MBA-IV

Subject Code: 5776422(76)

MAJOR PROJECT

A
PROJECT REPORT
ON

A STUDY ON WORKING CAPITAL

MANAGEMENT AND RATIO ANALYSIS OF
JINDAL STEEL AND POWER LIMITED
Submitted in partial fulfillment for the award of the
degree
Master of Business Administration
Chhattisgarh Swami Vivekananda Technical University
Submitted by
PRIYAL KHICHARIYA
MBA SemesterIV
(Session 2013-2014)
Approved By,
Guided By,
Dr. SAKET RANJAN PREVEER
APOORWA
Head of the Department
Asst. Professor

Dr.
MISHRA
Sr.

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Shri Shankaracharya Technical

Campus
Shri Shankaracharya Group of Institution,
Faculty of Management Studies
Junwani, Bhilai (C.G.) - 490020

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DECLARATION
I PRIYAL KHICHARIYA Students of MBA 4th Semester 2013-2014, the
undersigned solemnly declare that the report of the research work entitled
A STUDY ON WORKING CAPITAL MANAGEMENT AND RATIO ANALYSIS OF
JINDAL STEEL AND POWER LIMITED is based on my own work carried out
during the course of my study under the supervision of Dr. Apoorwa
Mishra.
I assert that the statements made and conclusions drawn are an
outcome of our research work. I further declare that to the best of our
knowledge and belief the report does not contain any part of any work
which has been submitted for the award of MBA degree or any other
degree/diploma/certificate in this University of India or abroad.

(Signature of Candidates)
PRIYAL KHICHARIYA
SEMESTER -4

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CERTIFICATE
This is to certify that the work incorporated in the report A STUDY ON
WORKING CAPITAL MANAGEMENT AND RATIO ANALYSIS OF JINDAL STEEL
AND POWER LIMITED is a record of research work carried out by PRIYAL
KHICHARIYA bearing ROLL NO. 5377612106 under my guidance and
supervision for the part fulfillment for the award of MBA degree of
Chhattisgarh Swami Vivekananda Technical University, Bhilai (C.G.), India.
To the best of my knowledge and belief The Report
I)
II)
III)

Embodies the work of the candidate him/herself,

Has duly completed,
Is up to the desired standard both in respect of contents and
language for external viva.

(Signature of
the Supervisor)

Dr. Apoorwa

Mishra
Sr. Asst.
Professor

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ACKNOWLEDGEMENT
I am pious duty to make grateful acknowledge of the assistance and
guidance, have obtained in the course of preparation this dissertation
work A STUDY ON WORKING CAPITAL MANAGEMENT AND RATIO ANALYSIS
OF JINDAL STEEL AND POWER LIMITED I take this opportunity to express
my heartiest thanks and obligation to Dr. APOORWA MISHRA Sr. Asst.
Professor of MBA FMS, SSGI who was rendered us in valuable instructions
and guidance for preparation and fulfillment of my work.
We are also grateful to DR. SAKET RANJAN PRAVEER H.O.D. of
MBA dept. for giving us this opportunity, advising and inspiring to conduct
this dissertation work.

PRIYAL
KHICHARIYA

MBA SEM.
IV

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TABLE OF CONTENTS

Chapter no

Topic
Declaration
Certificate
Acknowledgement

Introduction

Company Profile

Literature Review

Research Methodology
a) Research Objective
b) Research Plan

Data Tabulation Analysis And Result

Findings

Recommendation

Limitation

Conclusion
Reference

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CHAPTER - 1
INTRODUCTION

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INTRODUCTION
Financial Management is the specific area of finance dealing with the
financial decision corporations make, and the tools and analysis used to make
the decisions. The discipline as a whole may be divided between long-term and
short-term decisions and techniques. Both share the same goal of enhancing
firm value by ensuring that return on capital exceeds cost of capital, without
taking excessive financial risks.

Capital investment decisions comprise the long-term choices about which

projects receive investment, whether to finance that investment with equity or
debt, and when or whether to pay dividends to shareholders. Short-term
corporate finance decisions are called working capital management and deal
with balance of current assets and current liabilities by managing cash,
inventories, and short-term borrowings and lending (e.g., the credit terms
extended to customers).

Corporate finance is closely related to managerial finance, which is slightly

broader in scope, describing the financial techniques available to all forms of
business enterprise, corporate or not.

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ROLE OF FINANCIAL MANAGERS:

The role of a financial manager can be discussed under the following heads:
1. Nature of work
2. Working conditions
3. Employment
4. Training, Other qualifications and Advancement
5. Job outlook
6. Earnings
7. Related occupations

CONTRIBUTIONS:-

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Working capital refers to the funds invested in the Current assets, i.e. Stock,
Sundry
Debtors, Cash, etc. A concern needs current assets to use its fixed assets
properly.
The importance of adequate working capital in a company can never be
emphasized. A concern needs fund for its day to day operations. Adequacy or
inadequacy of fund would determine the efficiency with which the business may
be carried on. Management of working capital is an essential task of the finance
manager. He has to ensure that the amount of the working capital available for
the company is neither too large nor too small. A large amount of working capital
would mean that the company has idle funds. As funds have cost, the company
has to pay the interest on such funds. A survey conducted by the bureau of public
enterprises on SAIL in the year 2000-01 has revealed that a large amount of fund
was locked in the working capital, this results in over capitalization.
Over Capitalization implies that a company has too large funds for its
requirements, resulting low rate of return which implies lesser use of optimal
resources.
Under Capitalized means inadequate working capital. It means firm runs
under the risk of insolvency. This is because lesser working capital leads to
situation where the firm may not be able to meet its liabilities.

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CHAPTER - 2
COMPANY PROFILE

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Company profile
The Jindal Group
A US $ 12 billion (over Rs. 60,000 crores) conglomerate, the Jindal
Group,has emerged as one of India's most dynamic business groups over the past
three decades. In 1952, Shri O P Jindal wondered why steel pipes could not be
made in India when he spotted one with foreign markings. He got working on the
idea and started a small pipe unit at Howrah in West Bengal. No one at that point
of time dreamt where this visionary would take this humble beginning.
Today, the group is a multi-billion, multi-location, multi-product business
empire. From mining iron ore and coal, the group produces sponge iron, Ferro
alloys and a wide range of hot-rolled and cold-rolled steel products ranging from
HR coils/sheets/plates, hot-rolled structural sections and rails to CR coils/sheets,
high-grade pipes and value added items such as stainless steel, galvanized steel &
coated pipes. It has not only diversified into power generation but also into
petroleum, infrastructure, diamond and high value metals & mineral exploration.
The group has manufacturing facilities across India, US & Indonesia and
marketing/representative offices across the globe.

The Founder:
Late Shri O.P.JINDAL Babuji (The man of destiny)
(1930-2005)

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Late Shri Om Prakash Jindal, Founder Chairman of the Jindal Group was born
on August 7, 1930, to a farmer in Nalwa village of Hisar district of Haryana.
Having interest in technical work from a young age, he started his industrial
career with a small bucket-manufacturing unit in Hisar in 1952. In 1964, he
commissioned a pipe unit, Jindal India Limited followed by a large factory in
1969 under the name of Jindal Strips Limited. Shri Jindal envisioned a selfreliant India in every sector of industry. To fructify this vision, he gathered the
latest technical know-how from around the world and strengthened his own
industrial establishment. Today, the Jindal Group is over US$ 12 billion (over
Rs. 61,000 Crores) offering direct and indirect benefits to thousands of families.
Where others saw walls, he saw doors" - that is how Shri. Jindals vision has
been expressed. And he always led the way, whether the door had to be opened
or broken. His journey from a humble origin to being a successful industrialist,
a philanthropist, a politician and a leader, is sure to be a great source of
inspiration for generations to come.

The core team of Jindal group:

The core team of the group comprises the Founders four sons who manage
group companies:
Mr. Prithviraj Jindal

Mr. Sajjan Jindal

Mr. Ratan Jindal

Mr. Naveen Jindal

The technology-driven group employs over 35,000 people across the globe.
Late Shri O. P. Jindal built over the years a reputation for integrity and
dynamism, and his four sons are today continuing with his rich legacy.

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Jindal Steel and Power Limited

With an annual turnover of over US $2.1 billion (Rs. 10,000 crores), Jindal
Steel & Power Limited (JSPL) forms a part of the US $12 billion (over Rs.
60,000 crores) Jindal Group. JSPL is a leading player in Steel, Power, Mining,
Oil & Gas and Infrastructure. Mr. Naveen Jindal, the youngest son of legendry
late Mr. O P Jindal, drives JSPL and its group companies Jindal Power Ltd,
Jindal Petroleum Ltd., Jindal Cement Ltd. and Jindal Steel Bolivia with a
belief in the concept of self-sufficiency. The company produces economical and
efficient steel and power through backward integration from its own captive
coal and iron-ore mines and passes on the benefits to its customers. An
enterprising spirit and ability to discern future trends have been the driving
force behind the company's remarkable growth. The company has scaled new
heights with the combined force of innovation, adaptation of new technology
and the collective skills of its 15,000 strong, committed workforce. It has won
wide acclaim for its efficient operations and commitment to environment &
society.
JSPL has consistently tapped new opportunities by increasing production
capacity, diversifying investments, and leveraging its core capabilities to
venture into new businesses. JSPLs investment commitments in steel, power,
oil & gas and mining have touched more than US $ 30 billion (Rs. 1, 50,000
crores). The company, today, is the largest private sector investor in the state of
Chhattisgarh with a total investment commitment of over US$ 6.25 billion (Rs.
31,250 crores).

Mr. Naveen Jindal- EVC & MD (JSPL)

Naveen Jindal (born 9 March 1970) is a Member of Parliament,
since 2004 representing the Kurukshetra constituency in the state
Haryana. He is a member of the Congress Party. He is an
industrialist with operations located in Madhya Pradesh and
Chhattisgarh. He runs the rail & steel and power businesses of the

India
of

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Jindal Group, the fourth largest private sector Indian business group by assets
and sales turnover. The Jindal group was founded by his father O. P. Jindal.
Prior to 2002, the Flag code of India did not permit flying of the Flag of India
on non governmental institutions. In 2001, a case was filed against Naveen
Jindal for flying the Flag of India atop his company building. He said that he
was inspired by his American friends displaying their flag during his college
days in USA and he believed that flying the national flag should be the right of
every Indian. He took the case to the Delhi High Court and the Supreme Court
of India and won both cases. The Supreme Court ordered the Government of
India to set aside a committee to look into this matter. Finally on January 26,
2002 (India's Republic Day), private citizens were allowed to fly India's flag
inside and atop their buildings and institutions. His story was reported widely in
the right-wing Indian media which hailed him as a liberator.

Philosophy of J.S.P.L.
Vision: "To strengthen Indias industrial base and improve Quality of Life
through Sustainable Development approaches."
Mission: JSPL aspires to establish itself as a Learning, Cost Competitive and
Eco- Friendly Organization through adoption of world-class work ethics and
practices.
Values: The Company embraces certain core values in order to function
ethically, effectively and prosper further:
Respect for individual: Recognize each individuals contribution in the
growth and development of the company and treat him with respect.
Integrity: Conduct all business dealings along transparent lines.
Meritocracy: Foster an environment of excellence in performance.
Dynamic thinking: Demonstrate a winners attitude, and deliver
sustained values for stake holders.

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Creativity and Innovation: Encourage creative experimentation, embrace

new ideas and institutionalize continuous improvement in all aspects of
business and performance.
Social responsibility: Work on social and environmental issues to enrich
the quality of life within the community we serve.

Core Operational Capacities

1.
2.
3.
4.
5.

6.
7.

Iron ore mine

3.00 MTPA
Coal mine
12.00 MTPA
Sponge Iron ( coal based )
1.37 MTPA
Hot Metal ( Pig Iron )
1.65 MTPA
Total Steel
3.00 MTPA
Rails, Beams & Structurals
0.75 MTPA
1.00 MTPA
Plates & Coils
Slabs, Rounds, Blooms & billets, Wire 1.25 MTPA
Rods
Total Captive Power Plant
358 MW
Jindal Power Limited
1,000 MW

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Product Profile

Steel: Excelling the level of steel making, JSPL has exceeded the production
capacity of 2.90 MTPA with its plant at Raigarh, Chhattisgarh. Upgrading its
existing facility at Raigarh and by commissioning of additional facilities in
Jharkhand and Orissa, JSPL is encompassing the future production capacity of
steel that will rise by 12 MTPA in coming years.
JSPLs sinter plant, blast furnaces (1681m and 351m), coke oven, state-of the art
Steel Melting Shop with electric arc furnace, ladle refining, vacuum degassing
and continuous casting bears testimony to its promise of providing its customers
with international quality steel. Product range includes products in carbon steel
and alloy steel grades: Slabs, Blooms, Rounds & Billets.
Sponge Iron: At Raigarh, coal-based sponge iron is manufactured using 10
indigenously developed rotary kilns, with a capacity of 1.37 MTPA, making
JSPL the largest coal based sponge iron manufacturer in the world. As a key raw
material for the manufacture of steel, our focus on sponge iron continues.
Ferro Chrome: JSPL has Submerged Arc Furnace (SAF) at Raigarh to produce
high carbon Ferro Chrome, which is an essential component for the production
of stainless and special steel. The present capacity is 36,000TPA. Continuous
smelting of chrome ore, coke and quartz at temperature of 1600-17000 C
ensures consistent quality of Ferro Chrome. Throughout the manufacturing
process, the focus is on quality assurance.
With a view to benefit from the latest innovations in information technology
tools, Siemens Information Systems Limited has implemented an Enterprise
Resource Planning (ERP) SAP R/3 Version 4.66 in all the units. Apart from
integrating various functions, the ERP program seeks to improve Coordination,
increase productivity and lower cost of production.
H-Beams and Columns: JSPL has been a pioneer in producing Hot Rolled
Parallel Flange Beams (H-beam) and Columns in medium and large sizes in
India. The structural engineers, architects and construction companies, consider
these H-Beams and columns strongest, safest and most stable.

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Plates: JSPL also introduced 3.5m wide steel plates for the first time in India.
Following world-class technology in its production of the finest and widest
plates JSPL reaffirmed its commitment to develop
state-of-the-art steel
products of international standards. JSPLs sharp focus on customer relationship
management and manufacturing execution systems ensures delivery of
customized solutions to the customer needs.
Power: JSPL has a 358 MW power generation facility In Raigarh based on
waste heat recovery from rotary kilns, washery rejects and coal fines to
meet the captive requirements as well as supply to the State Electricity Boards
of Chhattisgarh. JSPL has expansion plans of expanding the power generation
facility to 600 MW. Jindal Power limited (JPL): JPL a wholly owned subsidiary
of JSPL, is setting up a 1000 MW
O.P. Jindal Super Thermal Power Plant at Raigarh, Chhattisgarh, with an
investment of over Rs. 4500 crores. The project has been accorded Mega Power
Project status by the
Ministry of Power, Government of India.
Coal mining: JSPL has its captive Coal Mines at Dongamahua, Chhattisgarh.
Since the coal is of very poor grade and quality it has to be benefitted. Hence a
coal washery with capacity of 6 MTPA to wash 47-48% coal ash to 26% has
been commissioned and is operating successfully. The company has been
allotted additional Coal Block to meet increased requirement of coal for its
expansion project.

Iron-ore mining: JSPL has captive Iron Ore Mines at Tensa, Orissa, to meet the
part requirement of its Sponge Iron Plant. Accoutered with fully mechanized
techniques, it is currently producing about 555000 MT of sponge digenous
grade ore. An additional crusher is also being installed to ensure the availability
of high-grade iron ore. The captive Iron Ore and Coalmines are the core
strength of the company.
Diamond Exploration: JSPL has recently made its foray into exploration of
high value minerals and metals like diamonds, precious stones, gold, platinum
group of minerals, base metals , tar sands etc. Initiation has been made in
exploration for diamond, gold and associated minerals in Jashpur district of

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Chhattisgarh, parts of Jharkhand and Democratic Republic of Congo. Sponge

Iron: JSPL has worlds largest coal-based sponge iron manufacturing facility,
which uses industry developed rotary kilns.
Future Plans
JSPL firmly believes that CHANGE is the only constant in life and it shall have
to continuously upgrade its existing technologies, embrace new technologies,
motivate its personnel and uplift the living standards of those around it.
Adhering to these values, major expansion plans are being executed:
Raigarh

2 MTPA cement plant.

Pipe conveyor from mines to

plant.

Additional power generation of

540 MW.

Mini blast furnace up-gradation

Medium structural mill.

Fabrication unit in the industrial

estate.

An MOU has been signed between JSPL and the Government of Chhattisgarh
for setting up an additional 7.0 MTPA steel plant in phases and a 1600 MW
power plant with an investment of over US $ 5.20 billion (Rs. 26,000 crores).

Jharkhand
An 11 million ton integrated steel plant and 2600 MW captive power plant in
phases, with a total investment of US $ 6.00 billion, (Rs. 30,000 crores).
Orissa
A 12.5 million ton integrated steel plant and 2500 MW captive power plant in
phases, with a total investment of US $ 8.00 billion (Rs. 40,000 crores). The
first phase of 3 million ton is expected to be commissioned by 2011.

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Coal to Liquid Petroleum Project

Jindal Steel & Power has been allotted the Ramchandi Promotional Coal Block
in Orissa for the proposed Coal to Liquid (CTL) project by the Union Coal
Ministry, Government of India. The project cost estimated to be around US $
8.4 billion (Rs. 42,000 crores) includes CTL plant, coal mining and power plant.
The project to be located in Tehsil Kishore Nagar, Dist. Angul, Orissa will
produce 80,000 barrels per day (4.0 MMTPA) crude using environment friendly
Indirect Coal Liquification Technology developed by M/S Lurgi of Germany
for the first time in India.
Jindal Petroleum Limited
As part of its diversification process, JSPL has recently forayed into the oil and
gas sector, operating under the banner of Jindal Petroleum Limited.
Bolivia
JSPL plans to invest US $ 2.1 billion (Rs. 10,500 crores) in Bolivia, South
America, in the coming years for mining and setting up of an integrated 1.7
MTPA steel plant, 450 MW power plant, 6 MTPA sponge iron and 10 MTPA
iron ore pellet plant. Through fruitful business expansions, we envision a new
India and work towards creating a bright future by giving the best to our
customers, employees, shareholders, associates, and to the community at large.

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Awards and Achievements

Awards
Features in Forbes Fab 50 list
CNBC Award for Most Promising New Entrant in big league2009
Among Top 20 "Best Companies To Work For" by Business
Today-2009
Ranked 36th among Indias 100 Most Profitable Companies by
Business and Economy Magazine- 2009
Golden Peacock National Quality Award 2008
Think Odisha Leadership Award in Corporate Social
Responsibility - 2009, 2008
National Energy Conservation Award 2007, 2005, 2004,
2003, 2002, 2001.

Achievements
Manufacturer of longest rail of 121 meter long in the world
Largest coal based sponge iron manufacturing unit in the world
First Company to produce power from waste heat recovery
boiler from sponge iron.
2010

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CHAPTER - 3
LITERATURE REVIEW

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WORKING CAPITAL MANAGEMENT

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 short-term 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.
Guided by the above criteria, management will use a combination of policies
and techniques for the management of working capital. These policies aim at
managing the current assets (generally cash and cash equivalents, inventories
and debtors) and the short term financing, such that cash flows and returns are
acceptable.
Cash management Identify the cash balance which allows for the
business to meet day to day expenses, but reduces cash holding costs.
Inventory management Identify the level of inventory which allows for
uninterrupted production but reduces the investment in raw materials and minimizes reordering costs - and hence increases cash flow; Supply
chain management; Just In Time (JIT); Economic order quantity (EOQ);
Economic production quantity (EPQ).
Debtors management Identify the appropriate credit policy, i.e. credit
terms which will attract customers, such that any impact on cash flows
and the cash conversion cycle will be offset by increased revenue and
hence Return on Capital (or vice versa); see Discounts and allowances.
Short term financing Identify the appropriate source of financing, given
the cash conversion cycle: the inventory is ideally financed by credit
granted by the supplier; however, it may be necessary to utilize a bank
loan (or overdraft), or to "convert debtors to cash" through "factoring".

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The primary objectives of working capital management:

1.
2.
3.
4.
5.

Meet day to day cash flow need.

Pay wages and salaries when they fall due.
Pay creditors to ensure continued supplies of goods and services.
Pay government taxation and provision of capital dividends.
Ensure the long team survival of the business entity.

Different concepts of working capital:

Two thoughts are currently accepted about working capital. They are:
1. Gross Working Capital Concept
2. Net working capital Concept.
Gross Working Capital refers to firms investment in current assets. Current
assets are the assets which can be converted into cash within an accounting
year & include cash, short term securities, debtors, (account receivables or
book debts) bills receivable & stock (inventory).
Net working capital refers to the difference between current assets & current
liabilities. Current liabilities are those claims of outsiders which are expected to
mature for payment within an accounting year & include creditors (accounts
payable) bills payable & outstanding expenses.
Net working capital can be positive or negative.
A positive net working capital will arise when current assets exceed current
liabilities. A negative net working capital occurs when current liabilities are in
excess of current assets.

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Net working capital is a qualitative concept. it indicates the liquidity position

of the firm & suggests the extend to which working capital needs may be
financed by permanent sources of funds. A weak liquidity position posses a
threat to the solvency of the company & makes it unsafe & unsound and
harmful for the companys reputation. Therefore prompt & timely action
should be taken by management to improve & correct the imbalances in the
liquidity position of the firm.
NET WORKING CAPITAL = CURRENT ASSETS CURRENT
LIABILITIES

Types of working capital

Can be divided into two categories on the basis of time: 1. Permanent working capital
2. Temporary or Variable working capital
1. Permanent Working Capital:
This refers to that minimum amount of investment in all current assets
which is required at all times to carry out minimum level of business activities. It
represents the current assets required on a continuing basis over the entire year.
Tandon committee has referred to this type of working capital as core current
assets.
The following are the characteristics of this type of working capital:1. Amount of permanent working capital remains in the business in one form
or another. This is particularly important from the point of view of
financing. The suppliers of such working capital should not expect its
return during the lifetime of the firm.
2. It also grows with the size of the business.

Permanent working capital is permanently needed for the business and therefore

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it should be financed out of long-term funds.

This is the reason why the current ratio has to be substantially more than 1.
2. Temporary or Variable Working Capital:
The amount of such working capital keeps on fluctuating from time to
time on the basis of business activities. In other words, it represents additional
current assets required at different times during the operating year. This is also
called Fluctuating Working Capital. It is financed by short term sources.

Amount
Of

Temporary

Working

Permanent

Capital
(Rs.)

Time

Consequences of not having adequate working capital:

A firm must have adequate working capital, i.e., as much as needed by the
firm. It should neither have excessive nor inadequate. Both situations are
dangerous. Excessive working capital means the firm has idle funds, which earn
no profit for the firm. Inadequate working capital means the firm does not have
sufficient funds for running its operations, which ultimately results in production
interruptions, and lowering down the profitability.
It will be interesting to understand the relation between working capital,
risk and return. In a manufacturing concern, it is generally accepted that higher
levels of working capital decrease the risk and decrease the profitability too
while lower levels of working capital increase the risk but have the potentiality
of increasing the profitability also.
This principle is based on the following assumptions: (i) There is direct relationship between risk and return - higher is the risk,
higher
is the profitability, while lower is the risk, lower is the profitability.

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(ii) Current assets are less profitable than fixed assets.

(iii) Short-term funds are more expensive than long-term funds.

Management of working capital:Working capital refers to all aspects of the administration of both current
assets and current liabilities.
In other words, working capital management is concerned with the problems
that arise in attempting to manage the current assets, the current liabilities and
the interrelationships that exist between them.
Moreover, different components of working capital are to be properly
balanced in such a way that during one complete production or operating cycle
the cash should be available for purchase of fresh material and for running the
business including operating expenses, after realization of sale proceeds of
earlier cycle without any hurdles.
In the absence of such situation, the financial position in respect of the firms
liquidity may not be satisfactory in spite of satisfactory liquidity ratio. Working
capital management policies have a great effect on firms profitability, liquidity
and its structural health. A finance manager should therefore perform the
following two functions:
1) Estimating the amount of working capital.
2) Sources from which these funds have to be raised.

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Sources of Working Capital:

The working capital requirements should be met both from short-term as
well long-term sources of funds. It will be appropriate to meet at least 2/3 rd (if
not the whole) of the permanent working capital requirements from long-term
sources and only for the period needed.
The financing of working capital through short-term sources of funds has
the benefits establishing close relationship with the banks.
Financing of working capital from long-term resources provides the following
benefits:
(i) It reduces risk, since the need to repay loans at frequent intervals is
eliminated.
(ii)It increases liquidity since the firm has not to worry about the payment of
these funds in the near future.

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Techniques for the Assessment of Working

Capital
Requirements
1. Estimation of components of working capital method:
Since working capital is the excess of current assets over current liabilities, an
assessment of the working capital requirements can be made by estimating the
amounts of different constituents of working capital e.g., inventories, accounts
receivable, cash, accounts payable, etc.
2. Percent of sales approach:
This is a traditional and simple method of estimating working capital
requirements.
According to this method, on the basis of past experience between sales and
working capital requirements, a ratio can be determined for estimating the
working capital requirements in future.
3. Operating cycle approach:

According to this approach,

the requirements of working
capital depend upon the
operating cycle of the
business. The operating
cycle begins with the
acquisition of raw materials
and ends with the collection
of receivables.
Operating cycle is also called Working Capital Cycle. Operating cycle is the
time duration required to convert sales, after the conversion of resources into
inventories, into cash. The operating cycle of a manufacturing company
involves three phases:

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

2. Manufacture of the product which includes conversion of raw materials into
work- in-progress into finished goods.
3. Sale of the product either for cash or on credit. Credit sales create account
receivable for collection.
The length of operating cycle of a manufacturing firm is the sum of:
1. Inventory conversion period (ICP): It is the total time needed for producing
and selling the product. It includes:
A. Raw material conversion period (RMCP)
B. Work-in-progress conversion period (WIPCP)
C. Finished goods conversion period (FGCP)
2. Debtors (receivable) conversion period (DCP): It is the time required to
collect the
outstanding amount from the customers.
Symbolically the duration of the working capital cycle can be put as
follows: -

OC = RMCP + WIPCP + FGCP + DCP CPP.

Here, CCP=Creditors Payment Period. It is the credit period allowed by the
suppliers of the firm.

Factors influencing working capital requirements

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The working capital needs of a firm are influenced by numerous factors. The
important factors are:
1. Nature of business
The working capital requirement of a firm is closely related to the
nature of its business. A service firm, like an electricity undertaking which has
a short operating cycle, which sells predominantly on cash basis, has a modest
working capital requirement. On the other hand, a manufacturing concern like
a machine tools unit, which has a long operating cycle and which sells largely
on credit, has a very substantial working capital requirement.

2. Seasonality of operations
Firms which have marked seasonality in their operations usually have
highly fluctuating working capital requirements. To illustrate, consider a firm
manufacturing ceiling fans. The sale of ceiling fans reaches a peak during the
summer months and drops sharply during the winter period.
3. Production policy
A firm marked by pronounced seasonal fluctuation in its sales pursues a
production policy, which may reduce the sharp variations in working capital
requirements.
4. Market conditions
The degree of competition prevailing in the market place has an
important bearing on working capital needs. When competition is keen, a
larger inventory of finished goods is required to promptly serve customers
who may not be inclined to wait because other manufacturers are ready to
meet there needs.
5. Conditions of supply
The inventory of raw materials, spares, and stores depends on the
conditions of supply. If the supply is prompt and adequate, the firm can
manage with small inventory.

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RATIO ANALYSIS
Financial Analysis
Financial analysis is the process of identifying the financial strengths and
weaknesses of the firm and establishing relationship between the items of the
balance sheet and profit & loss account.

Ratio Analysis
The term Ratio refers to the numerical and quantitative relationship between
two items or variables. This relationship can be expressed as:
Percentages
Fractions
Proportion of numbers.
Ratio analysis is defined as the systematic use of the ratio to interpret the
financial statements so that the strengths and weaknesses of a firm, as well as
its historical performance and current financial condition can be determined.
Ratio reflects a quantitative relationship and helps to form a quantitative
judgment.
Ratio analysis is one of the techniques of financial analysis to evaluate the
financial condition and performance of a business concern. Simply, ratio means
the comparison of one figure to other relevant figure or figures.
According to Myers," Ratio analysis of financial statements is a study of
relationship among various financial factors in a business as disclosed by a
single set of statements and a study of trend of these factors as shown in a series
of statements."

Financial ratio analysis is the calculation and comparison of ratios, which are
derived from the information in a companys financial statements. The level and
historical trends of these ratios can be used to make inferences about a

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companys financial condition, its operations and attractiveness as an

investment. The information derived from Ratio Analysis is used by:
Trade creditors, to identify the firms ability to meet their claims i.e.
liquidity position of the company.
Investors, to know about the present and future profitability of the
company and its financial structure.
Management, in every aspect of the financial analysis. It is the
responsibility of the management to maintain sound financial condition in
the company.

Steps in Ratio Analysis

Ratio Analysis mainly involves the following three steps:
The first task of financial analysis is to select the information relevant to
the decision under consideration from the statements and calculates
appropriate ratios.
To compare the calculated ratios with the ratios of the same firm relating to
the past or future (projected) or with the ratios of another firm of the same
industry. It facilitates in assessing success or failure of the firm.
Third step is interpretation, drawing of inferences and report writing.
Conclusions are drawn after comparison in the shape of report or
recommended courses of action.

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Basis or standards of comparison

Ratios are relative figures reflecting the relation between variables. They enable
analyst to draw conclusions regarding financial operations. The use of ratios as a
tool of financial analysis involves the comparison with related facts which is the
basis of ratio analysis. The basis of ratio analysis is of four types:
Past ratios: calculated from past financial statements of the same firm.
Competitors ratio: ratios of some progressive and successful competitor
firm at the same point of time.
Industry ratio: ratios of the industry to which the firm belongs.
Projected ratios: ratios of the future developed from the projected or pro
forma financial statements.

Interpretation of Ratios
The interpretation of ratios is an important factor. The inherent limitations of ratio
analysis should be kept in mind while interpreting them. The impact of factors
such as price level changes, change in accounting policies, window dressing etc.,
should also be kept in mind when attempting to interpret ratios. The interpretation
of ratios can be made in the following ways:

Single absolute ratio

Group of ratios
Historical comparison
Projected ratios
Inter-firm comparison.

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Guidelines or Precautions for the use of Ratios

The calculation of ratios may not be a difficult task but their use is not easy.
Following guidelines or factors may be kept in mind while interpreting various
ratios:

Appropriation of data used

Objective or purpose of analysis
Selection of ratios
Use of standards
Caliber of the analyst.

Advantages and Uses of Ratio Analysis

There are various groups of people who are interested in analysis of financial
position of a company. They use the ratio analysis to workout a particular
financial characteristic of the company in which they are interested. Ratio
analysis helps the various groups in the following manner: To workout the profitability: Accounting ratio help to measure the
profitability of the business by calculating the various profitability ratios. It
helps the management to know about the earning capacity of the business
concern. In this way profitability ratios show the actual performance of the
business.
To workout the solvency: With the help of solvency ratios, solvency of
the company can be measured. These ratios show the relationship between
the liabilities and assets. In case external liabilities are more than that of the
assets of the company, it shows the unsound position of the business. In
this case the business has to make it possible to repay its loans.
To help in analysis of financial statement: Ratio analysis help the
outsiders just like creditors, shareholders, debenture-holders, bankers to
know about the profitability and ability of the company to pay them
interest and dividend etc.
To help in comparative analysis of the performance: With the help of
ratio analysis a company may have comparative study of its performance to
the previous years. In this way company comes to know about its weak
points and is able to improve them.

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To simplify the accounting information: Accounting ratios are very

useful as they briefly summarize the result of detailed and complicated
computations.
To workout the operating efficiency: Ratio analysis helps to workout the
operating efficiency of the company with the help of various turnover
ratios. All turnover ratios are worked out to evaluate the performance of the
business in utilizing the resources.
To workout short-term financial position: Ratio analysis helps to
workout the short-term financial position of the company with the help of
liquidity ratios. In case short-term financial position is not healthy efforts
are made to improve it.
Helpful for forecasting purposes: Accounting ratios indicate the trend of
the business. This trend is useful for estimating future. With the help of
previous years ratios, estimates for future can be made. In this way these
ratios provide the basis for preparing budgets and also determine future line
of action.

Limitations of Ratio Analysis

In spite of many advantages, there are certain limitations of the ratio analysis
techniques and they should be kept in mind while using them in interpreting
financial statements. The following are the main limitations of accounting ratios:
Limited Comparability: Different firms apply different accounting
policies. Therefore the ratio of one firm can not always be compared with
the ratio of other firm. Some firms may value the closing stock on LIFO
basis while some other firms may value on FIFO basis. Similarly there
may be difference in providing depreciation of fixed assets or
certain of provision for doubtful debts etc.
Inappropriate Results: Accounting ratios are based on data drawn from
accounting records. In case that data is correct, then only the ratios will
be correct.

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Effect of Price Level Changes: Price level changes often make the
comparison of figures difficult over a period of time. Changes in price
affect the cost of production, sales and also the value of assets. Therefore,
it is necessary to make proper adjustments for price-level changes before
any comparison.
Qualitative factors are ignored: Ratio analysis is a technique of
quantitative analysis and thus, ignores qualitative factors, which may be
important in decision making. For example, average collection period
may be equal to standard credit period, but some debtors may be in the
list of doubtful debts, which is not disclosed by ratio analysis.
Effect of window-dressing: In order to cover up their bad financial
position some companies resort to window dressing. They may record the
accounting data according to the convenience to show the financial
position of the company in a better way.
Misleading Results: In the absence of absolute data, the result may be
misleading. For example, the gross profit of two firms is 25%, where the
profit earned by one is just Rs. 5,000 and sales are Rs. 20,000 and profit
earned by the other one is Rs. 10,00,000 and sales are Rs. 40,00,000.
Even the profitability of the two firms is same but the magnitude of their
business is quite different.

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CHAPTER - 4
RESEARCH
METHODOLOGY

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Research Methodology
Research Methodology is the way to systematically solve the problem, in it we
study the various steps that are generally adopted in the study along with the
logic behind them. It is a conceptual structure with in which study is conducted;
it constitutes the blue print of the collection, measurement and analysis of data.
In the context of the study the methodology applied is as follows:

Objectives of the Study:

To study the need and importance of working capital.
To study the various sources of working capital in J.S.P.L.
To study relevancy of ratios in the financial management of the organization.
To assess liquidity position, long term solvency, operational
efficiency and overall profitability of J.S.P.L.

Collection of Data:
1. Secondary Data:
Data collected from financial statements of the company;
Profit & Loss A/c,
Balance Sheet,
Annual Report, etc.

Referring books, journals and magazines

Information collected from Internet.

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Statistical Tools used:

I have covered Working Capital & Ratio Analysis in this project. Working
Capital
is simply Current Assets minus Current Liabilities. There is no particular
statistical
tool used in it. In case of Ratio Analysis, there are four major Ratios1.

Liquidity Ratio Current Ratio

Quick Ratio
Absolute Liquid Ratio
2. Profitability Ratio

Gross profit Ratio

Net profit Ratio
Operating profit ratio
Return on Investment
Return on Equity

3.Leverage Ratio Debt-Equity Ratio

Proprietary Ratio
4.Turnover / Activity Ratio Inventory Turnover Ratio

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Debtors Turnover Ratio

Creditors Turnover Ratio
Average Collection Period
Average Payment Period
Net Assets Turnover Ratio
Total Assets Turnover Ratio
Fixed Assets Turnover Ratio
Current Assets Turnover Ratio
Working Capital Turnover Ratio

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CHAPTER - 5
DATA TABULATION AND
RESULT

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Calculation of Working Capital for Last 3 Years at JSPL.

(Data accumulation Through Company Annual Reports of- 2010-11, 2011-12, 2012-13)

Particular

201213
Amount
(Crores
)

20112012

Amount

Amount

(Crores
)

(Crores)

20102011

Amoun
t

Amoun
t

Amoun
t

(Crore
s)

(Crore
s)

(Crore
s)

CURRENT ASSETS:
DEBTORS

391.46

287.38

320.31

INVENTORIES

1,209.96

980.56

642.44

SHORT-TERM LOANS AND ADVANCES.

3,199.04

1,453.72

785.94

CASH AND BANK BALANCES

308.96

577.91

52.97

TOTAL CURRENT ASSETS

5,109.42

3,299.57

1,801.66

CURRENT LIABILITIES: (Less)

LIABILITIES

2,446.20

1,038.87

794.87

PROVISIONS

985.81

581.94

385.48

TOTAL CURRENT LIABILITIES

3432.01

1,620.81

1,180.35

NET WORKING CAPITAL

1677.41

1,678.76

621.31

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Calculation of ratios of J.S.P.L. and Analysis based on

them:
1. Current Ratio:
Current Ratio = Current Assets / Current Liabilities.
Particulars

2012-13 (in Rs.

2011-12

Current Assets
Current Liabilities
Current Ratio

Cr.)
5109.42
3432.01
1.49:1

Rs. Cr.)
3299.57
1620.81
2.04:1

(in

2010-11(in
Rs. Cr.)
1801.66
1180.35
1.52:1

Analysis: The Current Ratio of a firm measures its short term solvency.
Higher the ratio better is the firms ability to meet its short term obligations. A
Current Ratio of 2:1 is considered to be ideal (banks consider this ratio to be
favorable till 1.33:1).
From the above table, it can be inferred that liquidity of J.S.P.L. has
deteriorated from 2012 to 2013 as the Current Ratio has gone down from
2.04:1 to 1.49:1 (although it is still favorable). It means that its ability to meet
its current obligations (liabilities) has gone down. The reason why this ratio
decreases mainly is more than proportionate decrease in Current Assets when
compared to Current Liabilities. It may be due to initiation of new projects.

2. Quick Ratio:

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Quick Ratio = Current Assets Inventories / Current Liabilities.

Particulars
Current Assets Inventories
Current Liabilities
Quick Ratio

2012-13

(in

2011-12

(in

2010-11

Rs. Cr.)

Rs. Cr.)

Rs. Cr.)

3899.46
3432.01
1.14:1

2319.01
1620.81
1.43:1

1159.22
1180.35
0.98:1

(in

Analysis: Quick Ratio represents a firms ability to meet its current

obligations within a very short period of time, i.e. within one month. A Quick
Ratio of 1:1 is considered to be ideal.
Quick Ratio of J.S.P.L. in the year 2013 is 1.14:1 which shows that the
companys financial position is quite strong. The company is capable of
meeting its current obligations within a short period of time. Although this
ratio has gone down from 1.43:1 in 2012 to 1.14 in 2013, it still has a strong
liquidity position and wont face any problem in getting creditors.

3. Debt Equity Ratio:

Debt-Equity Ratio = Long term debt / Shareholders funds (equity).
Particulars
Long term debt
Equity
Debt-Equity Ratio

2012-13

(in

Rs.2011-12

(in

Rs.2010-11 (in Rs.

Cr.)

Cr.)

Cr.)

4812.4
5388.13
0.89:1

3663.27
3725.26
0.98:1

3174.2
2478.41
1.28:1

Analysis: This ratio offers one of the best pictures of a companys leverage. The
higher the figure the higher is the leverage the company enjoys. It is a
relationship describing the lenders contribution for each rupee of the owners
contribution. It reflects the relative claim of the creditors and owners against the

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assets of the firm. Alternatively, it also indicates the relative proportion of the
debt and equity in financing the assets of the firm.
The Debt-Equity Ratio of J.S.P.L. has shown a decreasing trend over the years
showing that the company has focused more on financing its growth with equity
as compared to debt. The company has a better support from the shareholders. A
ratio of 0.89:1 shows that the claim of the owners is greater than those of the
creditors. From the point of view of creditors, it represents a satisfactory situation
since a high proportion of equity provides a larger margin of safety to them.

4. Capital Employed to Net Worth Ratio:

C / N Ratio = Capital Employed / Net Worth.
Particulars

2012-13

(in

Rs.2011-12 (in Rs.2010-11 (in Rs.

Cr.)

Cr.)

Cr.)

10350.78
5388.13
1.92:1

7588.61
3725.26
2.04:1

5986.13
2478.41
2.42:1

Capital Employed
(Debt + Net Worth)
Net Worth
C / N Ratio

Analysis: This ratio shows the amount of funds being contributed together by
lenders and owners for each rupee of the owners contribution. It is an alternative
way of expressing the basic relationship between debt and equity.
The ratio of 1.92 times shows that the net worth of the company is approximately
half of the total investment in the company and hence company has very sound
financial position. We can also say that owners finance around 50% of the total
investment in the company.

5. Interest Coverage Ratio:

Interest Coverage Ratio = EBIT / Interest.

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Particulars
EBIT
Interest
Interest Coverage Ratio

MAJOR PROJECT

2012-13 (in Cr.)

2170.79
168.91
12.9:1

2011-12 (in Cr.)

1711.1
208.59
8.2:1

2010-11 (in Cr.)

1095.11
150.27
7.2:1

Analysis: This ratio is a measurement of the number of times a company could

make its interest payments with its earnings before interest and taxes. Lower the
ratio, higher is the companys debt burden.
The ratio of 12.9:1 is high and hence the company has very sound financial
position. It has no tension of paying interests over its loans as it creates much
more wealth from the debts than the interests to be paid. Also, this ratio is showing
an increasing trend over the years which depict the strengthening of the financial
position of the company and continuous improvement in its operating efficiency.

6. Gross Profit Margin :

Gross Profit Margin = (Gross Profit / Net Sales) *100.
Particulars
Gross Profit
Net Sales

2012-13 (in Cr.)

3256.47
7653.19

2011-12 (in Cr.)

2788.37
5410.75

2010-11 (in Cr.)

1816.19
3519.81

Gross Profit Margin

42.55%

51.53%

51.6%

Analysis: The Gross Profit Margin reflects the efficiency with which management
produces each unit of product. This ratio indicates the average spread between the
cost of goods sold and sales revenue. A high GP ratio is a sign of good
management as it implies that the cost of production of the firm is relatively low
and vice-versa.
The GP ratio of J.S.P.L. has gone down in 2012-13 as compared to previous years
which is due to considerable increase in its cost of production, mainly cost of raw
materials (the main reason of which can be inflation). In spite of this decrease, the

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ratio is still high and satisfactory. This shows the firms efficiency of production. It
represents that J.S.P.L. has been able to make good profits although not as high as
previous years.
7. Net Profit Margin:
Net Profit Margin = (Profit after tax (PAT) / Net Sales) * 100.
Particulars
PAT
Net Sales
Net Profit Margin

2012-13 (in Cr.)

1536.48
7653.19
20.08%

2011-12 (in Cr.)

1236.96
5410.75
22.86%

2010-11 (in Cr.)

702.99
3519.81
19.97%

Analysis: This ratio establishes a relationship between net profit and net sales and
indicates managements efficiency in manufacturing, administering and selling the
products.
The NP Ratio of JSPL in 2012-13,i.e., 20.08% is quite impressive and shows that
the company is performing well and has high level of efficiency. The company is
able to achieve satisfactory return on shareholders funds. Also, the firm has the
capacity to withstand adverse economic conditions. PAT is showing an upward
trend which is very good. Although this ratio is showing a decline in 2012-13 from
2011-12, this decline is nominal and can be overlooked. It is not harming the
profitability of the firm.

8. Operating Profit Margin:

Operating Profit Margin = (Operating Profit / Net Sales) * 100.
Particulars
Operating Profit
Net Sales
Operating Profit Margin

2012-13 (in Cr.)

2637.86
7653.19
34.47

2011-12 (in Cr.)

2295.91
5410.75
42.43

2010-11 (in Cr.)

1409.81
3519.81
40.05

Analysis: This ratio indicates the earning capacity of the concern on the basis of
its business operations and not from earnings from other sources. It shows whether

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the business is able to stand in the market or not. It ensures adequate coverage for
operating expense of the firm and sufficient return to the owners of the business.
Although Operating Profit of JSPL increased over the years, the relative increase
in operating profit and net sales of 2012-13 as compared to 2011-12 were not in
proportion. Because of this, a decrease in operating profit margin can be observed.
But in spite of this, the ratio in 2012-13 is good (34.47%) which represents the
firms good earning capacity solely from its business operations leaving aside
earnings from other sources.
9. Return on Investment (ROI):
ROI = (PAT + Interest / Net Assets) * 100.
Particulars
PAT + Interest
Net Assets
ROI

2012-13 (in Cr.)

1705.39
10974.72
15.54%

2011-12 (in Cr.)

1445.55
8111.26
17.82%

2010-11 (in Cr.)

853.26
6416.25
13.3%

Analysis: Return on investment or Return on capital employed measures the profit

which a firm earns on investing a unit of capital. The profit being the net result of
all operations, the return on capital expresses all efficiencies and inefficiencies of
a business. To shareholders it indicates how much their capital is earning and to
the management as to how efficiently it has been working. This ratio influences
the market price of the shares. The higher the ratio, the better it is.
The ROI of 15.54% signifies that JSPL is getting good return on its investments.
The consistency in good value of this ratio is showing that the companys key
decision makers are doing a great job.

10. Return on Equity (ROE):

ROE = (PAT / Equity Shareholders funds) * 100.
Particulars
PAT
Equity Shareholders funds
ROE

2012-13 (in Cr.)

1536.48
5387.13
28.52%

2011-12 (in Cr.)

1236.96
3724.26
33.21%

2010-11 (in Cr.)

702.99
2477.41
28.38%

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Analysis: Return on Equity judges the profitability from the point of view of
equity shareholders. This ratio has great interest to equity shareholders. The return
on equity measures the profitability of equity funds invested in the firm. The
investors favor the company with higher ROE.
The ROE of 28.52% for 2012-13 is quite good and it shows that the company is
utilizing the equity funds in a good way to generate more profits for its equity share
holders. Although the ratio has gone down in 2012-13 as compared to 2011-12, it is
still favorable and adequate for generating capital.

11. Inventory Turnover:

Inventory Turnover = Net Sales / Average Inventory.
Particulars
Net Sales

2012-13 (in Cr.)

7653.19

2011-12 (in Cr.) 2010-11 (in Cr.)

5410.75
3519.81

Average Inventory
Inventory Turnover
Days of Inventory Holdings

1095.26
6.99 times
52 days

811.5
6.66 times
55 days

605.82
5.81 times
63 days

(365 / Inventory Turnover)

Analysis: The Inventory Turnover shows how rapidly the inventory is turning into
receivable through sales. Generally, a high inventory turnover is indicative of good
inventory management and in turn higher profits for the company. A low value
implies excessive inventory levels than warranted by production and sales activity,
or a slow moving or obsolete inventory.
JSPLs efficiency in turning its inventories is continuously improving, the value for
2012-13 being 6.99times. The company has been able to sell its stock or convert its

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inventories into receivables 6.99times a year which can be considered to be

moderate depending on the nature of manufacturing sector. Also, the companys
utilization of inventories in generating sales is satisfactory and the yearly holding of
all types of inventories is decreasing.

12. Net Assets Turnover:

Net Assets Turnover = Net Sales / Net Assets (Capital Employed).
Particulars

2012-13 (in Rs. Cr.)2011-12

(in

Rs.2010-11 (in Rs.

Cr.)
Cr.)
Net Sales
7653.19
5410.75
3519.81
Net Assets
10974.72
8111.26
6416.25
Net Assets Turnover
0.7 times
0.67 times
0.55 times
Analysis: A firms ability to produce a large volume of sales for a given amount
of net assets is the most important aspect of its operating performance.
Unutilized or under utilized assets increase the firms need for costly financing.
The net asset turnover of 0.7 times implies that JSPL is producing Rs 0.7 of sales
for one rupee of capital employed in net assets. It can be observed that the
companys net assets turnover is improving over the years which means its
efficiency and operating performance is improving.

13. Total Assets Turnover:

Total Assets Turnover = Net Sales / Total Assets.
Particulars
Net Sales
Total Assets
Total Assets Turnover

2012-13 (in Rs. Cr.)2011-12 (in Rs.2010-11 (in Rs.

7653.19
14406.73
0.53 times

Cr.)
5410.75
9732.07
0.56 times

Cr.)
3519.81
7596.6
0.46 times

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Analysis: The Total assets turnover ratio shows the firms ability in generating
sales from all financial resources committed to total assets.
The total asset turnover of 0.53 times implies that JSPL generates a sale of Rs
0.53 for one rupee investment in fixed assets and current assets together. A
consistency can be observed in this ratio over the years, which is a good thing.

14. Current Assets Turnover:

Current Assets Turnover = Net Sales / Current Assets.
Particulars
Net Sales
Current Assets
Current Assets Turnover

2012-13 (in Cr.)

7653.19
5109.42
1.5 times

2011-12 (in Cr.)

5410.75
3299.57
1.64 times

2010-11 (in Cr.)

3519.81
1801.66
1.95 times

Analysis: Current Assets Turnover of JSPL is showing a decline over the years.
So, it can be inferred that the speed with which the firm converts its current
assets into sales is declining. This means that the efficiency with which the firm
utilizes its current assets is decreasing. So this should be looked upon by the
management.

15. Working Capital Turnover:

Working Capital Turnover = Net Sales / Net Working Capital.
Particulars
Net Sales
Net Working Capital
Working Capital Turnover

2012-13 (in Cr.)

7653.19
1677.41
4.56 times

2011-12 (in Cr.)

5410.75
1678.76
3.22 times

2010-11 (in Cr.)

3519.81
621.31
5.66 times

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Subject Code: 5776422(76)

MAJOR PROJECT

Analysis: It can be seen that the speed with which the firm is converting its
working capital or net current assets into sales has increased in 2012-13 as
compared to 2011-12. The case was opposite for current assets. This means that
the efficiency of the firm to utilize its working capital is more than its efficiency
to utilize its current assets.
The return of 4.56 times is a representative of companys good performance. The
company is generating 4.56 times of turnover from its working capital annually.
This means that the company manages its working capital very efficiently.
The reciprocal of the ratio for the year 2012-13 is 0.22. Thus, it indicates that for
one rupee of sales the company needs Rs. 0.22 of net current assets. This gap
will be met by bank borrowings and long- term sources of funds.

16. Debtors Turnover:

Debtors Turnover = Credit Sales / Average Debtors.
(Because of the unavailability of credit sales net sales has been used in its place).
Particulars
Net Sales
Average Debtors
Debtors Turnover
Average Collection Period

2012-13 (in Cr.)

7653.19
339.42
22.55 times
16 days

2011-12 (in Cr.)

5410.75
303.85
17.81times
21 days

2010-11 (in Cr.)

3519.81
309.93
11.36 times
32 days

(365 / Debtors Turnover)

Analysis: Debtors turnover indicates the number of times debtors turnover each
year. Generally, the higher its value, the more efficient is the management of

MBA-IV
Subject Code: 5776422(76)

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credit. The average collection period measures the quality of debtors since it
indicates the speed of their collection. The shorter the average collection period,
the better is the quality of debtors, since it implies the prompt payment by
debtors.
The Debtor Turnover of JSPL is increasing over the years. So, more realization is
being achieved. This is very good. The debtors turnover of 22.55 times in 201213 is a representative of the efficient management of credit in JSPL. The increase
in debtors turnover is leading to the reduction of average collection period of the
company. This shows that debtors of JSPL are good and the chances of bad debt
losses are less.

17. Creditors Turnover:

Creditors Turnover = Credit Purchase / Average Creditors.
Particulars
Credit Purchase
Average Creditors
Creditors Turnover
Average Payment Period

2012-13 (in Cr.)

2672.05
618.39
4.32 times
84 days

2011-12 (in Cr.)

1330.32
411.39
3.23 times
113 days

2010-11 (in Cr.)

777.99
314.99
2.47 times
148 days

(365 / Creditors Turnover)

Analysis: Creditors Turnover ratio of the company is increasing over the years.
This means that creditors liability on the company is increasing. This is not good.
A firm should have a low creditors turnover and it should not be increasing over
the years. This increase may be a result of inflation present in the market during
this period which resulted in an increase in the price of raw materials. The increase
in creditors turnover ratio is leading to a decrease in average payment period
which means that time available for the company to pay back creditors liabilities is
decreasing. So, this should be looked upon by the management.

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Subject Code: 5776422(76)

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MBA-IV
Subject Code: 5776422(76)

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CHAPTER - 6
FINDINGS OF THE STUDY

FINDINGS OF THE STUDY

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Subject Code: 5776422(76)

MAJOR PROJECT

JSPL has been successful in maintaining sufficient working capital during

the past. There was tremendous increase in working capital value in 201112 as compared to the previous year (170%). There was no increase in
2012-13 but JSPL was able to maintain the high value of 1677.41 during
this year which is very good and shows companys efficient working
capital management.
Current Assets of JSPL has been increasing significantly over the years.
From a value of 1801.66 Cr in 2010-11 it reached 3299.57 Cr in 2011-12
and finally it attained the value of 5109.42 Cr in 2012-13 (54.84%
growth). This is really appreciable.
In spite of such high increase in current assets, working capital was
constant in last two years because there was a proportionate growth in
current liabilities of the company.
The liquidity ratios have shown a decrease. Current ratio has gone below
the ideal value (1.49:1) in 2012-13. This has led to the conclusion that the
liquidity of the company has deteriorated.
Decrease in Debt-Equity ratio over the years is a representative of higher
focus of the company on financing its requirements with equity as
compared to debt.
Decrease in Gross profit, Net profit and Operating profit margin ratios
show that the increase in profits is not up to the mark with the increase in
sales. This is due to increase in expenditure along with increase in sales.
The value of ROI is good showing that the investment decisions made by
the management were good fetching better returns for the company.
The value of ROE is good showing that the company is able to utilize its
equity funds in an efficient way to bring good profits for equity
shareholders.
The efficiency of the company to utilize its working capital is more than
its efficiency to utilize its current assets.

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Subject Code: 5776422(76)

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Working capital turnover is 4.56 times showing that the company

manages its working capital very efficiently.
The debtors of JSPL are good and the chances of occurrence of bad debts
are very less.

MBA-IV
Subject Code: 5776422(76)

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MBA-IV
Subject Code: 5776422(76)

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CHAPTER - 7
RECOMMENDATIONS

RECOMMENDATIONS OF THE STUDY

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Subject Code: 5776422(76)

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Based on the study and the conclusions drawn, I would like to put forward some
recommendations which are as follows:
The company should either try to bring about an increase in its current
assets or a decrease in its current liabilities to pull up its current ratio near
the ideal value. This will result in an increase in the liquidity of the firm
and will make its position safer.
Management should take steps to reduce the expenditure or cost of
production in order to increase profit margins. For this, company should
go for better quality raw materials and improved technology. JSPL is
already planning to adopt Gas Based DRI which will help to reduce the
cost of production of steel significantly.

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Subject Code: 5776422(76)

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CHAPTER - 8
LIMITATIONS

LIMITATIONS OF THE STUDY

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Subject Code: 5776422(76)

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While carrying out my study, I came across certain limitations which the
company might face. These limitations are:
There is very high level of competition in the market as JSPL has strong
market leaders like TATA Steel and SAIL as its competitors. So, carrying
out business processes in such a way so as to increase the profit margins
of the company and make its hold on the market stronger is the prime
challenge for JSPL.
Proper operation of the Working Capital Cycle is very important for
proper functioning of a business. Therefore, if anything goes wrong with
any step of the working capital cycle of JSPL and this cycle is
interrupted, business will be hampered drastically.
As JSPL has become one of the biggest industries today with a big and
continuously operating manufacturing unit, it needs to maintain a
sufficient amount of working capital with it always to meet its current and
emergency needs and to prevent any adverse situation.

MBA-IV
Subject Code: 5776422(76)

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CHAPTER - 9
CONCLUSIONS

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Subject Code: 5776422(76)

MAJOR PROJECT

CONCLUSIONS OF THE STUDY

JSPL has been keeping sufficient working capital with it. It provides a strong
financial base for the company. It has been rising in relations to the growth of
the company. The working capital investment decisions made by the company
have also helped it to gain a strong financial status in a market where strong and
well established market leaders like TATA Steel are its competitors. It will not
be wrong to conclude with saying that the companys financial management is
highly appreciable and it is assumed that this would help the company to
continue its race on the path of continuous success.

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Subject Code: 5776422(76)

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REFERENCES

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Subject Code: 5776422(76)

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REFERENCES
I. M. Pandey - Financial Management.
Dr. S. K. Gupta - Financial Management.
M. Y. Khan - Financial Management.
S. Khurana - Ratio Analysis.
Annual Report of JSPL 2012-13.
Annual Report of JSPL 2011-12.
Annual Report of JSPL 2010-11.