing organization for all plants level. Other important

components of working capital are bill payables and borrowings of

funds monitored by corporate level.

Finance Department of Bhilai Steel Plant and various individual units

decides the amount of funds requirement during the preparation of

operation budget, and then requirement of fund

Documents

Working Capital Management SWATI MAHAJAN