A

PROJECT – REPORT ON

STUDY OF

WORKING CAPITAL MANAGEMENT

At

SOUTH EASTERN COALFIELDS LIMITED

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

MASTER OF BUSINESS ADMINISTRATION

Submitted by External Guide

A. SRINIVAS

MBA (2009-11)

CHOUKSEY ENGINEERING COLLEGE

BILASPUR (CHHATTISGARH)
Chapter Particular Page No.
No.
Title Page I
Declaration II
Certificate From Company III
Certificate From Guide IV
Acknowledgement V
1 WORKING CAPITAL
MANAGEMENT
I. Introduction
II. Objectives Of The Study
III. Need And Importance Of Working Capital
IV. Gross W.C And Net W.C
V. Types Of Working Capital
VI. Determination Of Working Capital
VII. Scope & Limitations

2 RESEARCH METHODOLOGY
I. Introduction
II. Type of Research Methodology

3 INTRODUCTION OF COMPANY
I. Company Overview
II. Industrial Overview
III. Literature Overview
4 DATA ANALYSIS
1 Working Capital Size And Analysis
1.1.1 Working Capital Level
1.1.2 Working Capital Trend Analysis
1.1.3 Current Asset Analysis
1.1.4 Current Liabilities Analysis
1.1.5 Change In Working Capital
1.1.6 Operating Cycle
1.1.7 Working Capital Leverage
2 Working Capital Ratio Analysis
2.1.1 Introduction
2.1.2 Role Of Ratio Analysis
2.1.3 Limitation Of Ratio Analysis
2.1.4 Classification Of Ratio
2.1.5 Efficiency Of Ratio
2.1.6 Liquidity Of Ratio
3 Working Capital Component
3.1.1 Receivable Management
3.1.2 Inventory Management
3.1.3 Cash Management
4 Working Capital Finance & Estimation
4.1.1 Introduction
4.1.2 Source Of Working Capital Finance
4.1.3 Working Capital Loan & Interest
4.1.4 Estimation Of Working Capital

5 FINDING, RECOMMENDATION,
CONCLUSION
ANNEXURE
QUESTIONNAIRE
BIBLIOGRAPHY
Total no. of page content in this project
 EXECUTIVE SUMMARY
The project on Working Capital Management has been a very good experience.
Every manufacturing company faces the problem of Working Capital Management
in their day to day processes. An organization‟s cost can be reduced and the profit
can be increased only if it is able to manage its Working Capital efficiently. At the
same time the company can provide customer satisfaction and hence can improve
their overall productivity and profitability.

This project is a sincere effort to study and analyze the

Working Capital Management of SOUTH EASTERN COALFIELDS LIMITED
(SECL). The project was focused on making a financial overview of the company
for the years 2008 to 2010 and ratios & various components of working capital for
the year 2010 in a CMA (Cash Monitoring Arrangement) format emphasizing on
Working Capital.

The internship is a bridge between the institute and the

organization. This made me to be involved in a project that helped me to employ
my theoretical knowledge about the myriad and fascinating facets of finance. And
in the process I could contribute substantially to the organization‟s growth.

The experience that I gathered over the past 45 DAYS has

certainly provided the orientation, which I believe will help me in shouldering any
responsibility in future.
 CHAPTER I

WORKING CAPITAL MANAGEMENT

1) Introduction
2) Need of working capital
3) Gross W.C. and Net W.C.
4) Types of working capital
5) Determinants of working Capital
1.1) INTRODUCTION
Working Capital Management
Working capital management is concerned with the problems arise in attempting to
manage the current assets, the current liabilities and the inter relationship that exist
between them. The term current assets refers to those assets which in ordinary
course of business can be, or, will be, turned in to cash within one year without
undergoing a diminution in value and without disrupting the operation of the firm.
The major current assets are cash, marketable securities, account receivable and
inventory. Current liabilities ware those liabilities which intended at there
inception to be paid in ordinary course of business, within a year, out of the current
assets or earnings of the concern.

The basic current liabilities are account payable, bill payable, bank over-draft, and
outstanding expenses. The goal of working capital management is to manage the
firm‟s current assets and current liabilities in such way that the satisfactory level of
working capital is mentioned. The current should be large enough to cover its
current liabilities in order to ensure a reasonable margin of the safety.

Definition :
According to Guttmann & Dougall-

“Excess of current assets over current liabilities”.

According to Park & Gladson-

“The excess of current assets of a business (i.e. cash, accounts

receivables, inventories) over current items owned to employees and others
(such as salaries & wages payable, accounts payable, taxes owned to
government)”.
1.2) Need of working capital management

The need for working capital gross or current assets cannot be over emphasized.
As already observed, the objective of financial decision making is to maximize the
shareholders wealth. To achieve this, it is necessary to generate sufficient profits
can be earned will naturally depend upon the magnitude of the sales among other
things but sales can not convert into cash. There is a need for working capital in the
form of current assets to deal with the problem arising out of lack of immediate
realization of cash against goods sold. Therefore sufficient working capital is
necessary to sustain sales activity. Technically this
is refers to operating or cash cycle.

If the company has certain amount of cash, it will be

required for purchasing the raw material may be available on credit basis. Then the
company has to spend some amount for labour and factory overhead to convert the
raw material in work in progress, and ultimately finished goods. These finished
goods convert in to sales on credit basis in the form of sundry debtors. Sundry
debtors are converting into cash after expiry of credit period. Thus some amount of
cash is blocked in raw materials, WIP, finished goods, and sundry debtors and day
to day cash requirements. However some part of current assets may be financed by
the current liabilities also. The amount required to be invested in this current assets
is always higher than the funds available from current liabilities. This is the precise
reason why the needs for working capital arise.
1.3) Gross working capital and Net working capital
There are two concepts of working capital management :

1) Gross working capital

Gross working capital refers to the firm‟s investment I current assets. Current
assets are the assets which can be convert in to cash within year includes cash,
short term securities, debtors, bills receivable and inventory.

2) Net working capital

Net working capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders which are expected to
mature for payment within an accounting year and include creditors, bills payable
and outstanding expenses. Net working capital can be positive or negative.
Efficient working capital management requires that firms should operate with
some amount of net working capital, the exact amount varying from firm to firm
and depending, among other things; on the nature of industries. Net working
capital is necessary because the cash outflows and inflows do not coincide.

The cash outflows resulting from payment of current liabilities are relatively
predictable. The cash inflow are however difficult to predict. The more predictable
the cash inflows are, the less net working capital will be required.

The concept of working capital was, first evolved by Karl Marx. Marx used the
term „variable capital‟ means outlays for payrolls advanced to workers before the
completion of work. He compared this with „constant capital‟ which according to
him is nothing but „dead labour‟. This „variable capital‟ is nothing
wage fund which remains blocked in terms of financial management, in work-in-
process along with other operating expenses until it is released through sale of
finished goods. Although Marx did not mentioned that workers also gave credit to
the firm by accepting periodical payment of wages which funded a portioned of
W.I.P, the concept of working capital, as we understand today was embedded in
his „variable capital‟.
1.4) Type of working capital :
The operating cycle creates the need for current assets (working capital). However
the need does not come to an end after the cycle is completed to explain this
continuing need of current assets a destination should be drawn between permanent
and temporary working capital.

1) Permanent working capital

The need for current assets arises, as already observed, because of the cash cycle.
To carry on business certain minimum level of working capital is necessary on
continues and uninterrupted basis. For all practical purpose, this requirement will
have to be met permanent as with other fixed assets. This requirement refers to as
permanent or fixed working capital.

2) Temporary working capital

Any amount over and above the permanent level of working capital is temporary,
fluctuating or variable, working capital. This portion of the required working
capital is needed to meet fluctuation in demand consequent upon changes in
production and sales as result of seasonal changes.

Graph shows that the permanent level is fairly castanet; while temporary working
capital is fluctuating in the case of an expanding firm the permanent working
capital line may not be horizontal.

This may be because of changes in demand for permanent current assets might be
increasing to support a rising level of activity.
1.5) Determinants of working capital
The amount of working capital is depends upon a following
factors :
1) Nature of business
Some businesses are such, due to their very nature, that their requirement of fixed
capital is more rather than working capital. These businesses sell services and not
the commodities and that too on cash basis. As such, no founds are blocked in
piling inventories and also no funds are blocked in receivables. E.g. public utility
services like railways, infrastructure oriented project etc. there requirement of
working capital is less. On the other hand, there are some businesses like trading
activity, where requirement of fixed capital is less but more money is blocked in
inventories and debtors.

2) Length of production cycle

In some business like machine tools industry, the time gap between the acquisition
of raw material till the end of final production of finished products itself is quite
high. As such amount may be blocked either in raw material or work in progress or
finished goods or even in debtors. Naturally there need of working capital is high.

3) Size and growth of business

In very small company the working capital requirement is quit high due to high
overhead, higher buying and selling cost etc. as such medium size business
positively has edge over the small companies. But if the business start growing
after certain limit, the working capital requirements may adversely affect by the
increasing size.

4) Business/ Trade cycle

If the company is the operating in the time of boom, the working capital
requirement may be more as the company may like to buy more raw material, may
increase the production and sales to take the benefit of favorable market, due to
increase in the sales, there may more and more amount of funds blocked in stock
and debtors etc. similarly in the case of depressions also, working capital may be
high as the sales terms of value and quantity may be reducing, there may be
unnecessary piling up of stack without getting sold, the receivable may not be
recovered in time etc.

5) Terms of purchase and sales

Some time due to competition or custom, it may be necessary for the company to
extend more and more credit to customers, as result which more and more amount
is locked up in debtors or bills receivables which increase the working capital
requirement. On the other hand, in the case of purchase, if the credit is offered by
suppliers of goods and services, a part of working capital requirement may be
financed by them, but it is necessary to purchase on cash basis, the working capital
requirement will be higher.

6) Profitability
The profitability of the business may be vary in each and every individual case,
which is in turn its depend on numerous factors, but high profitability will
positively reduce the strain on working capital requirement of the company,
because the profits to the extend that they earned in cash may be used to meet the
working capital requirement of the company.

7) Operating efficiency
If the business is carried on more efficiently, it can operate in profits which may
reduce the strain on working capital; it may ensure proper utilization of existing
resources by eliminating the waste and improved coordination etc.
RATIO ANALYSIS
Introduction of Ratio Analysis
Alexander Wall made the presentation of an elaborate system of ratio analysis in
1919. He criticized the bankers for their lopsided development owing to their
decisions regarding the grant of credit on current ratio alone. Alexander Wall, one
of the foremost proponents of ratio analysis, pointed out that in order to get a
complete picture, it is necessary to consider the other relationship in the financial
statement than current ratio. Since then, more & more types of ratios have been
developed and are used for analysis and interpretation point of view.

Ratio may be defined as “a number expressed in terms of another number.” It

shows relationship of one figure with another figure. It is found by dividing
one number by the other number. It may be expressed as a percentage or in
terms of “times” or proportion or as quotient.

According to Robert N. Anthony “A ratio is simply one number expressed in

term of another”.

Ratio Analysis, therefore, means the process of computing, determining and

presenting the relationship of related items and group of items of the financial
statement.

“The relationship between two accounting figures, expressed mathematically, is

known as financial ratio. Ratio analysis is the process of identifying the financial
strengths and weakness of an enterprise by properly establishing relationships
between the items of the balance sheet and profit and loss account”.

“The essence of financial soundness of a company lies in balancing its goals,

commercial strategy, product market choices and resultant needs. The company
should have financial capability and flexibility to pursue its commercial strategy.
Ratio analysis is a very useful analytical technique to raise pertinent question on a
number of managerial issues. It provides bases or clues to investigate such issues
in detail”.

Ratio analysis is the one of the powerful tools of the financial analysis. “A ratio
can be defined as the indicated quotient of mathematical expression” and as “the
relationship between two or more things”.

Accounting ratios can be expressed in various ways such as: -

i. A pure ratio, say ratio of current assets to current liabilities is 2:1 or,
ii. A ratio, say current assets are two times of current liabilities or
iii. A percentage, say current assets are 200% of current liabilities.
Each method of expression has a distinct advantage over the other. The analyst will
select that method which will best suit his convenience and purpose.

Standard (or Basis) of Comparison of Ratio Analysis: -

The ratio analysis involves comparison for a senseful interpretation of financial

statement. A single ratio in itself does not indicate favourable or unfavourable
condition. It should be compared with some standard. According to Anthony, R.N.
and Reece, J.S. (Management Accounting Principle PP. 260-263), standard of
comparison consist of –

1. Ratio calculated from past financial statement of the same enterprise.

2. Ratio developed using the projected or Performa, financial statements of
the same enterprise.
3. Ratio of some selected enterprise, especially the most progressive and
successesful, at the same point of time, and
4. Ratio of the industry to which the enterprise belongs.
 The easiest way to evaluate the performance of a company is to compare present
or current ratio with the past ratios. If financial ratios over a time are compared, it
is known as the time series or trend analysis. The trend analysis provides an
indication of the direction of change and reflects the performance of an enterprise.

Importance (or Advantage) of Ratio Analysis:-

Ratio analysis is the process of determining and presenting the relationship of
items and group of items in the financial statements. It is an important technique of
financial stability and health of a concern can be judged. The following are the
main points of importance or advantages of ratio analysis:

1. Useful in financial position analysis: - Accounting ratios reveal the

financial position of the concern. This helps the banks, insurance companies and
other financial institutions in leading and making investment decisions.

2. Useful in simplifying accounting figure: - Accounting ratios simplify,

summaries and systematize the accounting figures in order to make them more
understandable and in lucid form. They highlight the inter-relationship, which
exists between various segments of the business as expressed by accounting
statements.

3. Useful in assessing the operational efficiency: - Accounting ratios help

to have an idea of a concern. The efficiency of the enterprise becomes evident
when analysis is based on accounting ratios. They diagnose the financial health by
evaluating liquidity, solvency, profitability etc. This helps the management to
assess financial requirements and the capabilities of various business units.

4. Useful in forecasting purpose: - If accounting ratios are calculated for a

number of years, than a trend is established. This trend helps in setting up future
plans and forecasting. For example, expenses as a percentage of sales can be easily
forecasted on the basis of sales and expenses of the past years.

5. Useful in locating the weak spots of the business: - Accounting ratios

are of a great assistance in locating the weak spots in the business even through the
overall performance may be efficient. Weakness in financial structure due to
incorrect policies in the past or present are revealed through accounting ratio.

6. Useful in comparison of performance: - Through accounting ratios

comparison can be made between one department of an enterprise with another of
the same enterprise in order to evaluate the performance of various departments in
the enterprise. Managers are naturally interested in such comparison in order to
know the proper and smooth functioning of such departments. Ratios also help
them to make any change in the organization structure.

Limitation of Accounting Ratios(or Ratio Analysis) :-

Ratio analysis is very important in revealing the financial position and

soundness of the business or enterprise. Ratio Analysis is very fashionable
these days and useful but it has some limitations also, which restrict its use.
These limitations should be kept in mind while making use of ratio analysis
for interpreting the financial statements. The following are the main
limitations of accounting ratios.

1. False results: - Ratios are based upon the financial statement. In case,
financial statements are incorrect or the data upon which ratios are based
is incorrect, ratios calculated will also be false and defective. The
 accounting system itself suffers from many inherent weaknesses, so the
ratios based upon it cannot be said to be always reliable.

For instance, if inventory value is inflated, not only will one have an
exaggerated view of profitability of the concern, but also of it financial position.
Also the ratios worked out on its basis are to be relied upon.

2. Variation in accounting policies: - Financial results of two enterprises

are comparable with the help of accounting ratios only if they follow the same
accounting policy or bases, comparison will become difficult if they two concerns
follow different policies for providing depreciation, valuation of stock etc.
Similarly, if the enterprises are following different standards and methods, an
analysis by reference to the ratio would be misleading. The ratio of the one firm
cannot always be compared with the performance of other firm, if they do not
adopt uniform accounting policies.

3. Price level changes affect ratios: - The third major limitation of the ratio
analysis, as a tool of financial analysis is associated with price level change. This,
in fact, is a weakness of the Traditional Financial Statements, which are based on
Historical cost. As a result, ratio analysis will not yield strictly comparable and,
therefore, dependable results.

To illustrate, there are two firms, which have identical rates of return on
Investment, say, 15%. But one of these had acquired its Fixed Assets when prices
were relatively low while the other one had purchased them when prices were
high. The result will be that the book value of fixed assets of the former firm would
be lower, while that of the later will be high. From the point of profitability the
Return on Investment of the firm with lower book value are over-stated.
 4. Absence of standard universally accepted terminology: - Different
meanings are given to particular term, such as some firms take profit before
interest and after tax, other may take profit before interest and tax. Bank overdraft
is taken as current liability but some firms may take it is as non-current. The ratios
can be comparable only when both the firms adopt uniform terminology.

5. Ignoring qualitative factors: - Ratio analysis is the quantitative

measurement of the performance of the business. It ignores the qualitative aspect
of the firm, how so ever important it may be. It shows that ratio is only one-sided
approach to measure the efficiency of the business.

6. No single standard ratio: - There in not a single standard ratio, which

can indicate the true performance of the business at all time, and in all
circumstances. Every firm has to work in different situations and circumstances, so
a particular ratio cannot be supposed to be standard for everyone. Strikes, lockouts,
floods, wars, etc. materially affect the performance, so it cannot be matched with
the circumstances in normal days.

7. Misleading results in the absence of absolute data: - In the absence of

actual data, the size of the business cannot be known. If Gross Profit Ratio of two
firms is 25% it may be just possible that the gross profit of one is 2,500 and sales
Rs. 10,000, whereas the gross profit and sales of the other firm is Rs. 5,00,000 and
sales 20,00,000. Profitability of the two firms is the same but the magnitude of
their business is quite different.

8. Window dressing: -Many companies, in order to depict rosy picture of

their business indulge in manipulation. They conceal the material facts and exhibit
false position. It makes the Financial Statements and Ratio Analysis based upon
these statements defective. The process of manipulation includes under statement
of Current Liability, over statement of Current Assets, recording the transaction in
the next financial year, showing the purchases of raw material as purchases of
assets etc. Window dress restricts the utility of ratio analysis.

Types of Ratios and their uses: -

Ratios may be classified in a number of ways keeping in view the particular
purpose. Ratios indicating profitability are calculated on the basis of the Profit and
Loss Account, those indicating financial position are computed on the basis of the
Balance Sheet and those which show operating efficiency or productivity or
effective use of resources are calculated on the basis of figures in the Profit and
Loss Account and the profitability and financial position of the business/company.
To achieve this purpose effectively, ratios may be classified into the following four
important categories:

A. Liquidity Ratio,

B. Leverage Ratio / Solvency Ratio,

C. Activity Ratio / Turnover Ratio,

D. Profitability Ratio.
 LIQUIDITY RATIOS

To study the liquidity position of the concern in order to highlight the relative
strength of the concern in meeting their current obligation liquidity ratios are
calculated. These ratios are used to measure the enterprise‟s ability to meet short-
term obligations. These ratios compare short-term obligation to short-term (or
current) resources available to meet these obligations. From these ratios, much
insight can be obtained about the present cash solvency of the enterprise and the
enterprises ability to remain solvent in the event of adversity. A proper balance
between the two contradictory requirements, i.e. Liquidity and Profitability is
required for efficient financial management. The important liquidity ratios are: -

1. Current Ratio: - This is the most widely used ratio. It is the ratio of Current
Assets to Current Liabilities. It shows an enterprise ability to cover its current
liabilities with its current assets. It is expressed as follows: -

Current Assets

Current Ratio =

Current Liabilities

Generally, Current Ratio of 2:1 is considered ideal for any concern i.e. current
assets should be twice the amount of current liabilities. If the current assets are two
times the current liabilities, there will be no adverse effect on business operations
when current liabilities are paid off. If the ratio is less than 2 difficulties may be
experienced in the payment of current liabilities and day-to-day operations of the
business may suffer. If the ratio is higher than 2, it is very comfortable for the
creditors but, for the concern, it indicates accumulation of idle funds and a lack of
enthusiasm for work. However this standard of 2:1 is only quantitative and may
differ from industry to industry.

2. Liquid or Acid Test or Quick Ratio: - This is the Ratio of Liquid Assets
to Liquid Liabilities. It shows an enterprises ability to meet current liabilities with
its most liquid (quick assets). It is expressed as follows: -

Quick Assets

Liquid Ratio =

Current Liabilities

(Quick Assets = Current Assets – Inventory or Stock)

The quick ratio of 1:1 ratio is considered ideal ratio for a concern because it is wise
to keep the liquid assets at least equal to the liquid liabilities at all time. Liquid
assets are those assets, which can be readily converted into cash and will include
cash balance, bills receivable, sundry debtors, and short-term investments.
Inventories and prepaid expenses are not included in liquid assets because the
emphasis is on the ready availability of cash in case of liquid assets. Liquid
liabilities include all items of current liabilities except bank overdraft. This ratio is
the “acid test” of a concerns financial soundness.
3. Super Quick or Absolute liquidity Ratio: - Though receivable are generally
more liquid than inventories, there may be debts having doubt regarding their
realization in time. So, to get idea about the absolute liquidity of a concern, both
receivables and inventories are excluded from current assets and only absolute
liquid assets, such as cash in hand, cash at bank and readily realizable securities are
taken into consideration. Absolute liquidity ratio is computed as follows:

Cash in hand and at bank + short terms marketable securities

Super Quick Ratio =

Current liabilities

Or

Current Assets – Stock – Bills Receivable

Current liabilities – Bank overdraft – Bills Payable

The desirable norm for this ratio is 1:2, i.e., Rs. 1 worth of absolute liquid assets
are sufficient for Rs 2 worth of current liabilities. Even though the ratio gives a
more meaningful measure of liquidity, it is not in much use because the idea of
keeping large cash balance or near cash items has long since been disapproved.
Cash balance yields no return and as such is barren.
4. Cash Ratio: - Since cash is the most liquid assets, a financial analyst may
examine cash ratio and its equivalent to current liabilities. Trade investment or
marketable securities are equivalent of cash; therefore, they may be included in the
computation of cash ratio:

Cash + Marketable Securities

Cash ratio =
Current Liabilities

5. Ratio of inventory to working Capital: - In order to ascertain that there

is no overstocking; the ratio of inventory to working capital should be computed. It
is worked out as follows:

Inventory

Ratio of inventory to working Capital =

Working Capital

Working capital is the excess of current assets over current liabilities. Increase in
volume of sales requires increase in size of inventory, but from a sound financial
point of view, inventory should not exceed amount of working capital. The
desirable ratio is 1:1.
LEVERAGE RATIO / SOLVENCY RATIO
Long term creditors like debenture holders, financial institution etc., are more
concerned with long-term financial strength of an enterprise. The leverage/ capital
structure ratios are very helpful in judging the long-term solvency position of an
enterprise. Leverage ratio may be calculated from the Balance Sheet items to
determine the proportion of debt in total financing. Many variations of these ratios
exist; all these ratios indicate the same thing i.e., the extent to which the enterprise
has relied on debt in financing assets. Leverage ratios are also computed from the
income statement items by determining the extent to which operating profits are
sufficient to cover the fixed charges. The important long-term
solvency/leverage/capital structure ratios are as follows:

1. Debt-Equity Ratio: - This ratio relates debts to equity or owners funds. Here,

Equity is used in a broader sense as net worth (i.e., capital + retained earnings)
while debt normally means long-term interest bearing loans.

Debt (Long-term) Total Debt Outsider fund

Debt-Equity Ratio = Or Or

Equity Net Worth Shareholder fund

External equities are outsiders fund while internal equities represent

shareholders funds. Outsiders‟ fund includes Long-term debt / liabilities.
Shareholders funds or equity consists of preference share capital, equity share
capital, profit & loss a/c (Cr. Balance), Capital reserves, revenue reserves and
reserves representing marked surplus, like reserves for contingencies, sinking
funds for renewal of fixed assets or redemption of debentures etc., less fictitious
 assets. In other words, shareholders funds or equity is equal to Equity share
capital + preference share capital + reserves & surplus etc.

This ratio is very useful for analysis for long-term financial

condition. This ratio signifies the excess of proprietor‟s funds over outsiders‟ funds
and thereby indicates the soundness of the financial / capital structure of the
business enterprise.

2. Proprietary Ratio: -This ratio indicates the relationship between proprietary fund
and total assets. The Proprietary funds include Equity Share Capital, Preference
Share Capital, Revenue, Capital Reserves and accumulated surplus. Total Assets
include Fixed, Current and Fictitious assets.

This ratio is very important for the creditors, because they know the share of
Proprietors Funds in the total assets and satisfy how far their loan is secured. The
higher the ratio, the more safety will be to the creditor. The ratio also shows the
general financial position of the company also. 50% is supposed to be the
satisfactory Proprietary Ratio for the creditors. Less than 50% is the sign of risk for
creditors. The following formula is used to calculate Proprietary Ratio: -

Shareholders funds Proprietor‟s Fund

Proprietary Ratio = Or

Total Tangible Assets Total Assets

(Total Assets = Fixed Assets + Current Assets)

3. Debt Ratio: - Several debt ratios may be used to analyze the long-term solvency
of an enterprise. The enterprise may be interested in knowing the proportion of the
interest bearing debt (also called funded debt) in the capital structure. It may,
therefore, compute debt ratio by dividing total debt by capital employed or net
assets.

Total Debt

Debt Ratio =

Total Debt + Net Worth

4. Capital Employed to Net Worth Ratio: - There is yet another alternative way of
expressing the basic relationship between debt and equity. One may want to know,
how much funds are being contributed together by lenders and owners for each
rupee of the owners contribution. This can be found out by calculating the ratio of
capital employed or net assets or net worth.

Capital Employed

Capital Employed to Net Worth Ratio =

Net Worth

(Capital Employed = Shareholders fund + Long-term liabilities)

 ACTIVITY OR TURNOVER RATIO
These ratios are very important for a concern to judge how well facilities at the
disposal of the concern are being used or to measure the effectiveness with which a
concern uses its resources at its disposal. In short, these will indicate position of
assets usage. These ratios are usually calculated on the basis of sales or cost of
sales and are expressed in integers rather than as a percentage. Such ratios should
be calculated separately for each type of assets. The greater the ratio more will be
efficiency of assets usage. The lower ratio will reflect underutilization of the
resources available at the command of concern. The concern must always plan for
efficient use of the assets to increase the overall efficiency. The following are the
important activity or turnover ratios usually calculated by a concern:

1. Sales to capital Employed (or Capital Turnover) Ratio: - This ratio shows
the efficiency of capital employed in the business by computing how many times
capital employed is turned over in a stated period. The ratio ascertained as follows:

Sales

Sales to capital Employed Ratio =

Capital Employed

(Shareholders Fund +Long-term Liabilities)

The higher the ratio, the greater are the profits. A low capital turnover ratio would
mean that sufficient sales are not being made and profits are lower.
2. Sales to Fixed Assets (or Fixed Assets turnover) Ratio : - This ratio measures

the efficiency of the assets use. The efficient use of assets will generate greater
sales per rupee invested in all the assets of a concern. The inefficient use of the
assets will result in low sales volume coupled with higher overhead changes and
under utilization of the available capacity. Hence the management must strive for
using total resources at optimum level, to achieve higher ratio. This ratio expresses
the number of times fixed assets are being turned over in a stated period. It is
calculated as under:

Sales

Sales to Fixed Assets =

Net Fixed Assets

(Net Fixed Assets = Fixed Assets Less Depreciation)

This ratio shows how well the fixed assets are being used in the business. The
ratio is important in case of manufacturing concern because sales are produced not
only use of current assets but also by amount invested in fixed assets. The higher in
the ratio, the better is the performance. On the other hand, a low ratio indicates that
fixed assets are not being efficiently utilized.

3. Sales to working capital (or Working Capital Turnover) Ratio: - This ratio is

shows the number of times working capital is turnover in a stated period. It is

calculated as below: -

Sales

Sales to working capital Ratio =

Net Working Capital

(Net Working Capital = Current Assets – Current Liabilities)

The higher is the ratio, the lower is the investment in working capital and the
greater are the profits. However, a very high turnover of working capital is a sign
of overtrading which may put the concern into financial difficulties. On the other
hand, a low working capital turnover ratio indicates that working capital is not
efficiently utilized.

4. Total Assets Turnover Ratio: - This ratio is calculated by dividing the net sales
by the value of total assets.

Net Sales

Total Assets Turnover Ratio =

Total Assets

(Total Assets = Net Fixed Assets + Investments + Current Assets)

A high ratio is an indicator of overtrading of total assets while a low ratio reveals
idle capacity. The traditional standard for this ratio is two times.

5. Inventory or Stock Turnover Ratio: - This ratio indicates the number of times
inventory is rotated during the year. It is calculated as follows:

Cost of good sold

Inventory or Stock Turnover Ratio =

Average Inventory

(Average Inventory = (Opening inventory + Closing Inventory)

and Cost of goods sold = Sales – Gross profit )

If only closing inventory data is given and opening inventory data is not available
then the formula will be as follows:

Cost of Good Sold

Inventory Turnover =

Closing Inventory

However, this formula should be applied only when the opening inventory figures
are not available.

The inventory turnover ratio measures how quickly stock is sold. It is really a test
of stock (inventory) management. In general high inventory turnover ratio is good.
Yet a very high inventory turnover ratio requires careful analysis. Because very
high ratio will lower investment in inventory, and lower investment in inventory is
considered to be very dangerous. Similarly, very low inventory turnover is also
dangerous as there will be very heavy amount invested in inventory.

6. Receivable (or Debtors) Turnover Ratio: - Receivable turnover ratio is the

comparison of sales with uncollected amounts from debtors or customers to whom
goods were sold on credit basis. If the enterprise is having a large amount of
debtors, it will have a low ratio. Conversely, with prompt collection from debtors,
the debtor‟s balance will be low and the debtors‟ turnover ratio will be high. In
other words, the debtors or receivable turnover is the test of liquidity of a business
enterprise.

Credit Sales

Debtor Turnover Ratio =

Average Debtors + Average Bills Receivable

If some information, i.e. figures for Credit sales, opening figures of debtors or bills
receivable etc., is not available them the following formula can be used:

Total Sales

Debtor Turnover Ratio =

Debtors + Bills Receivable

It should be noted that the first formula is superior to second formula as the
question of speed of conversion of sales into cash arises only in case of credit
sales.

7. Creditors Turnover (or Accounts Payable) Ratio: - This ratio gives the
average credit period enjoyed from the creditors and is calculated as under:

Credit Purchases

Creditors Turnover Ratio =

Average Account payable

(Average Account Payable = (Average Creditors + Average Bills Payable)

A low ratio indicates that the creditors are not paid in time while a high ratio gives
an idea that the business in not taking full advantages of credit period allowed.
 Profitability Ratio
Profitability is the overall measures of the companies with regard to efficient and
effective utilization of resources at their command. It indicates in a nutshell the
effectiveness of the decision taking by the management from time to time.
Profitability ratios are of at most importance for a concern. These ratios are
calculated to enlighten the end result of business activities, which is the sole
criterion of the overall efficiency of a business concern. The following are the
important profitability ratios:

1. Gross Profit Ratio: - This ratio tells gross profit on trading and is calculated as
under:

Gross Profit

Gross Profit Ratio =

Net Sales

(Gross Profit = Net Profit + Interest + Prior Period Item + Extra Ordinary
Expense –Extra Ordinary Income)

Higher the ratio the better it is, a lower ratio indicates unfavorable trends in the
form of reduction in selling prices not accompanied by proportionate decrease in
cost of goods or increase in cost of production.

A high gross profit margin ratio is a good sign to management or owners. This
high ratio can be due to:

(i) High sales price, cost of good sold remaining constant,

(ii) Lower cost of good sold, sales prices remaining constant,

 (iii) An increase in the proportionate volume of higher margin items.

(iv) A combination of variations in sales prices and costs, the margin widening.

A low gross profit margin ratio may be due to:

(i) Higher cost of goods sold as the enterprise is not getting the raw materials at
lower prices.

(ii) Inefficient utilization of production capacity.

(iii) Over-investment in plant and machinery.

2. Gross Margin Ratio: - This is also known as gross margin. It is calculated by

diving gross margin by net sales. Thus

Gross Margin

Gross Margin Ratio =  100

Net Sales

(Gross Margin = Gross Profit + Depreciation of P/L + Depreciation of Sch

10(SOH) + Extra Ordinary expenses – Extra Ordinary Income)

3. Net Profit Ratio: - This ratio explains per rupee profit generating Capacity of
sales. If the cost of sales is lower, then the net profit will be higher and then we
divide it with the net sales, the result is the sales efficiency. The concern must try
for achieving greater sales efficiency for maximizing the Ratio. This ratio is very
useful to the proprietors and prospective investors because it reveals the over all
profitability of the concern. This is the ratio of net profit after taxes to net sales and
is calculated as follows:
 Net Profit After Tax

Net Profit Ratio =

Net Sales

The ratio differs from the operating profit ratio in as much as it is calculated after
deducting non-operating expenses, such as loss on sale of fixed assets etc., from
operating profit and adding non-operating income like interest or dividends on
investments, profit on sale of investments or fixed assets etc., to such profit.

Higher the ratio, the better it is because it gives idea improved efficiency of the
concern.

4. Operating Expenses Ratio: - It is an important ratio. It explains the changes in

the profit margin ratio. The operating expenses ratio is calculated as follows:

Operating Expenses

Operating Expenses Ratio =  100

Sales

(Operating Expenses = Net sales - Net Profit before Tax )

Note: - Interest on loans will not be included in operating expenses.

A higher operating expenses ratio is not favorable, as it will leave a very small
amount of operating income to meet interest and dividend etc.

Expenses

5. Expenses Ratio =  100

Sales
 6. Return on capital Employed: - This ratio is an indicator of the earning
capacity of the capital employed in the business. This ratio is calculated as
follows:

Operating profit

Return on capital Employed =  100

Capital Employed

(Operating Profit = Profit before interest on long-term borrowings and tax)

Capital Employed = Equity Share Capital + Preference Share Capital +

Undistributed profit + Reserve & Surplus + Long-term Liabilities – Fictitious
Assets – Non-business Assets )

Or

Tangible Fixed Assets and Intangible Assets + Current Assets – Current

Liabilities.

This ratio considered being the most important ratio because it reflects the overall
efficiency with which capital is used. This ratio is a helpful tool for making capital
budgeting decisions; a project yielding higher return is favored.

6. Return on Investment (ROI): - The term investment may refer to total assets
or net assets. The funds employed in net assets are known as capital employed.

Net Assets = Net Fixed Assets + Current Assets – Current Liabilities (excluding
Bank loans) Or

Capital Employed – Net Work + Debt.

 Earning Before Interest and Tax (EBIT)

I. Return on Investment =

Net Assets or Capital Employed

Higher the ratio, better it is.

 CHAPTER II

Research Methodology

1) Introduction
2) Types of research methodology
3) Objective of study
4) Scope and limitations of study
2.1) Introduction
Research methodology is a way to systematically solve the research problem. It
may be understood as a science of studying now research is done systematically. In
that various steps, those are generally adopted by a researcher in studying his
problem along with the logic behind them.

It is important for research to know not only the research method but also know
methodology. ”The procedures by which researcher go about their work of
describing, explaining and predicting phenomenon are called methodology.”

Methods comprise the procedures used for generating, collecting and evaluating
data. All this means that it is necessary for the researcher to design his
methodology for his problem as the same may differ from problem to problem.

Data collection is important step in any project and success of any project will be
largely depend upon now much accurate you will be able to collect and how much
time, money and effort will be required to collect that necessary data, this is also
important step. Data collection plays an important role in research work. Without
proper data available for analysis you cannot do the research work accurately.

2.2) Types of data collection

There are two types of data collection methods available.
 Primary data collection

 Secondary data collection

1) Primary data
The primary data is that data which is collected fresh or first hand, and for first
time which is original in nature. Primary data can collect through personal
interview, questionnaire etc. to support the secondary data.

2) Secondary data collection method

The secondary data are those which have already collected and stored. Secondary
data easily get those secondary data from records, journals, annual reports of the
company etc. It will save the time, money and efforts to collect the data.
Secondary data also made available through trade magazines, balance sheets,
books etc.

This project is based on primary data collected through personal interview of head
of account department, head of SQC department and other concerned staff member
of finance department. But primary data collection had limitations such as matter
confidential information thus project is based on secondary information collected
through five years annual report of the company, supported by various books and
internet sides. The data collection was aimed at study of working capital
management of the company

Project is based on
 Annual report of SECL 2005-06
 Annual report of SECL 2006-07
 Annual report of SECL 2007-08
 Annual report of SECL 2008-09
 Annual report of SECL 2009-10
2.3) 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 cannot
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 SECL.

 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 etc.

 To study the way and means of working capital finance of the SECL.

 To estimate the working capital requirement of SECL.

 To study the operating and cash cycle of the company.

 To examine the effectiveness of working capital management polices with

the help of accounting ratio.

 To evaluation the financial performance of the company.

 To make suggestions for policy makers for effective management of

working capital.
2.4) SCOPE & LIMITATIONS OF THE STUDY
Scope of the study
The scope of the study is identified after and during the study is conducted. The
study of working capital is based on tools like trend Analysis, Ratio Analysis,
working capital leverage, operating cycle etc. Further the study is based on last 5
years Annual Reports of Jain Irrigation Systems Ltd. And even factors like
competitor‟s analysis, industry analysis were not considered while preparing this
project.

Limitations of the 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.
 CHAPTER III

INTRODUCTION OF COMPANY
 INTRODUCTION

Coal has been and shall remain the prime source of commercial energy in India. It

meets nearly 60 % of the total commercial energy requirement of our country. Since

coal India contributed almost 90 % of the coal produced in the country it can be

perceived to be the synonym of Indian coal industry. India is currently the third largest

coal producing country in the world after China & U.S.A. The Coal India has to play a

significant role in shaping the destiny of industries of the nation at large. We

currently witness changes that are sweeping economic & social life of our

country, as well as, that of the world. Products, services and manufacturing goods

or no longer limited to any national boundary but are getting across to countries

where they find acceptance. The liberalization and the economic reforms initiated

in our country, in real earnest, since the mid of 1991,are attempt to bring India in to the

economic main stream of global market. Performance for the competence, if I

may say so, is the key word for any company or corporation. Undoubtedly these

moves effect our life, as well as our thinking.

 History of Coal Industry in India:

Coal and oil are two primary natural fuels. Coal constitutes approximately 85% of
total fossil fuel reserves in the world. The Gondwana coal contributes about 99%
of the country‟s coal resources. They are located in peninsular India and the too in
the southeastern quadrant bounded by 78 E longitudes & 24 N latitude, thus
leaving a major part of country devoid of any coal deposits. The major Gondwana
Coalfields are represented by isolated basins, which occur along prominent present
day rivers viz Damodar, Sone, Mahanadi, and Kanhan & Godavari. The relative
minor resources of tertiary coal are located on the either extremities of peninsular
India.

State and Area wise Coal reserves in India:

S. State name Standard Actual Expected Total % Of

No Reserve Reserve Reserve Reserve Reserve
1 Madhya 7565.50 9258.38 2934.49 19758.37 8.17
Pradesh
2 Chhattisgarh 9570.15 27432.89 4439.06 41442.10 17.14
3 Uttar 765.98 295.82 - 1061.80 0.44
Pradesh
4 Maharashtra 4652.39 2432.18 1992.17 9076.74 3.75
5 Orissa 16910.63 30793.07 14295.56 61999.26 25.64
6 Andhra 8403.18 6158.17 2584.25 17145.60 7.09
Pradesh
7 Assam 314.59 26.83 34.01 375.43 0.16
8 Arunanchal 31.23 40.11 18.89 90.23 0.04
Pradesh
 9 Meghalaya 117.83 40.89 300.71 459.43 0.19
10 Nagaland 3.43 1.35 15.16 19.94 0.01
11 West Bengal 25123.00 10.39
12 Jharkhand 64371.00 26.62
13 North East 864.00 0.36
Total 241786.90 100.00

The mining industry in India is next to agriculture in terms of resource generation and

employment opportunity. Coal mining occupies a major position, contributing nearly

60 % of commercial energy requirement of India, followed by iron-ore,

limestone and bauxite.

Coal has traditionally been a vital input to the industrial heritage of India nearly

200 year ago, in Ranigunj coal field, about 120 miles west of Calcutta. Coal

mining gradually spread to other parts of India as the railway network developed. By

1900, almost 80% of the country's coal production of 6 million tons came from

Jharia and Raniganj coalfields. In 1975 the government consolidated control over

the coal industry by transferring the ownership & management of all nationalized

coalmines to the newly established coal India limited headquarter in Kolkata

Coal India presently contributes 90% of the total coal production in India. It

is the largest public sector in terms of employment to the tune of

636,000 people producing 250 million tons of coal per year. It operates through

eight subsidiaries.
l. ECL - 1975: Eastern coalfield ltd, comprising of the eastern division of

CMAL with head quarter at Burdwan.

2. BCCL - 1975: Bharat Coking Coal Ltd. Comprising of BCCL together with

Sudanidin & Moonidih mines of NCDC with head quarter at Dhanbad.

3. CCL - 1975: Central coalfield ltd, comprising of the central division of CMAL/

NCDC with head quarter at Ranchi.

4. NCL-1986: northern coal field ltd, with its registered office at Israeli (M.P).

5. WCL-1975: western coalfield ltd, with its registered office at Napery

(Maharastra).

6. SECL-1986: southeastern coalfields ltd, comprising of western division of

CMAL with head quarter at Nagpur.

7. CMPDIL-1975: central mining planning & design institute ltd, with head quarter

at Ranchi.

8. MCL-1992: Mahanadi coalfields ltd, with its registered office at Sambalpur

(Orrisa).

All the shares of above-mentioned subsidiaries are held by the President of India

through the holding company of coal industries holds all the shares of above-

mentioned subsidiaries. Coal India currently operates 449 mines & 15 washeries

spread over nine states to produce & beneficent coal for meeting the demand of the

consumers all over the country. 4 major consuming sector i.e. power, steel, railway
 & the organized industrial sector units of varying size numbering about 2000

consume cement. 18% presently consume Seventy five percent of coal. The balance

7% is consumed by a very large no. of consumers viz brick kilns, domestic

consumer etc through coal depots & retail shops.

FORMATION OF COAL INDIA LTD:

Figure: 3 Mono of South Eastern Coal-Field Limited.

With the dawn of independence a greater need for efficient coal production was
felt in the first five-year plan. Coal being the most crucial energy resource, was
considered necessary to expedite development of modernization of the coal
industry. Thus, by the end of 1955-56 our country produced 38.4 million tones.
During the second five-year plan too the coal production was stepped up further to
60 million tonnes per annum. In 1956, National Coal Development Corporation
(NCDC) was formed with 11 collieries belonging to railways as its nucleus. NCDC
was given the task of exploring new coal fields and expediting development of new
coal mines in the out laying coal fields. Subsequently, in the context of
conservation, safety, scientific development of coal reserves, systematic and proper
mining of coking coal and increasing demands from iron and steel industries the
Govt. of India took over all the coking coal mines on 16th of October 1971 and
nationalized them on 1st of May 1972. A company known as Bharat Coking Coal
Ltd. was formed to manage the coking coal mines.

The Objectives of Nationalization were:

1. Planned development of available coal resources.

2. Improvement of safety standards.
3. Ensuring adequate investment for optimal utilization consistent with
growth.
4. Improving the quality of life of the work force.
5. Prohibiting wasteful, selective and slaughter mining.
With the takeover of coking coal mines by the Govt. as mentioned above, the
private coal mine owners stopped capital investment for renewal of
machineries/equipments as well as for the development of new mines. The living
conditions of the miners remained sub-standard. The private mine owners indulged
in unhealthy mining practices including slaughter mining with the sheer objective
of maximizing their short-term gains. For nearly seven to ten years, the non –
cooking mines were owned by the Coal Mines Authority Ltd. and were managed
through three divisions i.e. Eastern, Western and Central Divisions. On 1st Nov.
1975, Coal India Ltd was formed as a Holding Company with its registered office
at 10, Netaji Subhash Road, Calcutta. 700001. BCCL and NCDC were transferred
to CIL. Coal India Ltd has seven coal producing Subsidiary Companies and one
Subsidiary for planning, designing and research.
Figure: 4 Coal India & Its Subsidiaries.

The Head Quarters of Coal India Ltd and its subsidiary companies are as below:

S. No Name of the Company formation Head Quarters

1. Coal India Ltd. (Holding Co.) 1972 Kolkata (West Bengal)
2. Eastern Coal Fields Ltd. 1975 Sanetoria (West Bengal)
3. Bharat Coking Coal Ltd. 1973 Dhanbad (Jharkhand)
4. Central Coal Fields Ltd. 1975 Ranchi (Jharkhand)
5. Western Coal Fields Ltd. 1975 Nagpur (Maharashtra)
6. South Eastern Coal Fields Ltd. 1986 Bilaspur (Chhattisgarh)
7. Northern Coal Fields Ltd. 1986 Singrauli (Madhya
Pradesh)
8. Mahanadi Coal Fields Ltd. 1992 Sambalpur (Orissa)
History of Coal India Limited
The Indian energy sector is largely dependent on coal as the prime source of
energy. After the Indian independence, a greater need for coal production was felt
in the First Five Year Plan. In 1951 a Working Party for the coal industry was set
up, which suggested the amalgamation of small and fragmented producing units.
Thus the idea of a nationalised, unified coal sector was born.
In the pre-nationalised era coal mining was controlled by private owners, and
suffered from their lack of interest in scientific methods, unhealthy mining
practices and sole motive of profiteering. The miners lived in sub-standard
conditions as well. 1n 1956, the National Coal Development Corporation (NCDC)
was formed with 11 collieries with the task of exploring new coalfields and
expediting development of new coal mines.

Factors leading to the nationalisation of Indian coal industry

Nationalisation of the Indian coal industry in the early 1970s was a fall-out of two
events. The first was the oil price shock, which led the country to take up a close
scrutiny of its energy options. A Fuel Policy Committee set up for this purpose
identified coal as the primary source of commercial energy. Secondly, much-
needed investment for growth of this sector was not forthcoming from the private
sector.
Subsequently, in the context of safety, conservation and scientific development, the
Government of India took over all coking coal mines on October 16, 1971 and
nationalised them on May 1, 1972. Bharat Coking Coal Limited (BCCL) was thus
born. Following the state takeover of non-coking coal mines, Coal Mines Authority
Limited (CMAL) was formed in 1973, leading to the formation of a formal holding
company - Coal India Limited – on November 1, 1975.
Timeline
2008 : Coal India accorded „Navratna‟ status
Coal India and four of its subsidiaries NCL, SECL, MCL, WCL
2007 :
accorded „Mini Ratna‟ status
2000 : De-regulation of coal pricing and distribution
Mahanadi Coalfields Limited (MCL) formed out of SECL to manage
1992 :
the Talcher and IB Valley Coalfields in Orissa
Northern Coalfields Limited (NCL) and South Eastern Coalfields
1985 :
Limited (SECL) carved out of CCL and WCL
Coal India Limited formed as a holding company with 5 subsidiaries:
Bharat Coking Coal Limited (BCCL), Central Coalfields Limited
1975 : (CCL), Western Coalfields Limited (WCL), Eastern Coalfields
Limited (ECL) and Central Mine Planning and Design Institute
Limited (CMPDIL).
Non-coking coal nationalised; Coal Mines Authority Limited
1973 : (CMAL) set up to manage these mines; NCDC operations bought
under the ambit of CMAL
Coking coal industry nationalised; Bharat Coking Coal Limited
1972 : (BCCL) formed to manage operations of all coking coal mines of
Jharia Coalfield
National Coal Development Corporation (NCDC) formed to explore
1956 :
and expand coal mining in the Public Sector
1955-56 : Focus on coal industry; capacity up to 38.4 million tonnes
 COMPANY PROFILE

(CIL & SECL)

India is the 3rd largest coal producing country.

Figure: 1 Picture of front wing of SECL head office Bilaspur.

SECL is the largest coal producing company. It is one of the subsidaries of Coal India Ltd. A
government of India undertaking under ministry of coal .SECL, the prime coal company of
Coal India ltd, is having 89 coal mines situated in the sate of Madhya Pradesh and
Chhattisgarh. The coal mines are geographically located at the heart of country in CG and in
M.P. inhabited by simple minded hard working people. Ever since the formation in 1986-87
SECL has exceeded its physical and financial targets. Coal mining is the most prominent
industry in C.G. and in M.P. in terms of employment generation and infrastructure
development. The coal mining areas are spread over from Sarguja and Korba district of C.G.
up to Shadol and Umaria district further North west in M.P. due to opening of coal mines in
these region, rail connection, power supply, telecommunication, other industries etc. have
expanded over the past decades.

South eastern coalfields: A Profile

SECL is the largest coal producing company in the country. It is one of the eight
subsidiaries of CIL (A Govt. undertaking under Ministry of Coal). SECL, Coal
India‟s premier coal company is operating its coal mines in the state of Madhya
Pradesh and Chhattisgarh state which is also geographically located at the heart of
the country. Chhattisgarh and Madhya Pradesh inhabited by simple minded and
hard working tribes with a rich cultural heritage. Chhattisgarh is not only the rice
bowl if India but also rich in mineral resources with coal being the prime mineral
resource that is being exploited commercially for about a century.

STATUS OF CAPTIVE MINE BLOCK IN COMMAND AREA OF SECL

A new area known as Dipka Area has been separated from Gevra Area w.e.f. 1st of
April 2006. Coal mining is the most prominent industry in Chhatisgarh in terms of
employment generation, economic infrastructure development and generation of
revenue for the state and the central Govt. Due to opening of coal mines in this
region, rail connections and power supply lines, roads and tele-communication
have expanded over the past decades and a large number of power houses and
other industries have come up. The coal based industry have in turn generated
multiplier effect in the economy of Chhatisgarh and Madhya Pradesh and the
region has become the most important center of industrial economy of Chhatisgarh
and Madhya Pradesh.

The Statewise, type wise composition of those 90 mines is given in Table below:
Type of Mine Chhattisgarh Madhya Pradesh Total
UG Mines 41 29 70
OC Mines 11 08 19
Mixed Mines 01 - 01
Total 53 37 90

Districts where SECL is spreaded:

MADHYA PRADESH
1. SHAHDOL- Sohagpur area
2. UMARIA- Johilla area
3. ANUPPUR- Hasdeo & j&k area
CHHATTISGARH
1. KORBA- Korba, Gevra & Kusmunda
2. RAIGARH- Raigarh area
3. KOREA- Baikunthpur,Chirimiri & Hasdeo area
4. SURGUJA- Bishrampur & Bhatgaon
5. BILASPUR- SECL HQ.
SECL IS THE LARGEST COAL PRODUCING COMPANY IN INDIA.
SECL OPERATES THROUGH 12 ADMINISTRATIVE AREAS.
SECL HAS 92 MINES.
GEOGRAPHICAL COAL RESERVES 44.838 BILLION TES AS ON 1-01-
2008.
MINING RIGHTS OVER 956.41KM.
ALL RIGHTS OVER 259.85KM.
MISSION OF THE COMPANY-

To produce & market the planned quantity of coal efficiency and economically
with due attention to safety, conservation and quality.

 Optimum utilization of resources with human value.

 To improve the quality of life.
 To treats the employees not as recourses, but as a human.
 Human touch in behavior at work place.
 To enhance the morale of employees though welfare means.

FINANCE DEPARTMENT
Finance department play a major role in any organization. Its main objective to
provide strength and stability to organization. All activities of industries and
concern are fully depending on finance. Therefore, in SECL, all section are
properly arranged and planed. This organization is run by ministry of government
so and this organization is undertaking by SECL.

All plan and procedure of finance is prepared under the authority of SECL. All
sections have one finance department. All fund are decided and polices are making
related to distribution and section of funds.

Finance department of CWS is arranging fund for the each shop which is required
to the fulfill the needs of section of workshop. As per requirement of section fund
is issue by the finance department. Like in planning section fund is issue to
purchase of material, in engine repair shop fund is issue to repair of engine etc.
Financial planning is done annually basis. Generally all financial plans are prepare
with the help of previous year data of each section of shop. Required fund is issue
by the finance manager.

Functions of Finance Department:

1. Construction of bills: This is the main function of Finance department,

under this, the whole project estimation can be done and company makes
necessary fund allocation to those projects.
2. Supply Bill: This section concerned with supply of all necessary inputs
required to the plant.
3. Maintenance Bills: In this, section the whole maintenance of the plant
and machinery.

FINANCE DEPARTMENT CHART

DATA ANALYSIS
 LIQUIDITY RATIO
1. Current Ratio
Current Ratio = Current Assets /Current Liabilities

Rs. In Lakhs

Particulars 2007-08 2008-2009 2009-10

Current Assets 7338.08 8942.38 9395.96
Current Liabilities 5685.49 7038.05 7854.99
Current Ratio 1.29 1.27 1.20

Interpretation : From the above figures it is evident that Current Ratio has
decreased from 1.29 to 1.20. The decrease has been on account of decrease
in Cash and Bank balances and Advances. Ideal Current Ratio is taken as 2:1
however it is quantitative rather than qualitative thus despite the Current
Ratio being less than 2 the company’s liquidity position is sound.
 2. Quick Ratio

Quick Ratio = Quick Assets / Current Liabilities

Particulars 2007-08 2008-2009 2009-10

Quick Assets 6891.45 8448.16 8730.96
Current Liabilities 5685.49 7038.05 7854.99
Current Ratio 1.20 1.20 1.11

Interpretation :
Generally Quick Ratio / Liquid Ratio of 1:1 is considered satisfactorily. As
we can see the company‟s Quick / Liquid Ratio has decreased from 1.20 to
1.11. This decrease is mainly on account of decrease in Cash and Bank
balance and Loan and Advances

This shows sound liquidity position of the company.

 3. Ratio of Inventory To Working Capital

Ratio of Inventory to Working Capital = Inventory / Working Capital

Particulars 2007-08 2008-2009 2009-10

Inventory 518.64 494.24 645.00
Working Capital 1652.59 1904.33 1540.97
Ratio 0.31 0.26 0.42

Interpretation :
Generally the Inventory to Working Capital Ratio less than 1 is considered
satisfactorily. Working Capital has increased from 0.31 in year 2007-08 to 0.42 in
the year 2009-2010, which shows sound working capital position of the company.
 Leverage Ratio
( Solvency Ratios)

1. Debt-Equity Ratio –
Dept-Equity Ratio = Debt/Equity or Net Worth +total debt

Particulars 2007-08 2008-2009 2009-10

Debt 337.30 392.18 314.80
Equity 4459.52 4766.81 5397.65
Debt Equity Ratio 0.08 0.08 0.06

Interpretation :

This ratio reflects share of debt in the Net Worth. The company‟s Ratio of 0.06
indicates a moderate level of debt in the company. Reduction of Debt – Equity
Ratio shows that the company has liquidated its debt in time. The Debt-Equity of
0.06 also shows that the company is mainly relying on shareholders fund for doing
the business.
 2. Proprietary Ratio
Proprietary Ratio = Shareholders Fund / Total Assets

Particulars 2007-08 2008-2009 2009-10

Shareholders 4459.53 4766.81 5397.65
Fund
Total Assets 10847.60 12831.56 13669.15
Proprietary Ratio 0.41 0.37 0.39

Interpretation :
Creditors loan is safe because Proprietary Ratio is 0.39 as against the satisfactory
ratio of 0.5 times.
 3. Debt Ratio –
Debt Ratio = Total Debt / Total Debt + Net Worth

Particulars 2007-08 2008-2009 2009-10

Total Debt 337.30 392.18 314.80

Total Debt + 4796.82 5158.99 5712.45

Net Worth
Debt Ratio 0.07 0.07 0.05

Interpretation :
This ratio reflects share of debt in the Capital Employed. The company‟s ratio of
0.05 in 09-10 indicates a low level of Debt in the company. Reduction of Debt
Ratio from 0.07 in 09-10 to 0.05 in 09-10 shows that the company is continuously
relying on own funds.
 4. Capital Employed to Net Worth Ratio
Capital Employed to Net Worth Ratio = Capital Employed / Net Worth

Particulars 2007-08 2008-2009 2009-10

Capital Employed 3814.60 4380.28 4360.76
Net Worth 4459.52 4766.81 5397.65
0.86 0.92 0.81

Interpretation :
This shows that as on 31st March 2010 for every rupee of owner‟s contribution. Re
0.81 is contributed together by Lenders and Owners. This reflects that the company
is not dependent on borrowed capital.
 Activity Turnover Ratio
1. Sales to Capital Employed ( Capital Turnover Ratio)

CTR = Net Sales / Capital Employed

Particulars 2007-08 2008-2009 2009-10

Net Sales 7181.59 8485.67 9371.56
Capital Employed 3814.60 4380.28 4360.76
Capital Turnover 1.88 1.94 2.15
Ratio

Interpretation :

This Ratio ensures whether the capital employed has been effectively used or not.
The increase in the ratio to 2.15 in 09-10 from 1.94 in 08-09 shows better
utilization of resources in the year 09-10.
 2. Fixed Assets Turnover Ratio –

FA Turnover Ratio = Sales / Net FA

particulars 2007-08 2008-2009 2009-10

Sales 7181.60 8485.67 9371.57
Net Fixed Assets 2162.01 2475.95 2819.78
FA Turnover 3.32 3.48 3.32
Ratio

Interpretation :
As we know in case of Sales to Fixed Assets Ratio that the higher the ratio the
better in the performance. From the above data there is decrease in ratio from 3.48
to 3.32. This means that the utilization of fixed assets is very ineffective.
 3. Working Capital Turnover Ratio –

WCT Ratio = Sales / Working Capital

particulars 2007-08 2008-2009 2009-10

Sales 7181.59 8485.67 9371.57
Working Capital 1652.59 1904.33 1540.97
WCT Ratio 4.35 4.46 6.08

Interpretation :
This shows that the company could manage to achieve better result in 08-09 with
less Working Capital. This above ratio also shows that during the year 09-10 the
company could utilize its resources in the better way it is utilized in 08-09.
 4. Total Assets Turnover Ratio –

Total Assets Turnover Ratio = Net Sales / Total Assets

Particulars 2007-08 2008-2009 2009-10

Net Sales 7181.59 8485.67 9371.57
Total Assets 10847.60 12831.56 13669.15
Total Assets Turnover Ratio 0.66 0.66 0.69

Total Assets Turnover Ratio

0.695
0.69
0.685
0.68
0.675
0.67
0.665
0.66
0.655
0.65
0.645
Total Assets Turnover Ratio
2007-08 0.66
2008-09 0.66
2009-10 0.69

Interpretation :

The increase in the ratio in 09-10 shows better utilization of its resources.
 5. Inventory Turnover Ratio
ITR = Cost of Sales/Average Stock

C.G.S. = Sales – Gross Profit

Particulars 2007-08 2008-2009 2009-10

Cost of Goods Sold 5092.23 6648.74 6257.40
Average Stock 518.63 494.21 645.01
Inventory Turnover Ratio 9.82 13.45 9.70

Interpretation :
It was observed that Inventory turnover ratio indicates maximum sales
achieved with the minimum investment in the inventory. As such, the
general rule high inventory turnover is desirable but high inventory turnover
ratio may not necessary indicates the profitable situation. An organization, in
order to achieve a large sales volume may sometime sacrifice on profit,
inventory ratio may not result into high amount of profit.
 6. Receivable Turnover Ratio –

Receivable Turnover Ratio = Credit Sales /

Particulars 2007-08 2008-2009 2009-10

Cost of Goods Sold
Average Stock
Receivable Turnover Ratio 25.98 42.73 44.13

Interpretation :
It was observed from receivable turnover ratio that receivables turned
around the sales were less than 4 times. The actual collection period was
more than normal collection period allowed to customer. It concludes that
over investment in the debtors which adversely affect on requirement of the
working capital finance and cost of such finance.
 Profitability Ratios

1. Gross Profit Ratio

GPR = (Gross Profit/Net Sales)*100

Particulars 2007-08 2008-2009 2009-10

Gross Profit 2089.36 1836.93 3114.17
Net Sales 7181.60 8485.68 4371.57
Gross Profit Ratio 29.09% 21.56% 33.23%

Interpretation :

The increase in the ratio shows the better performance of the company in the year
09-10 as compared to 08-09.
 2. Debtors in No. of Months Sales (DMS) –

DMS = Sundry Debtors / per month gross sales .

Per month gross sales = gross sales /12

Particulars 2007-08 2008-2009 2009-10

Sundry Debtors 276.41 198.61 212.35
Per Month Gross Sales 727.34 847.22 934.92
DMS 0.38 0.23 0.23

Interpretation :
The decrease in ratio in the year 2009-10 shows better realization position of the
company against its sales.
 3. Stores of Stock & Spares in nos. of Months Consumptions ( Revenue
Mines)

(Inventory of Stores / Consumption of Stores per month)

Particulars 2007-08 2008-2009 2009-10

Inventory of Stores 226.10 226.76 232.22
Consumption per month 78.04 89.21 92.08
Stores in no. of Months 2.90 2.54 2.52

Interpretation :
The reduction in the ratio in 09-10 shows better utilization of fund and better
inventory management of the company. It also shows that the company has
avoided unnecessary locking of its funds in inventory.
 4. Net Profit Ratio –

NPR = (Profit after tax / Sales) * 100

Particulars 2007-08 2008-2009 2009-10

Net Profit After Tax 2067.37 1817.93 3063.57
Sales 7181.60 8485.68 9371.57
NPR 28.79% 21.42% 32.69%

Interpretation :

The increase in the ratio shows the better performance of the company in the year
09-10 as compared to 08-09.
Return on Investment = EBIT/Capital Employed

particulars 2007-08 2008-2009 2009-10

EBIT 2089.60 1836.93 3114.17
Capital Employed 3814.60 4380.28 4360.76
RoI 0.55 0.42 0.71

Return on Investment
0.8
0.7
0.6
0.5
Axis Title

0.4
0.3
0.2
0.1
0
RoI
2007-08 0.55
2008-09 0.42
2009-10 0.71
Operating Ratio –

(Net Sales – Net Profit)/ Net Sales

particulars 2007-08 2008-2009 2009-10

Net Sales 5114.23 6667.75 6307.99
Net Profit 7181.60 8485.68 9371.56
Operating Ratio 0.71 0.79 0.67
Working Capital Level and Analysis
W. C. Level
Size of Working Capital
Particulars 2007-08 2008-09 2009-10
A) Current Assets
Interest Accrued on 44.49 39.26 34.02
Investment
Inventories 518.63 494.21 645.01
Sundry Debtors 276.41 198.61 212.35
Cash and Bank 3996.21 5451.36 6995.23
Loans and Advances 2502.33 2758.94 1509.36
Total(A) 7338.07 8942.38 9395.97

B) Current Liabilities
Current Liabilities 4257.89 5657.38 6409.56
Provisions 2090.72 2072.83 1628.84
Total(B) 6348.61 7730.21 8038.40

Net Working Capital 989.46 1212.17 1357.57

(A-B)
 2. Working Capital Trend Analysis
Particulars 2007-08 2008-09 2009-10
Net Working Capital 989.46 1212.17 1357.57
W.C. Indices 100 122.51 137.20
 3. Current Assets Analysis
Size of CA
Particulars 2007-08 2008-09 2009-10

Interest Accrued on 44.49 39.26 34.02

Investment
Inventories 518.63 494.21 645.01
Sundry Debtors 276.41 198.61 212.35
Cash and Bank 3996.21 5451.36 6995.23
Loans and Advances 2502.33 2758.94 1509.36
Total 7338.07 8942.38 9395.97
CA Indices 100 121.86 128.04
 Composition of Current Assets
Particulars 2007-08 2008-09 2009-10
A) Current Assets
Interest Accrued on 7.07 5.53 6.87
Investment
Inventories 37.7 2.22 2.26
Sundry Debtors 54.6 60.96 74.45
Cash and Bank 34.10 30.85 16.06
Loans and Advances 0.60 0.44 0.36
Total(A) 100 100 100
4. Current Assets Analysis
Size of Current Assets
Particulars 2007-08 2008-09 2009-10
Current Liabilities
Current Liabilities 4257.89 5657.38 6409.56
Provisions 2090.72 2072.83 1628.84
Total 6348.61 7730.21 8038.40
Current Liabilities 100 121.76 126.62
Indices
Particulars 2007-08 2008-09 2009-10
Current Liabilities
Current Liabilities 67.07 73.90 79.74
Provisions 32.93 26.81 20.26
Total 100 100 100
 Composition of Current Liabilities
80.00%
70.00%
60.00%
Axis Title

50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2008-2009
Current Liabilities 73.19%
Provisions 26.81%
 Changes in Working Capital
Particulars 2008-09 2009-10 Changes in Working
Capital
Increase Decrease
A) Current Assets
Interest Accrued on 39.26 34.02 - 5.24
Investment
Inventories 494.21 645.01 150.80 -
Sundry Debtors 198.61 212.35 13.75 -
Cash and Bank 5451.36 6995.23 1543.87 -
Loans and 2758.94 1509.36 1249.59
Advances
Total(A) 8942.38 9395.97
B) Current Liabilities
Current Liabilities 5657.38 6409.56
Provisions 2072.83 1628.84
Total(B) 7730.21 8038.40

Net Working 1212.17 1357.57

Capital (A-B)
Net Increase in WC 145.40 145.40
Total 1357.57 1357.57 2152.41 2152.41
Working Capital Leverage

W.C. Leverage =

Return on Capital Employed

Particulars 2007-08 2008-09 2009-10
E.B.I.T 2089.60 1836.93 3114.17
Current Assets 7338.08 8942.38 9395.96
RoCE 0.28 0.21 0.33

Working Capital Leverage

Particulars 2007-08 2008-09 2009-10
% Chance in RoCE -3.45% -27.27% +33.33%
% Change in CA +16.49% +11.54 11.72%
W C Leverage
Working Capital Components
1. Receivables Management
Debtors:

Particulars 2007-08 2008-09 2009-10

Debtors 276.41 198.61 212.35
Indices 100 71.85 76.82
Average Collection Period –

Average Collection Period :

Particulars 2007-08 2008-09 2009-10

Gross Sales 8728.04 10166.61 11219.02
Average 276.41 198.61 212.35
Receivables
Receivables 31.58 51.19 52.83
Turnover Ratio
Average 11.56 Days 7.13 Days 6.91 Days
Collection
Period
 2. Inventory Management –

Size of Inventory:

Particulars 2007-08 2008-09 2009-10

Raw Material 251.78 236.91 348.25
W.I.P 15.72 14.18 22.01
Finished Goods 25.76 16.76 34.96
Total Inventory 293.26 267.85 405.22
Indices 100 91.33 138.18
Inventory Holding Period –

Particulars 2007-08 2008-09 2009-10

Inventory 9.82 13.45 9.70
Turnover Ratio
Days of Holding 37.17 27.14 37.62
Inventory
 3. Management of Cash –

Size of Indices of Cash

Particulars 2007-08 2008-09 2009-10

Cash and Bank 3996.21 5451.36 6995.23
Indices 100 136.41 175.05
 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.

· Working capital of the company was increasing and showing positive working
capital per year. It shows good liquidity position.

· Positive working capital indicates that company has the ability of payments of
short terms liabilities.

· Working capital increased because of increment in the current assets is more

than increase in the current liabilities.

· Company‟s current assets were always more than requirement it affect on

profitability of the company.

· Current assets are more than current liabilities indicate that company used long
term funds for short term requirement, where long term funds are most costly then
short term funds.

· Current assets components shows sundry debtors were the major part in

current assets it shows that the inefficient receivables collection management.

· Inventory was supporting to sales, thus inventory turnover ratio was increasing,
but company increased the raw material holding period.

· Study of the cash management of the company shows that company lost control
on cash management in the year 2005-06, where cash came from fixed deposits
and ZCCB funds, company failed to make proper investment of available cash.
 RECOMMENDATIONS
Recommendation can be use by the firm for the betterment increased of the

firm after study and analysis of project report on study and analysis of working

capital. I would like to recommend.

1) Company should raise funds through short term sources for short term
requirement of funds, which comparatively economical as compare to long
term funds.

2) Company should take control on debtor‟s collection period which is major

part of current assets.

3) Company has to take control on cash balance because cash is non earning
assets and increasing cost of funds.

4) Company should reduce the inventory holding period with use of zero
inventory concepts.

Over all company has good liquidity position and sufficient funds to repayment of
liabilities. Company has accepted conservative financial policy and thus
maintaining more current assets balance. Company is increasing sales volume per
year.
 Bibliography

Books Referred

 ß I. M. Pandey - Financial Management - Vikas Publ ishing

House Pvt. Ltd. - Ninth Edition 2006

 ß M.Y. Khan and P.K. Jain, Financial management – Vikas

Publishing house ltd., New Delhi.

 ß K.V. Smith- management of Working Capital- Mc-Grow-

Hill New York

 ß Satish Inamdar- Principles of Financial Management-

Everest Publishing House

Websites References

 www.secl.gov.in
 www.google.co.in
 www.workingcapitalmanagement.com
 www.bing.com
 www.coalindia.nic.in
 Working Notes

Sl. Terminology Reference

No.

1. Current Assets Balance Sheet (B/S)

2. Current Liabilities Current Liabilities Balance Sheet -Gratuity Sch J

3. Liquid Assets Current Assets (Ref Sl no. 1) – Inventory Sch F

4. Cash Sch H

5. Inventory Sch F

6. Working Capital Refer Sl 1 and 2

7. Total Debt Secured Loans Sch C – I + Unsecured Loan

Sch C-II

8. Net Worth / Shareholders Fund Share Capital Sch A + Reserve & Surplus Sch B

9. Net Fixed Assets Balance Sheet

10. Total Assets Net Fixed Assets (Ref Sl no.9) + Investment Sch
E+

Current Assets (Ref Sl 1)

11. Capital Employed Net Worth (Ref Sl 8) + Total Debt (Ref Sl 7)

12. Net Sales Profit & Loss a/c

13. Sundry Debtors Sch G

14. Gross Sales Sch 1

15. Inventory of Stores Sch F

16. Consumption of Stores (Revenue Sch 6

Mines)

17. Prior Period Sch 15

18. Extra Ordinary Income and Interest Sch 4 – Provision for Bad Debts Sch 14
Expenditure

19. Gross Profit (G.P.) (Net Profit as per P & L a/c +Interest Sch
12+Prior Period Exp. Sch 15) – Extra Ordinary
Item ref. Sl no. 18

20. Total Depreciation Depreciation Profit & Loss a/c + Depreciation

Sch 10

21. Gross Margin (G.P. + Total Depreciation ref. Sl no 20)– Extra

Ordinary Item ref. Sl no. 18

22. Profit after Tax Net Profit as per P/L - Extra Ordinary Item ref. Sl
no. 18

23. Operating Expenses Net Sales ref. Sl no. 11 – (Net Profit - Extra
Ordinary Item ref. Sl no. 18)

24. EBIT Gross Profit ref. Sl no.19 - Extra Ordinary Item

ref. Sl no. 18