Index

1. Introduction
2. Objectives
3. Company Profile
4. Research Methodology
5. Data Collection
6. Data Analysis
7. Conclusion
8. Suggestion
9. Limitation
10.

Bibliography

INTRODUCTION:
A study of working capital is of major importance to internal and external analysis
because of its close relationship to current operations of the business. The term working capital
originated at the time when most industries were closely related to agriculture. The amount of
fund required for operating need varies from time to time in every business. But certain amount
of assets in the form of working capital is always required if the business has to carry out its
function efficiently and without a break.
The requirement of finance in business arises mainly due to two factors,
acquisition of fixed assets and provision of working capital. Fixed assets such as land, funds,
broadly known as working capital, buildings, plant and machinery, equipments, etc. are essential
for carrying on sales and production. The working capital is necessary to meet day to day

revenue expenses like purchase of materials, wage payment, meeting overhead expenses, etc.
Working capital keeps the business going. In short

Working Capital = Current Assets Current Liability

CURRENT ASSETS

CURRENT LIABILITY

Cash In Hand

Sundry Creditors

Cash At Bank

Bills Payable

Sundry Debtors

Bank Overdraft

Bills Receivable

Short Term Advances (loan)

Stock/ Inventories

Outstanding Expenses

Short Term Investment

Dividend Payable

Prepaid Expenses

Provision For Taxation

Increase in Current Assets results in increase in W.C.

Decrease in Current Assets results in decrease in W.C.
Increase in Current Liability results in decrease in W.C.
Decrease in Current Liability increase in W.C.

DEFINITION:
3

According to Weston and Brigham Working Capital refers to a firms investment in

short term assets, cash, short term securities, account receivable and inventories.
According to Corine T. Norgard, It is the difference between companys current assets
and current liabilities. The accounts which belong to this group are usually the most active in the
company. Unlike fixed assets they reflect the companys daily activities.
According to P.V. Kulkarni, It is the excess of current assets over current liabilities and
provisions. It is net current assets or net working capital.

Theory of Working Capital:

From the financial management point of view, the nature of fixed assets and
current assets differ from each other in following respects.

The fixed assets are required to be retained in the business over a period of time and they
yield the returns over their life, whereas the current assets loose their identity over a short
period of time; say one year.

In case of current assets, it is always necessary to strike a proper balance between the
liquidity and profitability principles which is not the case of the fixed assets. Eg. If the
size of the current assets is large, it is always beneficial from the liquidity point of view
as it ensures smooth and fluent business operations. Sufficient raw material is always to
cater to the production needs, sufficient finished goods are available to cater to any kind
of demand of customers, liberal credit period can be offered to the customers to improve
the sales, sufficient cash is available to pay off the creditors and so on. However,
investments in current assets more than ideally required, it affects the profitability as it
may not be able to yield sufficient rate of return on investment. On the other hand, if the
size of current assets is to small, it always involves the risk of frequent stock out, inability
of the company to pay its dues in time.
Working capital management is concerned with the problem arising out of the

attempts to manage current assets, current liabilities and inter-relationship between them. The
intention is not to maximize the investment of working capital nor is it to minimize the same.
The intention is to have optimum investment in working capital.

IMPORTANCE OF WORKING CAPITAL:

Adequacy of working capital creates a feeling of security and confidence:The proprietor of a concern or the officials of the company who can go home at night and can
sleep in peace and comfort without worrying about how wages and salaries are going to be
met the next day enjoy the position in business that can come only as a result of efficient
management that has provided adequate working capital.
Adequacy of working capital is must for maintaining solvency and to

continue production:- It is essential that sufficient amount of funds be available to

purchase raw materials, payment of wage and salary bills, stock, finished goods and meet
other administrative expenses. A manufacturing concern is bound to collapse in the absence
of ready cash available to pay the bills for materials, direct labour, advertising and
distribution expenses and other costs of doing business.

Creation of sound good-will:- It is a common experience of all prudent businessmen

that sound goodwill can be maintained only by promptness in payment. The prompt payment
of bills to suppliers of materials will not only ensure a continued but will establish credit for
seasonal operation

Easy availability of cash discount:- Advantage may be taken of cash discounts in the
purchase of raw materials or merchandise, resulting in a saving in interest charges on the
amount of working capital employed.

Steady work for the employees and efficiency in production:- A continuous

supply of raw materials and production means steady work for employees which raise their
morale, increases their efficiency, lower costs and creates goodwill in the community.
5

 Easy loans from the bank:- Banks are also favorably inclined in granting seasonal
loans if the business is adequately financed in the first place and has good credit standing and
trade reputation. In order to borrow from banks, a business must keep itself in fairly liquid
condition. Thus the adequacy of working capital contributes a lot in raising the credit
standing of company.

Facility of off- season purchasing:- Only concerns with adequate working capital can
take advantages of purchasing the raw materials, coal and other factor supplies in a sharply
advancing market, or in off/seasons periods, resulting in substantial savings where storage
costs are not prohibitive.
Quick and steady return to the investor:- Everybody excepts quick return in his
investments in the form of a withdrawal (in the case of an owner), or dividend (in the case of
a share holder). In the case of insufficiency of working capital the profit to be retained in the
business, but the case of their adequacy, ample dividend can be paid to the shareholder.

WORKING CAPITAL CYCLE:

In any business there is bound to be a time lapse from the time funds are invested in
business for buying raw materials and the cash is finally recycled back in the business through
6

sales. This time span can be split into the following parts comprising the chronological sequence
of events:

Time required for conversion of cash into raw materials.

Time required for conversion of raw materials into work-in-progress.

Time spend in conversion of finished goods into debtors and bills receivables
through sales.

Time spend in conversion of finished goods into debtors into bills receivables
through sales.

Finally, the time taken to convert debtors and bills receivables into cash.

Credit
Debtors

Debtors

Finished Goods

Work -inprogress

Crs. For purchase

Cash

Raw Material
Wages and
Overheads

Crs. For expenses

Working capital cycle can also be represented in the following manner:

Work
In
Progress

Receivable
s

Finished
Goods

Raw
Material

Cash/Bank

The cycle shows that the current assets are acquired either for resale or for conversion into
finished goods which are converted into cash. Thus, once the cycle is complete, the current assets
become cash. In other words, the current assets are self-liquidating in nature.

CLASSIFICATION OF WORKING CAPITAL:

Working Capital
Fixed Working Capital

Regular

Reserve Margin

Variable Working Capital

Seasonal

Special

1. Fixed Working Capital:- As is apparent from the objective permanent is

that part of the capital which is permanently locked up in the circulation of
the current asset and in keeping it in moving. For example, every
manufacturing concern has to maintain stock of materials, work-inprogress, finished products, loose tools and equipments it also requires
money for the payment of wages and salaries thought the years. Net working
capital minus fixed working capital will be the variable working

capital; it is

also called as fluctuating working capital.

i)

Regular Working Capital is minimum amount of liquid capital needed to

keep up the circulation of the capital from cash to inventories to receivable
and back again to cash. This would include a sufficient cash balance in the
bank to discount bills, maintain an adequate supply of raw material for
processing, carry a sufficient stock of finished goods to give prompt delivery
and effect the lowest manufacturing costs, and enough cash to carry
necessary accounts receivable for the type of business engaged in.

10

ii)

Reserve margin is the excess over the need for regular working capital that
should be provided for contingencies that arise at unstated periods. The
contingencies include (a) rising price, which may make advisable to increase
inventories (b) business depression, which may arise the amount of cash
required to ride out usually stagnant periods (c) strikes, fires and
unexpectedly serve competition, which use up extra supplies of cash (d)
special operation such as experiments with products or with methods of
distribution war contracts, to supply new business and the like, which can be
undertaken only if sufficient funds are available which in many cases mean
the survival of business.

2. Variable Working Capital: The variable working capital changes with the
volume of business. In many lines of business (e.g., Gur or Khandsari making an
fur industry) operations are highly seasonal and as a result, working capital
requirement vary greatly during the year. The capital required to meet the
distinction between permanent and variable working capital should be raised in
same way as fixed capital is procured, through a permanent investment of the
owner or through long-term borrowing. As business expands, this regular capital
will necessarily expand..

11

12

OBJECTIVES

To study the accounting system followed by Sunflag Iron and Steel Co. Ltd.

To study accounts maintained through SAP(system application & product for data
processing

Recording transactions in journal and ledger

Then posting it in ledger

Preparation of final accounts

To study regarding all the documents required for various transactions and the need of
it

To understand the flow of funds through working capital in such a way that the firm
would always be able to meet its financial obligations when due.

To understand the adequate working capital maintained for the operations of the
business

13

14

Sunflag Iron and Steel Co. Ltd.

Sunflag Iron and Steel Co. Ltd. is a prestigious unit of the SUN FLAG GROUP. It has set up a
state-of-art integrated plant at Bhandara, India. The plant has a capacity to produce 360,000
tonnes per annum of high quality special steel using liquid pig iron and sponge iron as basic
inputs.

The plant comprises 2,62,000 tonnes per annum Direct Reduction Plants, to produce sponge iron
for captive consumption in the Steel Melting Shop. This shop comprises a 50/60 tonnes ultra
high power Electric Arc Furnace with Eccentric bottom arrangement; Ladle refining furnace,
Tank Degassing and Bloom/Billet double radius caster with AMLC & EMS and T type tundish.
The billets produced at the steel melting shop are rolled at the Mannesmann Demag Designed
ultra modern 20 stand Continous mill. This mill has a dual fuel type walking hearth reheating

15

furnace, quick roll-changing facilities, a 65 metres long walk and wait type modern cooling bed
and above all computerised process control linking and controlling the various stages.

Within a short period of its inception in 1989, the SUNFLAG STEEL has established itself as a
major global force. This modern complex pulsating with world-class technology, expert human
resources and a commitment to excellence, has created a distinct niche in Alloy Steel, Stainless
Steel & Microalloyed Steel and attained the position of market leader in the segment. Today
SUNFLAG STEEL has also embarked on an export thrust and is regularly receiving prestigious
orders from Japan and many other Far East, Afro-Asian and Middle-East countries.
The ASM commenced production in the year 1997, enabling Sunflag to expand their product
range upto 90 mm dia Rounds; 75 mm RCS. A captive Power Plant of 30 MW capacity has
already been comissioned using waste gases.
The Blooming Mill, state of an art commenced Production in the year 2012 with wide range of
rolling covering from 75 Rcs / Round to 160 Rcs / Round in all category of steel.
Sunflag is Actively engaged in Pollution Control and accrediated by EMS Award.
16

17

RESEARCH METHODOLOGY

Financial research is a systematic design, collection and analysis of data & findings
relevant to specific aspect of the company.
The data was collected through financial statement like:

Annual Report
Balance Sheet
Profit & Loss A/C
Other Articles

Along with the above sources the personal interview with official of the company also
revealed some useful information required foot he project report.

The calculation were done for three consecutive year via, 2010-2011, 2011-2012, 20122013

Working capital analysis itself is a techniques to asses the financial surrounding of the
company. Methods like ratio analysis and balance sheet analysis also helps to study the financial
condition of the organization.

18

19

Balance Sheet of Sunflag Iron and Steel Company

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

Mar '13

Mar '12

Mar '11

Mar '10

12 mths

12 mths

12 mths

12 mths

Total Share Capital

162.20

162.20

162.20

162.20

Equity Share Capital

162.20

162.20

162.20

162.20

0.00

0.00

0.00

0.00

Share Application Money

Preference Share Capital

0.00

0.00

0.00

0.00

319.37

331.87

312.50

251.40

0.00

0.00

0.00

0.00

Networth

481.57

494.07

474.70

413.60

Secured Loans

345.88

448.55

338.43

184.32

76.39

82.56

98.65

144.50

Reserves
Revaluation Reserves

Unsecured Loans
Total Debt

422.27

531.11

437.08

328.82

Total Liabilities

903.84

1,025.18

911.78

742.42

Gross Block

Mar '13

Mar '12

Mar '11

Mar '10

12 mths

12 mths

12 mths

12 mths

1,300.77

1,010.94

896.82

883.30

Less: Accum. Depreciation

650.27

594.01

551.85

512.36

Net Block

650.50

416.93

344.97

370.94

Capital Work in Progress

Investments
Inventories

7.67

236.25

197.36

28.35

326.93

7.65

7.58

7.56

0.00

391.84

299.03

254.89

155.62

149.60

140.90

121.69

53.40

52.68

5.45

6.05

Total Current Assets

209.02

594.12

445.38

382.63

Loans and Advances

163.45

229.34

150.78

183.09

0.00

0.00

29.10

23.59

372.47

823.46

625.26

589.31

0.00

0.00

0.00

0.00

392.22

346.61

192.22

191.09

61.51

112.50

71.17

62.64

Total CL & Provisions

453.73

459.11

263.39

253.73

Net Current Assets

-81.26

364.35

361.87

335.58

0.00

0.00

0.00

0.00

Total Assets

903.84

1,025.18

911.78

742.43

Contingent Liabilities

253.11

211.44

157.15

304.27

29.69

30.46

29.27

25.50

Sundry Debtors
Cash and Bank Balance

Fixed Deposits
Total CA, Loans & Advances
Deffered Credit
Current Liabilities
Provisions

Miscellaneous Expenses

Book Value (Rs)

20

Working Capital Statement of Sunflag Iron and Steel Company

(Rs. In Crore)

Particular
A. CURRENT ASSETS

2013 (Mar)

2012 (Mar)

2011 (Mar)

Inventories

61.42

45.80

27.39

Sundry Debtors

23.63

15.56

16.02

1.02

2.88

3.30

Loans and Advances

11.46

10.83

5.56

Total Current Assets

97.53

75.07

52.27

55.62

43.61

31.42

2.89

1.98

3.13

58.51

44.59

34.55

39.02

30.48

17.72

Cash and Bank Balance

B. CURRENT LIABILITIES
Current Liability
Provisions
Total Current Liability

C. Net Working Capital

(A B)

21

1) Ratio Analysis of Working Capital of Asoka Leyland Company Industries from 20122013 and 2011.
The Ratio of Gross Working Capital to Asset Determined the relationship between gross
working capital to total asset. Gross working capital Represent total amount of investment in
current asset. Total asset include current asset and Fixed Asset.
Gross Working Capital
Gross W. C. to total Assets =

x 100
Total Assets

Year 2013 :
58.39
x 100
104.15
=

56.06%

Year 2012 :
34.83
x 100
92.33
=

37.72%

Year 2011 :
26.73
x 100
67.32
=

39.71%

22

Gross Working Capital to Total Asset

2013

2012

2011

An Examination of the table reveals the following :a)

Gross Working Capital to total asset ratio varied between 39.71 to 56.06 during three
years period of review.

23

2) CURRENT RATIO :.
Current Assets
Current Ratio =
Current Liability
Year 2013 :
92.53
=
58.51
=

1.67%

Year 2012 :
75.07
=
44.59
=

1.68%

Year 2011 :
52.27
34.55
=

1.51%

24

Current Ratio :

2013

2012

2011

INTERPRETATION :Ideal Current Ratio is 2:1 Thus from the above we can say that company was almost in its ideal
position in the year 2012-2013, but current ratio in 2011-2012 has decrease.

25

3) Gross Working Capital to fixed Asset Ratio :

The Ratio described the relationship between gross working capital and fixed assets.
Gross Working Capital
Gross W. C. and Fixed Asset Ratio =

x 100
Fixed Asset

Year 2012 :
58.39
x 100
14.78
=

395.06%

Year 2011 :
34.83
x 100
11.17
=

311.82%

Year 2010 :
26.73
x 100
08.78
=

304.44%

26

Gross Working Capital to fixed assets ratio :-

2013

a)

2012

2011

Gross Working capital to Fixed Asset Ratio is decrease row 304.44 in 2010 to 395.06 in
2012.

b)

The fixed asset were continually decrees from 0.78 crore in 2011 Rs. 395.06 crore in
2013.

27

4) Sales to Networking Capital Ratio :

The Ratio show the number of items, working capital is turnover in stated period. This
ratio can also be called as working capital turnover ratio. The higher the ratio, the lower is the
amount of networking capital.
Sales
Sales to Net Working Capital =

x 100
Net Working Capital

Year 2013 :
22.08
x 100
39.02
=

56.59%

Year 2012 :
22.45
x 100
30.48
=

73.65%

Year 2011:
24.06
x 100
17.72
=

135.78%

28

Sale to Net Working Ratio :

2013

2012

2011

29

5) Inventory to Net Working Capital Ratio :

The Ratio is calculate to as certain leave of inventories. Increased in the value of sale
requires proportionate increase in inventory should not exceed the amount of net working capital
an equal ratio disables.
Inventory
Inventory to Net Working Capital Ratio =

x 100
Net Working Capital

Year 2013 :
61.42
x 100
39.02
=

157.41%

Year 2012 :
45.80
x 100
30.48
=

150.26%

Year 2011 :
27.39
x 100
17.72
=

154.57%

30

Inventory to Net Working Capital Ratio :

2013

2012

2011

The Ratio of inventories to Net Working Capital varied between 154.57 to 157.41 during the
three years review period the inventory to Net Working Capital ratio is highest of 157.41.

31

6) Inventory to Current Asset Ratio :

The Ratio explain the relationship of inventory to current asset.
Inventory
Inventory to Current Asset Ratio =

x 100
Current Asset

Year 2013 :
61.42
x 100
97.53
=

62.98%

Year 2012 :
45.80
x 100
75.07
=

61.00%

Year 2011 :
27.39
x 100
52.27
=

52.40%

32

33

DATA ANALYSIS
The data serve as the bases or raw material for analysis. Data collection is a term
used to describe a process of preparing and collecting data - for example as part of a process
improvement or similar project. The purpose of data collection is to obtain information to keep
on record, to make decisions about important issues, to pass information on to others. Primarily,
data is collected to provide information regarding a specific topic.
There are mainly 2 types of data:-

1.

PRIMARY DATA This includes the data collected directly by the researcher. They
are those which are collected afresh and for the first time and thus happen to be original
in character.

2.

SECONDARY DATA This

This includes data that are readily available which is used by
the researcher for studies. This are those which are collected by some one else and which
have already been passed through the statistical process.

SAP (System Application & Product For Data Processing)

Financial excellence is achieved when resources, people, and technology are leveraged to
ensure strong cash flow and liquidity, compliant and accurate financial reporting, while
maximizing the profitability.
With SAP solutions, companies can accurately manage liquidity and cash, streamline
processes and lower costs, ensure the financial health of the enterprise, as well as reduce the cost
of compliance and risk in the face of a challenging economy and regulatory landscape.
SAP ERP Financials, an application of SAP Business Suite, helps deliver greater insight and
visibility across organizations, operational efficiency and effectiveness, and flexibility to help
you enable efficient and compliant accounting and reporting. No matter the industry or size of
34

your business, you can implement only the software you need to solve your unique business
challenges in your own time and without expensive upgrades.

ADVANTAGES OF SAP

Gain efficiency in finance to streamline financial processes, such as reporting cycles,

receivables, and payments

Drive strategy and growth and improve the quality of business decisions for all employees,
bridging analysis and planning with strategic execution

Manage risk and compliance through embedded controls and real-time monitoring and
exception-based analysis

Optimize working capital to accelerate cash flows, manage liquidity, and improve control
over cash balances

The following are the sources from where I have collected my data:

PRIMARY DATA: SAP has been planned to use from 2010-2011 but it has started utilizing in almost
full swing in BSIL from 2012-2013
SAP is one of the ERP. But It is the leader of all ERP
There are different modules for different department such as sales, purchase,
finance etc.
SAP is very useful and has various advantages such as time saving, minimum
risk, no need for repeated entries
When raw materials are purchased, the purchase department makes entries in
journal through SAP and that entry automatically is also seen in financial books as
well. thus there is no need for finance department to make repeated entries
IN CASE OF INPUT:35

1. Firstly purchase ( quotations) are made

2. materials management make entries in SAP
3. Then bills are made by finance department
4. then payment is made
5. then entries of payment is made
IN CASE OF OUPUT:1. Quotations are taken and Advances are received
2. sales are made
3. sales department make entries in sap
4. that amount is checked and the amount is collected by finance department
and then receipts are issued

SECONDARY DATA:1. Balance sheet

2. Profit and loss Statement

36

37

CONCLUSION
Working Capital Management involves deciding upon the amount and composition of
current assets and how to finance these assets. The greater the relative proportion of liquid assets,
the less the risk of running out of all cash, all other things being equal. However the profitability
also will be less. Similarly, the larger the proportion of long-term funds to finance the firm, the
lesser the risk of cash insolvency all other things being equal. However, the profit of the firm is
likely to be less. Thus, while making decisions about composition and the extent of current assets
and financing the structure the firm has to resolve the trade off between the risk and profitability.
Therefore in the working capital management , it is very much crucial to consider the assets and
financial mixes.
Decisions relating to working capital and short term financing are referred to as
working capital management. These involve managing the relationship between a firm's shortterm assets and its short-term liabilities. The goal of working capital management is to ensure
that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both
maturing short-term debt and upcoming operational expenses.

Decision criteria
By definition, working capital management entails short term decisions - generally, relating to
the next one year period - which are "reversible".

One measure of cash flow is provided by the cash conversion cycle - the net number of
days from the outlay of cash for raw material to receiving payment from the customer. As
a management tool, this metric makes explicit the inter-relatedness of decisions relating
to inventories, accounts receivable and payable, and cash.

In this context, the most useful measure of profitability is Return on capital (ROC). The
result is shown as a percentage, determined by dividing relevant income for the 12
months by capital employed; Return on equity (ROE) shows this result for the firm's
shareholders.

38

39

SUGGESTION

Sunflag Iron & Steel Industries should trust to update the technology
Sunflag Iron & Steel Industries should constructed of full resources utilization.
Sunflag Iron & Steel Industries should constructed on there look product and price
consistency.
Sunflag Iron & Steel Industries should relia on cost efficiency and strong financial
resources.
Operating expenses can be reduced by making effective operating system.

40

41

LIMITATIONS
1)

Limited manual were available.

2)

Positive performance of working capital will reflect on the financial health.

3)

Study is best of Bhandara Region only.

4)

Study period is very low (two months)

42

43

BIBLOGRAPHY
Books:Financial Management- G. Sudarshan Reddy
Management accounting- R. S. N. Pillai AND Bagavathi
Financial management- Rustogi
Financial Management P. V. Ratnam
Financial Management P. V. Kulkarni

ANNUAL REPORT
ARTICALS

Web sites: 1. www.google.com

2. www.sunflagsteel.com/

44