Professional Documents
Culture Documents
According to the dictionary, wisdom has three components: Knowledge, Insight and Good Sense,
or Judgment. One can get Management knowledge from a management course syllabus, but the
insight and good sense that knowledge into wisdom comes only from experience.
I express my gratitude to Mr. S. K. Nayak (Asst. General Manager Durgapur Steel Plant )and
the employees in the company for lending me valuable support for the completion of my project.
Finally I would like to thank every one of my family members and friends who have directly or
indirectly contributed to successful completion of my project.
PREFACE
Project also enables the management students to see themselves the working
condition under which they have to work in the future. It thus enables the students
to undergone those experiences, which will help them later when they join any
organization.
This project is about the working capital management. For an organization to have
efficient working management policy is basic need for survival.
Working capital
I have tried my level best to insert correct & complete information in this report. True learning is
born out of experience and observation. I found a great link between the theatrical and the
practical knowledge that is helpful to build a concrete base for the future vocational life.
TABLE OF CONTENTS
PARTICULARS
PAGE NO.
S.No.
Executive Summary
1
Company Profile
Introduction of Parent Co. Sail
Vision and CREDO
Profile of Durgapur Steel Plant
Facilities
Products
Findings
Suggestions
Bibliography
EXECUTIVE SUMMARY
Working capital means the part of the total assets of the business that change from one
form to another form in the ordinary course of business operations.
In a perfect world, there would be no necessity for current assets and liabilities
because there would be no uncertainty, no transaction costs, information search costs, scheduling
costs, or production and technology constraints. The unit cost of production would not vary with
the quantity produced. Borrowing and lending rates shall be same. Capital, labour, and product
market shall be perfectly competitive and would reflect all available information, thus in such an
environment, there would be no advantage for investing in short term assets. However the world
we live is not perfect. It is characterized by considerable amount of uncertainty regarding the
demand, market price, quality and availability of own products and those of suppliers. There are
transaction costs for purchasing or selling goods or securities. Information is costly to obtain and
is not equally distributed.
There are spreads between the borrowings and lending rates for investments and
financings of equal risks. Similarly each organization is faced with its own limits on the
production capacity and technologies it can employ there are fixed as well as variable costs
associated with production goods. In other words, the markets in which real firm operated are not
perfectly competitive. These real world circumstances introduce problems which require the
necessity of maintaining working capital. For example,, an organization may be faced with an
uncertainty regarding availability of sufficient quantity of crucial imputes in future at reasonable
price. This may necessitate the holding of inventory, current assets. Similarly an organization
may be faced with an uncertainty regarding the level of its future cash flows and insufficient
5
amount of cash may incur substantial costs. This may necessitate the holding of reserve of short
term marketable securities, again a short term capital asset. In corporate financial management,
the term Working capital management (net) represents the excess of current assets over current
liabilities.
Working capital may be regarded as the life blood of business. Working capital is
of major importance to internal and external analysis because of its close relationship with the
current day-to-day operations of a business. Every business needs funds for two purposes
Long term funds are required to create production facilities through purchase of fixed
assets such as plants, machineries, lands, buildings & etc
Short term funds are required for the purchase of raw materials, payment of wages, and
other day-to-day expenses. It is otherwise known as revolving or circulating capital
CHAPTER -1
THE COMPANY PROFILE
Introduction of parent Co. SAIL
Steel Authority of India Limited (SAIL) is the largest steel-making company in India and one of the
seven Maharatnas of the countrys Central Public Sector Enterprises. SAIL produces iron and steel at
five integrated plants and three special steel plants, located principally in the eastern and central
regions of India and situated close to domestic sources of raw materials. SAIL manufactures and sells
a broad range of steel products.
Location
Products
Rails (13/26m), Long Rails, (65-260m), Blooms, Billets,
Chattisgarh
Durgapur Steel
Plant
West Bengal
TMT Rebars, Wheels & Axles, Pig iron & Coal Chemicals
Plate Mill Plates, HR Plates, HR Coils, Slabs, CR Sheet/
Rourkela Steel
Plant
Odisha
Jharkhand
West Bengal Wire rods, Bars & Rebars, Joists, Channels, Angles, Blooms,
Billets, Universal & Special section (Z-bar, MS Arch), Pig
7
Tamil Nadu
West Bengal
Visveswaraya Iron
& Steel Plant
Karnataka
Chandrapur Ferro
Alloy Plant
Maharashtra
Vis ion
To be a respected world class corporation and the leader in Indian steel business in quality,
productivity, profitability and customer satisfaction.
CREDO
We build lasting relationships with customers based on trust and mutual benefit.
We create and nurture a culture that supports flexibility, learning and is proactive to
change.
We chart a challenging career for employees with opportunities for advancement and
rewards.
We value the opportunity and responsibility to make a meaningful difference in people's
lives.
DSP has always attached maximum importance on proper training and development of its
employees. Its Centre for Human Resource Development has all modern facilities including the
state-of-the-art Electrical and Electronics laboratory, Hydraulics and Pneumatics laboratory and
workshop for effective training and development of its employees.
Facilities
1. Raw Materials
Iron ore, coal and limestone are the three basic raw materials for the steel industry. Durgapur
Steel Plant draws its coal from the adjacent Jharia-Ranigunj coal belt. A good amount of prime
coking coal, having fairly low ash content, is also imported. Bulk of iron ore lumps and fines
come from the mines at Bolani in Orissa. Lime stone comes from a variety of sources:
Birmitrapur (Orissa), Jaisalmer (Rajasthan), and Jukehi and Nandwara (Madhya Pradesh).
To improve and ensure consistency in raw material quality, the facilities, which have been
installed, are:
10
As part of the modernisation programme, new raw material handling storage and blending
facilities with selective crushing of coal have been installed in order to ensure consistency in raw
material quality.
The beneficiation/washing facilities, both for lump ore and fines at Bolani, have a capacity to
process 3.44 million tonnes (wet basis) per annum so as to be capable of catering to the entire
requirement of the plant after modernisation.
Durgapur is the only steel plant in the country to have a coal washery at the plant site.
Durgapur Steel Plant consumes about 7.4 million tonnes of different raw materials annually
which comprises over 1.84 million tonnes of coal and 2.9 million tonnes of iron ore lump and
fines. Besides the two major raw materials, the plant also requires limestone, dolomite,
manganese ore, bauxite, silico manganese, ferro manganese, ferro silicon, etc.
-5
- 78
The coke ovens and coal chemicals zone is divided into four basic sections namely coal
preparation plant, coal carbonisation plant, coke handling plant and coal chemicals. Presently,
DSP is operating only three batteries.
The Blast Furnace grade coke produced in Coke Ovens is directly used in Blast Furnaces while
the undersized coke is used for sinter making.
The volatile matters, which emanate during the process of coke making subsequently produce a
variety of by-products like naphthalene oil, heavy creosote oil, light oil, crude tar partially
distilled tar, Raja brand fertiliser, nitration grade benzene, nitration grade toluene, industrial
grade toluene, light solvent naphtha etc.
11
The coke oven gas is generally used in combination with the Blast Furnace gas and BOF gas as
fuel and is carried through pipelines to the different areas of the plant. The adjoining Alloy Steels
Plant under SAIL is also supplied with this fuel gas from DSP.
3. Sinter Plant
In order to enhance the productivity of blast furnaces, a high percentage of sinter charge is a
prerequisite. Sinter is an agglomeration of iron ore fines, coke and limestone in the form of
cakes. To ensure sinter burden in the blast furnaces at 75 per cent, a total of 3 million tonnes of
sinter was envisaged for a production of about 2 million tonnes of hot metal. A technologically
modern and fuel efficient sintering machine having 198 sq metres sintering area has been added
as part of the modernisation scheme to produce 1.7 million tonnes of sinter. The balance
requirement will be met from the revamped old sinter plant.
Sinter mix, a mixture of fines of iron ore, limestone, coke, dolomite and flue dust, blended
proportionally at the RMHC, is a prepared material which is self fluxing. In ignition strands it is
burnt under controlled conditions to form a porous cake type substance called sinter, which used
in blast furnaces enhances productivity and reduces coke rate.
the form of sinter and reduced to molten iron by the coke at temperatures ranging from 1, 200
1, 400 degrees centigrade. The limestone, acting as flux, absorbs the impurities in the molten iron
and goes out as slag. The major portion of liquid hot metal is transferred to steel melting shop for
conversion to steel and the rest portion is cast into pig iron in pig casting machines. Blast furnace
slag high in lime-content is used for cement making.
There are three numbers of blast furnaces operating presently at DSP. The useful volume of two
furnaces is 1,400 cubic meters each and that of the other one is 1,800 cubic meters. The furnaces
are presently operating at a productivity level of 1.3-1.4 tonnes/cubic meter/day. The furnaces are
equipped with sophisticated and modern computerised control system and are operated with high
blast temperatures (1,100 degree centigrade) and high top pressure (0.7 Kg/ sq. cm). The cast
houses are provided with facilities like twin tap holes, rocking runners etc. There are also two
numbers of Slag Granulation Plants, which convert molten blast furnace slag into granulated
forms for ready use in the cement industry. There are three pig casting machines, with a total
capacity of 2,12,000 tonnes/year
No 3
No 1
No 2
Capacity (t/day)
1, 250
1, 820
1, 820
2, 340
1, 323
1, 400
1, 400
1, 800
Stoves
1.000
1.3
1.3
1.3
(being modernised)
No 4
13
Molten iron is further refined at the Steel Melting Shop (SMS) to produce steel, which is hard
and malleable.
At DSP, there are 3 converters (Basic Oxygen Furnace) of 110-130 tonnes each. The SMS also
has a Vacuum Arc Degassing (VAD) unit for making special grades of steel.
A major portion of the steel is routed through the Continuous Casting Plant. Another major
portion of the steel is taken to the teeming bay, where it is top poured into 8 tonne ingot moulds
for making ingot steel. A portion of highly controlled steel is cast at the Special Casting Bay into
fluted ingots and special quality blooms. Fluted ingots are bottom poured and are used for
making wheel steel for DSPs Wheel & Axle Plant. A portion of the liquid steel is also bottom
poured to make axle ingots.
Continuous Casting Plant
The state of the art CCP has 2 Nos machines having 6 strands each. The other basic details are as
follows:
Design
Casting
No
limitstime
80-150
85
sq
minutes,
of
.mm,
Cut-off
casting
lengths-
ladle
radius6
treatment
6
/
metres
12
metre
stations-2
The billets are gradually shifted to the cooling beds and then stacked orderly at the despatch end
for outside despatch. The details about the cast number and quality of the billets are marked on
the billet stack. The Merchant Mill of Durgapur Steel Plant utilises billets for rolling TMT bars
and other merchant rounds, while a sizeable portion is sold in the domestic and foreign markets.
7. Rolling Mills
Ingots weighing 8 tonnes each are heated in the soaking pits (numbering 20) for about 7 to 12
hours at around 1, 200 degrees centigrade and thereafter rolled in the 42 primary and the 32
secondary blooming mills. These are rolled further into different shapes and sizes in different
finishing mills.
Blooming mill
Installed
Mill
Ingot
capacity
weight
1.47
million
tonnes/year
tonnes
42"
Mill:
42"
Output
102"
bloom
size
reversible
(min)
300
Blooming
mm
Mill
250
32"
32"
mm
Mill:
84"
reversible
Intermediate
Mill
Mill
-
capacity
0.957
Continuous
tonnes
Morgan
yr.
design
Sleeper bars
- 352 mm x 12.5 mm
Skelp slabs
- 140 mm x 75 mm to 240 mm x 90 mm
The ingots after heating are rolled in the Blooming Mill to make blooms of the sizes mentioned
in the table and then a part of the same are then further rolled in the Billet Mill for making rolled
billets or slabs as per the above details.
Section mill
The Section Mill rolls out light and medium structural like joists, channels and angles.
Mill capacity
Re-heating furnaces
- 2 x 40 t/hr
Roughing Mill
- 2 high reversible
Intermediate Mill
Finishing Stand
- 2 high non-reversible
Product range:
Joists
Channels
Angels
16
Merchant Mill
The Merchant Mill produces plain round and Thermo-Mechanically Treated (TMT) bars in the
range of 16mm - 28mm. The entire product range of TMT bars and rods at DSP is branded and
has been able to create a niche market.
Capacity
Type of mill
Horizontal stands
- 13, Repeaters - 4
Product range
Plain rounds
- 12 - 32 mm dia
TMT bars
- 12 - 25 mm dia
Skelp Mill
The Skelp Mill produces skelp in the range of 146 to 235 mm primarily for tubes and pipes
making industry.
Capacity
Type of Mill
Horizontal stands
- 11
Vertical stands
-6
Product range
Strips & Skelps - 75-242 mm wide to 1.47-2.34 mm thick
17
Railway Products
Durgapur Steel Plant is the only major indigenous supplier of wheel sets, loco wheels, carriage
and wagon wheels, and axles to the Indian Railways. As per demand of the Railways, the plant
has developed loco wheels, which were imported earlier. The Wheel & Axle Plant is producing
wheels manufactured as per the latest IRS specifications, i.e. R-19/93 for carriage and wagon
wheels, R-34/99 for loco wheels and R-16/95 for axles.
The wheel plant of the Wheel & Axle Plant is provided with six PLC controlled band saws for
accurate slicing of the 14 and 16 fluted ingots. A fully computerised 63/12 MN oil hydraulic
press is there for forging and punching of the wheel blanks along with a fully computerised
vertical wheel mill and other down stream facilities. All the wheels are 100 per cent rimquenched, tempered and tested as per IRS specifications.
Machining of these forged rolled and heat-treated wheel blanks are carried out in the 15 CNC
machines. All the wheels are ultrasonically tested and inspected by RITES on behalf of the
Indian Railways. A number of sophisticated and modern online testing facilities are there to
conform to the stringent testing requirements of the Indian Railways.
Wheel & Axle Plant
Annual production of finished wheels
- 1,00,000 nos.
- 25 nos./hr
- 22 nos./hr
8. Engineering shops
Durgapur Steel Plant has a number of captive engineering shops for repairs and supply of spare
parts. The Central Engineering Maintenance has a Machine Shop, Structural Shop, Fitting and
Assembly Shops. The Foundry produces Ingot moulds and bottom plates for the steel melting
shop. There are also Auxiliary Repair Shops such as Electrical, Wagon and Loco repair.
18
10. Computerisation
An extensive computerisation has been undertaken in DSP for personnel, commercial, process
control, production and maintenance applications. The Production Planning and Control network
is thoroughly used for tracking of customer orders, material, monitoring of quality parameters
and ensuring availability of accurate, real time data to all agencies needing access to the data.
PRODUCTS
19
PRODUCT-MIX
TONNES/ANNUM
Merchant Products
2,80,000
Structural
2,07,000
Skelp
1,80,000
58000
Semis
8,61,000
15,86,000
CHAPTER -2
DESIGN OF THE STUDY
A company can be endowed with assets and profitability but short of liquidity if its assets cannot
readily be converted into cash. Positive working capital is required to ensure that a firm is able to
continue its operations and that it has sufficient funds to satisfy both maturing short-term debt
and upcoming operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable, and cash.
20
Working capital nowadays has been identified as a major thrust area by almost all the firms
throughout world in order to manage the current assets and consequentially current liabilities.
Understanding a company's cash flow health is essential to making investment decisions. A good
way to judge a company's cash flow prospects is to look at its working capital management
(WCM). The better the company manage its working capital, the less the company needs to
borrow. Even companies with cash surpluses need to manage working capital to ensure that those
surpluses are invested in ways that will generate suitable return for investors.
RESEARCH METHODOLOGY
Research Design
21
A research design is the arrangement of the condition for collection and analysis
of data. Actually it is the blueprint of the research project.
Research design used was Exploratory type.
Data Collection
Primary Data: Primary data was collected with the help of interview of official
staff of finance department.
Secondary Data: The secondary data comprises of various Books, Annual
Reports and balance sheet, Journals, various MIS, magazines and website of the
company.
Data Analysis
Data analysis was done with the help of different ratios.
LIMITATIONS OF STUDY
The analysis was made with the help of the secondary data collected from
the company.
Ratios was calculated for last five financial year data.
The study is academic in nature.
The final conclusion can be also affected by some of the extraneous
variables.
22
CHAPTER 3
THEORETICAL
BACKGROUND
OF
WORKING
CAPITAL
MANAGEMENT
Meaning of Working Capital Management:Working capital means the part of the total assets of the business that change from
one form to another form in the ordinary course of business operations.
The word working capital is a made of two words working and capital.
The word working means day to day operation of the business, whereas the word
capital means monetary value of all assets of the business.
Working capital may be regarded as the life blood of business. Working
capital is of major importance to internal and external analysis because of its close
relationship with the current day to-day operations of a business. Every business
needs funds for two purposes.
1. Long term
2. Short term
1. Long term funds are required to create production facilities through purchase of
fixed assets such as plants, machineries, lands, buildings & etc
23
2.
Short term funds are required for the purchase of raw materials, payment of
Current Liabilities
Bills Payable
Bills Receivable
Sundry Creditors
Sundry Debtors
Outstanding expenses
Accrued expenses
Investors/ stock
Temporary investment
Prepaid expenses
Accrued incomes
24
1. Cash and equivalents: - This most liquid form of working capital requires
constant supervision. A good cash budgeting and forecasting system provides
answers to key questions such as: Is the cash level adequate to meet current
expenses as they come due? What is the timing relationship between cash inflow
and outflow? When will peak cash needs occur? When and how much bank
borrowing will be needed to meet any cash shortfalls? When will repayment be
expected and will the cash flow cover it?
2. Accounts receivable: - Many businesses extend credit to their customers. If
you do, is the amount of accounts receivable reasonable relative to sales? How
rapidly are receivables being collected? Which customers are slow to pay and what
should be done about them?
3. Inventory: - Inventory is often as much as 50 percent of a firm's current assets,
so naturally it requires continual scrutiny. Is the inventory level reasonable
compared with sales and the nature of your business? What's the rate of inventory
turnover compared with other companies in your type of business?
4. Accounts payable: - Financing by suppliers is common in small business; it is
one of the major sources of funds for entrepreneurs. Is the amount of money owed
suppliers reasonable relative to what you purchase? What is your firm's payment
policy doing to enhance or detract from your credit rating?
5. Accrued expenses and taxes payable: - These are obligations of your
company at any given time and represent a future outflow of cash .
25
It shows the position of the firm at certain point of time. It is calculated in the basis
of balance sheet prepared at a specific date. In this method there are two type of
working capital:
assets. The sum of the current assets is the working capital of the business. The
sum of the current assets is a quantitative aspect of working capital. Which
emphasizes more on quantity than its quality, but it fails to reveal the true financial
position of the firm because every increase in current liabilities will decrease the
gross working capital.
assets which is financed with long term funds. It may be either positive or negative.
When the current assets exceed the current liability, the working capital is positive
and vice versa.
The
duration
or
time
required
completing the sequence of events right from purchase of raw material for
cash to the realization of sales in cash is called the operating cycle or working
capital cycle.
26
Raw
Cash
Material
Debtors
&
Operati
ng
Bills
Receiva
bles
Cycle
Sales
Work
In
Process
Finished
Goods
27
or Fixed
Temporary or Variable
capital is the amount of working capital which is required to meet the seasonal
demands and some special exigencies. Variable working capital can further be
classified as seasonal working capital and special working capital. The capital
required to meet the seasonal need of the enterprise is called seasonal working
capital. Special working capital is that part of working capital which is required to
meet special exigencies such as launching of extensive marketing for conducting
28
IMPORTANCE OF ADEQUATE
WORKING CAPITAL
Payment
of
Salaries,
Wages
and
Other
Day
to
Day
29
business
needs some amounts of working capital. The need for working capital arises due to
the time gap between production and realization of cash from sales. There are time
gaps in purchase of raw material and production;& sales; & realization of cash.
FACTORS
DETERMINIG
THE
WORKING
CAPITAL
REQUIREMENTS
Nature Of Business: The requirements of working is very limited in public utility
undertakings such as electricity, water supply and railways because they offer cash
sale only and supply services not products, and no funds are tied up in inventories
and receivables. On the other hand the trading and financial firms requires less
investment in fixed assets but have to invest large amt. of working capital along
with fixed investments.
30
Size of the Business: Greater the size of the business, greater is the requirement
of working capital.
Production Policy: If the policy is to keep production steady by accumulating
inventories it will require higher working capital.
Length of Production Cycle: The longer the manufacturing time the raw material
and other supplies have to be carried for a longer in the process with progressive
increment of labor and service costs before the final product is obtained. So working
capital is directly proportional to the length of the manufacturing process.
Business Cycle: In period of boom, when the business is prosperous, there is need
for larger amt. of working capital due to rise in sales, rise in prices, optimistic
expansion of business, etc. On the contrary in time of depression, the business
contracts, sales decline, difficulties are faced in collection from debtor and
the firm may have a large amt. of working capital.
Rate of Growth of Business: In faster growing concern, we shall require large
amt. of working capital.
31
(a) Dimension I is concerned with the formulation of policies with regard to profitability, risk and
liquidity.
(b) Dimension II is concerned with the decisions about the composition and level of current
assets.
(c) Dimension III is concerned with the decisions about the composition and level of current
liabilities.
The various sources for the financing of working capital are as follows
Sources of
Working
Capital
33
Temporary or Variable
Permanent or Fixed
Shares
Debentures
Ploughing back of Profits
Loans from Financial
Institutes
Indigenous Bankers
Installment Credit
Advances
Accrued Expenses and
Deferred Income
Commercial Paper
Commercial Banks/Bank
Finance
Public Deposits
Trade Creditors
Permanent working capital should be financed in such a manner that the enterprise
Factoring
may have its uninterrupted use for a sufficiently long period. There are five
permanent sources of working capital.
1) Shares: Issue of shares is the most important source for raising the permanent
or long term capital. A company can issue various types of shares as equity shares,
preference shares and deferred shares. According to companies act a company
cannot issue deferred shares. Preference shares carry preferential rights in respect
of dividend at fixed rate and in regard to the repayment to the capital at the time of
winding up the company. Equity shares do not have any fixed commitment charge
and the dividend on these shares is to be paid subject to the availability of sufficient
profits. As far as possible a company should raise the maximum amount of
permanent capital by the issue of shares.
34
2)
Debentures:
debenture
is
an
instrument
issued
by
the
company
acknowledging its debt to its holder. It is also an important method of raising long
term or permanent working capital. The debenture holders are the creditors of the
company. The interest on debentures is a charge against profit and loss account.
When the debentures are secured they are paid on priority to other creditors. The
debentures may be of various kinds such as naked or unsecured debentures;
secured
or
mortgaged
debentures,
redeemable
debentures,
irredeemable
Financing
of
Temporary/Variable
or
Short-Term
Working Capital
1) Indigenous Bankers: Private money lenders and other country bankers used to
be the only source of finance prior to the establishment of commercial banks.
Inspite of the establishments new financial institutions indigenous bankers also
advance financial help to a few large-scale industries, particularly during time of
stress both for fixed capital and working capital but mainly they have provided
finance to small scale industries. They used to charge a very high rate of interest
and exploited the customers to the largest extent possible.
2) Installment Credit: This is another method by which the assets are purchased
and the possession of goods is taken immediately but the payment is made in
installments over a predetermined period of time. Generally, interest is charged on
the unpaid price or it may be adjusted in the price. But in any case, it provides
35
funds for sometime and is used as a source of short-term working capital by many
business houses which have difficult fund position.
3) Advances: Some business houses get advances from their customers and
agents against orders and this source is a short term source of finance of them. It is
a cheap source of finance in order to minimize their investment in working capital,
some firms having long production cycle, especially the firms manufacturing
industrial products prefer to take advances from their customers.
4) Accrual Expenses and Deferred income: Accrued expenses are the expenses
which have been incurred but not yet due and hence not yet paid also. The major
accruals items are wages and taxes; these are what a firm owes to the employees
and to the government Accruals vary with the level of activity of the firm. When the
activity level expands the accruals increases, and when activity level contracts
accrual decreases. Therefore accruals are treated as part of spontaneous financing.
5) Commercial Paper: Commercial paper is an important money market
instrument in advanced countries like U.S.A. to raise short term funds. In India RBI
introduced commercial paper in the Indian money market on the recommendation
of Vaghul Working Group. Commercial paper is a form of unsecured promissory note
issued by the firms to raise short term funds.
36
CHAPTER -4
WORKING CAPITAL MANAGEMENT OF DURGAPUR STEEL PLANT
A]
operational efficiency of the company. The following table provides the data relating
to the net working capital of Durgapur Steel Plant.
NET WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIS
(Rs. In 000)
Years
Current Asset
Current
NWC
Liabilities
2010-11
4563099.00
2041543.00
2521556.00
2011-12
9599646.00
3887765.00
5711881.00
2012-13
9077617.00
2829079.00
6248538.00
2013-14
11003428.00
3889899.00
7113529.00
37
2014-15
11946666.00
4165659.00
7781007.00
NWC
6000000
5000000
NWC
4000000
3000000
2000000
1000000
0
2010-11
2011-12
INTERPRETATION:-
2012-13
2013-14
2014-15
Year
The above chart shows that during the year 2010-11 the company has
2521556.00 N.W.C. In the year 2011-12 huge increase in the N.W.C is 5711881.00
and in the year 2012-13 the company has 6248538.00 N.W.C, in the year 2013-14
the company has 7113529.00 N.W.C. The N.W.C of the company is increasing
compared to the previous years, in the year 2014-15 the company has 7781007.00
N.W.C.
This means the company in a positive position & N.W.C has improved vary fast as
compared to the previous years which show liquidity Position of the DURGAPUR
STEEL PLANT has always more & sufficient working capital available to pay off its
current liabilities.
B] RATIO ANALYSIS
INTRODUCTION:
38
1. LIQUIDITY RATIOS:
Liquidity refers to the ability of a firm to meet its current obligations as
and when these become due. The short-term obligations are met by realizing
amounts from current, floating or circulating assets.
Following are the ratios which can help to assess the ability of a firm to meet
its current liabilities.
1.
Current ratio
2.
3.
2. TURNOVER/ACTIVITY RATIOS:
These are the ratios which indicate the speed with which assets are
converted or turned over into sales.
1.
2.
3.
4.
1. CURRENT RATIO:39
It is a ratio, which express the relationship between the total current Assets and
current liabilities. It measures the firms ability to meet its current liabilities. It
indicates the availability of current assets in rupees for every one rupee of current
liabilities. A ratio of greater than one means that the firm has more current assets
than current liabilities claims against them. A standard ratio between them is 2:1.
(Rs. In 000)
Current
Current
Current
Assets
Liabilities
Ratio
2010-11
4563099.00
2041543.00
2.23
2011-12
9599646.00
3887765.00
2.47
2012-13
9077617.00
2829079.00
3.21
2013-14
11003428.00
3889899.00
2.83
2014-15
11946666.00
4165659.00
2.87
Currennt Ratio
3.5
3
2.5
2
Current Ratio
1.5
1
0.5
0
2010-11
2011-12
2012-13
2013-14
2014-15
Year
INTERPRETATION:It is seen from the above chart that during the year 2010-11 the current
ratio was 2.23, during the year 2011-12, it was 2.47 and in the year 2012-13 it
40
was 3.21. This shows the current ratio increases every year but in the year
2013-14 the current ratio was dropped to 2.83 due to increase in current
liabilities. In the year 2014-15 the current ratio has increases to 2.87. The
current ratio is above the standard ratio i.e., 2:1. Hence it can be said that
there is enough current assets in DURGAPUR STEEL PLANT to meet its current
liabilities.
2. ACID TEST RATIO / QUICK RATIO / LIQUIDITY RATIO:This ratio establishes a relationship between quick/liquid assets and current
liabilities. It measures the firms capacity to pay off current obligations immediately.
An asset is liquid if it can be converted in to cash immediately without a loss of
value; Inventories are considered to be less liquid because inventories normally
require some time for realizing into cash. This ratio is also known as acid-test
Quick Ratio =
Year
Current
Assets
2010-11
Liabilities
4563099.0
0
2011-12
9599646.0
0
2012-13
9077617.0
0
2013-14
11003428.0
0
Quick
Ratio
1.48
00
2161071.00 7438575.00 3887765.
1.91
00
3336430.00 5741187.00 2829079.
2.03
00
2622901.00 8380527.00 3889899.
2.15
00
41
2014-15
11946666.0
2.30
00
Quick Ratio
2.5
1.5
Quick Ratio
0.5
2010-11
2011-12
201213
Year
201314
2014-15
INTERPRETATION:During the year 2010-11 the quick ratio was 1.48, in the year 2011-12 it
increases to 1.91 This shows the company maintains satisfactory quick ratio, in the
year 2012-13 the quick ratio increases to 2.03, in the year 2013-14 it increases 2.15
and in the year 2014-15 it increases 2.30, due to increase in quick assets. The quick
ratio is above the standard ratio i.e., 1:1. Hence it shows that the liquidity position
of the company is adequate.
3. ABSOLUTE LIQUID RATIO:Absolute liquid ratio may be defined as the relationship between Absolute
liquid assets and current liabilities. Absolute liquid assets include cash in hand and
cash at bank.
The standard ratio is 0.5: 1.
(Rs. In 000)
42
Years
Current
Balance
Liabilities
Absolute Liquidity
Ratio
2010-11
493742.00
2041543.00
0.24
2011-12
0.5
1205660.00
3887765.00
0.31
0.45
2012-13
1033152.00
2829079.00
0.36
0.35
2013-14
1720815.00
3889899.00
0.44
1978938.00
4165659.00
Absolute
0.47
Liquidity
Ratio
0.4
0.3
2014-15
0.25
0.2
0.15
0.1
0.05
0
INTERPRETATION:
2010-11
2011-12
2012-13
2013-14
2014-15
Year
During the year 2010-11 the Absolute liquidity ratio was 0.24, during the year
2011-12 it was 0.31 and in the year 2012-13 it was 0.36, in the year 2013-14 it was
0.44. This shows that the Absolute liquidity ratio increases every year but it is below
the standard ratio. In the year 2014-15 the Absolute liquidity ratio has increases
0.47. Hence it shows that the liquidity position of the company is satisfactory.
TURNOVER RATIOS
1. INVENTORY TURNOVER RATIO:Inventory turnover ratio is the ratio, which indicates the number of times the
stock is turned over i.e., sold during the year. This measures the efficiency of the
sales and stock levels of a company.
turnover and a low stock level. A low stock turnover ratio means the business is
slowing down or with a high stock level.
Inventory Turnover Ratio
Net Sales
43
Closing Inventory
(Rs. In
000)
Year
Net Sales
Closing
inventory
Inventory Turnover
ratio
2010-11
19542081.00
1532455.00
12.75 Times
2011-12
31321229.00
2161071.00
14.49 Times
2012-13
27894285.00
3336430.00
8.36 Times
2013-14
38496046.00
2622901.00
14.68 Times
2014-15
42345651.00
2360611.00
17.94 Times
ITR
14
12
Inventory
Turnover Ratio
10
8
6
4
2
0
2010110
2011-12
2012-13
2013-14
2014-15
Year
INTERPRETATION:
44
It is seen from the above chart that During the year 2010-11 the Inventory t/o
ratio is 12.75 times, in the year 2011-12 it increased to 14.49 times, But in the year
2012-13 it decreased to 8.36 times . There was a subsequent increase in the year
2013-14 and 2014-15 to 14.68 times and 17.94 times respectively.
This shows the company has converted inventory to sales quickly and less money is
tied up in stock.
2. INVENTORY HOLDING PERIOD :This period measures the average time taken for clearing the stocks. It
indicates that how many days inventories take to convert from raw material to
finished goods.
Days in a year
(Rs. In
000)
Year
Days in a Year
Inventory Turnover
Ratio
365
12.75 Times
28.63 Days
2011-12
365
14.49 Times
25.19 Days
2012-13
365
8.36 Times
43.66 Days
2013-14
365
14.68 Times
24.86 Days
2014-15
365
17.94 Times
20.34 Days
Number of days
2010-11
50
45
40
35
30
25
20
Inventory
Holding
Period
15
10
5
0
45
2010-11
2011-12
2012-13
Year
2013-14
2014-15
INTERPRETATION:
Inventory holding period was fluctuating over the years. It was 28.63 days in
the year 2010-11. It decreased to 25.19 days in the year 2011-12, it increased to
43.66 days in the year 2012-13. There was a subsequent decrease in the year 201314 and 2014-15 to 24.86 days and 20.34 days respectively.
This shows the company is minimizing these inventory-holding days thereby
reduces investment in inventory. This shows companys inventory management is
efficient.
3. DEBTORS / ACCOUNTS RECEIVABLES TURNOVER RATIO:Debtors turnover ratio indicates the speed of debt collection of the firm. This
ratio computes the number of times debtors (receivables) has been turned over
during the particular period.
Debtors Turnover Ratio =
Net Sales
Average Debtors
46
Note: in DURGAPUR STEEL PLANT, we have taken the total net sales instead of the
credit sales, because the credit sales information has not available for the
calculation of DTR.
(Rs. In 000)
Year
Net Sales
Average
Debtors Turnover
Debtors
Ratio
2010-11
19542081.00
2201381.00
8.88 Times
2011-12
31321229.00
4958527.00
6.32 Times
2012-13
27894285.00
1805948.00
15.44 Times
2013-14
38496046.00
3787274.00
10.16 Times
2014-15
42345651.00
4355365.00
9.72 Times
DTR
14
12
Debtors
Turnover
Ratio
10
8
6
4
2
0
201011
2011-12
2012-13
Year
201314
2014-15
47
INTERPRETATION:
It is clear that debtor turnover ratio fluctuating over the years. It was 8.88
times in the year 2010-11. It decreased to 6.32 times in the year 2011-12, It again
increased to 15.44 times in the year 2012-13 but it decreased to 10.16 times and
9.72 Times in the year 2013-14 and 2014-15 respectively. This shows the company
is not collecting debt rapidly and companys collection policy is liberal.
4. DEBTORS COLLECTION PERIOD :Debtors collection period measures the quality of debtors since it measures
the rapidity or the slowness with which money is collected from them a shorter
collection period implies prompt payment by debtors. It reduces the chances of bad
debts. A longer collection period implies too liberal and inefficient credit collection
performance.
Days in a Year
Debtors Turnover Ratio
(Rs. In 000)
Year
Days in a
Debtors Turnover
Debtors Collection
Year
Ratio
Period
2010-11
365
8.88 Times
41.10 Days
2011-12
365
6.32 Times
57.75 Days
2012-13
365
15.44 Times
23.64 Days
2013-14
365
10.16 Times
35.92 Days
2014-15
365
9.72 Times
37.55 Days
48
70
60
50
Debtors
Collection
Period
40
30
20
10
0
2010-11
2011-12
2012-13
2013-14
2014-15
Year
INTERPRETATION:
Debt collection period is changing over the years. It was 41.10 days in the
year 2010-11. It increased to 57.75 days in the year 2011-12, but in the year 201213 it decreased to 23.64 days. There was a subsequent increase in the year 201314 and 2014-15 to 35.92 days and 37.55 days respectively.
This shows the inefficient credit collection performance of the company. Company
is not paying proper attention on debt collection or the quality of debtors is not
good.
5. CREDITORS/ACCOUNTS PAYABLES TURNOVER RATIO:Creditors turnover ratio is the ratio, which indicates the number of times the
debts are paid in the year. This ratio is calculated as follows.
Net Purchases
Average Creditors
49
Note: In the DURGAPUR STEEL PLANT, we have taken the total Purchases instead of
the credit purchases, because the credit purchases information has not available for
the calculations of CTR.
(Rs. In 000)
Year
Net
Average
Creditors Turnover
Purchases
Creditors
Ratio
2010-11 11691090.00
1673515.00
6.98 Times
2011-12 17778675.00
3492127.00
5.09 Times
2012-13 18896828.00
2649781.00
7.13 Times
2013-14 23605773.00
2658999.00
8.88 Times
2014-15 27146639.00
3057849.00
8.88 Times
CTR
7
6
5
Creditors
Turnover
Ratio
4
3
2
1
0
2010-11
2011-12
2012-13
2013-14
2014-15
Year
50
INTERPRETATION:
It is clear that creditor turnover ratio is changing over the years. It was 6.98
times in the year 2010-11. It decreased to 5.09 times in the year 2011-12. There
was a subsequent increase in the year 2012-13 and 2013-14 to 7.13 times and 8.88
times respectively. In the year 2014-15 it is same as compared to 2013-14. It shows
that company has making prompt payment to the creditors.
6. CREDITORS PAYMENT PERIOD:The Creditors Payment Period represents the average number of days
taken by the firm to pay the creditors and other bills payables.
Days in a Year
(Rs. In 000)
Year
Days in a
Creditors Turnover
Average Payment
Year
Ratio
Period
2010-11
365
2011-12
365
2012-13
Number of days
2013-14
2014-15
80
70
60
6.98 Times
52.29 Days
5.09 Times
Chart showing Creditors Payment Period
365
7.13 Times
71.71 Days
51.19 Days
365
8.88 Times
41.10 Days
365
8.88 Times
41.10 Days
50
Creditors
Payment
Period
40
30
20
10
51
0
2010-11
2011-12
2012-13
Year
2013-14
2014-15
INTERPRETATION:
Average payment period is changing over the years. It was 52.29 days in the
year 2010-11. It increased to 71.71 days in the year 2011-12, but in the year 201213 and 2013-14, it decreased to 51.19 days and 41.10 days respectively. In the year
2014-15, it is same as compared to 2013-14. It indicates that the company has
taken the steps to prompt payment to the creditors.
7. WORKING CAPITAL TURNOVER RATIO:This ratio indicates the number of times the working capital is turned over in the
course of the year. This ratio measures the efficiency with which the working capital
is used by the firm. A higher ratio indicates efficient utilization of working capital
and a low ratio indicates otherwise. But a very high working capital turnover is not a
good situation for any firm.
Net Sales
Net Working Capital
52
(Rs. In 000)
Year
Net Sales
Net Working
WCTR
Capital
2010-11
19542081.
2521556.00
7.75 Times
5711881.00
5.48 Times
6248538.00
4.46 Times
7113529.00
5.41 Times
7781007.00
5.44 Times
00
2011-12
31321229.
00
2012-13
27894285.
00
2013-14
38496046.
00
2014-15
42345651.
00
6
5
WCTR
4
3
2
1
0
2010-11
2011-12
2012-13
2013-14
2014-15
Year
INTERPRETATION:
53
The working capital t/o ratio is fluctuating year to year that was high in the
year 2010-11, 7.75 times; there was a subsequent decrease in the year 2011-12
and 2012-13 to 5.48 times and 4.46 times. But it increases in the year 2013-14 and
2014-15 to 5.41 and 5.44 times respectively. This shows the company is utilizing
working capital effectively and working capital is converted into sales very fast.
CURRENT ASSETS
CURRENT LIABILITIES
54
The purpose of preparing this statement is for finding out the increase or decrease
in working capital and to make a comparison between two financial years.
Particulars
As on 31- As on
3- 2009
31-32010
Effect on working
capital
Increase
Decreas
e
__
468850.00
762571.00
__
__
9925.00
CURRENT ASSETS
Inventories
2001305.00
1532455.0
0
Sundry debtors
1438810.00
2201381.0
0
503667.00
493742.00
55
134364.00
148822.00
14458.00
__
193081.00
186699.00
__
6382.00
4271227. 4563099
__
67320.00
143533.00
__
__
368085.
00
.00
1606195.00
1673515.0
CURRENT LIABILITIES
Sundry creditors
0
Provisions
511561.00
(B)Total
Current 2117756.
Liabilities
(A)-(B)
00
Net
Working 2153471.
Capital
Increase
00
in
368028.00
2041543
.00
2521556
.00
__
Working 368085.0
Capital
0*
TOTAL
00*
930487.
00
00
.00
00
INTERPRETATION:
56
In the above table, it is seen that during the year 2009-10 and 2010-11 there
was a net increase in working capital of Rs 368085.00. It indicates an adequate
working capital in DURGAPUR STEEL PLANT.
This is because of
1. Increase current assets such as Sundry debtors by Rs 762571.00, other current
assets by Rs 14458.00. And decrease in Inventories by Rs 468850.00, Cash &
Bank balance by Rs 9925.00, Loans and Advances by Rs 6382.00.
2. Increase in current liabilities such as in Sundry creditors by Rs 67320.00 and
decrease in Provisions by Rs 143533.00.
Particulars
Effect on working
capital
As on 31- As on
3- 2011
31-32012
Increase Decrease
1532455.00
628616.00
__
2757146.0
__
CURRENT ASSETS
Inventories
2161071.0
0
Sundry debtors
2201381.00
4958527.0
0
493742.00
1205660.0
0
711918.00
__
__
70562.00
1009429.0
__
0
Other current assets
148822.00
78260.00
186699.00
1196128.0
0
0
57
4563099. 9599646
00
.00
1673515.00
3492127.0
CURRENT LIABILITIES
Sundry creditors
__
1818612.00
__
27610.00
__
3190325.
0
Provisions
368028.00
(B)Total
Current 2041543.
Liabilities
(A)-(B)
00
Net
Working 2521556.
Capital
00
Increase
in
Working 3190325.
395638.00
3887765
.00
5711881
.00
__
00*
Capital
TOTAL
00*
INTERPRETATION:
In the above table, it is seen that during the year 2010-11 and 2011-12, there was
huge net increase in working capital by Rs 3190325.00
This is because
58
Particulars
Effect on working
capital
As on 31- As on
3- 2012
31-32013
Increase Decrease
2161071.00
3336430.0
1175359.0
CURRENT ASSETS
Inventories
Sundry debtors
4958527.00
1805948.0
__
__
3152579.00
__
172508.00
0
Cash & Bank balance
1205660.00
1033152.0
0
78260.00
189683.00
111423.00
__
1196128.00
2712404.0
1516276.0
__
0
(A)Total Current Assets
9599646. 9077617
00
.00
59
CURRENT LIABILITIES
Sundry creditors
3492127.00
2649781.0
842346.00
__
216340.00
__
0
Provisions
395638.00
(B)Total
Current 3887765.
Liabilities
(A)-(B)
00
Net
Working 5711881.
Capital
00
179298.00
2829079
.00
6248538
.00
__
Increase
in
Working 536657.0
0*
Capital
TOTAL
__
536657.0
0*
INTERPRETATION:
In the above table, it is seen that during the year 2011-12 and 2012-13, there was
also net increase in working capital by Rs 536657.00.
This is because
1. There is Increase in current assets such as Inventories by Rs 1175359.00, other
current assets by Rs 111423.00, Loans and Advances by Rs 1516276.00 and
decrease in Sundry debtors by Rs 3152579.00, Cash & Bank balance by Rs
113618.00.
60
2.
Particulars
Effect on working
capital
Increase Decrease
CURRENT ASSETS
Inventories
3336430.00
2622901.00
__
713529.00
Sundry debtors
1805948.00
3787274.00
1981326.0
__
0
Cash & Bank balance
1033152.00
1720815.00
189683.00
206206.00
2712404.00
2666232.00
9077617. 1100342
687663.00
__
16523.00
__
__
46172.00
00
8.00
Sundry creditors
2649781.00
2658999.00
__
9218.00
Provisions
179298.00
1230900.00
__
1051602.00
CURRENT LIABILITIES
(B)Total
Current 2829079.
Liabilities
(A)-(B)
Net
00
Working 6248538.
3889899.
00
7113529.
61
Capital
00
00
__
Increase
in
Working 864991.0
0*
Capital
TOTAL
__
864991.0
0*
INTERPRETATION:
In the above table, it is seen that during the year 2012-13 and 2013-14, there was
also net increase in working capital by Rs 864991.00.
This is because
1. There is Increase in current assets such as Sundry debtors by Rs 1981326.00,
Cash & Bank balance by Rs 687663.00, Other current assets by Rs 16523.00 and
decrease in Inventories by Rs 713529.00, Loans and Advances by Rs 46172.00.
Particulars
As on 31- As on 313-2014
3-2015
Effect on working
capital
Increase Decrease
62
CURRENT ASSETS
Inventories
2622901.00
2360611.00
__
Sundry debtors
3787274.00
4355365.00
568091.00
__
1720815.00
1978938.00
258123 .00
__
206206.00
185585.00
2666232.00
3066167.00
1100342
1194666
8.00
6.00
Sundry creditors
2658999.00
Provisions
1230900.00
__
262290.00
20621.00
399935.00
__
3057849.00
__
398850.00
1107810.00
123090.00
__
__
667478.0
CURRENT LIABILITIES
(B)Total
Current
Liabilities
(A)-(B)
3889899. 4165659.
00
Net
Working
Capital
00
7113529. 7781007.
00
Increase
in
Working
Capital
TOTAL
667478.0
0*
00
__
0*
63
INTERPRETATION:
In the above table, it is seen that during the year 2013-14 and 2014-15 there was
also net increase in working capital by Rs 667478
This is because
1. There is increase in current assets such as Sundry debtors by Rs 568091.00,
Cash & Bank balance by Rs 258123.00 Loans and Advances by Rs 399935.00 and
decrease in Inventories by Rs 262290.00, other current assets by Rs 20621.00.
CHAPTER - 5
FINDINGS
Following are the findings of the study:
Working capital of the DURGAPUR STEEL PLANT was increasing and
showing positive working capital per year.
The DURGAPUR STEEL PLANT has higher current and quick ratios are i.e.,
2.87 and 2.30 respectively.
Inventory turnover ratio is very low in the year 2012-13. In the year
Debtors turnover ratio is very high in the year 2012-13. In the year 2013-14 it
has decreased by 5.28 times as compared to 2012-13 and in the last year 2014-15
it has again decreased by 0.44 times as compared to 2013-14.
64
Creditors turnover ratio has increased in the years of 2012-13 and 2013-14. It is
same in the last year 2014-15 as compared to 2013-14.
Working capital turnover ratio is very low in the year 2012-13. In the year 2013.-
14 it has increased by 0.95 times as compared to 2012-13 and in the last year
2014-2015 it has again increased by 0.03 times.
CHAPTER - 6
SUGGESTIONS
Working capital of the company is increasing every year. Profit is also increasing
every year. This is good sign for the company. It has to maintain it further, to run the
business in long term.
The Current and quick ratios are almost up to the standard requirement. So the
Working capital management of DURGAPUR STEEL PLANT is satisfactory and it has
to maintain it further.
The company has sufficient working capital and has better liquidity position. By
efficient utilizing this short-term capital, then it should increase the turnover.
65
The company should take precautionary measures for investing and collecting
funds from receivables and to reduce the bad debts.
Creditors turnover ratio has increasing from 2012-13 to 2013-14 and in the last
year 2014-2015 it is same as compared to 2013-14. Company is making prompt
payment to its creditors. This is good sign for the companys goodwill. On-time
payment to suppliers will increase the credibility of the firm. It has to maintain it
further to survive in the market.
CHAPTER - 7
BIBLIOGRAPHY
66
Books.
Edition,Tata
JOURNALS
Working capital management: Coordinating Investment and Financing Policies Journal of Finance.
M.B.Fordy.
Web site
www.google.com
www.wikipedia.org
www.transtutors.com
www.sail.co.in
67