CHAPTER - 1 INTRODUCTION

WORKING CAPITAL CONCEPTS
1.1 Business activity

Business activity is dynamic in character and subject to wide fluxions. The movement from working capital to income and profits and back to working capital is one of the most important characteristics of business administration. This operation is concerned with the deployment of funds with the hope that they will generate returns, rendering an additional amount called profit. If the operations of an enterprise are to run smoothly, proper relation ship between fixed capital and current capital must be maintained. Its main aim is to use business funds in which a manner that earning are maximized. Financial Management provided a framework for selecting a proper

course of action and deciding a viable commercial strategy. This objective can be achieved by :a) b) Profit maximization Wealth maximization Funds are needed for short-term as well long term purposed. In short term we say current operation of the business. For a manufacturing unit payment for raw materials and wages and for meeting routine expenses. All the goods. Which are manufactured in a given time, may not be sold in the period. Naturally funds are blocked in inventory. It is also the fact that all goods may not be sold against ready cash. Some of the goods may be sold on credit basis. The capital is closely related to the term funds and has two meaning. It is used to mean current assets minus current liabilities. In simple words it is the investment needed for carrying out day-to-day operations of the business smoothly. It may be clear that objective of working capital management is to maintain a satisfactory level of working capital. In other words, the current assets should not be sufficient enough to cover the current liabilities but at the same time it should also ensure the reasonable amount of safety margin. This is possible only when the different components of working capital are properly balanced.

Working Capital Concepts There are two concepts of working capital

i. ii.

Gross concept Net concept

Gross working capital concept The term gross working capital, also refers to as working capital, means the total assets that can be converted into cash within an accounting tear and include short-term securities, cash, bills receivables and stock.

Net working capital concept Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders, which are expected to mature for payment with in an accounting year. Networking capital can be positive or negative. A negative working capital means a negative liquidity and may prove to be harmful for the company. It occurs when current liabilities are in excess of current assets. It may be due to mismanagement of current assets. In summary it may be emphasized that gross and net concepts of working capital are two facets of working capital management. The data and problems of each firm is different, so it should be analyzed to determine the amount of working capital and timely action should be taken by management to improve the liquidity position of the firm. Objective of working capital Management The object of working capital management is in the two folds :
i. ii.

Maintenance of working capital and Availability of ample funds at the times of needs.

It may be however be added that these keeps varying from tome to time. Where all the units require a very heavy working capital. Thus the objective is to ensure the maintenance of satisfactory level of working capital in such a way that is neither inadequate nor excessive. Determinant of working capital Working capital management is an indispensable function area of management. . The large number of factor influences the total working capital requirements of the firm. As a matter of fact. Management in selling policies with respect to general operation. Which are common to all organization can be summarized as under: Nature and size of Business One of the basic factors influences the working capital requirements of any unit is the general nature of the business. a business cannot survive in the absence of a satisfactory ratio between its current liabilities. It should not only be sufficient to cover the current liabilities but should ensure a reasonable margin of safety also. In general the determinants of working capital. Many industries are there. expansion and dividend must work the limitations set by the working capital position. purchasing.The basic goal of working capital management is to manage each of the firm’s current assets and current liabilities in such a way that an acceptable level of net working capital is always maintained in the business. financing.

ii. Business Cycle The working capital requirements are also effected to a large extent by the nature of the business cycle. when the economic activity is on Decline Production Policy . The longer the time span in the production cycle. During this process of converting the raw materials some and the completion of finished product. the larger shall be the requirement of funds and vice-versa. is the production cycle. some funds are inevitably locked up. The seasonal and cyclical variations tremendously influencing the working capital requirements of the organization especially the shorts term temporary requirements. Production Cycle Another factor.whereas the units in some other industries require comparatively lesser amount of working capital. The term “Production or Manufacturing Cycle” refers to the time lag between the purchase and procurement of raw material into finished product. which has a strong bearing on the quantum of the working capital. These variations may be in two direction: i. Upward movement during the boom conditions. and Downward movement.

If there are some materials. Proper availability of raw materials The regular availability of key raw materials without any interruption is very necessary for any business unit.Another important factor that has a consider influence on the quantum of working capital is the production policy of the firm. In case of certain industries having seasonal demand for their products that have two options before them. and Credit terms available to the unit from its creditors. . This can also be logically taken to imply that as a Company grows or expands. But there is no denying the fact that other things remaining same. which are static. Growth and Expansion Generally a larger company needs the larger amount of working capital as compared to small company is the similar trade. growing industries require more amount of working capital than those. Credit terms extended by the business unit to its customers/buyers of goods. Credit Policy The credit policy of any unit always influences its working capital requirements from two angles: a. its need for working capital will also grow or expands accordingly. to determine precisely the relationship between the growth of a company in terms of its volume and the increase in its working capital. b. However it is difficult.

the business may be forced them for in excess of its genuine production needs to ensure smooth working. whenever required. monopolistic conditions or otherwise etc.e. whenever required to be paid out of profits as per the rules. High profit margins contribute to the working capital funds of the unit because the amount of net profit is always a source of working capital to the extent: it has been earned in cash. Therefore adequate provisions must be paid. marketing arrangement and hold on the market i. Corporate Taxes Corporate taxes are unavoidable and are required to be paid out of profits as per the rules. Profit level The profit generation capabilities differ from unit and so are their profits. Therefore adequate provisions must be made and paid. In fact the profit generation capabilities of a business firm depend on number of factors such as nature quality of the product.which are not easily available or there supplies are irregular. A firm having quality product and enjoying monopoly in the market is definitely likely to earn more profits than a product of average quality in competitive market. The higher the tax liability. In other words this is short-term liability payable in cash and therefore an important ingredient in the working capital planning. This will not only lead to an excessive holing of such materials but also result in increased requirement of working capital. the higher is the working capital requirement and vice- .

However lot of savings can be made by proper tax planning and making it an integral part of working capital planning. Therefore some of the units prefer to issue the bonus share by retaining the cash resources of that unit whereas some other units have the policy of paying dividends to satisfy the expectations of the investors. Dividend Policy Dividend policy of a firm also has an important bearing on the working capital requirements of the unit. . a significant component in determining the level of working capital in any business firm.versa. Dividend policy is thus. Above all the amount of working capital that a firm would need is affected not only by the factors associated with the firm itself but is also affected by the economic. monetary and general business environment. Dividends are paid out of cash resources of that unit and therefore are a crunch on working capital funds.

A)COMPANY PROFILE .

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railway products. limestone and dolomite mines. bars and rods. including hot and cold rolled sheets and coils.A) COMPANY PROFILE 1. engineering. SAIL manufactures and sells a broad range of steel products. CMO encompasses a wide network of 38 branch offices and 47 stockyards located in major cities and towns throughout India. galvanized sheets. SAIL produces iron and steel at five integrated plants and three special steel plants. SAIL has a well equipped Research and Development Center for Iron and Steel (RDCIS) at Ranchi. Steel Authority of India Limited (SAIL)Steel Authority of India Limited (SAIL) is the leading steel-making company in India. automotive and defense industries and for sale in export markets. producing both basic and special steels for domestic construction. Ranked amongst the top ten public sector companies in India in terms of turnover. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Calcutta. It is a fully integrated iron and steel maker. SAIL’s own Central Marketing Organisation (CMO) and the International Trade Division carry out this vital responsibility. Management Training Institute (MTI) and Safety Organization at Ranchi. SAIL's wide ranges of long and flat steel products are much in demand in the domestic as well as the international market. stainless steel and other alloy steels. located principally in the eastern and central regions of India and situated close to domestic sources of raw materials. including the Company's iron ore. electrical sheets. Besides. plates. SAIL’s Background and History . structural. 2. power. Almost all our plants and major units are ISO Certified. railway. which helps to produce quality steel and develop new technologies for the steel industry. SAIL has its own in-house Center for Engineering and Technology (CET). Our captive mines are under the control of the Raw Materials Division in Calcutta.

6 MT. 1.6 MT at Durgapur. the total crude steel production capacity of HSL was raised to 3. A new steel company. Holding Company . The registered office was originally in New Delhi.5 MT stage at Bhilai.158 MT (1959-60) to 1. From April 1957. The steel sector was to propel the economic growth.A Rich Heritage The Precursor SAIL traces its origin to the formative years of an emerging nation India. 1954.7 MT in 1968-69 and subsequently to 4MT in 1972-73. with the completion of the 2. After independence the builders of modern India worked with a vision . Expanding Horizon (1959-1973) Hindustan Steel (HSL) was initially designed to manage only one plant that was coming up at Rourkela. and the 1.8 MT at Rourkela and 1. was incorporated in January 1964 to construct and operate the steel plant at Bokaro.8 MT phase of Rourkela . Hindustan Steel Private Limited was set up on January 19. The last unit of the 1. For Bhilai and Durgapur Steel Plants. The crude steel production of HSL went up from .to lay the infrastructure for rapid industrialization of the country.6 MT stage of Durgapur Steel Plant was completed in August 1969 after commissioning of the Furnace in SMS. the supervision and control of these two steel plants were also transferred to Hindustan Steel. The second phase of Bhilai Steel Plant was completed in September 1967 after commissioning of the Wire Rod Mill. Thus. Bokaro Steel Limited.the Tandem Mill was commissioned in February 1968. the preliminary work was done by the Iron and Steel Ministry. The 1 MT phase of Durgapur Steel Plant was completed in January 1962 after commissioning of the Wheel and Axle plant. The President of India held the shares of the company on behalf of the people of India. The 1 MT phases of Bhilai and Rourkela Steel Plants were completed by the end of December 1961. It moved to Calcutta in July 1956. and ultimately to Ranchi in December 1959.

was made responsible for managing five integrated steel plants at Bhilai. In 1978 SAIL was restructured as an operating company. 1973 with an authorized capital of Rs. On this basis the concept of creating a holding company to manage inputs and outputs under one umbrella was mooted. Its strength has been the diversified range of quality steel products catering to the domestic. incorporated on January 24. The policy statement was presented to the Parliament on December 2. The company.The Ministry of Steel and Mines drafted a policy statement to evolve a new model for managing industry. Durgapur. the homes in which we live and countless other . Since its inception. as well as the export markets and a large pool of technical and professional expertise. the Alloy Steel Plant and the Salem Steel Plant. the buildings we work in. 1972. Besides. Today. It has triggered the secondary and tertiary waves of economic growth by continuously providing the inputs for the consuming industry. This led to the formation of Steel Authority of India Ltd. the cars we drive. the accent in SAIL is to continuously adapt to the competitive business environment and excel as a business organization. SAIL Today SAIL today is one of the largest industrial entities in India. SAIL has been instrumental in laying a sound infrastructure for the industrial development of the country. it has immensely contributed to the development of technical and managerial expertise. 2000 crore. Bokaro. Rourkela and Burnpur. 3. IMPORTANCE OF STEEL Steel has had a major influence on our lives. both within and outside India.

Steel is by far the most important. Steel compared to other materials of its type has low production costs.Suitable machinability . tough and wear resistant .Weldable . The various uses of steel which in turn is a measure of adaptability of steel can be judged from the following characteristics of steel : .The large number of grades gives steel the characteristic of a basic production material Steel has enjoyed an important position in our lives and will continue to do so in the years to come. We will have to find out .Hot and cold formable . Steel is used in our electricity-power-line towers. machine tools. Steel is environment friendly as it can be recycled. its benefits are undoubtedly clear. However. representing a secure raw material base . Steel production is 20 times higher as compared to production of all nonferrous metals put together The steel industry has developed new technologies and has strived hard to make the world's strongest and most versatile material even better. natural-gas pipelines. There are altogether about 2000 grades of steel developed of which 1500 grades are high grade steels. the degree to which it maintains its dominant position will depend on if steel can exploit its potential by developing new higher grades and adaptable grades . There is still immense potential for developing new grades of steel with varying properties .Corrosion resistant . This can be achieved by refining the structure and applying alloying techniques and thus furthering its utility value.Hard. The development of mankind would have been impossible but for steel.facets in between. multi-functional and most adaptable of materials.6 % of element iron is present in earth's crust.Heat resistant and resistance to deformation at high temperatures. The backbone of developed economies was laid on the strength and inherent uses of steel. 5. making our lives convenient. The energy required for extracting iron from ore is about 25 % of what is needed for extracting aluminum. Steel has also earned a place in our homes in protecting our families. military weapons-the list is endless.

● ● ● ● ● ● . which have a combined capacity of 240 . Limited This 50:50 joint venture between SAIL and the Damodar Valley Corporation formed in January 2002 is managing the 302-MW power generation and 1880 tones per hour steam generation facilities at Bokaro Steel Plant. NTPC SAIL Power Company Pvt.ways to use steel and be ready to face a stiff competition from Aluminium in the future. Bokaro Power Supply Company Pvt. this 50:50 joint venture between SAIL and the National Thermal Power Corporation (NTPC) operates and manages the Captive Power Plants-II of the Durgapur and Rourkela Steel Plants. MAJOR UNITS OF SAIL : ● ● ● ● ● Integrated Steel Plants Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Bengal Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand IISCO Steel Plant (ISP) in West Bengal Special Steel Plants Alloy Steels Plants (ASP) in West Bengal Salem Steel Plant (SSP) in Tamil Nadu Visvesvaraya Iron and Steel Plant (VISL) in Karnataka Subsidiaries Maharashtra Elektrosmelt Limited (MEL) in Maharashtra Joint Venture SAIL has promoted joint ventures in different areas ranging from power plants to e-commerce. 4. Ltd Set up in March 2001.

● ● 5. National Mineral Development Corporation (NMDC) and Russian promoters for marketing Romelt Technology developed by Russia for reducing of iron bearing a material. which is carried out with carbon in single stage reactor with the use of oxygen. a subsidiary of the US Steel Corporation. SAIL has formed a joint venture with BMW industries Ltd. Limited Another SAIL-NTPC joint venture on 50:50 basis formed in March 2002 manages the 74 MW Power Plant-II of Bhilai Steel Plant which has additional capacity of producing 150 tones of steam per hour. Jalpaiguri for supply of Dolomite to DSP and other plants. Romelt-SAIL (India) Ltd A joint venture between SAIL. UEC SAIL Information Technology Limited This 40:60 joint venture between SAIL and USX Engineers & Consultants. North Bengal Dolomite Limited A joint venture between SAIL and West Bengal Mineral Development Corporation ltd on 50:50 basis was formed for development of Jayanti Dolomite Deposit. Ownership and Management . Metaljunction services Private Limited A joint venture between SAIL and Tata Steel on 50:50 basis. on 40:60 basis to promote a service center at Bokaro with the objective of adding value to steel.● Bhilai Electric Supply Company Pvt. promotes information technology in the steel sector. ● ● SAIL-Bansal Service Center Ltd. this company promotes e-commerce activities in steel and related areas.

39 % Foreign Institutional Investors (FII’s) à 4. SAIL. by virtue of its "Navratna" status.17 % Individuals (including Employees and NRIs) à 3.05% Companies (including Trusts and clearing members ) à 1. MANUFACTURING PROCESS Some of the technological options for converting iron ore to steel products is schematically shown below. Share holding Pattern of SAIL (% of Equity) : Government of India à 85.23 % Global Depository Receipts (GDRS) à 0. Hot metal and crude steel process are also inter linked among themselves as represented by arrows. .86 % 6. enjoys significant operational and financial autonomy.37 % Banks à 0.82 % Financial Institutions à 4.11 % Mutual Funds à 0.The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However.

For production of steel an MOU (Memorandum of Understanding) was signed with the Russian government for setting up of the Bhilai Steel Plant.L. The first phase of 1 MT was completed in 1959 and subsequently capacity was expanded to 2. Bhilai Steel Plant (BSP) is India‘s sole producer of rails and heavy steel plates and major producer of structural with an annual production capacity of 3. INTRODUCTION OF BHILAI STEEL PLANT INTRODUCTION Mr.5 MT and 4 MT Five time winner of prime Minister’s Trophy for best integrated steel plant in the country.7.153MT of saleable steel. the plant also specialized in other products such as wire rods . Nehru “Jewel in the crown of SAIL” described Bhilai Steel Plant. J.

Now. The Plate Mill. Bhilai Steel Plant made history in production in the last financial year 2005-06 by becoming the first plant in the country to surpass the 5 million tones (MT) mark in hot metal production and the only steel plant to cross the 5MT mark in crude steel production .The plant has provided 260 meters. Rails Mill and Wire Rod Mill have also received ISO: 14001 certified for their environment management system. Seven times Winner.5 MT ingot steel in year 1967 and currently expended to 4. Production of pig iron at Bhilai Steel Plant began on Feb 4th 1959 by the commissioning of its 1st Blast Furnace. long rails to the Indian Railways and special steel plates for manufacture of aircrafts carriers for the Indian Navy. At the beginning its capacity was 1MT and expands to 2. All saleable products of Bhilai Steel Plant are under the ISO umbrella as per BSP’s accreditation with ISO90012000 quality management system standard.and merchants products. HISTORY AND PRESENCE OF BHILAI STEEL PLANT An agreement was signed in New Delhi on February 2nd 1956 between the Government of India and Soviet Union to set up an integrated Steel Plant at Bhilai With a capacity of 1MT of ingot steel. BSP has also developed and supplied corrosion resistant rails to Railways for coastal areas and plates for manufacturing water pipelines for Godavari & Krishna water projects in Andhra Pradesh. . The plant began its operation on January 31st 1959 when coke battery No 1 was commissioned. Dalli Merchandized Mines.0 MT stage.

000 employees are accommodated. Bhilai Steel Plant has its own captive Mines for raw materials Rajhara Iron Ore Complex is one of the best Iron Ore Mines in India situaited 100 KM in south direction of Bhilai Steel Plant Rajhara IOC is producing about 10 MT raw material per year to full fill the requirement of Bhilai Steel plant other two mines i. Bhilai specializes in long products. Nandini Mines for lime stone & Hirri Mines for Dolomite are also captive mines of BSP. PLANT LAYOUT And the unit of the plant have been laid in sequential formation according to technological interrelationship so as to ensure un – interrupted flow of process material like coke. Merchant Product and Wire Rods. The requirement of principal of raw material except coal and manganese ore is met from the captive mines of the plant. but after formation SAIL ON January 24th 1973 Bhilai become one of the unit of SAIL.e. Bhilai Steel Plant was the first plant to produce wide (3600mm) Heavy Plates in India. RAW MATERIALS: BSP is primarily an ore based plant. Heavy Structures. This is the only plant producing Rails in India. Bhilai Steel Plant is a big unit of SAIL having 40. and to minimize the length of various inter plant connection utilities and services. It has its own township where more than 25. All mines are having their own township and about 7000 trained manpower involved to fulfill requirement of raw materials for Bhilai Steel Plant.000 trained manpower. The plant owns and manages the mechanized and manual iron ore mines at Dalli Rajhara. situated about 100 Kms away . slag etc.Initially Bhilai Steel Plant was working under the Hindustan Steel Co. A major exporter of Steel Products. Ltd.. such as Heavy rails.

Over a million tones of minerals of mines annually from the captive mines. stream. MANAGEMENT Initially BSP was under the administrative control of the ministry of Iron and Steel with powers delegated to the chief of the Plant. gas and fire alarm signal. The plant owns quarries at Hirri. oxygen. yard communication and automatic signal. The other utility like gaseous liquid and solid fuels. liquid and gaseous). chilled water. etc. rail transport facility and shop floor loudspeaker system. which includes an auto telephone exchange. yard communication and automatic signaling and blocking system of plant. controlled the management. Electricity power is supplied by BESCL (Bhilai Electricity Supply Company Limited) a joint venture between National Thermal Power Corporation and SAIL from Korba 250 km away from Bhilai. oxygen and compressed air are provided at plant by centralized utility services. Chhattisgarh (for Dolomite). . Later Hindustan Steel Ltd. stream. fuel (solid. 60km long from BSP. compressed air. chilled water. There exists an extensive communication system at work place. SERVICES & UTILITES BSP is an integrated steel plant which requires various from of energy like electricity. dispatch communication system. Water supply comes from a well-constructed system of water works of the state government. which was formed on 19th January 1954 to manage Rourkela Steel Plant. air blast.Tandula reservoirs (Maroda Tank 1 & 2) through a well-laid canal.from plant.

● . and Sr.Material Management . Executive Directors Executive Directors Executive Directors Executive Directors Executive Directors Executive Directors Director . THE QUALITY POLICY OF BSP ● Attaining market leadership through enhancing customer satisfaction. AGM.Works . . with the formation of Steel Authority of India Limited on 24th January 1973.Project .P.Bhilai Steel Plant became the constituent of Hindustan Steel Ltd.Personal & Administration . GM (Marketing & Strategic Planning) reporting to MD directly has the sole responsible of Marketing of various main steel products &secondary products through CMO and BSP. in view of the fact that he is in the entire charge of the plant and is directly responsible in their fields.. In the organization of BSP. DGM. the Managing Director is the top most authority responsible for overall control.Manager & Manager. quality and salability of our products.B. Executive Director has the most important function of the second rung.Medical & Health Services They have under then General Manager. Also. Achieving continual improvement in productivity.Finance & Accounts .S. There are six Executive Directors in following manner.

BSP is putting on the market a wide range of rolled products and in some of the products enjoys the status of monopoly. Bhilai has all along maintained its position as the most productive of India’s integrated steel plants its different product mix is as follows: The following are various units/mills of Bhilai Steel Plant with their Products is shown against it : 1. foundries and forged shops. small scale steel marker. MAIN PRODUCTS OF BHILAI STEEL PLANT Steel from BSP have always played a prominent role in functioning of ideal engineering industries. Blast furnace. ● 8. ● ORGANIZATION OBJECTIVE To enhance customer satisfaction through ● ● Improvements in productivity and product quality. Production as per Customer Requirement. commitment and culture building. roller. Skill enhancement of our people by competence. the construction industries and Railways.● Active involvement of all our people in achieving our goals. large scale fabrications.Hot Metal slag (as a bye product) . Adherence to a quality management system based on USO: 9001:2000 and its periodic review for continue effectiveness. objectives and targets. builders.

3. Bye – Products – (Sulfuric Acid.2. Power Plants.5 mm to 12mm). Steel Authority of India Limited is an integrated steel plant with an annual production capacity of 4. Ammonium Sulphate. Beam. Channel Wire Rod Mill – Wire Rod (5.) Rail & Strl. Bhilai Steel Plant collective reaffirms it commitment to protect environment and shall strive to: . Merchant Mill. Angles up to 200mm etc) Plate mill.0 MT of steel specializing in production of Rails. Process) Coke Owen – Coke. 5. tar. 11. PCM (Pig casting moulds).Plates up to 3600mm in width (from 200mm thick) Bloom Billet Mill – Blooms and Billets. Mill – Rail. 10. Heavy Structurals Like Angle. toluene etc.D. 7. 6. 9. Channels up to 200mm.Electric Power Generation ENVIRONMENT POLICY Bhilai Steel Plant (BSP). 12. Naphthalene ball. 8. Casting Shop – Blooms and slabs Foundry Shop – Various Casting of steel as per drawings Oxygen Plant – Oxygen gas Acetylene Plant – Acetylene gas 5mm to 4. Heavy Structural Wire Rod & Plates. Cont.Pig Iron (A) Steel Melting Shop – Crude Steel (By Twin Hearth Process) (B) Converter Shop – Crude Steel (By L. 13. Benzol.Merchant Products (rounds up to 75mm.

water and other resources. Best Pollution Control Implementation Gold Award – Institute of Lal Bahaduer Shastri Memorial National Awards for excellence industries. energy.S. recycling and reuse. Best performance award to Dalli Mechanized Mines. Achieve continual improvement performance by setting and reviewing the objectives and targets periodically. . water and land.Prabhu.Introduce sound environmental management practices for minimizing pollution and its impacts on air. Conduct operation in an environmentally responsible manner for complying with legislation and regulation related to its environment aspects. Enhance environment awareness amongst employees and interested parties. Conserve and optimally utilize raw materials. Minimize waste generation and promote its recovery. Communicate environmental policy to the persons working for or on behalf of the organization and make it available to public on demand. AWARDS National Energy Conversation Award-99 from honorable Minister of power Mr.

WORKING CAPITAL MANAGEMENT AT BHILAI STEEL PLANT Forecasting of working capital at Bhilai Steel Plant 1. 4 Collective & Individual Awards – for the year 1999 to BSP on Safety Health and environment in Steel Industry. PM’s Shram Bhushan Award – 2001 to a group of 5 employees from Blast Furnace Vishwakarma Rastriya Purushkar – 99 to employees of the plant on 17th Sep. National Level Coal India Productivity award to Shri Hemant Kumar Desai Additional Chief Industries Engineer.02 at New Delhi.Manmohan Singh on 20th May 2006. The prime object of every organization is to make profit. whether or not this is accomplished in most business depends largely on the manner in which heir working . Sr. Operator. CCS. 1997-98.S. Bhilai Steel Plant is the major unit of SAIL.William. by Hon’ble Prime Minister on 4. 2003-04.PM’s Shram Vir Award – 200 to Shri J.02. 1993-94. 2001. 1995-96 2004-05 Recipient of the PM Trophy for seven times out of 13 declared result 2004-05 from honorable Prime Minister Dr. PRIME MINISTER TROPHY BEST INTEGRATED STEEL PLANT AWARD: 1992-93. B.

Finance Department of Bhilai Steel Plant and various individual units decides the amount of funds required during the preparation of operation budget. is doing best possible manner in working capital management. cash marketable securities. determining the size of working capital. the cash realization is also done by the plant itself through the sale of products. Cash inflows and outflows are estimated in budget. defectives and scrap. 2. and then requirement of fund is intimated to corporate office. Forecasting Bhilai Steel Plant A major unit of SAIL has been generating continuous profits as compared to previous year with current year. etc.capital is managed. account receivable and inventories.S. The marketing of all SAIL’S prime products are done by the central marketing organization and the receipts of sale are directly sent into the inner unit current account which is centrally controlled by the corporate office and the corporate office allocates the funds as per intimation to individual units. To decide the optimal mix of short-term funds in relation to long-term capital and To locate the appropriate means of short –term financing. Component of management of working capital The management of working capital encompasses the following problems:To decide the optimum levels of investment in various current assets namely. accounts receivables and inventory. Cash .. cash. Working capital management usually is considered to involve the administration of current assets of a firm namely. No doubt the finance department of B. Besides coordinating with the central marketing organization. Monitoring of working capital management:All the aspects of working capital are monitored separately and accurately in Bhilai Steel Plant.P.

The daily cash report includes the details of cash inflows and outflows. It is considered as an essential marketing tool. In the total cash flow. the creditors of coal are monitored by corporate office and the individual creditors are . Inventory The main aim of Inventory management in B.S. and Trade bill. Finally the annual cash budget is made and reported to its corporate office. Inventory is monitored differently for raw material. Monthly inventory report is sent to chairman through the finance department to corporate office. finished goods as well as the work in progress. Cash is monitored every day and intimated to the top management as well as fortnightly to the company. finished goods and stores. 12% is from the plant and rest 88% is from that of inter unit account. Receivables At a plant all finished good are sold cash and in advance payment but the major portion of debtors are delt by central marketing organization.A transparent system for cash has been adopted by cash section of Bhilai Steel Plant. quality and volume of items to be purchased. But now and pay later facility is provided by suppliers depends up on a variety of factors such as natures. Obviously the inventory report is prepared to plant level. Trade acceptance. Payables The supplier credit is referred to as Account payable. Trade credit.P. is avoided excess and inadequate levels of inventory and to maintain sufficient inventory for smooth production and sales operation. work in progress. Production planning and control department gives the data of closing stock of raw material.

Major portions of important components of working capital is bills payables and borrowing of funds monitored by corporate level. stores & spares and the operations accounts department which look after the contracts. To summaries. stock finishing goods. which necessities holding of inventories to guard against the risk of unpredictable changes in demand and . the raw material.e. In inventory the stores of raw material. Management of Inventory Inventory constitutes the principal items in the capital of the majority of trading any industrial companies. which emphasizes the need to maintain inventories to facilitate smooth production and sales operations. The purpose of inventory management is to ensure available of material in sufficient quality as and when required and also minimize investment in inventory. working capital at a plant level mainly involves forecasting and monitoring of different components which is done systematically. 3. work in progress and other accessories and included to maintain the continuity in the operation of business to regulate the size of the investment if good carried in stock and turnover rates. Precautionary motive.monitored by the concerned departments i. Motives for Holding Inventories The transaction motive.

supply forces and other factors. Inventory Management at Bhilai Steel Plant Inventories are stock of a company. In managing inventories the objective of SAIL is to determine and maintain optimum level of inventory investment. which have been purchased and are stored for future production. raw materials central procurement unit of central marketing organization as per the requirements of the Individual steel plant. which is manufacturing for sale of component that make up the product. In Bhilai Steel Plant. Basic objective in holding raw materials inventory . levels to take Objective of Inventory Management To maintain a large size of inventory for sufficient and smooth production and sales operations. inventory advantage of price fluctuations. which influence the decision to increase or reduce. To maintain a minimum investment in inventories to maximize profitability. Raw Materials Raw materials is those basic inputs that are converted into finished products through the manufacturing process. Inventory means “a schedule of items held at a particular point of time”. Speculative motives. The optimum level of inventory lies between two danger points of excess and inadequate inventories. The bulk purchase are procured and send to the place of need. Raw material inventory are those.

which are ready for sale. Semi Finished / Finished Products Semi finished products are semi manufacturing products. Lubricants. explosive. Raw materials are valued at lower of cost and net realizable value. diesel. Semi finished products are valued at lower of cost or net realizable value of the respective paints.is torn separate purchase and production activities. Ingots moulds. Iron scrap and steel scrap at the integrated plant are valued 75% and 90% respectively of previous year’s realizable value of pig iron. If raw materials inventories were not held. rolls. casting. to the cost up to the stage of process. are valued at the estimated net realizable value. electrodes. which have a realizable value at the finished stages only the realizable value of process material is arrived at by applying the ratio of finished products realizable value and its costs. petrol. In the case of special products. refectories. The stock of week scrap lying unconsummated at the plant and mixed coke and middling/rejects. They represent products that need more work before they became finished products for sale and finished goods inventories are those completely manufacturing products. Stores and spares Stores and spares include stock of all stores and spares for operation and maintenance like consumable stores. bottom plates. purchase would have to be made continuously at the usage rate in production. capital assets temporarily kept in general stores . oil. Stock of finished goods is required for smooth marketing operations.

Stores and spares are valued at cost of stores and spares declared obsolete/surplus and also those. Here the inventory is classified into: 1. which have not moved for five years more provision is made at 75% and 10% respectively of the book value and charged to revenue. ABC analysis XYZ ANALYSIS Non moving inventory Surplus inventory ABC analysis – Items. Non-moving inventory – Items. at year end. 3. which constitutes to 70% of total consumption (of stores and spares) value when arranged in descending order of consumption value will be termed as ‘A’ class items. XYZ analysis – Items which constitute top 70% of total stock of stores and spares holding value when arranged in descending order of stock holding will be termed as ‘X’ class items next 20% of total stock holding will be termed as ‘y’ class items and the rest 10% and the ‘z’ class. 4. Surplus inventory – Out of the above non moving inventory when there is issue made to various shops asking for the requirement of the inventory and if there’re also it is not needed then transferred to . Next 20% of total consumption value will be termed as ‘B’ class items and the rest 10% as the ‘C’ class items. moving items. 2. which has not been issued for the last 3 to 5 years shall be non-.pending transfer to concerned mills/shops stock with fabricators for operational purposes spares lying unused at shop floor etc.

Placement of Order Material planning department of Bhilai Steel Plant determines when and how much to order. This department scrutinizes that the order made are specifically as per requirement and there is sufficient capital to make purchase. the inspection time the terms and document needed with the material all the formalities are finalized. This is determined by calculating the reorder point.another steel plant and it again not needed there also then sent for disposal through auction sale. Procurement After the purchase order is of delivery whether through rail/road. Here. again the inspection takes place and if the quantity received is accepted . Then whole lot is sent to the central store. The detail of material stored and stores are given below. which takes into account the whole documentation process. Nature of sharing taxes. Bulk material Silicon manganese Capital items Spare items Bulk atore Central Plant Store cell Borea stores Plant Spare store After receiving the material consignment control number is provided and when the identification of material with the purchase order is done then the R. which takes into account the whole lot is sent to the central store. The reorder point is that inventory level at which an order is placed to replenish the inventory. number is given. Received material is examined by visual survey.

the inventories should be valued at the time of “historical cost” and “net realizable value”.P.then receipt is prepared and accounting is done and if the quantity is rejected then no receipt is prepared again there is a clause that if the quantity rejected is accepted to the acceptable level by Material Review Board. 4. is to maximize the total cost budgeting section monitors the shop wise procurement budgets for indents raised by the shop.S. The Material Management Department monitors the receipt budget on monthly basis and control the daily receipts separate funds are being allocated to the products. Historical cost :- .S. estimates the different expenses with varying inventory levels and choose the level with the lowest total cost.P. The lowest total cost considers both the caring cost and ordering costs. The amount sanctioned is utilized for the items and quantities. The analyst of Inventory Department in B. The goal of budgeting control in B. Then new certificate prepared by MRB. METHOD OF VALUATION OF INVENTORIES According to international Accounting Standard 2(IAS 2).

transportation costs. Inventories are to be valued at cost or net realizable value which ever Is less. Net Realizable Value :According to International Accounting Standard 2(IAS2). insurance in transit . The ascertainment of net realizable value of different item and it comparison with he historical costs can be done by any of the following. Thus historical cost include not only price paid for making them fit for use in production or for sale. duties.8. which might have to be incurred for making sales. For the example. . manufacturing expenses incurred for converting raw material into finished product etc. . Thus net realizable value is to be calculated after taking into consideration all expenses. the net realizable value of an article having a selling price of Rs.if the seller will have to pay a commission of 2% on sale. selling expenses such as advertisement expenses or storage costs should not be included. cost of conversion and other cost incurred in bringing the inventories to their present location and condition. e.10 should be taken as only Rs.Historical cost of inventories is the aggregate of cost of purchase.the net realizable value means “the estimated selling price in the ordinary course of business less cost of completion and less cost of necessarily to be included in order to make the sale”.g.

Aggregate or total inventory method :According to this method of the total cost prices of the different items of the inventories are calculated. The total so calculated is compared with the total of the net at a price which is lower of the two.

Group method :According to this method, groups are formed of homogeneous items are inventories. The cost and the net realizable value of the each group so formed are found out. The lower cost of cost or net realizable value of each group of items is taken for valuation of inventories.

Item by item method :According to this method ,the cost and net realizable price of each item of inventory are found out . Each item is valued at a price, which is lower of the cost or net realizable value. A major objective of accounting for inventory is the paper determination of the income through the process Of matching

appropriate costs again revenue. It required assigning of proper cost to inventory as well as goods sold. However, it should be noted that assigning of each cost, need not conform to the physical flow goods. The various method for assigning historical costs of inventory of raw material and goods are explained below: Specific identification method :According to this method each item of inventory is identified with its costs. The total of the various cost so identified constitute the value of inventory. This method is generally used when the materials or goods have been purchased for a specific job or customer. Such materials or goods when received are earmarked for the job or customer whenever demanded. This technique of inventory valuation can be adopted only by a company,which is handling a small number of item. In case of manufacturing company having number of inventory item it is impossible to identified the cost of each individual item of inventory. Thus this method is inappropriate in the most cases on account of practical consideration moreover the method open door to income manipulation when like item are purchased at different price. First in first out method (FIFO) :-

Under this method,it is assumed that the materials or goods first received are first to be issued or sold. Thus according to this method .the inventory on a particular date is presumed to be composed of the item, which were acquired most recently. Advantage:It value nearer to current market price since stock is presumed to be constituting of the recent purchases. It based on cost and therefore, no unrealized profit enter into financial account of the company. The method realistic since it takes into account the normal/ procedure of utilizing or selling those material or goods which have been longest in stock.

Disadvantage :It involves complicated calculation and hence increase the possibility of clerical error. Comparison between different jobs using the same type of material becomes sometimes difficult. A job commenced a few minutes after another job may have to bear an entirely different charge for material

because the first job completely exhausted the supply of the of materials of the particular lot. Last in First out method (LIFO) :This method is based on the assumption that last item of materials of goods purchased are first to be issued or sold. Thus according to this method ,inventory consists of items purchased at the earliest cost.

Advantage :It takes into account the current market condition while valuing materials issued into different jobs or calculated the cost of the goods sold. This method is based on the cost and therefore, no unrealized profit or loss is made on account of use of this method. This method is most suitable for materials which are of a bulky and non-perishable type. Highest in First out method (HIFO) ;According this method, the inventory of materials or goods should be valued at the lowest possible price. Materials or goods purchased at the highest price are treated as being first issued irrespective of the date of purchased. This method is very suitable when the market is constantly fluctuating because cot of heavily priced material or goods

is recovered form the production or the sales at the earliest. the LIFO method will be most suitable for valuing stock of materials or finished goods other than the base stock. Under the method the issues are made of cost of goods sold to taken as the next price.not been adopted widely. As this method aim at matching current cost to current sales.e.therefore . In other word issues or goods for further processing or . the price of material or goods have been order but not yet received. i. Next in first out method :The method attempts to value material issue or goods sold at an actual price which is as near as possible to market price. The method has . However the method involves too many calculation as in the case of LIFO method. This quality is termed as base stock. The base stock is demanded to have been created out of the first lot purchased and therefore its always valued at this price and is carried forward as a fixed asset. Base Stock Method :The method is based on the contention that each enterprise maintains all the times a minimum quality of material or finished goods in its stock. Any quality over and above the base stock is valued in accordance with any other appropriate method. The base stock method has the advantage of charging out materials / goods at actual cost. Its other material or demerit will depend on the other method which used for valuing material other than the base stock.

sale at the latest price at the company has been committed even through they have not yet been physical received. Calculations of issued price are complicated in this method and therefore the method is not widely used. Hence the inventory consists of no specific batch of goods. For example 100 units of material A purchased Rs. The inventory is thus period on the basis of advantage prices paid for the goods weight according to the quality purchased at each price. Incase of this method goods will be issued at the price at which new order have been placed at this price will gold goods all future issues till next order is placed. 1 per unit are lying in sore and an order for another 100 units Rs. The value of inventory on particular data is ascertained by deducting the cost of material issued or goods sold from the total value of material or goods purchased. This method is better than market price method under which every time when goods are issued their market have to be ascertain. they lose their identity. they will issue to the department at Rs1. Weighted Average Price Method :This method is based on the presumption that once the materials are put into a common bin. .25 Per units.25 has already been placed.1. If a requisition of another 50 units for a department is made.

Weighted Average Price method is very popular on account of its being based on the total quality and value of material purchased besides reducing number of calculation.However. Retail Inventory Method:This is also termed as adjusted selling price method . in case of this method different price of materials are charged from production particularly when the frequency of purchased and issued /sales is quite large and the concern is following perceptual inventory system. cash at bank. 5.It is widely used in business where the inventory comprises items individual costs of which are not readily ascertainable. NIFO. As a matter of fact the average price is to be calculated only when a fresh purchased of material is made in placed of calculating it every now and than as it the case of FIFO. Thus cash is the most important current . LIFO. Management of Cash Cash is a medium. In business enterprise. it includes cash in hand cash in hand. Calculating it in the first instance at selling price and then deducing an amount equal to the estimated gross margin of profit on such stock estimated the historical cost of inventory. and ready marketable securities. or HIFO methods . of exchange to purchase the goods and services and to discharge the liabilities.

asset for the smooth operations of the business.S. The credit is known as rolling cash limit. cash management assumes more importance than other current assets because cash is the most significant and the least productive asset that a company holds. 2. and main bank the state Bank of India. Corporate office acts as a linkage between the B. Contractors and suppliers for their payment. Now-a-days liquidity and solvency maintenance has become the main task of financial executives. Corporate office has determined the credit facility for every unit of SAIL. which is subject to change from year to year depending up to company position. Number one unit of SAIL can get the credit facility more than the limit. It deals with the employees. Moreover. 1. transactions. which is permitted to any one. Cash balance is an unproductive investment also. Idle cash produces nothing. the aim of cash management may be said to maintain adequate cash position at one hand and to use excess cash in some profitable way on the other hand. Objectives of Cash Management To minimize the amount of funds as cash balance.P. Management of Cash at Bhilai Steel Plant Cash section is an important section of Finance and Accounts department. profitable and inventory position. To meet the cash disbursement needs as per payment schedule. Therefore. . The corporate office allocates different amount of cash to different steel plant as per its requirement. Corporate office plays a dominant role in cash management.

yet B.S.P itself. which is urgent and sends the report to its corporate office. funds are deployed to different transaction is prepared by cash section to keep a track of all payments made in the days work. Although specific forecasting technique is used.e. Nandini – Lime stone.S. B.P.S. gives priority in cash payment. then the plant has to justify its more utilization and if the justification is not found satisfactory then the letter of improvement is given by the corporate office.S. Thus at a time plant can also pay its liabilities and then the balance amount is only intimated to the corporate office. Every month cash transaction report is sent to corporate office showing all the transactions of cash (inflow and outflow) actual utilization of cash and allocation of fund.P. The corporate office allocates the funds for all steel plants and particularly about Bhilai Steel Plant the fund is allocated keeping in view that there are three mines i.Although corporate office provides credit limit facility. is not fully dependent on the corporate office. The sale of scrap materials of defectives at plant level generates the cash.P. Fund Allocation Here the initial allocation for mines and B. unit is done by corporate office and all supplementary requirements are to look by B.S. Rajhara – Iron ore.P. . Hirri – Dolomite which are owned by B. Fund Utilization Bhilai Steel Plant operates an annual ‘Cash Budget’ and a rolling ‘Cash Plan’ drawn up every month.

It has also been seen the supplier of coaking coal has offered a large discount for cash purchasing of material and SAIL has gained of . These days the direct sales of billets and merchant products are increasing cash. Again this cash budget is broken in to month wise budget where allocation of cash on month wise it becomes easier to allocate the amount.S. As the corporate level the 100% accuracy in cash forecasting is not possible.P’s expected cash in flows and outflows. The information of expected cash flows and cash balance helps to financial manager of Bhilai Steel Plant to determine the future cash needs of the firm. Cash budget is a summary statement of B. plan for the financing of these need and exercise control over the cash and liquidity of B. Cash has been receiving from customers and has been providing for adequate cash for their liabilities. If suddenly a major customer does not pay its bill. corporate office provides adequate cash for contingencies.Cash budget is most significant device to plan for and control the cash receipts. Bhilai Steel Plant needs cash to Cary out the day-to-day functions of business just as the level of operations affects working capital requirements it affects the need for cash. the cash inflow will be reduced below the forecasted level.P.S.

Management of Receivables in Bhilai Steel Plant Although managing the receivables is done by corporate office.S. quarters and shops are given from the money is recovered and the credit facility given is one month for the interest matter which are . 2.P. Management of Account Receivables An account receivables represent the amount due from its customers to whom the company has extended the credit.this opportunity by importing low cash high quality coaking coal is imported from Australia. Which consists of the recovery of the direct sales and scrap and defectives and employee related matters. at that time the credit policy of corporate office helped to retain old customers and create new customers. the credit policy is helping to increase the firms market share. The shopkeepers are one to whom the B. 6. Obviously the minor part of receivable management dealt at the Bhilai Steel Plant. they used the receivable accounting to maintain the market share. Three years ago when market was declining. Mostly the whole of sundry debtors and the third party like shopkeepers. To take a sound decision as regards to investments in debtors. Now the situation is opposite of that there is a growing demand of steel products not only in our country but also in abroad. yet central marketing organization directly deals with it. Objectives of Receivables Management 1. the firm is said to have granted trade credit to customer and the customers from whom receivables or took debt have to be collected in future are called trade debtors. When a firm sells its products and services and does not receive cash for it immediately. To promote sales profit until that point is reached where the return on investment in future funding of receivables is less than the cost of funds raised to finance the additional credit.

whereby one month due is provided. Whereas the underlying objective in case of account receivables is to maximize the acceleration of the collection process. Mostly the creditors comprises of contractors to whom payments are to be given and the capital works. Thus we can say that the management of receivables is dealt major part by corporate office and minor part by the finance department of Bhilai Steel Plant. the income tax etc. Management of Account Payables Management of account payable is as much important ad management of accounts receivable. Management of accounts payables at Bhilai Steel Plant The creditors are managed at plant level only. which is refundable at the end of contract. This is basically done as per terms and conditions with the respective parties. In case of statutory payments i.basically got from house building advantages given where one month recovery is done. But it should be noted the delay in payment of accounts payable may result in saving of some interest cost but it can prove very costly to the firm in the form of loss of credit in market. to ensure that the payments to the creditors are made at the stipulated time periods after obtaining the best credit terms possible. There is also a scheme of Earnest Money Deposits for the registered small scale industries. In the case of small industries it is done with in 30 days if the dues are above 1 lakh. the objective in case of account payable is to slow down the payments process as much as possible. .e. The finance manager has therefore. The scheme allows to have a security deposit. 7.

CHAPTER .2 OBJECTIVE OF THE STUDY .

4. Suggesting ways to improve the current situation in working capital management. To study the working capital management process in Bhilai Steel Plant. Comparision of change in working capital from previous years to the years of examination and liquidity position. To know the legal aspects of managing the working capital in Bhilai Steel Plant. To compare the performance of working capital for a particular year with the previous year. To study the working capital concept. . 3. 2. To study the inventoty management process in Bhilai Steel Plant. 5. 1. 6. Knowledge of the working capital will help us in interruption of financial terms and measure to be taken to improve the health of the companies in the steel industry can be suggested.Objective of the Study The objective of the study is to examine the extent of use of permanent working capital & variable w/c.

CHAPTER .3 RESEARCH METHODOLOGY .

It is equally important for social scientist in studying social relationships and in seeking answer to various social problems. In fact. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind it. It is important in solving various operational and planning problems of business and industry.WHAT IS RESEARCH? Research in common parlance refers to a search for knowledge. It is a scientific and systematic search for pertinent information on a specific topic. WHAT IS RESEARCH METHODOLOGY? Research methodology is a way to systematically solve the research problem. research is an art of scientific investigation. Research methodology consists of: .

For primary data selection respondent has been approached.1 SOURCE OF DATA The data for study is both primary and secondary data. PRIMARY DATA: Data collected by the researcher itself for the purpose of research is primary data. 3. àThrough personal interviews.2 Methods Adopted for Data Collection In order to collect data we have used secondary sources. àThrough books.3. . 3.3 RESEARCHER INSTRUMENT . àThrough websites. àThough manuals. àThrough Detailed Project report. In order to get sufficient information the following sources of data collection has been adopted :àThrough Articles and magazines. It means data that has already collected. It directly benefits the research problem. SECONDARY DATA: Data which has already been collected and analyzed by someone else is secondary data.

Tabulation is a part of the technical procedure wherein the classified data are put in the form of tables Pie chart is a part of technical procedure to differenciate different groups.This research design is based on descriptive research and this descriptive research focus on discover of ideas which is generally based on secondary data. With coding the stage is ready for tabulation. Editing is the procedure that improves the quality of the data for coding.4 Tools and Techniques of analysis : Coding operation is usually done at this stage through which the categories of data are transformed into symbols that be tabulated and counted. 3. . It is a primary investigation which does not have rigid design because reseacher gets engaged in an descriptive study.

CHAPTER .4 DATA ANALYSIS & INTERPRETATION .

Data Analysis WORKING RESULTS OF B.S. for the Financial Year 2005-06 : 1) CURRENT RATIO: .P.

13 + 289.81+ 16. (Current Ratio) of the rest have been calculated below:Year 2004-05 2003-04 2002-03 Ratio 1.55 + 218.93 1.R.31 0.52 Current Ratio = current asset / current liabilities = 1795.52 = 2.08 + 42.53 + 33.36 = 879.09/879.76 = 1795.54 2) LIQUID RATIO or QUICK RATIO or ACID TEST Ratio: Quick Assets = Sundry Debtors +Cash and Bank balance +Interest Receivable Loans and Advance + Other(-) inventories. .09 Current liabilities= Sundry Creditor + Security deposits + other liabilities +provision = 518.04 In the same way C.44 + 1505.95 + 29.Current Assets = Sundry Debtor + Cash and bank balances+ other current asset + loan and advances + Total Inventory = 20.

33 In the same way Liquid Ratio of the rest of year have been calculated below:Year 2004-05 2003-04 2002-03 Ratio 0.09 =290 Liquid Ratio = Quick Assets/ Current Liabilities = 290 / 879.26 0.= current assets – total inventories =1795.09 – 1505.) = Current Assets –Current Libilities = 1795.52 .52 = 0.C.47 3) GROSS SALES TO WORKING CAPITAL RATIO: Working Capital (W.21 0.09 – 879.

6 4) WORKING CAPITAL TURNOVER RATIO: .75) = 10.= 915.44 times In the same way Gross Sales to Working capital Ratio of the rest of the years have been calculated below :Year 2004-05 2003-04 2002-03 Ratio 37.75 Gross Sales to Working Capital Ratio = (Gross Sales/ Working Capital) = (9564.63 / 915.2 -96 13.

63 / 612.) / 2 = (308.11 11.67 + 915.21 Working Capital Turnover Ratio = Net Sales / Average Net working Capital = 9564.c.75 19.c.622 times In the same way Working Capital turnover ratio of the rest of thr year have been calculated below :Year 2004-05 2003-04 2002-03 Ratio 92.Average Net Working Capital = (Opening Balance of w.21 =15.75) / 2 = 612. + Closing Balance of w.25 5) CURRENT ASSETS TURNOVER RATIO: .

39 times In the same way current asset Turnover Ratio of the year have been calculated below :Year 2004-05 2003-04 2002-03 Ratio 4.16 Cost of goods sold = net sales – profit after tax = 9564.65 6) INVENTORY HOLDING PERIOD: .22 + 1795.Average Current Assets =(opening current assets + Closing current assets) / 2 =(1297.07 = 6783.38 3.72 4.09) / 2 = 1546.16 4.56 Current Asset Turnover Ratio = Cost of goods sold / Average Current Assets = = 6783.63 – 2781.56 / 1546.

Year 2004-05 2003-04 2002-03 Days 60 60 70 .72 = 5.72 Inventory turnover ratio = Cost of goods sold/ Average Inventory = 6783.Average Inventory = (Opening Inventory + Closing Inventory) / 2 = (1041.76) / 2 = 1273.56 / 1273.68 + 1505.33 =68 days In the same way Inventory Holding Period of rest of the year have been calculated below . Inventory Holding Period = 360/ Inventory Turnover = 360 / 5.33 times Now.

) inventory turnover in days = 360 / work in process turnover = 360 / 7.i.) INVENTORY TURNOVER PERIOD: Average inventory of finished and semi finished goods =( 385.p.p.94 = 7.95 = 46 days In the same way work in process Inventory turnover period of the rest of the year have been calculated below :Year 2004-05 2003-04 2002-03 Days 24 27 35 .i.95 Work in process (w.p.94 Work in process (w.7) WORKING IN PROCESS (w.) inventory turnover Cost of Production = ------------------------------------------------------Average Work in process inventory = 4450 / 559.15) = 559.73 + 734.i.

Semi Finished / Finished goods inventory turnover ratio is Cost of goods sold = -----------------------------------------------------------------------Average inventory of finished and semi finished goods = 4450/559.8) SEMI FINISHED / FINISHED GOODS STORAGE PERIOD : Average inventory of finished and semi finished goods =( 385.73 + 734.94 = 7.95 = 46 days In the same way Semi finished /finished goods storage period of the rest of the year have been below :Year 2004-05 2003-04 2002-03 Days 24 26 34 .15) = 559.95 times Semi Finished /Finished goods storage Period = 360 / 7.94 Where.

63 / 20.01 Net credit Sales Debtor turnover Ratio = -----------------------------------Average debtors = 9564.01 =478 Hence.Year 2004-05 2003-04 2002-03 Days 1 4 7 . Debtor Collection Period = 360 / Debtor Turnover = 360 / 478 = 1 days In the same way Debtor Collection Period of the rest of the years have been calculated below .48 + 20.53)/2 = 20.9) DEBTOR COLLECTION PERIOD: Average debtors = (19.

10) CREDITORS PAYMENT PERIOD: Average Trade Credit =(opening Sundry Creditors + Closing Sundry Creditors) =(581.67 / 16.30 + 896.48 + 801.67 Average of trade credit Purchased /day = (Raw material purchased including semi /finished products + Stores & spares + power & fuel) / 360 = (4214.42 = 34 days In the same way Credit Payment Period of the rest of the year have been calculated below:Year 2004-05 2003-04 Days 43 47 .08) / 2 = 549.42 Credit Payment Period Average Trade Credit = ---------------------------------------------------------Average of trade credit Purchased /day = 549.47 / 360 = 16.69) / 360 = 5912.26 + 518.

2002-03 54 CHAPTER – 5 LIMITATION LIMITATIONS :- 1). 3). Every research contain the chance of standard error. Descriptive research is totally based on secondary data therefore futher modification is not possible. The study was limited for the period of 60 days. 2). .

.

6 FINDINGS .CHAPTER .

which means there is a correlation between changes in current assets with that of current liabilities. Here in this case it has improved from 0.75 times) which is mainly due to the increase in the average net working capital.2 times in the year 2004-05 which again shows working capital is supporting sales.62 times) as compared to the year 2004-05 (92. is in a favorable trend.26 in the year 2004 .06 which was mainly due to the high inventory and cash blockages. which is due to existence of high level of inventory turnover and non moving stock the higher the ratio. The Current Ratio was low in the year 2005 . .33 in the year 2005 06. The Liquid Ratio of B. is in favorable trend. The Gross Sales to Working Capital Ratio which shows the efficiency by which working capital is being used by the business and we can see that there was a decrease by -96 times in the year 200304 which was mainly due to the negative working capital balance which resulted due to the payment of wage revision which took place that year and then it increased to 37. which usually corresponds to its financial health.05 to 0.S.P. In 2005-06 it is 10.44 times. the higher the business level of liquidity.RESULT AND DISCUSSION The Working Capital Ratio or Current Ratio of B.S. if that becomes necessary.P. which indicates that the business is capable to pay off its debts quickly. Working Capital Turnover is in a increasing trend and we can see a decrease in the year 2005-06 (15.

The Work in Process Inventory Turnover period and semi finished / finished goods period decreases from 2002-03 to 2004-05 due to implementation of effective production and operation techniques in use.65 times in the year 2002-3 to 4. Which shows that B. which is a healthy sign for any firm. In 2005 – 06 it is 4. . And receives remittances of cash from some malicious receipts. Company’s policy relating to collection of debt is in a sound position.The current assets turnover ratio is increased from 3.S. Regarding the temporary working capital. The Debtor Collection Period is in a decreasing state that is from 7 days in the year 2002-03 to 1 day in the year 2005 -06 which shows that there chances of bad debts and also depicts that B. defectives. which indicates the efficiency by which the firm uses all its current assets to generates sales. has allowed the credit facility it its customers and are realizing it in timely manner.39 times.S. The Inventory Holding Period decreased from 70 days in the year 2002 – 03 to 60 days in the year 2004 – 05 which shows the sign of higher efficiency which indicates that the inventory is quickly utilized in the production process and not being piled up. and as a result there is a prompt collection of receivables taking place. The marketing of all SAIL’S prime products are done by the Central Marketing Organization (CMO) and the receipts of sale are directly sent into the inner unit current account which is centrally controlled by the corporate office at New Delhi. and cuttings material wastages to small industries.72 times in the year 2004-05 that shows that there was an increase of 1.P. whereby optimum utilization of resources is taking place.07 times. which is for the day to day management. It is 68 days in 2005 -06. is following a strict and efficient credit policy. the plant generates a large amount of temporary working capital by sale of scrap. The Creditor Payment Period is showing a decreasing trend from 54 days in the year 2002 -03 to 34 days in the year 2005-06 which shows that the time lag in the bills payables period has came down which indicate a prompt payment of all the payables is taking place.P.

CHAPTER-7 RECOMMENDATION S .

The company should allow a short collection period of its . Inventory management should be properly in time.RECOMMENDATION :- 1). 3). The company should try as far as possible to maintain its current ratio 2:1. 2).

receivables CHAPTER-8 CONCLUSIONS .

.

Monthly inventory report is sent to chairman through the finance department to corporate office. working capital at a plant level.Conclusion Bhilai Steel Plant a major unit of SAIL has been generating continuous profits as compared to previous year with current year. To summaries. work in progress. is working efficiently and it is having a sound liquidity.P. Other important components of working capital are bill payables and borrowing of funds monitored by corporate level. this mainly involves forecasting and monitoring of different components.S. but the major portion of debtor are dealt by central marketing organization. Whereby major portions of receivables are managed by central marketing organization for all plants level. Finance Department of Bhilai Steel Plant and various individual units decides the amount of funds requirement during the preparation of operation budget. Cash inflows and outflows are estimated in budget. While analyzing the data. Inventory is monitored differently for raw material. which is done systematically. The marketing of all SAIL’s prime products are done by the central marketing organization and the receipts of sale are directly sent into the inner unit current account which is centrally controlled by the corporate office and the corporate office allocates the funds as per intimation to individual units. finished goods and stores. and at the same time the . Cash is monitored every day and intimated to the top management as well as fortnightly to the company. I found that all most all the ratios calculated above shows a favorable trend which shows that B. and then requirement of fund is intimated to corporate office.

CHAPTER-9 BIBLIOGRAPHY .duration of operating cycle has been decreased from year 2002 -03 to 2004-05 which shows an favorable trend and as a result which indicates that it will require less working capital in the years to come.Which it self shows that the efficiency of working capital management in Bhilai Steel Plant.

BSP news magazine. 4. 5. SAIL news magazine. Functional Finance & Accounts Manual. SAIL journal.BIBLIOGRAPHY 1. . Finance year book. 2. 3.

sail.6.67 2005-06 (in crores) 1795.14 2004-05 (in crores) 1297.55 308. Steel Scenario Journal.50 1316.57 This decrease can be due to the increase in the current assets and rise in the working capital requirement.64 -93.09 879.L CURRENT ASSETS CURRENT LIABILITIES WORKING CAPITAL 2003-04 (in crores) 1223. .in// (WEBSITE) STATEMENT SHOWING CHANGES IN WORKING CAPITAL WORKING CAPITAL C. The current assets in this year are proportionately more then the current liabilities. 7.22 988.co.52 915. http:// www.A – C.

A Project Report on “WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE TO INVENTORY MANAGEMENT” Under the guidance of Submitted By .52 This graph shows that there is a gradual increase in the current assets and gradual decrease in liability.64 2004-05 (in crores) 1297.22 988.50 1316.CURRENT ASSETS Vs LIABILITIES YEAR CURRENT ASSETS CURRENT LIABILITIES 2003-04 (in crores) 1223.55 2005-06 (in crores) 1795.09 879.

hereby declare this project report prepared. Manager. Milton Ray Sr.Manager Bhilai Steel Plant Prakash Verma (MBA 3rd Sem) A project report submitted in partial fulfillment of the requirements for Master of Business Administration (2007-2008) Shri Shakaracharya Institute of Management & technology Junwani.Milton Ray Sr. to my guide Mr. in lieu of a compulsory paper for the partial fulfillment of Management in Business Finance. All the information and data given in my project are authentic to the best of my knowledge and taken from reliable sources. Place: Bhilai Date: Prakash Verma MBA IIIrd Sem .) DECLARATION I am a student of Master of business Administration from Chhattishgarh Swami Vivekanand Technical University. which I have submitted in Bhilai Steel Plant.2008.G.MR. Bhilai (C. is my original work. Bhilai for the session 2006 .

it also lends ever-lasting quality to all kinds of structures and infrastructure. While it keeps the wheels of industry turning. which helps in a better understanding of the entire operation on an overall basis. Other than this BSP is the maximum profit making unit & also is the highest steel producing unit of Steel Authority of India Limited (a NAVRATNA PSU). This man-made metal has an extraordinary quality of contributing to every aspect of life.PREFACE There's a little bit of SAIL in everybody's life… "Steel is the basic framework which has built nations. Management accounting helps to provide information to management to take effective & efficient decision regarding pricing. ascertainment of profitability & internal & external reporting." This project has been undertaken to study the operation budget & management accounting system practiced in an integrated steel plant like BSP. and it is on this strength that nations stand apart. In the present era of cut-throat competition. It helps to gain a better understanding of the process of Iron and Steel Making and helps us in appreciating the effort and dedication involved in the successful working of a huge integrated steel plant. the need to have an integrated operation budget system is growing very fast. cost control. product-mix. Various units of BSP closely resemble the flow of material / information throughout the plant. BSP is ideally suited for this purpose since it is one of the largest Integrated Steel Plants of our country and is been awarded for its appreciating step of cost reduction by Institute of Cost & Work Accountants of India. .

Human Resource and Administration Departments in providing me with all the necessary information in carrying out my project study.T.Singh (GM-HRD) and Mr.M. Mr. I also express my deep sense of obligation to the management of Steel Authority of India Ltd (Bhilai) for giving me an opportunity to undergo field training in their esteemed organization and Mr.M. Though language is an inadequate medium to express one’s sentiments.K. who directly and indirectly helped me while undergoing the project work. R.K. Prakash Verma TABLE OF CONTENTS CHAPTER . I am specially thankful to respected Mr.A. who provided this great help to me with his kind co-operation.Namdeo Barange (Training coordinator V.-HRD). I am thankful to all those people and others whose efforts and contribution now escape my memory. N. it is the only way one can record one’s grateful indebt ness to one’s guide and benefactor. I also extend my thanks to the officers and staff members of the Finance & Accounts Department.ACKNOWLEDGEMENT Acknowledgements are not the full expression of one’s gratitude towards the person whose help is acknowledged.Mr.MGR. Milton Ray. Shukla (AGMSED).Anil Sharma (DGM-HRD). I also thanks to Human Resource Development department Mr. Lastly. I express my profound sense of respect and deepest gratitude to my guide Mr.Dubey(DGM-HRD).G.Madhusudan (D. Rajiv Mahendru for their kind cooperation and help. Mr. New Delhi) who has given me opportunity to do this project. P. Mr.Yadav. I also express my sincere debt of gratitude to the Finance & Accounts. Finance & Accounts). who gave the opportunity for summer traning in Bhilai Steel Plant. S. S.D. I would like to take this privilege to thank Dr. Section-HRD) and Mr.K.Jadhav(Sr.M Shingh (Director of NDIM.

Chapter 7.4 Source of Data Method of data collection Researcher instrumentation Tools and Techniques analysis Chapter 2 Chapter 3. Objective of the study Research Methodology 3. Analysis and Interpretation of Data Limitation Findings Recommendation BIBLIOGRAPHY Appendix . Chapter 4. Chapter 6.3 3.S.1 3.QUESTIONNAIRE .Chapter 1.2 3.P. Chapter 5. Introduction (a) Company profile (b) Working capital management at B.

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