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STATEMENT OF WORKING CAPITAL AT RSP
(Rs. In Lakhs)
PARTICULAR 31-3-07 31-03-08 31-03-09 31-3-10 31-3-11
A.CURRENT ASSETS:-
Cash and bank balances
Raw materials
Stores and spares
Finished and semi-finished products
Sundry debtors
Loans & advances
Other current assets/Interest receivable/accrued
2066
17331
30064
39618
1166
24315
158
2244
22547
37600
62709
1332
25724
141
2400
21015
32704
47950
3231
26733
126
2577
25658
30278
80325
1592
37112
106
TOTAL C.A.
B.CURRENT LIABILITIES AND PROVISIONS:-
Sundry creditors
Security & other deposits
Others current liabilities
Provisions(Excl. Leave encashment, Gratuity, Medical benefits)
Advances from customers/others
44024
3325
18305
93967
1554
60228
4377
17671
138372
4335
124734
5604
20054
107030
1325
111265
6445
22955
106116
924
1
TOTAL C.L.
NET WORKING CAPITAL (A-B)
NOTES:
Items of capital account have been excluded.
Current liabilities also exclude provision for gratuity, leave encashment, retirement benefits.
Fig-1 Current assets and current liabilities
Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Total C.A 72710 96512 114208 114718 152297 193349
Total C.L 45126 47046 56459 86687 119440 119613
2
Statement change in working capital
(2004-2005 to 2005-2006) Rs. In Lakhs
Particular 2004-2005 Rs.
2005-2006 Rs.
Effect on Working capitalIncrease Rs.
Decrease Rs.
Current Assets: Cash and bank balance
Raw Material
Stores and Spares
Finished products
Sundry Debtors
Loan & Advance
Other Current Assets
Total Current Assets
Current Liabilities:
Sundry Creditor
Security deposits
Other Liabilities
Provision
Total Current Liabilities
Working Capital
1575
12232
16656
21156
1244
19593
254
72710
23889
3450
12735
5052
45126
27584
1722
12261
20208
39342
1460
21272
247
96512
23304
2708
16077
4957
47046
49466
147
29
3552
18186
216
1679
585
742
95
7
3342
3
(C.A-C.L)
Net Increase In Working Capital 21882 21882
49466 49466 25231 25231
Interpretation:1. The liquidity position has not brought a significant change as the there is only 147
lakhs increase in cash position.2. The overall inventory level has improved but much improvement is been noticed in the
case of finished goods as it is nearly doubled.3. Better credit policy lead to increase in debtors’ level.4. Good credit standing position of the firm shows increase in loan amount.5. Sundry creditors and security position has fallen.6. Other liability have increased to 26.24%* WORKING CAPITAL HAS SHOWN AN INCREASE WHICH SHOWS A GOOD SOLVENCY POSITION.
4
Statement change in working capital
(2005-2006 to 2006-2007) Rs. In Lakhs
Particular 2005-2006 Rs.
2006-2007 Rs.
Effect on Working capitalIncrease Rs.
Decrease Rs.
Current Assets: Cash and bank balance
Raw Material
Stores and Spares
Finished products
Sundry Debtors
Loan & Advance
Other Current Assets
Total Current Assets
Current Liabilities:
Sundry Creditor
Security deposits
Other Liabilities
Provision
Total Current Liabilities
1722
12261
20208
39342
1460
21272
247
96512
23304
2708
16077
4957
47046
1879
17456
27867
42433
1296
23094
183
114208
29223
3272
15958
8006
56459
157
5195
7659
3091
1822
119
164
64
5919
564
3049
5
Working Capital (C.A-C.L)
Net Increase In Working Capital 8283
49466
8283
57749
57749 57749 18043
18043
Interpretation:1. A little increase in the cash position is seen like the previous year.2. Raw materials, stores and spares and finished goods level have increased.3. Other liabilities have shown an increase of about 8.56%4. Sundry creditors have increased due to increase in raw materials and stores and
spare even which shows that the purchase has been more or less on credit.5. Provisions has also increased nearly 61.51%
* WORKING CAPITAL HAS BROUGHT A SMALL RISE.
6
Statement change in working capital
(2006-2007 to 2007-2008) Rs. In Lakhs
Particular 2006-2007
Rs.
2007-2008 Rs.
Effect on Working capitalIncrease Rs.
Decrease Rs.
Current Assets: Cash and bank balance
Raw Material
Stores and Spares
Finished products
Sundry Debtors
Loan & Advance
Other Current Assets
Total Current Assets
Current Liabilities:
Sundry Creditor
Security deposits
Other Liabilities
Provision
Total Current Liabilities
1879
17456
27867
42433
1296
23094
183
114208
29223
3272
15958
8006
56459
2066
17331
30064
39618
1166
24315
158
114718
30794
3325
19859
32709
86687
187
2197
1221
125
2815
130
25
1571
53
3901
24703
7
Working Capital (C.A-C.L)
Net Decrease In Working Capital 29718
57749 28031
29718
57749 57749
33323 33323
Interpretation:1. There is a gradual rise been observed in the level of cash of about 187 lakh.2. The closing stock of raw material and finished goods of this year is low compared to
last year reveals that this year there is decrease in purchase level of raw materials and healthy sales lead decrease in the level of finished goods.
3. As the sales level has increased the company to promote sales employed better cash discounts and trade discounts which lead to rise in the level of debtors.
4. Loans and advances and other current assets have increased to level of 5.28% and 13.67% respectively.
5. Creditors level rise shows that creditor are offering lucrative offers which is been utilized by the company.
6. Provisions have shown a remarkable rise also the security deposits.
THE RISE IN THE CURRENT LIABILITY AMOUNT WAS HIGHER THAN THE RISE IN CURRENT ASSETS LEVEL, WHICH LEADS TO FALL IN WORKING CAPITAL
8
Statement change in working capital
(2007-2008 to 2008-2009) Rs. In Lakhs
Particular 2007-2008
Rs.
2008-2009 Rs.
Effect on Working capitalIncrease Rs.
Decrease Rs.
Current Assets: Cash and bank balance
Raw Material
Stores and Spares
Finished products
Sundry Debtors
Loan & Advance
Other Current Assets
Total Current Assets
Current Liabilities:
Sundry Creditor
Security deposits
Other Liabilities
Provision
Total Current Liabilities
Working Capital
2066
17331
30064
39618
1166
24315
158
114718
30794
3325
19859
32709
86687
28031
2244
22547
37600
62709
1332
25724
141
152297
33684
4377
22006
59373
119440
32857
178
5216
7536
23091
166
1409
17
2890
1052
2147
26664
9
(C.A-C.L)
Net increase In Working Capital 48264826
32857 32857 37596 37596
Interpretation:-1. There is a little increase seen in the cash position like the previous year.2. The closing stock of raw material and finished goods in this year has increased as
compared to last year.3. Loans and advances and Sundry debtor have increased to level of 5.7% and 14.2%
respectively.4. Sundry creditors have increased due to increase in raw materials which compare that
the purchase has been more or less on credit.5. Provisions have shown a remarkable rise also the security deposits.
6. The major contribution towards increase in working capital is due to rise in stock of finished goods.RSP should work on marketing of primary products to clear off the stocks.
THE RISE IN THE CURRENT ASSETS WAS HIGHER THAN THE RISE IN CURRENT LIABILITY LEVEL, WHICH LEADS TO RISE IN WORKING CAPITAL
10
Statement change in working capital
(2008-2009 to 2009-2010) Rs. In Lakhs
Particular 2008-2009
Rs.
2009-2010 Rs.
Effect on Working capitalIncrease Rs.
Decrease Rs.
Current Assets: Cash and bank balance
Raw Material
Stores and Spares
Finished products
Sundry Debtors
Loan & Advance
Other Current Assets
Total Current Assets
Current Liabilities:
Sundry Creditor
Security deposits
Other Liabilities
Provision
Total Current Liabilities
Working Capital
2244
22547
37600
62709
1332
25724
141
152297
33684
4377
22006
59373
119440
32857
2200
30612
31000
101552
1918
26067
0
193349
36184
8812
20671
53946
119613
73736
8065
38843
586
343
1335
5427
44
6600
141
2500
4435
11
(C.A-C.L)
Net increase In Working Capital 4087940879
73736 73736 54599 54599
Interpretation:-1. Cash balance for the present year is expected to fall .
2. Loans and advances and Sundry debtor have increased to level of 1.3% and 43.9% respectively .Rise in debtors shows that company is expecting a rise in sales.
3. Sundry creditors have increased due to increase in raw materials which shows that the purchase has been more or less on credit.
4. Provisions have shown a remarkable rise also the security deposits.
5. Other liabilities and provision is expected to decrease which will amount to increase in working capital.
THE RISE IN THE CURRENT ASSETS WAS HIGHER THAN THE RISE IN CURRENT LIABILITY LEVEL, WHICH LEADS TO INCREASE IN WORKING CAPITAL
COMPARATIVE FINANCIAL RATIOS:
( Rs. In crores)
PARTICULARS AS ON
31.3.05
AS ON
31.3.06
AS ON
31.3.07
AS ON
31.3.08
AS ON
31.3.09
AS ON
31.3.10
(BGT)
12
Sales to Gross Block (%)
Net sales Realisation to Gross sales (%)
Stock of Semi/finished Products to
Turnover (%)
Stock of Semi/Finished products in
number of months’ sales
Net profit to Gross Block (%)
Net profit to Turnover (%)
Net profit to Capital Employed (%)
Current Assets to Current Liabilities
(excl.prov.)
Quick Assets to Current Liabilities
Working Capital to Cost of Sales
Working Capital to Net Block
Working Capital to Turnover
Labour cost to turnover
Cost of Sales to Turnover (%)
Inventories (Opn.) to value of
Production
78.03
86.97
4.47
0.54
17.23
22.08
29.76
1.54
0.45
0.09
0.09
0.06
0.13
64.89
0.12
73.52
73.50
82.68
8.49
1.03
7.88
10.72
13.37
1.93
0.47
0.15
0.15
0.11
0.13
71.97
0.18
86.86
101.18
84.54
6.64
0.08
21.14
20.90
37.58
2.05
0.45
0.14
0.19
0.09
0.12
63.64
0.16
75.18
113.27
84.73
5.36
0.65
21.49
18.98
44.27
1.71
0.39
0.06
0.10
0.04
0.15
65.75
0.14
76.78
115.22
87.37
8.10
0.99
15.05
13.06
32.04
1.76
0.32
0.06
0.12
0.04
0.16
74.20
0.13
84.13
88.82
90.88
14.55
1.75
5.11
5.75
9.23
1.15
.34
.12
.20
.11
.16
85.12
.26
93.66
13
Cost of Production to Value of
Production (%)
Sundry Debtors to Turnover (%)
Gross profit to Capital Employed (%)
Gross Profit to Turnover (%)
Stock of Raw Materials in terms of No.
of months, consumption
Stock of stores & spares in terms of no.
of months, consumption
Stock of Finished /Semi finished
products to cost of sales (%)
0.26
42.03
31.57
1.15
6.68
6.89
0.32
24.45
19.80
0.88
6.54
11.80
0.20
46.63
26.17
0.98
8.12
10.43
0.16
56.40
24.38
0.90
7.47
8.16
0.17
44.63
18.48
0.87
9.19
10.92
.27
20.67
12.89
1.13
8.29
17.10
NOTES:
1. Quick assets represent total current assets excluding inventories and sundry debtor.
2. Provisions have been excluded from current liabilities for calculation of quick ratio.
3. Cost of sales means net sales realization less net profit plus net loss4. Cost of production is net expenses less CMO, HO share, freight, excise duty other
revenue and stock accretion/secretion.
14
LIMITATIONS OF WORKING CAPITAL
Every business concern should have adequate working capital to run its business
operations. It should have neither redundant or excess working capital nor inadequate nor
shortage of working capital. However, out of the two, it is the inadequacy of working capital
which is more dangerous from the point of view of the firm.
Disadvantages of Redundant or Excessive Working Capital
Excessive Working Capital means idle funds which earn no profits for the business
and hence the business cannot earn a proper rate of return on its investments.
It may lead to unnecessary purchasing and accumulation of inventories causing more
chances of theft, waste and losses.
It implies excessive debtors and defective credit policy which may cause higher
incidence of bad debts.
It may result into overall inefficiency in the organization.
When there is excessive working capital, relations with banks and other financial
institutions may not be maintained.
Due to low rate of return on investments, the value of shares may also fall.
It gives rise to speculative transactions.
Disadvantages of Inadequate Working Capital
A concern having inadequate working capital cannot pay its short-term liabilities in
time. Thus it will lose its reputation and shall not be able to get good credit facilities.
It cannot buy its requirements in bulk and cannot avail of discounts, etc.
It becomes difficult for the firm to exploit favorable market conditions.
The firm cannot pay day-to-day expenses of its operations, which increases costs and
reduces the profits of the business.
It becomes impossible to utilize efficiently the fixed assets due to non-availability of
liquid funds.
The rate of return on investments also falls with the shortage of working capital.
15
RECOMMENDATION & SUGGESTIONS
The recommendation and suggestions for effective management of working capital at RSP
are given below:
RSP should set planning standards for stock days, debtor & creditor days.
Install an understanding amongst the staff that working capital management produces
profit.
Inventory management is a great concern for RSP especially stores and spares. The
purchases manager must take certain steps for proper procurement of inventories.
Keep stock levels as low as possible, consistent without not running out of stocks and
not ordering stock in uneconomically small quantities. Just-in-stock management is
fine, as long as it is JIT and never fails to deliver on time.
Short-term credit period availed must be reduced and sundry creditors should be paid
faster.
Proper planning of production should be made and communicated to all the concerned
departments so as to determine the exact need of materials and prevent unnecessary
blockage of useless materials.
Reassess all significant customers periodically. Stop supplying existing customers
who are poor payers. After all RSP is for quality of business rather than quantity of
business.
Plant should be given freedom in deciding the credit policies, cash discount or credit
rating.
16
CONCLUSION
RSP has not only addressed itself to the country’s need for self sufficiency in Steel,
but has also given the country, the technology edge in producing strategic material. Besides
being the leader in the domestic primary steel market excluding the semi-finished products,
RSP has also earned a good name in the domestic market in manufacture of crude steel . With
its consistent track record in capacity utilization, technology absorption, quality assurance
export performance, servicing of loans, internal source generation and posting of profits, RSP
has chartered a course of confidence among its stake holders.
RSP is a well known public sector unit in the Steel sector in India. It shows how a
well managed company achieves the mission of the company and gives much more profit.
Just as circulation of blood is essential in human body for maintaining life like that working
capital is also an important aspect and can be a main contributor to a company’s profit if
managed efficiently.
17
BIBLIOGRAPHY
1. Audited Annual Reports of RSP for the year , 2004,
2005, 2006 and 2007, 2008,2009.
2. BOOKS:
a) Financial Management – I.M.Pandey
b) Management Accounting – R.K.Sharma & S.K.Gupta
c) Financial Management – P.C.Chandra
d) Working Capital Management – V.K.Bhalla
3. WEBSITES:
a) www.google.com
b) www.sail.co.in
18
A
0
20000
40000
60000
80000
100000
120000
Rs in Lakhs
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Year
Total C.A
Total C.L
Statement change in working capital
0
10000
20000
30000
40000
50000
60000
Rs. in Lakhs
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Year
Net W.C
Net W.C
19
2004-05 2005-06 2006-07 2007-080
5
10
15
20
25
Working Capital Turnover Ratio
Ratio
20