A Project On Working Capital Of Scan Steels Ltd.

(Submitted in partial fulfillment of the requirements of Bachelor of business Administration Program under Utkal University)

By Anchal Kedia 56317UT09034

Faculty Guide Prof. Dileswar Sahoo

Corporate Guide Mr. Uttam Garg

Certificate
This is to certify that the Dissertation Project works entitled Working Capital of Scan Steels Limited is a piece of work done by Anchal Kedia, a student of ASBM Institute of BBA, under my guidance and supervision for the partial fulfillment of the Bachelor of Business Administration BBA Programme of Utkal University.

To the best of my knowledge and belief, the Dissertation Report embodies the work of the candidate herself and has been duly completed.

Place: Dileswar Sahoo Date: Guide

Prof. Faculty

Declaration
I do hereby declare that this Dissertation Project entitled Working Capital of Scan Steels Limited submitted by me, Anchal Kedia in partial fulfillment of Bachelor of Business Administration curriculum prescribed by Utkal University is the result of my own research work, and so far as my knowledge is concerned no one else has done this before me.

Anchal Kedia Roll no.5617UT09034 ASBM Institute of BBA

Acknowledgment

It is my proud privilege to express my deep gratitude to Prof. Dileswar Sahoo for his wish counsel and inspiration to prepare the Dissertation Report. I would like to thank Mr. Uttam Garg under whose guidance I am able to complete the project. I also extend my thanks to my Friends and Family members for their continous support and encouragement which helped me to successfully complete the project.

Anchal Kedia

PREFACE
The project is an attempt to understand and analyze the Working Capital Management at Scan Steels Ltd. This project includes all the financial aspect of Working Capital management Scan Steels Ltd.

Working capital is the life blood and nerve centre of a business. Just as 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. No business can run successfully without an adequate amount of working capital. Working capital is the interaction between current assets & current liabilities. The term current assets refer to those assets which in ordinary course of business can be, or will be turned into cash within one year.

Contents
Chapter - 1
Introduction 1.1 Review of literature 1.2 Working capital 1.3 Characteristics of working capital 1.4 Factors determining working capital requirement 1.5 Reason for selecting the topic 1.6 Importance of working capital for company 1.5 Methodology for assessment of working capital requirement

Chapter 2
Company Profile 2.1 Brief history of Company 2.2 Vision, Mission and Objectives of company 2.3 Units under the company and there production capacity 2.4 Board of Directors 2.5 Bankers

Chapter- 3
Research Methodology 3.1 Methods of data collection 3.2 Tools or technique used

3.3 Data Analysis

Chapter 4
Conclusion 4.1 Findings 4.2 Suggestions 4.3 Conclusion

Chapter - 1

Introduction
Working capital is one of the most fundamental measures of a companys financial strength. If a company possesses a significant value of liquid assets, it can easily fund its day-to-day business obligations. If, however a companys is under cash deficit, whether by way of a lack of cash, trouble in collecting its account receivables, or a dearth of inventory, it may face difficulties keeping up with demand for its product/services. This directly affects companys revenues, as it forgoes sales that it could have otherwise made to its customers. Working capital, therefore, also provides insight on how efficiently a companys management is able to oversee the companys operation. The speed at which the company is able to manage its short-term liabilities is also crucial to business success. If a company uses a certain sum to purchase raw materials, it is important that the company processes those raw materials into finished goods as soon as possible. Once the finished goods are supplied to its customers, it is then critical to collect payment from the customers within a reasonable period of time. This way, Stock eventually becomes cash, but in the meantime represents working capital tied up in the business. Keeping working capital level to the minimum required for efficient operations keeps cost down. This means controlling buying, handling, storing, and managing stock properly. It is critical, therefore, that the company reduces its inventories, both of raw material and finished goods. Similarly, it is imperative that the company is able to collect on its receivables as quickly as possible. As the excessive working capital leads to over-capitalization, resulting into waste through under utilization of resources and hence, leads to poor returns to stockholders. This also causes overtrading for the company which means extending liberal credit terms, therefore, more sales which brings more debtors and higher working capital requirements i.e. trying to maintain a level of sales which is higher than adequate level of working capital can sustain.

Working Capital
In simple terms, Working capital means the cash a company requires in order to finance its day-to-day business operations or in other words, working capital refers to amount which is readily available to an organization. There are two concept of working capital for the purpose of definition Gross concept and Net concept. As per Gross concept of working capital, refers to the firms current assets. The firms total current assets are termed as Gross working capital. From the perspective of financing working capital needs, Gross concept of working capital is the investment in circulating assets, or in inventory and account receivables comprising the operating cycle of manufacturing firm. Investment in assets comprising the gross operating cycle is termed as Current Assets (CA).Current liabilities (CL) are commitments which, within a short period of time usually within a year, require cash settlement in the ordinary course of business. Net concept or net working capital is defined as current assets less current liabilities. Thus: Working Capital = Current Assets Current liabilities

OPTIMUM WORKING CAPITAL:

Current ratio (current assets/current liabilities) (along with acid test ratio to supplement it) has traditionally been considered the best indicators of the working capital situation. It has been stated by many accountants that a current ratio of 2 (two) for a manufacturing firm implies that the firm has an optimum amount of working capital. This is supplemented by acid test ratio (quick assets / current liabilities) which should be at least 1(one). An optimum working capital ratio is dependent upon the business situation as such and the nature and composition of various current assets. A company having a short conversion cycle (from cash to cash) may have a lower current ratio.

Determining the optimum level of current assets involves a tradeoff between costs that rise with current assets and costs that fall with current assets.

Demerits of too much Working Capital

1. High investment in working capital leads to idling of funds which earn no return on investment. 2. High level of inventory and receivable demands more supervision and good amount of control which has its cost too. 3. Chances of wastage in inventory and bad debt losses are more when the level of working capital is very high. 4. Idling and accumulation of funds may bring inefficiencies in the system. 5. High liquidity in the business result into low profitability which can lead to low confidence of share holders and market price of share may fall.

Demerits of too little Working Capital

1. Lack of working capital leads to frequent and regular stoppages in the production. 2. A firm short of liquidity cannot incash short term environmental opportunities due to lack of fund. 3. Advantages of bulk purchases are foregone. 4. In case of emergency, the firm has to resort to external borrowing which has a very high cost. 5. It damages the goodwill of the company if it is not able to meet its short term obligations.

NEED OR OBJECTS OF WORKING CAPITAL:The need for working capital cannot be over emphasized. Every business needs some amount of working capital. The need for 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 & realization of cash. There are time gaps in purchase of raw materials & production; production and sales and sales and realization of cash. Thus, working capital is needed for the following purposes.

Working Capital Cycle:In a manufacturing concern, working capital cycle starts with the purchase of raw materials and ends with the realization of cash from the sale of finished products.. The cycle involves purchase of raw materials and stores, its conversion into stock of finished goods through work-in-process with progressive increment of labor and service costs, conversion of finished stock into sales, debtors and receivables and ultimately realization of cash and this cycle continues again from cash to purchase of raw material and so on. . In this process profit is earned Working capital is considered to efficiently circulate when it turns over quickly. As circulation increases, the investment in current assets will decrease. Current assets turnover ratio speaks about the efficiency of OCL in the utilization of current assets. Fast turnover current assets results in a better rate on investment.

INVENTORY MANAGEMENT
Inventories represent the second largest asset category for manufacturing companies, next only to plant and equipment. The proportion of inventories to total assets generally varies between 15 and 30 percent. Managing inventory is a quiet a juggling act. Excessive stock can place a heavy blockage of capital & also shortage of stock may lead to a danger situation, which means stoppage of production, lost sales, delays for customers etc. As due to the substantial investment in inventory, the importance of inventory management cannot be overemphasized.

Inventory includes:
Raw-material Stores and spares

Finished goods

ACCOUNT RECEIVABLES MANAGEMENT

Receivables represent amounts owed to the firm as a result of sale of goods and services in the ordinary course of time. These are the claims of the firm against its customer and form part of these current assets.

RECEIVABLES MANAGEMENT
Receivables management is the process of making decisions relating to investment in trade debtors. Objectives: objective The objective of receivables management is:-The objectives of receivables Promote sales.

 Multiply profit. To judge whether cost of funding the receivables is less than the return in receivables

Characteristics of working capital

The major characteristics of working capital observed in the study are 1. Short life span: Current assets like cash, bank balance, marketable securities, accounts receivable and inventories etc all are short lived. Usually their life span does not go beyond 1 year. Cash balances are usually held only for a week or so; accounts receivables are held for duration of one month to three months and inventories are held not more than six months. Short life span of current assets depends on the length of operating cycle of the firm. Time taken by various activities such as procurement of raw material, production process, sales and collection of bills; all these activities and their time duration decides the life span of current assets. Greater the time duration of operating cycle greater will be the life of current assets and vice-versa. 2. Swift transformation: Swift transformation of current assets into other form of current assets is another major feature of working capital. The cash is utilized to procure raw material. Raw material is transformed into work in progress and then finished products which is sold or credit and creates accounts receivable which after collection are converted back into cash. Operating cycle is nothing but transformation cycle of various current assets into other forms of current assets, sequence of transformation of one asset into other form of asset. 3. Short term focus: The other significant feature of working capital is its attention on the short-term financial position. The entire focus is on the procurement and management of assets in the short sum i.e. usually one year or in other words present value of money is not significant for the purpose of analyzing financial condition here.

4. Repetitive and frequent: Working capital management involves repetitive and frequent and frequent activities. Also, these activities are unsynchronized and non-instantaneous concerning production, sales and collection of account receivables. Had these activities been in a perfect order there would have no need for studying working capital management. 5. Liquidity: The essence of working capital management is in providing liquidity all the time in business in such a way that neither the risk is very high nor return on investment should fall. This is a difficult task for finance manager for the reason investment in CA keeps on changing and so does the financing required. 6. Inter Relation among Assets: As the current assets are swiftly transformed into other form of assets so they are also inter-related to each other. That is, current assets cannot be viewed in isolation because the decision related tone asset will also affect other current assets.

Factors determining Working Capital:Nature of Business:Requirement of working capital depend upon the nature of business. Its requirement is more in a public utility business like railways.

Importance of labor:In case of labor intensive industries more working capital is required as the wage bill is more and in case of capital intensive industries less working capital is required.

Cost of Raw Material:If raw material requirement is more than more working capital is needed.

Credit Policy:When suppliers of raw materials give credit facility for a longer term, the requirement of working capital is less, and if the company gives credit to its customers and buy raw materials for cash. The working capital required is high.

Sources of Funds for Working Capital:SSL uses both long term and short term sources of funds to meet the day to day
operations. Generally SSL uses long term sources of funds like long term debt from financial institution. Only for capital expansion and short term sources of funds like short term bank loan for Working capital requirement. During the last two / three years company has earned a lot of profit after giving taxes also. So it has cash surplus. And thats why it gathers funds for working capital through self financing. And also this source is economical as there is no burden of interest.

A. REASONS FOR SELECTING THE TOPIC: I have chosen this topic i.e. Working Capital Management, because working capital is essential for the existence of the business. All day to day operation s have to be properly financed otherwise the firm cannot run smoothly. Since a large firm has many departments and every department have various functions. So to properly

manage those functions every company requires funds. Here these funds requirement is Working capital requirement. Since I want to know the total functioning of day to day operations this topic is suitable for me. This will bring an opportunity for me to know the total financial activity of a company. Again I want to know how an organization manages to finance its day to day activities. , from where it get the funds. To know all these things Working capital Management is the appropriate subject. Another reason for choosing this topic to know more insight about the financial activates of a company. Since working capital includes current asset, current liabilities, and working capital ratios. Companys operating cycle; I can know all these things together. One more reason is that I want to know the liquidity position of a company. Whether the company can give its short term obligation or not. Because this can lead or spoil its popularity. Since Working capital management is a job of middle level management it is going to beneficial for me in the future. Since I have taken Specialization in Finance my topic should be under this specialization. So due to the above factors I choose Working Capital Management.

B. IMPORANCE OF WORKING CAPITAL FOR COMPANY:The working capital is the life-blood and nerve centre of a business firm. The sufficiency of working capital assists in raising credit standing of a business because of better terms on goods bought, lesser cost of manufacturing due to the acceptance of cash discounts, favorable rates of interest etc. No business can run effectively without a sufficient quantity of working capital. It is crucial to retain right level of

working capital. Finance manager is required to decide the amount of accurate working capital. Knowing the amount of working capital a company has is vital to many aspects. The working capital calculation will tell the company, as well as the investors, exactly how well the company is doing. In addition, the company's working capital constitutes the monies used for purchasing new equipment, new stock lines and much more. Working capital is the single most important aspect of a company, whether you are judging performance or speculating on expanding the company. Without the required working capital and knowledge of how to perform a working capital calculation, it may be impossible for a business to grow and prosper. Having the right amount of working capital is the only way in which a company can advance. Scan Steel Ltd. is a medium sized organization. That why a lot of day to day operations goes on. Like purchase of raw material, stores and spares, etc Scan Steels Ltd. require a lot of working capital to finance its current assets.

Chapter - 2

Company Profile:
The Scan Group.
Scan Steels Limited is the flagship company of the Scan Group and was incorporated on 11.12.1990 as a private limited company and was subsequently converted to a public limited company on 18.03.1996. It started its commercial operation with installation of a rolling mill at Ramabahal near Rajgangpur in the Sundergarh District of Orissa. The company is a pioneer in starting DRI unit in the state of Orissa. The group has diversified field of business and is primarily engaged in manufacturing of Iron and Steel product. Over the years the group has added many upstream as well as down-stream value adding installations to attain better control over its processes, minimize production cost, wider market penetration and minimize energy dependence on the state grid by means of installing a Captive Power Plant. During a decade the Company form merely being a rolling mill became integrated Steel producer. The group extended its activities by way of acquisition and merger at present is having manufacturing facilities in the State of Orissa, Chhattisgarh, Karnataka and Hyderabad. The groups Head office is located at Kolkata and the corporate office is situated at Bhubaneswar. It is a part of Scan group, one of the Orissas largest business houses. The companys project is diverse in geographical location, iron ore and coal source and off take. Scan steels believe in clean environment and thus uses technologies with minimum environment impact in its projects.

Companys mission
1. To attain the best practices and become a leading TMT manufacturing company. 2. To achieve excellence in project execution, quality, reliability, safety, and operational efficiency. 3. To consistently enhance competitiveness and deliver profitable growth. 4. To practice highest standards of corporate culture and to be financially sound company. 5. To be responsible corporate citizen nurturing human values and concern for society. 6. To improve the lives of local community in all the projects. 7. To be a partner in nation building and contribute towards Indias economic growth. 8. To promote a work culture that fosters learning, individual growth, team spirit and creativity to overcome challenges and attain goals. 9. To encourage ideas, talent, and value systems and become the employer of choice. 10.To earn the trust and confidence of all employees, exceeding their expectation. 11.To upheld the growth principles of trust, integrity, and transparency in all aspects of interaction and dealings.

BOARD OF DIRECTORS
1. Chairman- Mr. Sawarmal Gadodia 2. Managing Director- Mr. Rajesh Gadodia 3. Director- Mr. Nimish Gadodia 4. Director-Mr. Pravin Patro 5. Director-Mr. Ajit Keshri 6. Director- Mr. Basudev Das

BANKERS
1. State Bank of India 2. UCO Bank 3. IDBI Bank Limited 4. Bank of India 5. Punjab National Bank 6. Oriental Bank of Commerce

Unit wise existing facilities and locations

Units

Place

Facility

Nos. Products

Capacity

SSL-1

Ramabahal, AtKeshramal Rajgangpur , 31000 TPA Sundergarh , Orissa Gangajal, Budhakata Sundergarh, Orissa

Rolling Mill Sponge Iron Induction Furnace

2 2 2

SSL-2

Sponge iron IF & Concast Captive Power Plant Coal Washery

4 3 1 1

Long products, Flats Sponge Iron(DRI) M.S. Ingots Sponge iron(DRI) Billets, Ingots Power generation Coal M.S. Ingots

90000 TPA 30000 TPA

120000 TPA 140000 TPA 12MW

SSL-4 Induction Furnace SSL-5 Bai-Bai, Tudalaga Rajgangpur ,Sundergarh Orissa Bellary Veniveerpura, Bellery, Karnataka

2 Sponge Iron Sponge iron

39000 TPA

60000 TPA

Utilities 1. Power Ramabahal Gangajal Bai-Bai Bellary 7500 KVA 7000 KVA & 10 MW CPP 5500 KVA 1000 KVA

Power

Ramabahal (unit-i)P Ganagjal (unit-ii) Bai-Bai (unit-iv) Bellary (unit-v)

2. Water Ramabahal Gangajal

Groundwater Groundwater & River water

Bai-Bai Bellary

Groundwater Groundwater

3. Raw Material Coal Iron ore Dolomite Linkage with MCL Allotment by OMC, Purchase from Open Market (Application
Made for Mines)

Purchase from Open Market

4. Manpower Top Management Middle Management Technical Staff Skilled Labour Unskilled Labour

20 100 250 1000 2000

Manpower

Top Management Middle management Technical staffs Skilled labour Unskilled labour

Chapter - 3

RESEARCH METHODOLOGY
The data or information has been collected from two sources: Primary data Secondary data

PRIMARY DATA
Primary data are those data collected from individuals, officials, guide, and views from heads of Finance department. These data are collected through observation of records and files.

SECONDRY DATA

Secondary data are those which are already gathered and available There may be internal sources within plant. Externally these sources include books, periodicals, published reports etc. For collection of data, I have consulted the following secondary data: Books on the subject Annual Reports. Published reports relevant to the subject. Commercial data. Files and records of the plant. Brochures provided by the Finance Department.

LMITATIONS OF THE STUDY

This study is limited to two months. The study is restricted to the application of Working Capital Management. This study is limited to only one company. Here data is collected mainly from annual reports.

DATA INTERPRETATION AND PRESENTATION

We know that to calculate it we have to know the current assets and current liabilities.. Because Working capital = current asset - current liabilities. Now following is the calculation of working capital. Balance Sheet at a Glance
Schedule (no) 1 2 3

1. SOURCES OF FUNDS 1) Shareholder's Fund a.)Share Capital b.)Reserves and surplus 2)Loan Funds a.)Secured loans (A) b.)Unsecured loans (B) 3)Deffered Tax Liablility

As at 31.03.10 249,371,390.00 1,696,425,674.79 1,713,621,235.47 100,170,078.00 166,777,986.00 3,926,366,364.26

As at 31.03.09 211,121,390.00 1,220,894,806.08 1,465,217,082.69 13,170,078.00 145,491,818.00 3,055,895,174.77

Total 2.APPLICATION OF FUNDS 1) Fixed Assets a)Gross Block b)Less: Accumulated Depreciation c)Net Block d)Capital Work-In-Progress 2)Current Assets, Loans, Advances a)Inventories b)Sundry Debtors c)Cash & Bank Balances d)Security Deposits e)Loans & Advance Total Current Assets (A) Less: Current Liabilities and Provisions a)Current Liabilities b) Provisions Total Current Liabilities (B)

2,163,176,926.07 375,181,643.76 1,787,995,282.31 759,724,262.18 2.547,719,549.49 621,470,657.54 575,674,314.74 257,611,816.61 69,932,643.53 328,051,041.08 1,852,740,473.50

2,136,331,690.01 265,715,096.52 1,870,616,593.49 130,574,134.01 2,001,190,727.50 656,056,356.05 232,682,841.02 291,286,985.19 67,588,542.53 176,194,124.51 1,423,808,849.30 348,281,488.03 24,814,693.00 373,096,181.03

6 443,336,060.73 31,237,598.00 474,573,658.73

Net Current Assets (A-B) 3)Miscellaneous Expenditure (to the extent not written off or adjusted) a)Trial Run Expenses b)Deferred Revenue Expenses Total Accounting Policies and Notes on Balance Sheet and Profit and Loss Account 1.INCOME a)Gross Income b)Increase/(Decrease) in Stock of Finished and Semi-finished Goods c)Other Income

1,378,166,814.77

1,050,712,668.27

480,000.00 3,926,366,364.26

3,351,779.00 640,000.00 3,055,895,174.77

13

4,694,541,016.00 7 8 Total -45,185,061.85 8,376,882.00 4,657,732,836.15

4,358,998,820.48 70,484,816.85 8,815,476.00 4,438,299,113.33

2.EXPENDITURE a)Consumption of Materials b)Manufacturing Expenses c)Interests and Financial Charges d)Selling & Administrative Expenses

9 10 11 12 Total

3,474,898,206.60 642,275,896.57 185,836,477.90 61,451,073.43 4,364,461,654.50 293,271,181.65 109,466,547.24 183,804,634.41 31,237,598.00 21,286,168.00 131,280,868.41 131,280,868.41

3,098,741,291.41 802,571,693.36 182,064,063.86 52,975,059.43 4,136,352,108.06 301,947,005.27 87,347,805.39 214,599,199.88 24,314,089.00 435,702.00 18,284,112.00 171,565,296.88 -25,916.10 171,591,212.98

Profit Before Depreciation and Taxes Depreciation Profit/(Loss) Before Tax Provision for Current Tax Provision for FBT Provision for Deferred Tax Profit After Tax Add/(less): Income Tax for Earlier Years Balance Carried To Balance Sheet

Components of Working capital Of Scan Steels Ltd.

Particulars CURRENT ASSETS

Inventory Sundry Debtors Cash and Bank Balances Security Deposits Loans and Advances Total Current Assets or Gross Working Capital (A)

As at 31-03-10
(Rs)

As at 31-03-09
(Rs)

621,470,657.54 575,674,314.74 257,611,816.61 69,932,643.53 328,051,041.08 1,852,740,473.50

656,056,356.05 232,682,841.02 291,286,985.19 67,588,542.53 176,194,124.51

1,423,808,849.30

CURRENT LIABILITIES
Sundry Creditors Advance From Customers Security Deposit Provisions Total Current Liabilities (B) 385,483,153.41 57,297,907.32 555,000.00 31,237,598.00 474,573,658.73 1,378,166,814.77 311,720,717.93 36,560,770.10 24,814,693.00 373,096,181.03 1,050,712,668.27

Net Working Capital

RATIO ANALYSIS
INTRODUCTION:

Ratio implies arithmetical relationship between two related figures. Ratio analysis is a technique for interpretation of financial statements. This deals with computation of various ratios by grouping various figures and / or information appearing in the financial statements.

Ratio Analysis is the process of determining and interpreting numerical relationship between figures of the financial statements. The technique of ratio analysis is used for measuring the short-term liquidity or working capital position of a firm. Ratio analysis is one of the important tool for management decision-making.

INTERPRETATION:

The objective of ratio analysis may not be fulfilled unless the calculated ratios can be compared with some yardsticks. The interpretation of ratios can be made in the following ways:

The ratio of one organization may be compared with the ratios of the same organization for various years.

ROLE:
Ratio analysis helps in appraising the firms in terms of their profitability and performance individually. It can be also worked out in relation to other firms. It helps the planning and controlling part of the organization.

The ratios to be calculated are as follows: Current Ratio Quick Ratio Absolute liquid Ratio

CURRENT RATIO
It measures the short-term financial position of the business concern. In other words it is companys ability to meet its short-term obligations. It matches the total current assets of the company against its current liabilities. Current Ratio can be worked as under: Current Ratio = Current Assets Current Liabilities

Particulars
Total Current Assets or Gross Working Capital (A) Total Current Liabilities (B)
CURRENT RATIO (A/B)

As at 31-03-10
(Rs)

As at 31-03-09
(Rs)

1,852,740,473.50 1,423,808,849.30 474,573,658.73 373,096,181.03

As a conventional rule, current ratio of 2:1 or more is considered as satisfactory. As Scan Steels Ltd., is having current ratio of 3 which is more than the ideal ratio, it may be interpreted that its liquidity is sufficient. By observing the trends in both years it can be said that the company is successful in maintain a good current ratio.

QUICK RATIO (ACID TEST RATIO)

Liquid ratio is worked out to test the short-term liquidity of the company in its correct form. It establishes the relationship between the quick assets and the current liabilities. We know that an asset is liquid when it is readily converted in to cash without any loss in value. Quick ratio indicates the ability of the business to meet its immediate commitments. It is one of the quick test mechanisms to assess financial strength of an organization than the current ratio as it does not consider inventory, which may be very slow moving. It is a supplementary measure of liquidity which places more emphasis on immediate conversion of assets into cash terms than the current ratio.

Quick Ratio:

Quick Ratio =

Quick Or Liquid Assets Current Liabilities & Provisions

Particulars CURRENT ASSETS

Inventory Sundry Debtors Cash and Bank Balances Security Deposits Loans and Advances Total Current Assets or Gross Working Capital (A)
Liquid Asset

As at 31-03-10
(Rs)

As at 31-03-09
(Rs)

621,470,657.54 575,674,314.74 257,611,816.61 69,932,643.53 328,051,041.08 1,852,740,473.50 1231269815.96

656,056,356.05 232,682,841.02 291,286,985.19 67,588,542.53 176,194,124.51 1,423,808,849.30 767752493.25

C=(A-Inventory)

CURRENT LIABILITIES
Sundry Creditors Advance From Customers Security Deposit Provisions Total Current Liabilities (B) 385,483,153.41 57,297,907.32 555,000.00 31,237,598.00 474,573,658.73 2.00 311,720,717.93 36,560,770.10 24,814,693.00 373,096,181.03 2.00

Liquid Ratio (C/B)

Generally, a ratio of 1:1 is considered to represent a satisfactory current financial condition. In both the years company has higher quick ratio. The company shows equal quick ratio in the subsequent years which are equivalent to 2, which is the double of ideal ratio, therefore the company has satisfactory quick ratios.

In short, for an ideal situation

Inventory= current liabilities = current assets Or, Current liabilities< inventory

Current liabilities < quick assets

CASH MANAGEMENT
Cash is the lifeblood of a business firm. It is needed to acquire supplies, resources, and other assets used in generating the product and services provided by the firm. It is also needed to pay salaries and wages to managers and workers, taxes to government, interest and principal to the creditors, and dividend to shareholders and discharge other short-term as well as long term liabilities. More fundamentally, cash is the medium of exchange, which allows management to carry on the various activities of the business firm from on day to day basis. As long as the firm has the cash to meet these obligations, financial failure is improbable. Without cash, or at least access to it, bankruptcy becomes a grim possibility. Such is the emerging view of the modern corporate cash management. On the other hand, marketable securities come in many forms, but their main characteristic is that they represent near cash in that they may be readily sold. Hence, marketable securities serve as a back-up pool of liquidity that provides cash quickly when needed. Marketable securities also provide a short-term investment outlet for excess cash and are useful for meeting planned outflows of funds.

Short Term investment opportunities

The following short-term investment opportunities are available to companies in India to invest there:

Treasury Bills- Treasury bills (TBs) are short term govt. securities. The usual practice in India is to sell TBs at a discount and redeem them at par on maturity. The difference between the issue price and the redemption price, adjusted for the time value of money, is return on TBs. They can be bought and sold any time, thus, they have liquidity also, and they do not have default risk.

Commercial paper Commercial papers (CPs) are short term, unsecured securities issued by highly creditworthy large companies. They are issued with a maturity of 3monts -1 years. CPs are marketable securities, and therefore, liquidity is not a problem.

Certificate of Deposits - Certificate of Deposits (CDs) are paper is issued by banks acknowledging fixed deposits for a specified period of time. CPs are negotiable instruments that make them marketable securities.

Bank deposits-A firm can deposit its temporary cash in a bank for a fixed period of time. The interest rate depends on the maturity period. The default risk of the bank deposits is quite low since most banks in India are owned by the govt.

Inter-corporate deposits - Inter-corporate deposits (ICDs) are a popular short-term investment alternative for companies in India. Generally a cash surplus company will deposit its funds in a sister or associate companies or whit outside companies with high credit standing .In practice, companies can negotiate Inter corporate borrowing or lending for very short period. The risk of default is high but return is quite attractive.

Money market mutual funds- Money Market Mutual Funds (MMMF) focus on short-term marketable securities such as TBs CPs, CDs or call money.

They have a minimum lock in period of 30 days, after this period, an investor can withdraw his/her money any time at a short notice or even across the counter in some cases. They offer attractive yields are usually 2% above than on bank deposits of same maturity. MMMFs are recent

origin of India and they have become quite popular with institutional investors and some companies.

Chapter - 4

FINDINGS OF THE STUDY

Ever since the Scan Steels ltd operating on, the short-term financial health of the Company has undergone several changes. The Company has writtenoff bad debts lying non-recoverable over the years, disposed of obsolete & non-moving assets, regularized the cash credit functioning, minimized cash transactions by payment of salary & creditors through the cheques / DDs and reducing drastically the cash balances etc. Apart from this, there is further scope to redesign the Working Capital of Scan Steels Ltd. more minutely and analyzing various components of it so as to justify optimal utilization of the resources.

BIBLIOGRAPHY

PUBLISHED BALANCE SHEET OF SCAN STEELS LTD. FINANCIAL MANAGEMENT by I.M. PANDEY

FINANCIAL MANAGEMENT by PRASANNA CHANDRA

MANAGEMENT ACCOUNTING by SHARMA & GUPTA

ACCOUNTING MANUAL TO COMPANY BALANCE SHEET

AND PROFIT & LOSS ACCOUNT (1997) by R.K. AGARWAL