WORKING CAPITAL MANAGEMENT

With reference to Visakhapatnam Steel Plant

Rashtriya Ispat Nigam Limited

SUBMITTED BY

S.ANITHA MBA

(FINANCE)

Roll no:Y12BU20008
Under Guidance of
Mr.P.V.S.SURYANARAYANA A.G.M (F&A Dept.)
(Vizag Steel Plant)

DEPARTMENT OF COMMERCE AND BUSINESS ADMINISTRATION

ACHARYA NAGARJUNA UNIVERSITY
NAGARJUNANAGAR ,GUNTUR

FACILITATED BY HR DEPARTMENT
SRI. O.R.M.RAO AGM, (HRD) SRI. M.L.S.VARMA Dy.M (HRD)

CERTIFICATE OF DECLARATION

I here by declare that this project entitled working Capital

Management at Visakhapatnam Steel Plant is my original work and
prepared by me under the Sable guidance and Supervision of
Mr.P.V.S.Suryanarayana A.G.M ( F & A ) of Visakhapatnam Steel Plant.
I also declare that, I have not submitted this project report to any other
university (or) institution for the award of any degree (or) diploma.

Date:
Place:

Signature of the Student

S.ANITHA

Reg.No.Y12BU20008

CERTIFICATE

This is to certify that this project work entitled WORKING CAPITAL MANAGEMENT at
Visakhapatnam Steel Plant is a bonafide work of S.ANITHA, Reg no: Y12BU20008
carried out in partial fulfilment for the award of Master of Business Administration (Finance)
of ACHARYA NAGARJUNA UNIVERSITY under my Supervision and guidance at
Vishakhapatnam Steel Plant and completed successfully during 25-JUNE-2012 to18-AUG2012.Supervision and guidance during the academic year 2011-2013.

Date:
Place:

(Project Guide)
P.V.S.SURYANARAYANA
A.G.M (F&A)

ACKNOWLEDGEMENT
I would like to thank each and every employee who has directly or
indirectly helped me in carrying out this project.

I take this opportunity to express my heartfelt thanks to my project

guideMr.P.V.S.Suryanarayana(F&A) for his guidance and suggestions during the
progress of my project. I am thankful to the VISAKHAPATNAM STEEL PLANT,
for giving me an opportunity to undertake my project work.
My special thanks to Mr. O.R.M.RAO,A.G.M(HRD) &Mr. M.L.S
VARMA Dy.M (HRD) Group of VISAKHAPATNAM STEEL PLANT, for his
valuable suggestions and co-operation throughout the project work.
I want express my sincere thanks to my Guide Mr.P.V.S.SURYANARAYANA
A.G.M(F&A)for his constant moral support and valuable guidance in successful
completion of the project work.
Finally I would like to thank other faculty members for their extended co-operation &
suggestions which have helped a lot.
Lastly, my heartfelt gratitude to my family and friends for their cooperation.

(S.ANITHA)

PREFACE

This project report is a presentation of my effort to study

the practice of Financial Management in a public sector
enterprise, with reference to Rashtriy aIspat Nigam Limited,
Vishakhapatnam. The report presents the practical approach in
the subject of Financial Management, mainly in the field of
WORKING CAPITAL MANAGEMENT". It intends to provide
brief knowledge of various concepts, Principles, approaches,
considerations relevant to this field. The Project Report has
undergone a realistic survey of actual theory and practices in
VSP although there may be much gap to be bridged.
This report seeks to cover the topics of Financial
Management, mainly focusing on the aspects like working
capital Management, Cash Management, Receivables
Management, Inventory Management etc.
The report has been divided into five chapters and the
arrangements of topics in various chapters have been grouped
according to the analysis of the subject.

S.NO

INDEX

PAGE No.

INTRODUCTION

1-9

INDUSTRY PROFILE

10-20

COMPANY PROFILE

21-45

THEORITICAL FRAME WORK

46-68

ANALYSIS AND INTERPRETATION

69-82

SUMMARY SUGGESTIONS FINDINGS

83

CONCLUSION

84

BIBLIOGRAPHY

85

CHAPTER-1
INTRODUTION

INTRODUCTION

Finance is the process of commission of accumulated funds to productive use.

Finance helps to direct flow of economic activity and facilitates its smooth
operation. Finance is the agent that produces this result.
There are many definitions of all the best was of Howard and upon
those administrative areas of assets of organisation which have to do with
management of flow of cash so that the possible and at the same time meet its
obligations as they become due.
Finance is concerned with the task of providing funds to the
enterprises on the item that is most favourable toward the attainment of the
organisation foals objects. The function finance is merely furnishing funds to
the organisation. Finance has a boarder meaning and it covers financing
planning, forecasting of cash receipts and disbursement, rising of funds, use and
allocation of funds and financial control.
The area of operation of finance manager is vague from one
Company to anotherand industry to industry etc.
Significance of finance management:
Financial management is the managerial activity, which is
concerned with planning and controlling of the firms financial resources.
The subject of finance management is of immense interest both to
academician and practicing managers. The practicing managers All interested in
this subject become the most crucial decision of the firm All those which results
to the finance and on understanding of theory of finance management provides
them conceptual analysis insights to make these decision skilfully.
As a separate activity and discipline it is of recent origin. It was a
branch of economics till 1890.Today financial management is recognized as the
most important branch of business administration.
Financial management may be defined as the part of management,
which is concerned mainly with raising funds in the most economic and suitable
manner, using these funds as possible planning future operations, and
controlling current performance and future development through financial

accounting, cost accounting, budgeting statistics and other means. It guides

investment where opportunity is the greatest production relatively uniform yard
strikes judging most of the firms operations and projects and is continually
necessary for survival and attracting of new capital.
According to Howard and upon, financial management involves
the application of general management principles to a particular operation.
N.G.Wright says finance management is intimately itself woven
into the fabric of the management itself. Its central role is concerned with the
some objectives as these of the management which the way in which the
resources of the business are employed and how the business is finance. He
divides financial management into three main areas:
1. Decision on the structures,
2. Allocation of available funds to specific uses,
3. Analysis and appraised of problems.
Financial management includes planning of finance, cash budgets
and sources of finance. EZRA Solomon and john piglet insists that financial
management must attend to investment decision because if these decision that
affects in a large measure the future of a firm major financial management is an
operational function it is involved with financial planning, forecasting and
providing of finance as well as the formation of financial policies.
Hunt William and Donald son have called financial management as
resources management because in a large organisation, the finance managers are
the members of planning, organisation, performing and controlling the financial
affairs of the enterprise. The financial management is of great importance in the
present day corporate world. It is the science of money, which permits the
authorities to go further.

The significance of financial management can be summarized as:

i.
ii.

iii.

iv.

It assists in the assessment of financial needs of industries large or small

and indicates the internal and external resources for meeting them.
It assessment the efficiency and effectiveness of financial institutions in
mobilizing individual or corporate savings. It also prescribed savings
into desirable investment channels.
It assists the management while investing the funds in profitable projects
and it permits the management to safeguard the interests of share holders
by properly utilizingthe funds procured from different sources and it also
regulates and controls the funds to get maximum use.
Analysing the viability of that project through capital budgeting
techniques.

It permits the management to safeguard the interest of share holder of proper

utilizing the funds procured from different sources and also regulates and
controls the funds to get maximum use.

INTRODUCTION TO WORKING CAPITAL

Working capital management is an integral part of the overall financial
management. To that extent, it is similar to the long-term decision making
process because both entail analysis of the effect of risk and profitability.
The problems involved in the management of working capital
differ from those in the management of fixed assets. In the first place, fixed
assets are acquired to be retained in the business over a period of time and yield
returns over the life of the assets.

Definitions:
Working capital is the amount of funds necessary to cover the cost
of operating the enterprise.
Circulating capital means current assets of a company that are changed
in the ordinary course of business from one from to another. For example, from
cash to inventories, inventories to receivables, receivables to cash.

Objectives of working capital management:

The need of working capital arises due to the time gap between
production and realization of cash from sales. There is an operating cycle

involved in the sales and realization of cash. There are time gaps in purchase of
raw materials and production; production and sales; and sales and realization of
cash.
Thus, working capital is needed for the following purposes.
a. For the purpose of raw materials, components and spares.
b. To pay wages and salaries.
c. To incur day-to-day expenses and overhead costs such as fuel, power and
office expenses, etc.
d. To meet the selling costs like packing, advertising, etc.
e. To maintain the inventories of raw materials, work-in-progress, stores and
spares and finished stocks.

Importance of working capital:

Working capital is the life blood and nerve centre of business. Just
as how circulation of blood is essential in the human body for maintaining life,
working capital is very essential to maintain the smooth running of a business.
Composition of working capital:
The individual composite items of working capital consists of
1. Current assets and
2. Current liabilities

1. Current assets:
Current assets are those, which can be converted into cash within
one year without effecting the operations of the firm.

List of current assets:

Cash in hand and bank balance

Bills receivables
Sundry debtors
Short-term loans and advances
Inventories of stock
Prepaid expenses

2. Current liabilities:
Current liabilities are those, which are intended to be paid in
the ordinary course of business within a short period of normally one year out of
the current assets or the income of the business.
List of current liabilities:

Bills payables
Sundry creditors or accounts payables
Short term borrowings
Dividends payables
Bank overdrafts
Accrued or outstanding expenses
Provision for taxation
Sales tax and excise tax

Optimum working capital position:

The firm should maintain a sound working capital position.
It should have adequate working capital to run its business operations. Both
excessive as well as inadequate working capital positions are dangerous from
the firms point of view. Excessive working capital means idle funds, which
earn no profitsfor the firm. Paucity of working capital not only impairs the
firms profitability but also results in production, interruption and efficiencies.

Disadvantages of excessive working capital:

The business cannot earn proper rate of return on its investments.
It may lead to have more changes of theft, waste and losses.

 Excessive working capital implies excessive debtors and defective credit

policy which may cause higher incidence of bad debts.
It may result into overall in effiency in the organization.
When there is excessive working capital, relations with banks and other
financial institutions may not be properly maintained.
Due to low rate of return on investments, the value of shares may also
fall.
The redundant working capital gives rise to speculative translations.

Dangers of inadequate working capital:

It stagnate the growth.
It becomes difficult for the firm to undertake profitable projects due to
inadequate funds.
It becomes difficult to implement operating plans and achieve firms profit
targets.
Operating inefficiencies creep in and it becomes difficult day-to-day
commitments.
Fixed assets are not efficiently utilized for the lack of working capital
funds. Thus the firms profit would deteriorate.
Paucity of working capital funds renders the firm unable to avail
attractive credit opportunities.

Working capital analysis:

The analysis of working capital can be conducted through a
number of devices such as:
1. Ratio analysis
2. Funds flow analysis
3. Budgeting

1. Ratio analysis:

A ratio is simple arithmetical expression of the relationship of one

number to another. The techniques of ratio analysis can be employed for
measuring short-term liquidity or working capital position of a firm. Some of
the ratios are:

Current ratio
Acid test ratio
Absolute liquid ratio
Inventory turnover ratio
Receivables turnover ratio
Payables turnover ratio
Working capital turnover ratio

2. Funds flow analysis:

Funds flow analysis is a technical device designed to study the sources
from which additional funds were derived and use to which these sources were
put. It is an effective management tool to study changes in the financial position
(working capital) of a business enterprise between beginning and ending
financial statement dates. The funds flow analysis consists of
Preparing schedule of changes in working capital.
Statement of sources and application of funds.

3. Budgeting:
The objective of a working capital budget is to ensure availability of
funds as and when needed, and to ensure effective utilisation of these resources.
The successful implementation of working capital budget involves the preparing
of separate budgets for various elements of working capital, such as cash,
inventories and receivables, etc.

CHAPTER-2
INDUSTRY PROFILE

INDUSTRY PROFILE

Steel is crucial to the development of any modern economy and is considered to

be the backbone of human civilization. The level of per capita consumption of
steel is treated as an important index of the level of socioeconomic development
and living standards of the people in any country. Steel industry was in the
vanguard in the liberalization of the industrial sector and has made rapid strides
since then. Output has increased, the industry has moved up in the value chain
and exports have raised consequent to a greater integration with the global
economy. At the same time the domestic steel industry was facing new
challenges. The demand too has not improved to significant levels. The litmus
of the steel industry will be to surmount these difficulties and remain globally
competitive.
History of steel:
Steel was discovered by the Chinese under the reign of Han dynasty in 202BC
till 220AD.Prior to steel, iron was a very popular metal and it was used all over
the globe. Even the time period of around 2to 3 thousand year before Christ is
termed as Iron Age as iron was vastly used in that period in each and every part
of life. The Chinese people invented steel as it was harder than iron and it could
serve if it is used in making weapons from china, the process of making steel
from iron spread to its south and reached India.
High quality steel was being produced in southern India in as early as
300BC.around 9th century AD, the smiths in the Middle East developed
techniques to produce sharp and flexible steel blades. In 17 th century, smiths in
Europe came to know about a new process of cementation to produce steel.

The global steel industry:

The current global steel industry is in its best position in comparing to
last decades. The price has been rising continuously. The demand expectations
for steel products are rapidly growing for coming years. The shares of steel
industries are also in a high pace. The steel industry is enjoying its
6thconsecutive years of growth in supply and demand.
And there is many more merger and acquisitions which overall buoyed
the industry and showed some good results. The supreme crisis has lead to the
recession in economy of different countries, which may lead to have a negative

effect on whole steel industry I coming years. However steel production and
consumption will be supported by continuous economic growth.
Iron and steel making as a craft has been known to India for a long time.
However, its production in significant quantities is known only after 1900.
Steel Industry in India:
Steel has been the key material with which the world has reached to a developed
position. All the engineering machines, mechanical tools and most importantly
building and construction structures like bars, rods, channels, wires angles etc
are made of steel for its features being hard and adaptable.
After independence, successive governments placed great emphasis on the
development of an Indian steel industry. In financial year 1991, the six major
plants, of which five were in the public sector, produced 10 million tons. The
commissioning of Tata Iron & steel companys production unit at Jamshedpur,
Bihar in 1911-12 heralded the beginning of modern steel industry in India.
Following independence and the commencement of five year plans, the
government of India decided to set up four integrated steel plants at Rourkela,
Durgapur, Bhilai, and Bokaro, the Bokaro steel plant was commissioned in
1972.The most recent addition is a 3MT integrated steel plant with modern
technology at Vishakhapatnam. Steel authority of India (SAIL) accounts for
over 40% of Indias crude steel production.
SAIL owns mines and subsidiary companies. Production capacity have recorded
a year-on-year growth rate of 13.4% ,15.7% ,11.7% ,in net sales operating profit
and net profit, respectively ,during the second quarter of 2007-2008.
Soaring demands by sectors like infrastructure, real estates and automobiles, at
home and abroad, has put Indias steel industry on the world steel map.

THE GROWTH IN CHRONOLOGICAL ORDER IS AS FOLLOWING:

1830-Jasiah Marshall Health constructed the first manufacturing plant at part

move in madras presidency.
1874-James Erkisn founded the Bengal iron works.
1899-Jamshedji Tata initiated the scheme for integrated steel plant.
1906-Formation of TISCO
1911-Tata Iron & Steel Company started production.
1916-TISCO was founded
1940-50-Formation of MYSORE Iron and limited, and Bhadravati in
Karnataka.
1950-56-First five year plan.
No new plant came up. The Hindustan steel Ltd. (HSL) was born on 19 th
January, 1954; with the decision of setting up three steel plants each with one
million tonnes input steel per year at Rourkela, Bhilai and Durgapur, TISCO
started its expansion programme.
1956-61-Second five year plan
A bold decision was taken up to increase the steel output in India to 6
million tonnes per year and production at Rourkela, and Durgapur steel
plans started.
1961-66- Third five year plan During the third five year the three steel plants
under HSL, TISCO & HSCO were expanded s show

Steel Plant

Original (MT/Year)

Expanded (MT/Year)

Rourkela

1.0

1.8

Bhilai

1.1

2.5

Durgapur

1.0

1.6

TISCO

1.0

2.0

IISCO

0.5

1.0

In January 1964 Bokaro steel plant came into existence

1966-69-Recession Period
The entire expansion programme was actively executed during this
period.
1969-74-Fourth Five year plan
Salem Steel Plant started
Licenses were given for setting up of many mini steel plant and
rolling mills.
Govt. of India accepted setting up two more steel plants in .South:
each at Visakhapatnam (Andhra Pradesh) and Hospet (Karnataka).
SAIL was formed during this period on 24th January 1973. The
installed capacity from 6 integrated plants was 106 MT.
1979-Fifth Five Year plan
The erstwhile Soviet Union agreed to help in setting up
Visakhapatnam Steel Plant.

reOne
total

the

1980-85-Six Five Year Plan

Work on Visakhapatnam Steel Plant was started with a big bank and top
priority war accorded to start the plant.
Scheme for modernization of Bhilai Steel Plant, Rourkela, Durgapur
Steel Plant and TISCo were Initiated.
1985-91-Seventh Five Year Plan
Expansion work of Bhilai and Bokaro Steel Plants Completed.
Progress on Visakhapatnam Steel Plant picked-up and the rationalized
concept has been introduced to commission the plant with 3.0 MT liquid
steel capacity by 1990.
1991-96-Eighth Five Year Plan
Visakhapatnam Steel Plant started its production.
Modernization of other steel plant is also duly envisaged.
1997-2002-Ninth five Year Plan
Visakhapatnam Steel Plant had foreseen a 7% growth during the entire
plan period.
2002-2007-Tenth Five Year Plan
Steel industry registers a growth of 9.9%
Visakhapatnam steel plant has high regime targets and achieved the best
of them.

Steel production in India:

India is one of the few countries where the steel industry is poised for rapid
growth. Steel production of India accounted for 14.33million tons in 1990-1991,
which gradually increased to 36.12 million tonnes in 2003-2004.today India
plays a significant role in the production of steel in the world. Steel demand
continued to remain upbeat in 2008-2009 with consumption of finished steel
growing by decent 6.8%during April-may 2008.during April 2008 finished steel
output rose by modest 3.8%.further in may it increased by 5.2%.aggregate
production growth during April-may stood at 5.1% in view of no major
capacities coming on stream we estimate finished steel production to touch60
million tonnes in 2008-2009.
In the event of an upward revision in the figure of 2007-2008,tha actual growth
in steel production in 2008-2009 would turn out to be less as compared to our
estimates.

Major players of Steel in India:

Public sector:
Steel authority of India Limited (SAIL):
It is a company registered under the Indian companies act, 1956and is an
enterprise of the government of India. It has five integrated steel plants at Bhilai
(Chhattisgarh), Rourkela (Orissa), Durgapur (West Bengal), Bokaro(Jharkhand),
and Burnpur (West Bengal). SAIL has three special and alloy steel plant at
Salem (Tamil Nadu) and Visvesvaraya iron and steel plant at Bhadravati
(Karnataka).
RashtriyaIspat Nigam ltd (RINL):
RINL, the corporate entity of Vishakhapatnam steel plant is the first shore based
integrated steel plant located at Vishakhapatnam in Andhra Pradesh. The plant
was commissioned in August 1992 with a capacity to produce 3 Million Tonnes
per Annum of liquid steel. RINL has prepared a road map to expand the plants
capacity up to 16 MTPA in phases.

Private sector:
The private sector of the steel industry is currently playing an important and
dominant role in production and growth of steel industry in the country. not only
play an important role in production of primary and secondary steel, but also
contribute substantial value addition in terms of quality, innovation and cost
effective.
Tata Steel Ltd:
Tata steel has an integrated steel plant, with an annual crude steel making
capacity of 5 million tonnes located at Jamshedpur, Jharkhand. The company
has planned to take the capacity to 10 million tonnes by the fiscal year 2012.tata
steels green field project in Orissa and Chhattisgarh are progressing on
schedule with placement of equipment order for Kalinga Nagar project, Orissa.
Jharkhand project is awaiting announcement of relief and rehabilitation policy
of the state Govt.

 Essar steel Ltd:

Essar steel holdings ltd. (ESHL) is a global producer of steel with a footprint
covering India, Canada, USA, the Middle East and Asia. The Essar steel
complex at Hazira in Gujarat, India, houses the worlds largest gas based single
sponge iron plant with a capacity of 4.6 MTPA.
Jindal Steel &Power Ltd. (JSPL):
Jindal steel & power limited is one of the fast growing steel units in the country.
The Raigarh plant of JSPL has a present capacity of 1.37 million tonne per
annum sponge iron plant, 2.40 MTPA steel melting shop, 1.0 MTPA plant
mill,2.30 sinter plant ,0.8 MTPA coke oven and a 330 Megawatt captive power
plant.
Ispat Industries Ltd. (IIL):
IIL has set up one of the largest integrated steel plant in the private in India at
Dolvi in Raigad Dist, Maharashtra with a capacity to manufacture 3 Million
Tonnes per Annum of hot rolled steel coils. This plant is using converter-cumelectric arc furnace route for producing steel. In this project, IIL have uniquely
combined the usage of hot metal and sponge iron the electric arc furnace for
production of liquid steel for the first time in India.

Factors holding back the Indian Steel Industry:

I.
II.
III.

Energy supply.
Problems procuring raw materials inputs.
Inefficient transport system

CHAPTER-3
COMPANY PROFILE

COMPANY PROFILE

Introduction:
Visakhapatnam steel plant (VSP), the first coast based steel plant of India
is located,16 km south west of city of destiny i.e. Visakhapatnam. Bestowed
with modern technologies, VSP has an installed capacity of 3 million tonnes per
annum of liquid steel and 2.656 Million Tonnes of saleable steel.VSP products
meet exacting international quality standards such as JIS,DIN,BIS,BS etc.
Visakhapatnam steel plant has become the first integrated steel plant In
the country to be certified to all the three international standards for quality
(ISO-9001) for environment management

(ISO-14001) & for Occupational

health & safety (OHSAS-18001).

Visakhapatnam exports quality pig iron & steel products to Srilanka,
Myanmar, Nepal, Middle East, USA, China, and South East Asia. Having total
manpower of about 16,600. VSP has envisaged a labour productivity of 265
tonnes per man year of liquid steel

Background
With a view to give impetus to industrial growth and to meet the
aspirations of the people from Andhra Pradesh, Government of India decided to
establish integrated steel plant in public sector at Visakhapatnam. The
announcement to this effect was made in the parliament on 17 th april1970 by
the then prime minister of India late Smt. Indira Gandhi. The foundation stone
for the plant was laid by Smt. Indira Gandhi on 20.01.1971.

An agreement was signed between governments of India and the

erstwhile USSR on June 12th, 1979 for setting up of an integrated steel plant to

produce structural & long products on the basis of detailed project report
prepared by M/s M.N. Dastur& Company.
The construction of the plant was started on 1st February 1982;
Government of India on 18th February 1982 formed a new company called
RashtriyaIspat Nigam ltd. (RINL) and transferred the responsibility of
constructing, commissioning & operating the plant at Visakhapatnam from steel
authority of India Ltd. to RINL.
The plant was dedicated to the nation by the then prime minister of India late
Sri P.V. NarasimhaRao on 1st August 1992.

Technology:
state-of-the-art:
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.

7 meter tall coke oven batteries with coke dry quenching.

Bell-less top charging system in blast furnace.
100% slag granulation at the BF cast house.
Suppressed combustion LD gas recovery system.
100% continuous casting of liquid steel.
Tempcore and stelmor cooling in LMMM & WRM respectively.
Extensive waste heat recovery systems.
Comprehensive pollution control measures.

Water supply:
An operational water requirement of 36 Mgd is being met from the yeluru
water supply scheme.

Power supply:
Operational power requirement of 180 to 200 MW is being met. Through
captive power plant. The capacity of the power plant is 286.5 MW.

Visakhapatnam steel plant is supplying 60 MW power to Andhra Pradesh state

electricity board.

Major Resource of Raw Material

Raw material
Iron ore lumps & fines
BF lime stone
SMS lime stone
BF dolomite
SMS dolomite
Manganese
Boiler coal
Coking coal
Medium coking coal(MCC)

Source
Bailadilla, MP
Jaggayyapeta, AP
Middle East
Madharam, AP
Madharam , AP
Chipurupalli, AP
Talcher, Orissa
Australia
Gidi/ swang/ rajarappa/ kargali.

Major units
Department

Annual

Units(3.0 mt stage)

capacity
Coke ovens
Sinter plant

(000 T)
2,261
5,256

Batteries of each 67 ovens &7 mtrs height

2 sinter machines of 312 sq. mtrs grate
area each

Blast furnace
Steel melt shop
LMMM
WRM
MMSM

3,400
3,000

2 furnaces of 3200cu.mtr.volume each

3 ld converters each of 133cu.mtr.volume

710
850
850

and six 4 strand bloom casters

4 strand finishing mill
4 strand high speed continuous mill
6 STRAND FINISHING MILL

Main Products of VSP

Steel products
Blooms
Billets
Channels, angles
Beams
Squares
Flats
Rounds
Re-bars
Wire rods

By-products
Nut coke
Coke dust
Coal tar
Anthracene oil
Hp naphthalene
Benzene
Toluene
Zylene
Wash oil

Granulated slag
Lime fines
Ammonium sulphate

Major departments
Continuous Casting Department:
VSP has six-4 strand continuous casting machines capable of producing
2.82 Million Tonnes per year. Blooms of size 250*250 mm and 250*320 mm,
entire quantity of molten steel produced is continuously cast in radial bloom
casters which help in energy conservation as well as production of superior
quality products. Gas cutting machines for cutting the blooms in required
lengths.

DNW Department:
Distribution network (DNW)department deals with receipt, transmission
of electrical power at extra high voltage(EHV)220 KV, distribution of high

tension (HT) power at 33 KV,11KV and 6.6 KV level.DNW department also

coordinates with AP Transco. and APEPDCL for export and import of power
respectively.

Traffic Department:
A steel plant of the size of VSP has to handle around 60-65 MT traffic
comprising of incoming traffic, outgoing traffic. To handle this huge quantities
of traffic, VSP has a fleet of 31 locomotives, hot metal ladle cars, torpedo ladle
cars, captive wagons of different types,5 Internal Railway Stations ,loco and
wagon repair shop and many number of weigh bridges.

Works Contract Department:

Processing for and obtaining administrative approval on receipt of
contractual proposal from indenting departments, tendering, and
awarding of work.
Preparing COM / Board Note for decisions at those forums.
Participating in Claims and arbitration proceedings and legal cases
pertaining to contracts.
Registration of agencies under various categories &classes of work
regularly.

Safety Engineering Department:

Safety engineering department advises and assists the management in the
fulfilment of obligation concerning prevention of accidents and maintaining a

safe working environment.sed conducts safety campaigns and safety

competitions amongst the employees to promote safety.sed co-ordinates and
liaison with AP factories department.

Design & Engineering Department:

Preparation of drawings, design and specifications for AMR and Non
AMR jobs.
Layout clearances of various facilities coming in the plant and township.
Operation of consultancy contracts.

Marketing department:
It has 24no.of branch sales offices all over India and four regional offices
viz. north- Delhi, South-Chennai, West- Mumbai, East- Kolkata and
Headquarter sales. Main activities of marketing are as follows:
Collecting market feedback and customers requirements for the
preparation of annual plan in coordination with works department.
Preparation of market policies.
Finalising of long term contracts, MoUs, spot sale agreements etc., in
domestic and export markets. Rendering after sales services, obtaining
customer feedback and customer relations management.

Visakhapatnam steel plant policies:

Human resource policy:
To realize the full potential of employees, the company is committed to:
Ensure functioning of effective communication channels with employees.
Empower employees for enhancing commitment responsibility and
accountability.
Encourage teamwork, innovativeness and high achievement oriented.

 Provide systems for maintain transparency, fairness and equality in

dealing with employees.

Human resource development:

Leadership training.
Training in motivation and attitude.
Team building
Skill training
Induction and orientation
Plant practice lectures
Basic engineering lectures
Plant specialized training
Management development

Pollution control and environmental protection:

Generally integrated steel plant is considered as a major contributor to
environmental pollution as it discharges volume of waste products. Elaborate
measures have been adapted to combat air and water pollution. In order to be
echo friendly, Visakhapatnam steel plant has planted more than 3 million trees
over an area of 35sq.kms and in corporate various technologies at a cost of
460crs towards pollution control measures.

Statistical Information:
Production performance for past five years (000tonnes)
Year
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012

Hot metal
3,913
3,546
3,900
3,830
4,152

Liquid steel
3,126
3,322
3,145
3,399
3.603

Saleable steel

Labour

3,074
2,701
3,167
3,077
3,242

productivity
389
359
389
358
414

Financial performance (Rs.Crs) for past five years:

Year
2007-2008
2008-2009
2009-2010
2010-2011

Gross margin
3,499
2,356
1,603
2,383

Cash profit
2,414
1,576
1,074
2,355

Net profit
1362
1943
1336
797

Man power at glance:

Executives
Non executives
Total

Works
3262
11358

Projects
344
51

Mines
109
25

Others
1492
956

Total
5207
12622
17829

Company Vision, Mission and Objectives:

Vision:
Harness our growth potential and sustain profitable growth.
Deliver high and cost competitive products and to be the first choice of
customers.
Achieve excellence in enterprise management.
Be a respected citizen, ensure clean and green environment and develop
vibrant communities around us

Mission:
To attain 16 million tonnes of liquid steel capacity through technological
up gradation, operational efficiency and expansion.
To produce steel at international standards of cost and quality.

Objectives:

 Expand plant capacity to 6.3 MT by 2012-2013 with the mission to

expand further in subsequent phases as per the corporate plan.

Sustain gross margin to turnover ratio 25%
Be amongst top 5 lowest cost liquid steel producers in the world.
Achieve higher levels of customer satisfaction than competitors.
Be recognised as an excellent business organisation by 2012-2013.

PRODUCTION PERFORMENCE
INTERPRETATION:

Commercial performance:
The commercial performance of Visakhapatnam steel plant for the past
years is as follows. (Figures in Crores)
Year

Sales Turnover

Domestic Sales

Exports

2000-2001

3436

3,122

314

2001-2002

4081

3,755

326

2002-2003

5058

4,458

600

2003-2004

6169

5,400

769

2004-2005

8181

7,933

248

2005-2006

8482

8040

442

2006-2007

9131

8707

425

2007-2008

10,433

9,878

555

2008-2009

10411

10333

78

2009-2010

10635

10284

354

TABLE SHOWING COMMERCIAL PERFORMENCE

12000
10000
8000
6000
4000

Sales Turnover
Domestic Sales
Exports

2000
0

Financial performance:
Visakhapatnam steel plant had to bear the burnt of huge project cost right
from its day of inception. This has affected the companys b/s due to very high
interest burden. The company in spite of making operating profit every year had
to report net loss during all financial years. This is on the other hand resulted in
making VSP to take greater in planning the financial resources.
The financial performance of VSP for the past to present years is as
follows: (Rs.inCrores)
Sales

Cross Marin

Cash Profit

Net Profit

1999-2000

2972.60

252.27

-129.89

-561.68

2000-2001

3435.96

503.89

153.3

-291.3

2002-2003

4080.95

690.000

399.85

-75.15

2003-2004

5080.25

1049.00

975.30

520.69

2004-2005

8181.34

3271.00

3259.89

2008.09

2005-2006

8482.44

2369.00

2337.80

1252.37

2006-2007

9131.14

2632.88

2583.94

1363.43

2007-2008

10433

3515

3485

1943

12000
10000
8000
6000
4000
2000

Sales
Cross Marin
Cash Profit
Net Profit

0
-2000

Sources of funds:
VSP raise its working capital from of 10 Bankers. The following are the 10
banks. Where funds for finance are raised
State Bank of India
Canara Bank
UCO Bank
Bank of Baroda
Andhra Bank
State Bank of Hyderabad
Allahabad Bank
HSBC
Industrial Development Bank of India ( IDBI)

 Indian Overseas Bank ( IOB)

Achievements and Awards:

The efforts of VSP have been recognized at various forums. Some of the
major awards received by VSP are in the area of energy conservation,
environment protection, safety, quality, circles, Rajbhasha. MoU, sports and a
number of awards at the individual level.

Indira PriyadarshiniVrikshaMitra award -1992-93 Nehru Memorial

National award for pollution control in 1992-93 &1993-94.

EEPC export excellence award-1994-95.
Steel Minister Trophy for BEST SAFETY PERFORMANCE-1996.
IspatSurakshaPuraskar for longest accident free period 1991-1994.
Best labour management award from the Govt of AP.
SCOPE award for best turn around-2001.
Best enterprise award from SCOPE, WIPS-2001-2002.
ISTD award for best hr practices -2002.
CII (southern region) energy conservation award-1995-1996.
Prime Minister Trophy for best integrated steel plant -2002-2003.
Organisational Excellence Award for 2003-2004 conferred by INSSAN.
National Energy Conservation Award 2004 and special prize from
ministry of power, Govt of India.

A land mark year of growth:

The year 2005-2006 saw the company registering then best ever sales turnover
of Rs.8482 cores a 3.6% growth over previous year.The company stated a
record net profit of Rs.1252.37 crores and this is the third consecutive year that
the company has been earning net profit with this the accumulated losses have
bought down with this accumulated losses have set up to out the Rs.906 crores
and your Company is all shortly also your MINI RATNA by government of
India.
It works under the following slogan:
Let Excellence not only is our goal.
Let us make it out standard

Innovations:
The government proposes to bring in a new steel policy. It would define the
framework of government action in each relevant are as also to create ground
conditions for private sector initiative whatever possible. The ministry of Steel
has strive to provide an effective interface between the industry and the various
economic agencies like government departments, financial institutions,
providers of input materials and essential service and multilateral agencies.
The steel industrys growth and development trajectory will be heavily
dependent on its ability t mobilize the necessary resources for investment in the
coming years. Till recently, when the steel industry was passing through one of
the most turbulent phases, even the strong companies in the industry would
have encountered difficulty in mobilizing financial resources from the capital
market.

The perceived risks that hindered the industrys resource mobilization efforts
are now being replaced by a general feel good factor. This will help the industry
significantly. The turn around in the industry has come at a very opportune
time.
The Indian steel industries continue to remain focused on the merging
opportunities in the world market. Chain is offering great. Opportunities to the
Indian industry. Despite the massive growth in steel output in China, there will
always be opportunities for the Indian exporters. The international business has
to be carried out consistently Else the market will be lost at the first sign of a
downturn. The Indian steel industry has come a long way from the days of
control and strive to remain globally competitive. This is the age of technology
and we have the requisite resources to the lead in take the steel sector.

BOARD OF DIRECTORS

CHAIRMAN-CUM-MANAGING

Sri. A.P CHOWADARY

DIRECTOR
DIRECTOR ( PERONNEL)

Y.R.REDDY

DIRECTOR ( COMMERICAL)

T.K.CHAND

DIRECTOR ( OPERATIONS)

UMESH CHANDRA

DIRECTOR (FINANCE)

P.MADHUSUDHAN

DIRECTOR ( PROJECTS)

Sri N S RAO

INDEPENDENT DIRECTORS

Sri A P V N SHARMA
Sri H S CHAHAR
Sri SWARHPAWAN SINGH

GOVT. DIRECTORS

Dr DALIP SINGH
Sri.S.MACHENDRA NATHAN

COMPANY SECREATARY

P.MOHAN RAO

REGISTERED OFFICE

ADMINISTRATIVE BULDING
VISAKHAPATNAM
PLANT ,
VISAKHAPATNAM-31

STEEL

Profile of Visakhapatnam steel plant:

Introduction:
Steel occupies the foremost place among the materials in use today and
pervades all walks of life. All key discoveries of human genius, for instance,
Steam Engine, Railway, means of

Communication and Connection,

Automobiles, Aero Plane and Computers are in one way or other; fastened
together with steel and its sagacious and Multifaceted applications.
Steel is versatile material with multitude of useful properties, making it
indispensable for furthering and achieving continual growth of economy be it
Construction, manufacturing, infrastructure or consumables. The level of steel
consumption has long been regarded as an index of industrialization and
economic maturity attained by a country.
Keeping in view of the importance of steel, the following integrated steel plants
with foreign collaborations were set up in public sector in post independence era

Integrated steel plants in India:

STEEL PLANT

COLLABORATION

Durgapur Steel Plant

Britain

Bhilai Steel Plant

Erstwhile USSR

Bokaro Steel Plant

Erstwhile USSR

Rourkela Steel Plant

Germany

OBJECTIVES OF THE STUDY

To find out working capital position of the company for last five years.
To identify the liquidity position in the Visakhapatnam steel plant.
To study the liquidity position through various working capital related
ratios.
To examine the policies and procedures of the working capital
management.
To examine the cash management policies and practices.
To examine the utilization of current assets and management of inventory
receivables.
To study and analyse the changes in working capital.
Todraw conclusion and to suggest suitable measures to overcome the
problems and to improve its performance.

NEED FOR THE STUDY

The study is concerned for the following needs.
Working capital decides not only liquidity and solvency but also
operating efficiency of the organization.

 This project is done as a whole entirely. It will give overall view of the
organization and it is useful in further expansion decision to be taken by
management.
To study the working capital needs and strength of the organization in
meeting and managing working capital of the organization.
This project also useful as it combines the present year data with the
previous year data and thereby it shows the trend analysis, i.e. increasing
or decreasing.

METHODOLOGY
Research methodology is a way to solve the research problems
systematically. Research may be one common parlance referred to as
knowledge. In research methodology we not only talk of the research methods,
but also consider the logic behind the methods we use in the content of our
research study and explain why we are using a particular method or technique.
Hence in this study various steps that are generally adopted in studying research
problem along with the logic behind them. It is a broad outline of the method
and procedure adopted for the purpose of the study.
Data collection methods:
The given below diagram shows the data collection methods
Data collection

Primary data

Primary data:

Secondary data

Any information which is collected a fresh and for the first time is called
primary data the primary data happen to be original in character. The
information is gathered from concerned employees and managers of the
financial department have provided the information needed for the study.

Secondary data:
Information which has already been collected by somebody else or some other
agency with definite purpose and which has already been proposed is called
secondary data. The secondary data for the study have been gathered from the
balance sheets, profit and loss accounts, annual reports and other books and
manuals of the RASHTRIYA ISPAT NIGAM LTD.

SCOPE OF THE STUDY

As longer as the accounting practices more or less the same over time,
examining trends in raw financial data and financial ratios can draw
meaningful interpretations.
Since all the steel industries operate almost similarly, the analysis of the
financial performance of Visakhapatnam steel plant will certainly help in
comparing the performance of the other industries operating in the same
field and analyze the overall performance of the steel industry.
The project helps to understanding the financial analysis works carried
over in the organisations on accounting basis.

LIMITATIONS OF THE STUDY

Though this project is completed successfully a few limitations may be

limitations.

Although every effort has been made to study the WORKING CAPITAL
MANAGEMENT in detail, in an organization of VSP size, it is not
possible to make an exhaustive study in a limited duration of 4 weeks.

Apart from the above constraints, one serious limitation of the study is
that it is not possible to reveal some of the financial data owing to the
policies and procedures laid down by VSP. However the available data is
analyzed with great effort to get an insight into working capital
management in VSP.
And analysis of sub topics is limited to some extensions.
The study is carried basing on the information and documents provided by
the organization and based on the interaction with the various employees
of the respective departments.
Due to lack of time constraint data is collected only five years.
Due to income tax problem eliminate the top secretes of the company.

CHAPTER-4
THEORITICAL FRAME WORK

THEORITICAL FRAME WORK

Working capital Management is concerned with the problems that arise in

attempting to manage the current assets, current liabilities and the inter
relationship between them. Its operational goal is to manage the current assets
and current liabilities in such away that a satisfactory level of working capital is
maintained. Successful and effective Management of working capital results in
improved rate of returns on the capital invested in short term assets.
CONCEPTS:
There are two concepts of working capital
1. Gross working capital:
Gross Working Capital refers to the companys investment in
current assets. Current assets are the assets which can be converted into cash
within an Operating Cycle time or within an accounting year i.e., within 12
months. This includes cash, short term securities, debtors. Bills receivable and
inventory. This Gross Working Capital concept is also called Economist
Concept.
The gross working capital concept focuses attention on two
aspectsOf current assets management.
a) Optimum investment in current assets and
b) Financing of current assets.

2. Net working capital: (NWC):

Net working capital refers to the difference between current assets and
current liabilities. This Net Working Capital concept is also called as
Accountants Concept. Current liabilities are the claims of outsiders which are
expected to mature for payment within an accounting year. Net working capital
concept also covers the question of judicious mix of long term and short term
funds for financing current assets.
The level of NWC has a bearing on the Companys Profitability as well as
the risk, in the sense that it affects the ability or otherwise of the firm to meet its
obligations as and when they become due.

Therefore, a trade off between

profitability and risk is an important element in evaluation of the level of

NWC.In general, the higher the NWC, the lower the risk and profitability and
vice versa.

Working Capital Management Goal:

The goal of working capital management is to manage the firmsCurrent
Assets and Current Liabilities in such away that a satisfactory level of working
capital is maintained. This is so because if the firm cannot maintain a
satisfactory level of working capital, it is likely to become insolvent and may
even be forced into bankruptcy. Sometimes, a Company may have tremendous
potential for profitability in the long run, but may languish due to inadequate
liquidity. The interaction between current assets and current liabilities therefore,
the main theme of the theory of working capital management.

Types of working capital:

Working Capital of any enterprise consists of two parts viz.,

1) Permanent Working Capital and

2) Temporary or Variable Working Capital.
Permanent Working Capital:
Some portion of the working capital investment is always locked-up in
the form of raw materials, Work-in-Progress, Finished Goods, Book Debts,
Minimum Cash Balance etc. at any point of time. This portion is the minimum
level of investment that is required to continue the operations of the business
without any interruption is referred to as the Permanent Working Capital
portion.

According to the TANDON COMMITTEE recommendations, a

portion of the Current Assets are to be financed from the Long Term funds.
Variable Working Capital:
This is also known as circulating of transitory Working Capital. This is the
portion of the total Working Capital that is required to take care of the seasonal
fluctuations in the business activity.
Determinants of Working Capital:
The need of working capital is not always the same it varies from year to
year or even month-to-month depending upon a number of factors. There is no
set of rules or formulate to determine the working capital needs of the firm.
Each factor has its own importance and its importance of the factors changes for
a firm over time.

In order to determine the proper amount of working capital of concern, the

following factors should be considered.

 Nature of business.
Size of the business unit.
Seasonal variation.
Time consumed in manufacturing.
Turnover of circulating capital.
Need to stockpile raw material and finished goods.
Growth and expansion.
Business cycle fluctuations.
Terms of purchase and sale.
Pricing level changes.
Inventory turnover.
Dividend policy.
Approaches of Working Capital Determination:
There are 3 well known types of deciding on the quantum of Working
Capital requirement. They are
1. Hedging Approach
2. Conservative Approach
3. Trade off Approach

In Hedging approach, the core current assets are financed through long
term funds and the seasonal and other requirements are met from temporary
sources. This approach is more profitable and more risky. In the case of
Conservative approach, the total requirement is met from long term sources and
the requirement due to cyclical and unforeseen situations are met from short
term funds.

This approach is less profitable and less risky. Both these

approaches are two extremes. Therefore, the rational approach, Trade off
Approach is followed whereby a trade off between profit and risk is arrived and
that level of Net Working Capital is decided.

Problems of inadequate working capital:

Firm may not be able to take advantage of profitable business
opportunities.
Production facilities cannot be utilized fully.
Short-term liabilities cannot be paid because of non-availability of funds.
Its low liquidity may lead to low profitability. In the same way, low
profitability results in low liquidity
It may not be able to take advantages of cash discounts.
Credit worthiness of the firm may be damaged because of lack of
liquidity. Thus it may be lose its reputation; thereafter a firm may not be
able get credit facilities.

Danger of excessive working capital:

A firm may be tempted to over trade and lose heavily.
Unable to extract benefits of customers credit.
The situation may lead to unnecessary purchases and accumulation of
inventories. This cause more chances of theft, waste, losses etc.
There arises an imbalance between liquidity and profitability.
Excessive working capital means funds are idle.
The situation leads to greater production, which may not be having
matching demand.
The excess of working capital leads to carelessness about cost of
production.

Ratios to measure the efficiency of working capital:

Current Ratio: Current assets/Current liabilities.
Quick Ratio:

(current assets Inventories) /Current liabilities.

Sales to cash: Sales during a period / Average cash balance.

Average collection period: Debtors dividend by annual credit sales and
the resulting figure multiplied by 365.This ratio indicates how many days
of credit is being obtained from the suppliers.
Average payment Period: Creditors divided by annual credit purchase and
the resultant figure is multiplied by 365. This ratio indicates how many
days of credit are being obtained from the suppliers.
Inventory turnover ratio: Sales /Average inventory.

Working capital Policy:

Working capital management policies have a great effect on firm`s profitability,
liquidity and its structural health. A finance manager should therefore, chalk out
appropriate working capital policies in respect of each component of working
capital so as to ensure high profitability, proper liquidity and sound structural
health of the organization.
In order to achieve this objective the financial manager has
toperform basically following two functions.
1. Estimating the amount of working capital.
2. Sources from which these funds have to be raised.

Components of working capital:

PARTA: Current Assets

a. Inventories:Raw material
Work in progress
Finished goods

b.Trade debtors:Loans and advances

Investment (short term)
Cash bank balances

PART-B: Current liabilities:

Sundry creditors
Trade Advances
Borrowings
Commercial banks
Provisions Current

Operating cycle or circulating cash format:

Working Capital refers to that part of firms capital which is required for
financing short term or current assets such as cash, marketable securities, debtors
and inventories. Funds thus invested in current assets keep revolving fast and
being constantly converted into cash and these cash flows out again in exchange
for other current assets. Hence it is also known as revolving or circulating capital.
The circular flow concept of working capital is based upon this operating or
working capital cycle of a firm.

Receivable conversion RaRaw materials conversion period

period (RCP)

(RMSCP)

Cash received form

Debtors and paid to suppliers
Of raw materials
Sales of finished
Goods

Raw materials
introduced into process

Finished Goods
Produced

Finished goods conversion

period
(WIPCP)

workin process Period

(FGCP)Conversion

Working capital may be classified in two ways:

On the basis of concept
On the basis of time
On the basis of concept, working capital is classified as gross
working capital and net working capital. The classification is important from the
point of view of the financial manager.
On the basis of time, working capital may be classified as:
Permanent or Fixed working capital
Temporary or Variable working capital

Kinds of Working Capital

On the basis of concept

On the basis of time

Gross Working capital

Net Working capital
Permanent or fixed
working or
capital
Temporary
variable working capi
Capital

Regular

Capital

Reserve
Working

Working

Special Working
Seasonal
Working

Capital

1. Permanent or fixed working capital:

Permanent or fixed working capital is the minimum amount which is
required to ensure effective utilization of fixed facilities and for maintaining the
circulation of current assets. There is always a minimum level of current assets
which is continuously required by the enterprises to carry out its normal
business operations.

2. Temporary or variable working capital:

Temporary or variable working capital is the amount of working capital which
is required to meet the seasonal demands and some special exigencies.Varibles
working capital can be further classified as second working capital and special
working capital. The capital required to meet the seasonal needs of the
enterprises is called the seasonal working capital.
Temporary working capital differs from permanent working capital in the sense
that is required for short periods and cannot be permanently employed gainfully
in the business.

The need or objects of working capital:

The need for working capital cannot be emphasized. Every business
needs some amount of working capital. The need of working capital arises due
to the time gap between production and realization of cash from sales. There is
an operating cycle involved in the sales and realization of cash. There are time
gaps in purchase of raw materials and production, production and sales,
And sales, and realization of cash, thus , working capital is needed for the
following purposes:
For the purchase of raw materials , components and spaces
To pay wages and salaries
To incur day to day expenses and overhead costs such as fuel, power and
office expenses etc.

 To meet the selling costs as packing, advertising etc.

To provide credit facilities to the customers.
To maintain the inventories of raw materials, work in- progress, stores
and spares and finished stock.
Factors determining the working capital requirement:
The working capital requirements of a concern depend upon a large number of
factors such as nature and size of the business, the characteristics of their
operations, the length of production cycle , the rate of stock turnover and the state
of economic situation. However the following are the important factors generally
influencing the working capital requirements.

Nature or characteristics of a business:

The nature and the working capital requirement of enterprises are interlinked.
While a manufacturing industry has a long cycle of operation of the working
capital, the same would be short in an enterprises involve in providing services.
The amount required also varies as per the nature, an enterprises involved in
production would required more working capital then a service sector
enterprise.

Manufacture production policy:

Each enterprises in the manufacturing sector has its own production policy,
some follow the policy of uniform production even if the demand varies from
time to time and other may follow the principles of demand based production in
which production is based on the demand during the particular phase of time.
Accordingly the working capital requirements vary for both of them.

Operations:

The requirement of working capital fluctuates for seasonal business. The

working capital needs of such business may increase considerably during the
busy season and decrease during the

Market condition:
If there is a high competition in the chosen project category then
one shall need to offer sops like credit, immediate delivery of goods etc for
which the working capital requirement will be high. Otherwise if there is no
competition or less competition in the market then the working capital
requirements will be low.

Availability of raw material:

If raw material is readily available then one need not maintain a
large stock of the same thereby reducing the working capital investment in the
raw material stock . On other hand if raw material is not readily available then a
large inventory stocks need to be maintained, there by calling for substantial
investment in the same.

Growth and expansion:

Growth and Expansions in the volume of business result in
enhancement of the working capital requirements. As business growth and
expands it needs a larger amount of the working capital. Normally the needs for
increased working capital funds processed growth in business activities.

Price level changes:

Generally raising price level require a higher investment in the working capital.
With increasing prices, the same levels of current assets needs enhanced
investments.

Manufacturing cycle:

The manufacturing cycle starts with the purchase of raw material and is
completed with the production of finished goods. If the manufacturing cycle
involves a longer period the need for working capital would be more. At time
business needs to estimate the requirement of working capital in advance for
proper control and management. The factors discussed above influence the
quantum of working capital in the business. The assessment of the working
capital requirement is made keeping this factor in view.
COMPONENTS OF WORKING
CAPITAL

BASIS OF VALUATION

Stock of Raw Material

Purchase of Raw Material

Stock of Work -in- Process

At cost of Market value which is

lower

Stock of finished Goods

Cost of Production

Debtors

Cost of Sales or Sales Value

Cash

Working Expenses

Each constituent of the working capital is valued on the basis of valuation

Enumerated above for the holding period estimated. The total of all such
valuation becomes the total estimated working capital requirement.

Principles of working capital management policy:

The following are the general principles of a sound working

Capital management policy.
PRINCIPLES OF WORKING CAPITAL MANAGEMNT POLICY

PRINCIPLES OF
RISK
VARIATION

PRINCIPLES OF

PRINCIPLES OF

COST OF
CAPITAL

EQUITY
POSITION

PRINCIPLES OF
MATURITY OF
PAYMENTS

1. Principle of risk variation (current assets policy):

Risk here refers to the inability of a firm to meet its obligations as and when
they become due for payment. Larger investment in current Assets with less
dependence on short term borrowings, increase liquidity, reduces risk and
thereby decreases the opportunity for gain or loss. On the other hand less
investments in current assets with greater dependence on short term borrowings,
reduces liquidity and increase profitability. In other words there is a definite
inverse relationship between the degree of risk and profitability.

2. Principles of cost of capital:

The various source of raising working capital finance have

different cost of capital and the degree of risk involved. Generally, higher and
risk however the risk lower is the cost and lower the risk higher is the cost. A
sound working capital management should always try to achieve a proper
balance between these two.

3. Principle of equity position:

The principle is concerned with planning the total investments in current
assets. According to this principle, the amount of working capital invested in
each component should be adequately justified by a firms equity position.
Every rupee invested in current assets should contribute to the net worth of the
firm. The level of current assets may be measured with the help of two ratios:

1. Current assets as a percentage of total assets and

2. Current assets as a percentage of total sales
While deciding about the composition of current assets, the financial
manager may consider the relevant industrial averages.

4.Inventory management:
Inventory includes all type of stocks. For effective working capital
management, inventory needs to be managed effectively. The level of inventory
should be such that the total cost of ordering and holding inventory is the least.
Simultaneously stock out costs should be minimized. Business therefore should
fix the minimum safety stock level reorder level of ordering quantity so that the
inventory costs is reduced and outs management become efficient.

CASH MANAGEMENT
Meaning of cash:
The term cash is used in two senses. In a narrower sense it includes currency
notes, cheques, bank drafts held by a firm with it and the demand deposits held
by it in banks. In a broader sense it also includes near cash assets such as
marketable securities and time deposits with bank.
The main reason for a firm to hold cash is to meet the needs of day-to-day
transactions and to protect the firm against uncertainties characterizing its cash
flows. While cash serves these functions, it is an idle resource which has an
opportunity cost. The liquidity provided by cash holding is at the expense of

profits sacrificed foregoing alternative opportunities. Hence, the finance

manager should carefully plan and control cash.

Cash is the one of the current assets of a business. It is needed at all times
to keep the business going. A business concern should always keep sufficient
cash for meeting its obligations. Any shortage of cash will hamper the
operations of a concern and any excess of it will be unproductive. Cash is the
most unproductive of all the assets.
Cash itself doesnt produce goods and services. It is used as a medium to
acquire other assets. It is the other asset, which is used in manufacturing goods
or providing services. The ideal cash can be deposited in bank to earn interest. A
business has to keep required cash for meeting various needs. The assets
acquired by the cash again help the business in producing cash. The goods
manufactured are sold to acquire cash. The firm will have to maintain a critical
level of cash. If at a time it doesnt have sufficient cash with it, it will have to
borrow from the market for reaching required level.
There remains gap between cash inflows and outflows. Sometimes cash
receipts are more than cash payments. It is called surplus. Sometimes cash
payments are more than cash receipts. This is called as deficiency. A financial
manager tries to synchronise cash inflows and cash outflows. Perfect
synchronization of receipts and payments of cash is only an ideal situation.
Cash management has assured importance because it is the most significant
of all the current assets. It is required to meet business obligations and it is
unproductive when not used. It is deals with the following.

a) Cash Planning:
Cash planning is a technique to plan and control the use of cash. A
projected cash flow statement may be prepared, based on the present business
operations and anticipated future activities. The cash inflows from various
sources may be anticipated & cash outflows will determine the possible uses of
cash.

b) Cash forecasts and budgeting:

A cash budget is the most important device for the control of receipts and
payment of cash. A cash budget is an estimate of cash receipts. It is an analysis
of flow of cash in a business over a future, short or long period of time. It is a
forecast of expected cash intake and outlay. The short-term forecasts can be
made with the help of cash flow projections. The long-term cash forecasts are
also essential for proper cash planning. These estimates may be for three, four,
five or more years.

a) Receipts and disbursements method.

b) A adjusted net income method.

Objectives:
To meet cash disbursement need as per the payment schedule.
Utilization of cash effectively.
To minimize amount locked up as cash balances.

Motive for holding cash:

There are four motives for holding cash

Transaction motive
Speculative motive
Compensation motive
Precautionary motive
Transaction motive: A firm enters into a variety of business
transactions resulting in both inflows and outflows.

Speculative Motive:
A firm keeps cash balance to take advantage of unexpected
opportunities, typically outside the normal course of the business such
motive is therefore is purely speculative motive.
Compensation motive:
Banks provide certain services to their clients free of charge. They
therefore, usually require clients to keep to minimum cash balance with them
which keep them to earn interest and they compensate them for the free services
so provided.

Precautionary Motive:
A firm keeps cash balance to meet unexpected cash needs arising out of
unexpected contingencies.

Cash management basic problems:

Cash is the life blood of a business firm, it is needed to acquire supplies,
sources equipment, and other assets used in generating the products and service
provided by the firm. It is also needed to pay wages and salaries to workers and
managers, taxes to governments, interest and principal to creditors, and
dividends to shareholders.

 Cash system:
The cash system of a firm is the mechanism that provides the linkage between
cash flows.
Elements of a cash management system:
C.R.
C.P.
C.R.

Deposit
C.P.

Bank 1
C.R

Deposit

C.R.

Bank 2
C.R.

Concentrati
on bank

Lock box
bank 2
Lock box
bank 2

Disbursemen
t bank 1

C.P.
C.P.

Disbursemen
t bank 1

C.R.

C.P.

C.P.

Receivables management:
Given a choice, every business would prefer selling its produce on cash
basis. However, due to factors like trade policies, prevailing marketing
conditions, etc., businesses are compelled to sell their goods on credit. In certain
circumstances, a business may deliberately extend credit as a strategy of
increasing sales. Extending credit means creating a current asset in the form of
Debtors or Accounts receivables. Investment in this type of current assets needs
proper and effective management as it gives rise to costs such as:

a) Cost of carrying receivable

b) Cost of debt losses

Thus the objective of any management policy pertaining to accounts

receivables would be to ensure that the benefits arising due to the receivables

are more than the cost incurred for receivables and the gap between benefit and
cost increases resulting in increased profits. Effective control of receivables
helps a great deal in properly managing it. Each business should, therefore try to
find out an average credit extended to its client using the below given formula;

Total amount of receivables

Average credit extended=
Average credit sales per day
Each business should project expected sales and expected investment in
receivables based on various factors, which influences the working capital
requirement. From this it would be possible to find out the average credit days
using the above seven formula. Otherwise of investment in the working capital
would increase and as a result activities may get squeezed. This may lead to
cash crisis.

Sources of working capital funds:

RINL raise its working capital multiple banking which includes
State bank of India, State bank of Hyderabad, Bank of Baroda, Canara
bank, UCO bank, Andhra bank, PSB, IndusIndbank.etc.
In RINL working capital requirement is assessed by
Fixing the target production for the year
Preparation of Budget (in Rupees)

Working capital requirement are prepared taking into account

Previous two years actual

 Projected for the next two years

Procedure for procurement of funds:

RINL applies a Credit Monitoring And Appraisal (CMA) Report (a Forty
pages document) consists of historical data about the company and profit and
loss account, balance sheet, current assets, current liabilities, working capital
assessment, fund flows etc., State Bank of India subscribes the maximum
working capital limit (up to extent of 38%) of the entire working capital
assessed. The other banks of the under the multiple banking arrangement above
provide the rest of working capital limits.

Types of working capital sources:

1. Fund based limits:
Under this source, RINL can obtain working capital finance
by bank borrowing in the form of cash credit of export packing credit.

2. Non-fund based limits:

RINL receives non-fund based working capital in the form of

a) Letter of credit
b) Bank guarantee

What is letter of credit and bank guarantee?

A letter of credit is a document typically issued by a bank or financial

institution, which authorizes the recipient of the letter (the "customer" of the
bank) to draw amounts of money up to a specified total, consistent with any
terms and conditions set forth in the letter. This usually occurs where the bank's
customer seeks to assure a seller (the "beneficiary") that it will receive payment
for any goods it sells to the customer.
In simple terms, a letter of credit could be said to document a bank
customer's line of credit, and any terms associated with its use of that line of
credit. Letters of credit are most commonly used in association with longdistance and international commercial transactions.

Payables management:
Management of accounts payable is as much important as the
management of such accounts receivable. However there is a basic difference
between the approaches adopted by the finance manager in both the cases. The
underlying objective in such case of accounts receivables is to maximize the
acceleration of collection process while in case of accounts payable it is to slow
down the payments process as much as possible. The delay in payments of
accounts payable may result in saving of some interests costs but proves very
costly to the firm in the form of loss of credit in the market. The finance
manager therefore has to ensure that the payments to the credits are made at the
stipulated time period after obtaining the best credit term possible.

 Control of accounts payable:

Computing the average age of payable can be calculated by any of the following
methods. Months or days in the period / Accounts payable turnover = Credit
purchase in the period / Average accounts payable.

CHAPTER- 4
ANALYSIS & INTERPRETATION

DATA ANALYSIS AND INTERPRETATION

Current ratio:

The current ratio is an indication of a firms market liquidity

and ability to meet creditors demands. Acceptable current ratios vary from
industry to industry. If a companys current liabilities exceed current assets (the
current ratio is below 1), then company may have problems meeting its short
term obligations. If the current ratio is too high, then the company may not be
efficiently using its current assets or its short term financing facilities. This may
also indicate problems in working capital management.

Current ratio: current assets / current liabilities

Current assets:
Years

Inventory

sundry
debtors

cash/bank
balance

other
current

loans and
advances

Total

assets
2006-07 1203.24

216.80

7194.68

314.48

1518.90

10448.10

2007-08 1761.15

93.41

7699.11

292.43

1958.49

11804.59

2008-09 3215.28

191.27

6624.17

258.91

1569.69

11859.32

2009-10 2451.52

181.18

5415.54

137.40

1365.02

9550.66

2010-11 3254.71

330.61

1998.89

75.96

1965.04

7625.21

Current liabilities:
2006-07

Liabilities

Provisions

Total

1011.53

1092.77

2104.30

2007-08

1610.15

1581.47

3191.62

2008-09

2560.79

1620.53

4181.32

2009-10

2871.95

1435.89

4307.84

2010-11

3271.43

1336.06

4607.49

Current ratio:
Current ratio

2006-07

2007-08

2008-09

2009-10

2010-11

4.9

3.6

2.83

2.21

1.65

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

current ratio

2006-07

2007-08

2008-09

2009-10

2010-11

Interpretation:
Current ratio of the company shows decreasing position. But it is above
the standard norm of the lending banks of 1.33:1. Thus, the short term liquidity
position of the company is strong.

Working capital turnover ratio:

A company uses working capital (current assets current liabilities) to
fund operations and purchase inventory are then converted into sales revenue
for the company. The working capital turnover ratio is used to analyse the
relationship between the money used to fund operations and the sales generated

from these operations. In a general sense, the higher the working capital turn
over, the better because it means that the company is generating a lot of sales
compared to the money uses to fund the sales.
i.e. working capital = (current assets- current Liabilities)
Working capital turnover ratio = net sales/ working capital
TABLE SHOWING WORKING CAPITAL TURNOVER RATIO
Sales

Working capital

Ratio

2006-07 7932.66

8343.8

0.95

2007-08 9088.37

8612.97

1.05

2008-09 9128.38

7678

1.18

2009-10 9809.15

5242.82

1.87

2010-11 10471.18

3017.72

3.46

3.5
3
2.5
2
ratio

1.5
1
0.5
0
2006-07

2007-08

2008-09

2009-10

2010-11

Interpretation:
The working capital is increasing year by year. The company will utilizes
firms funds, so company is growing in level of assets.

Net working capital ratio:

This ratio is calculated by dividing net working capital by net assets. The
difference between current assets and current liabilities excluding short term

borrowings is called net working capital or net assets. Net working capital
sometimes used as a measure of firms liquidity. However measure the firms
potential reservoir of funds.

Net working capital ratio:

Net working capital / net assets

TABLE SHOWING NET WORKING RATIO

Years

Net working
capital

Net assets

Net working capital ratio

2006-07

8343.80

12835.75

0.65

2007-08

8612.97

15276.46

0.56

2008-09

7678

17733.43

0.43

2009-10

5242.82

18522.96

0.28

2010-11

3017.72

18691.84

0.16

0.7
0.6
0.5
0.4

ratio

0.3
0.2
0.1
0
2006-07

2007-08

2008-09

2009-10

2010-11

Interpretation:
The net working capital is decreasing year by year. But the net assets
are increasing year by year. So the company liquidity position is good

Quick ratio
In finance the Acid-test or quick ratio measures the ability of a company
to use its near cash or quick assets to extinguish or retire its current liabilities

immediately. Quick assets include those current assets that presumably can be
quickly converted to cash at close to their book values. A company with a quick
ratio of less than I can not currently pay back its current liabilities.

Quick ratio = quick assets / current liabilities

Years

Quick assets

Current liabilities

Quick ratio

2006-07

9244.86

2104.30

4.4

2007-08

10043.44

3191.62

3.1

2008-09

8644.04

4181.32

2.06

2009-10

7099.14

4307.84

1.64

2010-11

4370.5

4607.49

0.94

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

quick ratio

2006-072007-082008-092009-102010-11

Interpretation:
The ideal ratio is 1:1 therefore, the company has to recognize the importance of
liquidity and tries to increase or utilize the quick assets properly.

DEBTORS TURNOVER RATIO

A firm sells goods for cash and credit. Credit is used marketing tool by a
number of companies. When the firm extends credits to its customers, debtors
(accounts receivables) are created in the firms` accounts.

The debtors are

expected to be converted into cash over a short period and, therefore, are
included in current assets. The liquidity position of the firm depends on the
quality of debtors to a greater extent. Debtors turnover ratio indicates the
velocity of debt collection of a firm. Un simple wards it indicates the number of
times average debtors are turned over during a year.

Sales
Debtors Turnover Ratio =

-------------------------------Debtors

Year

Sales

Debtor Debtor s turnover Ratio

s

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

9150.57
10433.07
10410.63
10634.63
11516.99

216.80
93.41
191.27
181.18
330.61

42.20
111.69
54.42
58.69
43.83

DEBTORS TURNOVER RATIO

14000
12000

10433.07

10410.63

10634.63

11516.99

100009150.57
8000
6000
4000
2000
0

216.8
42.2
2006-07

111.69
93.41
2007-08

191.27
54.42
2008-09

Sales

181.18
58.69
2009-10

330.61
43.83
2010-11

Debtors

Debtor s turnover Ratio

Interpretation:
The Debtors turnover ratio in the year 2006-07 is 42.20,
whereas in the year 2007-08 is 111.69, Whereas in the year
2008-09 is 54.42, whereas in the tear 2000-10 is 58.69,
whereas in the year 2010-11

The value decreased by 43.83

This is due to the increase of debtors in the year 2010-11.

Statement of changes in working capital RINL 2006-2007(incrores)

Particulars

2006
March

2007
March Increase

Decrease

Current Assets
Inventories

1218.35 1203.24

Sundry debtors

166.27

Cash and bank bal

5621.7 7194.68 1572.98

Other current assets

184.36

314.48

130.12

Loans and advances

1061.32

1518.9

457.58

Total current assets (a)

216.8

15.11
50.53

8252 10448.1

Current Liabilities
Liabilities

785.77 1011.53

225.76

Provision

716.37 1092.77

376.4

Total current liabilities (b)

1502.14

2104.3

Net Working capital (a-b)

6749.86

8343.8

Net Increase in Working

Capital

1593.94

Total

8343.8

1593.94
8343.8 2211.21

2211.21

Statement of changes in working capital RINL 2007-2008(incrores)

Particulars

31-3-2007

31-3-2008

Increase

Decrease

Inventories

1203.24

1761.15

557.91

Sundry debtors

216.8

93.41

Cash & bank balance

7194.68

7699.11

Other current assets

314.48

292.43

Loans & advances

1518.9

1958.49

TOTAL
CURRENTASSETS(a)

10448.1

11804.59

Liabilities

1011.53

1610.15

598.62

Provision

1092.77

1581.47

488.7

TOTAL CURRENT
LIABILITIES(b)

2104.3

3191.62

Net working capital(ab)

8343.8

8612.97

Net increase in working

capital

269.17

TOTAL

8612.97

Current assets

123.39
504.43
22.05
439.59

Current liabilities

269.17
8612.97

1501.93

Statement of changes in working capital RINL 2008-2009( incrores)

1501.93

Particulars

31-3-2008

31-3-2009

Increase

Decrease

Inventories

1761.15

3215.28

1454.13

Sundry debtors

93.41

191.27

97.86

Cash & bank balance

7699.11

6624.17

1074.94

Other current assets

292.43

258.91

33.52

Loans & advances

1958.49

1569.69

388.8

TOTAL
CURRENTASSETS(a)

11804.59

11859.32

Liabilities

1610.15

2560.79

950.64

Provision

1581.47

1620.53

39.06

TOTAL CURRENT
LIABILITIES(b)

3191.62

4181.32

Net working capital(ab)

8612.97

7678

Current assets

Current liabilities

Net decrease in working

capital
TOTAL

8612.97

934.97

934.97

8612.97

2486.96

Statement of changes in working capital RINL 2009-2010(incrores)

2486.96

Particulars

31-3-2009

31-3-2010

Increase

Decrease

Inventories

3215.28

2451.52

763.76

Sundry debtors

191.27

181.18

10.09

Cash & bank balance

6624.17

5415.54

1208.63

Other current assets

258.91

137.40

121.51

Loans & advances

1569.69

1365.02

204.67

TOTAL
CURRENTASSETS(a)

11859.32

9550.66

Liabilities

2560.79

2871.95

Provision

1620.53

1435.89

TOTAL CURRENT
LIABILITIES(b)

4181.32

4307.84

Net working capital(ab)

7678

5242.82

Current assets

Current liabilities
311.16
184.64

Net decrease in
working capital

2435.18

2435.18

TOTAL

7678

2619.82

Statement of changes in working capital RINL 2010-2011(incrores)

2619.82

Particulars

31-3-2010

31-3-2011

Increase

Decrease

Inventories

2451.52

3254.71

803.19

Sundry debtors

181.18

330.61

149.43

Cash & bank balance

5415.54

1998.89

3416.65

Other current assets

137.40

75.96

61.44

Loans & advances

1365.02

1965.04

TOTAL
CURRENTASSETS(a)

9550.66

7625.21

Liabilities

2871.95

3271.43

Provision

1435.89

1336.06

TOTAL CURRENT
LIABILITIES(b)

4307.84

4607.49

Net working capital(ab)

5242.82

3017.72

Current assets

600.02

Current liabilities

Net decrease in working

capital
TOTAL

5242.82

399.48
99.83

2225.1

2225.1

5242.82

3877.57

3877.57

CHAPTER-6
FINDINGS & SUGGETIONS

FINDINGS AND SUGGESTIONS

 During the period of study it is observed that the amount of working

capital has been continuously increasing year by year due to the
continuous increase in the value of inventories and cash balance.
However, the overall performance of the company during the period of
study is much satisfactory.
The company has already accumulated funds excess of Rs. 1953 crore
and can look forward to bigger investment in building up capacity to 6.3
million tons by 2011-2012.
Quick ratio presents a better test of short term financial position of firm.
It is found that current ratio for all five year is more than standard norm
2:1 because in the company current assets are more than current
liabilities.
The cash and bank balance decrease year by year because of the cash is
using to expansion of the firm. After the return of that expansion the firm
will be in good position.

CHAPTER-7
CONCLUSION

CONCLUSION

 It is concluded that the RASHTRIYA ISPAT NIGAM LIMITED

is growth path, so company need to utilize all available funds
for efficient operations as being done at present.

The company is managing the funds in optimum manner

Finally it is concluding that company has bright future and it

needs to stick on to its operations in optimum manner.

CHAPTER-8
BIBLIOGRAPHY

BIBILOGRAPHY
Financial Management theory and practice, Tata
McGraw-Hill publishing company Ltd., New Delhi.
(Prasanna Chandra)

 Financial Management-Vikas Publishing House Ltd.,

New Delhi. (I.M.Pandy)
Financial Management, Tata McGraw-Hill publishing company Ltd.,

New Delhi. (Khan & Jain)

Accounting for Managers-G.Prasad, Jai Bharat Publications.
Advanced Management Accounting-R.Srinivasan,
R.Rangarajan-Sri Rama Publications, Chennai.

Web sites:
WWW.Vizag Steels.com