At the prime outset I owe my sincere gratitude to the management and allied discipline of TRL, Belpahar for giving me an opportunity to undergo training for a period of 2 month. A large number of individual have contributed in making this project analysis of Trend analysis. I am thankful to all of them for their help and encouragement. My project has been influenced by annual report of the company and information provided by employee in the field. As far as possible they have been fully acknowledge at their appropriate places. I express my gratitude to all of them. My deepest sense of gratitude goes to Mr. C.S. Panigrahi and Mr. A.K. Mohanty. My special thank to Mr.K.V.Rao for his special guidance. I would very much appreciate and sincerely acknowledge suggestions from Mr. M.K.Patel who has always been a source of incessant motivation and encouragement to mean who has always extended his UN stinted support to me in making this project.

Jinesh J. Tanna M.B.A (2007-08) VIM, Pune


This is to certify that Mr. Jinesh J. Tanna student of M.B.A 2nd Year from Vishwakarma Institute of Management, Pune under University of Pune has undergone Vocational Training from Belpahar. He has completed his Project Successfully. We wish him all success in life. to and prepared a Project Report on “WORKING CAPITAL MANGEMENT” at TATA Refractories Ltd,


Faculty Guide


Date Signature of Candidate Page88 . Jinesh J.A 2nd Year of Vishwakarma Institute of Management. Tanna. Pune. a student of M.DECLARATION BY THE CANDIDATE I. Session 2007-2009 do hereby declare that that the Summer Project Report entitled “WORKING CAPITAL MANAGEMENT” has not been done by any University/Institution for the award of any degree or any Professional Diploma .B.


Activity ratios and Profitability ratios are calculated. Stores and Spares conversion period. For inventory management inventory control system of the company is studied and its effect on working capital. a thorough study of the working capital management of the company brings out many opportunities for improvement. Inventory management. For receivable management. Liquidity ratios. The analysis of working capital management of the company includes Operating cycle. Page88 . Account receivable conversion period and Payable deferral period. Net working capital includes Raw material conversion period. Fuel conversion period. In the operating cycle ‘Net Working Capital’ is required to be calculated. APPENDIX 81 EXECUTIVE SUMMARY This project is aimed at studying Working Capital Management at TATA REFRACTORIES LIMITED for five years (2003-04 to 2007-08). By studying the working capital of a company the efficiency of different functional departments come into picture along with that of finance department. Cash management and Working capital financing of the company. collection procedure of a company is studied and outstanding debtors are also ascertained. Though TRL is managing its working capital well. Work in progress conversion period.13. Receivables management. An overview of cash management has been undertaken in order to ascertain the cash position of the company. finished goods conversion period.

Page88 . cash flow statement. internet formed the secondary information source. operating cycle and other related documents. Belpahar.METHODOLOGY This report is based on experience while working as a trainee at TATA REFRACTORIES LTD. magazines and journals in knowledge centre in TRL. Secondary data – Annual report (2003-04 to 2007-08). The following steps have been taken while preparing the report:   Observation and handling of activities in the finance department Preparing financial statements. Two sources of data are used: Primary data – Information gathered from discussion with officers in the finance department and materials department on various aspects of working capital formed the primary source of data for the analysis.

its competitors To study the overall operating cycle of the company To study receivable management.OBJECTIVES OF THE STUDY      To know the financial performance of the company. inventory management and cash management To study the working capital financing practices of the company. To study the Refractories industry and determine the position of the company viz. Page88 . a viz.


liquids and solids at high temperatures in various kilns. gas fires and reformers. fertilizer. conservation and cleaner environment which necessitates new generation of Refractories with specific requirements. thermal power plants and petro-chemical industries etc. cement. copper. quality cost. These sectors are giving high thrust on productivity.REFRACTORY INDUSTRY Refractories are a term given to a class of materials which are produced from non-metallic mineral and possess capability to withstand heat and pressure. These are products that confer properties like high temperature insulation.org Page88 . non-ferrous. glass. furnaces. driers. which are witnessing robust growth. resistance to corrosive and erosive action of hot gases. Refractories are consumed by the iron and steel. energy.irmaindia. Sources: www. aluminum.

REFRACTORY INDUSTRY LINKED TO IRON AND STEEL INDUSTRY The fortunes of the refractory industry are considerably linked to the growth of iron and steel sector which consumes a massive 75% of the Refractories produced.org Page88 . JSW Steel and many other players in the private sector. Stupendous growth in the steel sector is being witnessed with the announcement of ambitious capacity expansion plans by SAIL. TISCO. Demand for steel continues to be strong in emerging markets of the BRIC countries.irmaindia. Essar Steel. Sources: www.

Page88 .Sources: www.irmaindia. the refractory production is expected to increase by 16% per annum for the next few years.org Global capacity is also expected to continue to grow strongly. as some governments have been encouraging investments in the steel industry in order to meet growing infrastructure needs and demand from expanding industrial sectors. Robust demand scenario in the steel industry in India and globally has prompted both Indian industrial houses and multinationals like Mittal Steel and POSCO to set up Greenfield steel units in India. Based on the major expansion and green field projects coming up in the steel sector.

the real growth came in th e late 1950s when the public sector steel plants were set up and Tata Steel embarked upon its expansion plans. The capacity utilization. Necessarily. magnesia alumina. kyanite. the industry has been using man-made raw materials. However. while the refractory industry in India took off in the late 19th century. or 11. with 11 large plants. etc.INDIAN REFRACTORIES INDUSTRY It’s been a long journey for the Indian refractory industry since the first factory line production of Refractories started in Kolkata – or Calcutta as the city was called then – in the year 1874. such as bauxite. fused magnesia. currently stands at around 60 per cent. such as brown-fused alumina. however. the Indian refractory industry has an aggregate production capacity of 20 lakh tones per annum. Traditionally. chrome ore. About 75 per cent of the Refractories that are manufactured find application in the steel industry.5-12 lakh tones per annum. 5-6 per cent in non-ferrous industries. 12 per cent in the cement industry. silicon carbide. Page88 . however. etc. magnetite. Lately. Refractories are used either where high temperature or high rate of abrasion / corrosion/erosion is involved. fireclay. Today. the industry comprises over 100 established units. 24 medium-scale units and the rest in the small-scale sector. three per cent in the glass industry and the balance in other industries. tabular alumina. Currently. Refractories are made of naturally-occurring minerals.

Industry insiders do acknowledge that raw materials security is a concern especially with China imposing quantitative restrictions on export of raw materials and also jacking up prices over the last year or so. Although the specific consumption of Refractories has gone down from 30 kg per tone of steel about 20 years ago to 12-13 kg on an average for the steel industry as a whole and as low as 7-8 kg in the case of some more efficient steel units. former MD of Tata Steel The size of the Indian refractory industry has been pegged at Rs 2. Refractory producers in India “have to rise to the occasion by providing ready. he says. This should be good news for refractory producers in India”.J Irani. speedy and consistent supplies”. possibly. According to Dr Irani. regular. Says Dr J. 120 million tones or even up to 150 million tones by 2015. Director of Tata Sons and Former Managing Director of Tata Steel: “With the government aiming to invest more and more on infrastructure development.J. Irani. It would also be important for Indian refractory manufacturers to focus on their raw materials security.300 crore and it is stated to be growing at 8-10 per cent per annum. aluminum and other industries are also to grow to unprecedented heights. the cement. the steel industry in the country is slated to grow to. Page88 . According to most reports. Cheaper refractory imports from China are also putting a pressure on the industry’s margins . the scope for growth is good in view of the continuing growth in the Indian economy and the government’s focus on infrastructure development.SIZE OF THE INDUSTRY Dr J. Hiring and retaining skilled manpower is a major challenge that the Indian refractory industry has to cope with.

the Centre has revised the DEPB entitlement for export of certain high alumina and alumina carbon refractories.CRITICAL APPRECIATION OF DOMESTIC REFRACTORIES INDUSTRY There are signs of revival in the the domestic refractory industry that had been going through difficult times for the past three to four years. In some steel plants. In view of their cash flow problems. has not been able to go beyond 46 to 47 per cent utilization. the specific consumption of refractories is down to about 11 kg per tone of liquid metal from about 23 kg three years ago. glass and non-ferrous metals. to realize their dues. although the steel plants are still taking four to five months to square up their dues. such as cement. in turn. after repeated pleas to the Finance Ministry. Further. Page88 . Standing the refractory makers in good stead also is the reduction. the steel plants took recourse to what may be termed as the recognized practice of issuing credit notes for steel supply to the refractory manufacturers who. like steel. This is partly due to an easing of the cash flow problems of the steel industry. In fact. the refractory industry. In this context. it may be mentioned that because of the up gradation of technology and processes by major steel plants and their improved quality of refractories. for there was total uncertainty about payments against supplies made. there had been a significant drop in the specific consumption of iron and steel making refractories. The decline in the fortunes of the steel industry in the last three years has had an adverse impact on the finances of the refractory makers. This has meant a welcome change in the situation for the refractory units. the export prospects have never been so encouraging for the refractory makers in the past.5 to 3 per cent. which accounts for 75 per cent of the total domestic refractories consumption. as a result of which their liquidity has improved. which. in the import duty on important refractory raw materials and thereby correcting the anomalous situation in which raw materials had been attracting more import duty than finished refractories. were giving it to dealers at a discount of 2. they have discontinued the practice of giving credit notes. which has a capacity of about 15-lakh tones. This factor also applies to the other refractory consuming industries. perhaps. But. depending on the products. a more important reason is the significant export performance. With conditions permitting the steel companies to increase prices in installments from April 2002. also have not seen much growth in recent years. No wonder.

has. Rs 200 crore worth of exports will be a reality. The volume of exports and unit realization in 1998-99 were 23. Sri Lanka. its products are also being shipped to the US. exports would be only to Bangladesh. say. rose to Rs 86 crore in the last financial year. Indonesia. the industry is hoping to register exports worth Rs 100 crore in 2002-03.912 tones and Rs 29. the immediate past chairman of Indian Refractory Makers Association. Its assessment is that if the trend persists. The market diversification has given the industry a confidence level that it never had in the past.This was mentioned by Mr C. Finland and Chile. which stood at Rs 55 crore in 1998-99. by the terminal year of the Tenth Plan. Germany.D. Kamath.500 respectively. the UK. Egypt and Syria. The upturn in export performance. The figures in 2001-02 were 29.000 respectively. it could export only Rs 1 crore worth of refractories. The value of the refractory industry's exports. Sweden.682 tones and Rs 23. therefore. Page88 . in these circumstances. come as a major relief and confidence booster. Some 13 years ago. The export growth logically should facilitate better capacity utilization. Malaysia. Now. Earlier. at its AGM held here on July 22 last. Judging by the orders already received and expected.


GROUP AS A PIONEER        India’s first indigenous steel mill.TATA GROUP 135 years old Best known most respected business in India Group Turnover US $ 70 Billion Total Sale Represent 5 % of India’s GDP India’s Largest Foreign Exchange Earner US $ 1. India’s first hotel chain. Page88 . India’s first software venture. India’s first international airline. India’s largest salt work. India’s first fully indigenous passenger car.42 Billion India’s The Largest Employer on The Private Sector 300000 Employees PURPOSE Improve the quality of life through leadership in targeted sectors of national economy significance. India’s first power utility.

1986 Christened as “TRL”. ORISSA.000 tones of refractories per annum & is equipped with a modern research & development laboratory & a pilot plant. 1971 Research and development facilities establish. various types of basic bricks like magnesite bonded mag chrome bricks. petro chemical & fertilizer industries. zircon. 1999 ISO9002 Certification for the whole plant. 06). silica bricks. for dead burnt magnetite & non-plastic fire clay mines at TALBASTA. superior grade well blocks for various applications. 1994 Commissioned 30000MT pa dolomite plant.G. high alumina and silica. Glass. TRL has in hand an expansion programmed which will include production of dolomite bricks & continues costing refractories. of Germany. Special product likes slide gate refractory (basic & high alumina slide plates) & its accessories zirconia nozzles mullite. The plant is situated at Belpahar in Jharsuguda district of Orissa with an installed capacity Of 1. 1959 Started production of basic. 1993 Established leading market position. 2006 Expansion on modernization projected detected to nation (10 th April. TRL product range includes various types of fire clay & high alumina bricks. One of the largest manufacturers of hi tech refractories in JAPAN. Besides TRL has its own sintering plant at KARUPPUR. coke oven. With technical know –how from KUROSAKI refractories company limited (KRC). HISTORY – Major Milestone • • • • • • • • 1958 promoted by TATA Steel. Page88 . It major client are integrated mini & other steel plant & various non-ferrous.TATA REFRACTORIES LIMITED Tata Refractories limited is one of India most modern plants. burnt mag-dole bricks with & without tar imprenation. 49. was promoted as joint Venture of TATA STEEL & DIDIER WERKEA. TRL also extends technical services to its customers 7 helps in designing & application of refractories. TRL is now producing improved variety of magnesia carbon bricks. TAMILNADU. basic gunning mixes. The production activities extended to Jamshedpur & Chennai to meet customer requirements.

credibility. It has adopted TBEM (TATA Business Excellence Model) since last seven year and has been recognized for “serious adoption” in 2003-04 and for active promotion 2004-05 for ethical business practices. VISION A Global Refractories Company. Continuous improvement. dedicate ourselves to Total Quality. We are committed to enhance customer satisfaction on a continuous basis through implementation of an effective Quality Management System. MISSION TATA Refractories shall be a high performance and technology driven organization committed to create value for all its stakeholders.LEADERSHIP WITH TRUST TRL is the first associate company of the TATA group to sign BEBP (Business Excellence Branch Promotion) agreement with TATA sons and has been authorized to use the new TATA market. VALUES • • • • • Customer delight Leadership by example Integrity and transparency Fairness Furthering excellence QUALITY POLICY We. consistency and concern shall be our guiding values. Page88 . at TATA Refractories. it flows TATA code of conduct and encourages all its stakeholders.

JAPAN. A. kilns. • • • • • M/S KROSAKI REFRACTORIES.S. copper.P. providing running maintainces of customers’ equipment such as ladles. aluminum.A. Furnaces etc. GREEN U. NORWAY MAJOR PRODUCTS • • • • • • Basic bricks High Alumina bricks Silica bricks Dolomite bricks Monolithic refractories Flow control products. Total refractories management i. M/S DOLOMIT WERKE. glass etc. ELKEM. Page88 . MAJOR SERVICES • • Total refractories solution for equipment for making steel. GERMANY M/S STOPINC SWITZERLAND.e.FOREIGN COLLABORATIONS Various organizations have made collaborations with TRL viz. GMBH.

Opportunity: • • • • Cost control. Increased profit Threats: • • • • • Global challenges: Large refractory manufacturers such as RHI have now targeted. TRL provides “Total Refractory Solutions” (TRS) Technical collaboration with global alliances.SACMI for pressing of products.SWOT ANALYSIS Strength: • • • • • • • • Tata brand image & code of conduct. Low yield. Suppliers: In highly competitive environment & ever increasing customer expectations. Page88 . Weakness: • • • • Lack of profitable investment. High cost of production. Customer: Customers of refractories product generally belongs to large industrial organization therefore have strong negotiating position. Business challenge: Existence of large number of small refractories in the unorganized sectors operating at 40-50% capacity utilization. Implementation of ERP system (Baan). Quality product. Team TRL. Over stocking of assets. Indian refractories market. Increased efficiency. Implementation of TQM. Set up of high tech machinery ex. New packaging solution.

• • Key challenge is to meet the need of continuous cost reduction demand through efficient supply chain management. Here we are discussing about the main competitors of TRL. Environment: Intrinsic nature of raw material & manner of their processing result in air pollution. .T of specialty product per month as INDO FLOGATES are presently taking from OAL. They are approaching MSP & TISCO for supply specialty product. OCL is capturing order of the mini steel plant for well blocks in LCC 90 quality & feedback report form mini steel plant is very good. Page88   ACC CEMENT – It has turnover for the year was 179 crore.  ORISSA CEMENT – It has the turnover of 200 crore & the export worth RS 25 crore. the slide plates. high dust content water contamination. the Refractories market also has a competition. BHARAT REFRACTORIES – BRL as around 125 M. Along with other competitors. COMPETITORS OF TRL: As other fields have competitions. Presently they are trying to establish the production & quality of ladle tundish shrouds. acc is also making his presences in domestic market.

SRILANKA. Page88 . It has already set up many of the potential outsider’s customer in AUSTRALIA. In future this company may become the world number 1 Refractories company. In spite of all these competition TRL is the leading company in the field of Refractories within country & now trying already to expand its wing in the international market also. BHUTAN. As they available to supply basic bricks at a very low price in view of raw material availability & freight advantages they have already get the order from NAT STEEL (Singapore) & PT ISPAT (INDONESIA) for the magnesia is carbon for supply from there china plant.  IFGL REFRACTORIES VISHUVYAS REFRACTORIES. POTENTIAL THREAT: TRL competitors M/S oil operating from china is a major threat in the Southeast Asia & the Far East.

production was affected for four days due to lighting strikes called by an unruly group of workmen protesting suspension/termination of workmen guilty of gross misconduct. Page88 . an increase of 21% company to that of previous year. Fifthly. This has adversely effected production and profitability of the company. imports of critical raw materials from China have become extremely difficult not only due to exorbitant price increases but also because of export restrictions imposed by the Chinese government. 2 fired dolomite Refractories producer in the world. For the year 2007-08 the revenues of the company. soaring energy prices are negatively impacting the profitability. not only Silica bricks production had to be stopped for about four months. The consolidated revenues of the company along with those of TRL China were Rs.FINANCIAL OVERVIEW OF TRL During year 2007-2008 the company encountered innumerable challenges. Firstly. establishing an all time record. 610 Crores. The company achieved the highest ever export turn over of Rs. 68 Crores. innovation capabilities professional competence.e. there by the company continued to retain its leadership position in the Indian Refractories Industry. financial stability and above all determination of employees to face adverse situations with full commitment. The company continues to be the No. Thirdly. appreciation of Rupee against Dollar had a serious impact on export performance and profitability. Secondary. This was possible because of the inherent strengths of the company in aspects such as technological advancement. In India the company is the commercial producer of dolomite Refractories and has a market share of over 90%. due to closer of all gas producers and Silica tunnel Kiln on account of pollution problem.at Rs 587 Crores on stand alone basis-were higher by Rs 66 Crores compared to previous year. sales and revenues. a new milestone in the 50-year history of the company. i. Despite the above adverse situations the company has achieve highest ever performance in terms of production. Fourthly. excess energy costs had also to be incurred due to substitution of gas by oil.

In 2007-08 the company reached new milestones surpassing all previous records of production, sales revenues and exports. The total revenues of the company at Rs. 587 Crores are the highest in its history. The consolidated revenues of the company along with its subsidiary, TRL china limited, breached the Rs. 600 Crores mark to reach Rs. 610 Crores the company retained its position as the no. 1 Refractories manufacturer in India in terms of revenues. Overall sales volume at 2, 56,414 t. of previous year. The production during the year at 2,13,427 t. against 2, 03,234 t. of previous year, was higher by 5%. Prices of raw materials and energy continued to climb steeply during the year. Interest costs have also risen because of higher rates as well as increased borrowings for meeting working capital requirements. Profit before taxes for the year is Rs. 37 Crores against Rs. 31 Crores in the previous year (an increase of 19%) and profit after taxes is Rs. 19 Crores last year (an increase of 16%).

Driven by the capital flows in the system, the Indian rupees appreciated by 13.25 against the U.S dollar in T-O-Y basis as on December, 2007 thus adversely affecting India’s exports. Despite this adverse condition the company has achieved the highest ever exports of Rs. 68 Crores compared to Rs. 56 Crores of the previous year; an increase of 21% . at present the company is exporting to more than 30 countries, our exports account for over 23% of the total Refractories exported from India, and 12% of company’s total turnover comes from exports. The company has taken several measures to strengthen its presence in international markets.

Subsidiary companies
The company has two subsidiary companies viz. TRL Asia Private Limited (special Purpose vehicles and TRL China Limited, a 100% subsidiary of TRL Asia Private Limited is 88%. TRL China started commercial operations from 28 th December 2006. TRL China has earned a profit during the first full year of its operation itself. It has achieved a turn-over of Rs.67 Crores and PBT of Rs.0.63 Crores. Profitability of TRL China has been, however, seriously affected due to withdrawal of VAT benefits by the Chinese government as well as by the strengthening of Chinese currency (RMB) against the dollar. In order to meet market demands, TRL China is undertaking the phase-II expansion of its production facilities at an estimated capital expenditure of Rs. 14.95 Crores. The funds required for phase-II expansion shall be raised by TRL China Limited itself through loans and internal generations.


Form for disclosure of particulars with respect to Technology Absorption
Research & Development 1. Specific areas in which R & D work was carried out by the company. New product development, quality improvement of existing products, process improvement for higher yields, higher productivity, reduction in raw material costs and exploration of new sources of raw materials 2. Benefits derived as a result of the R & D programmers. • • Savings through redesign of products and processes (Raw materials cost, yield etc.). Sales through new and modified products.

3. Future plan of action In the coming year, the Technology Division plans to focus on• Microwave heating of Refractories. • • • • • Synthetic raw materials Plant waste reduction and value added utilization. Use of non oxides and nano materials in Refractories. High performance constables and precast products. Chrome free Refractories for replacing Mag-chorome bricks.

4. Expenditure on R & D a) Capital b) Recurring c) Total d) Total R & D expenditure

: : :

Rs. 63.09 Lakhs Rs. 129.75 Lakhs Rs.192.84 Lakhs

as a percentage of total turnover



Foreign Exchange Earnings and Outgo
Total foreign exchange used and earned: Foreign Exchange used Foreign Exchange earned Rs. 98 Crores. Rs. 69 Crores.



03.15 6.27. One is time and another is money. As a consequence it will reduce the cost of bank interest. 6 10. Another difference is a large amount of working capital strengthen firm’s liquidity position but at the same time it also reduces the over all profitability .41.65.258 63. the business will generate more cash or it will need to borrow less money to found working capital.04 2 11. of four accounting years.40.67. Current asset can be adjusted with sales fluctuations in the short run.INTRODUCTION Working capital is the life blood and every manager’s primary task is to help to keep it managing. 11.e.61.200 Current Assets 8 7 a) Stores and Spare Parts (at 8.27. In other words working capital is the current asset the management of which is different from fixed asset. in capital budgeting is not required in WCM.44.9 56 78.5 34 9.03. Good management of working capital generate cash and helps to improves profits and reduce risk.75.27 Assets As on 31. When it comes managing working time of money.3 Trade 81 68 d) Sundry 109.22. There are two concepts of working capital—ggross working capital and Net working capital. and stocks.200 5 4. For example the discounting and compounding techniques. 3.0 22 66.38. Thus the firm has a greater degree of flexibility in managing current or working capital. 103.69.13. short term securities.84 As on A Glance At TRL's Current As on As on 31. Current assets are the assets which can be converted in to cash within an accounting year and include cash. debtors.508 63.47.68 cost) 4 4 b) Loose Tools 18.42.815 c) Stock-in 85.6 86 3. if M/S TRL can get money to move faster around the cycle or reduce the amount of money tied up.200 31.200 6 4. CONCEPT OF WORKING CAPITAL Each components of working capital has two dimensions. Gross Working Capital refers to the firm’s investment in current assets.53.03. Debtors 154 010 e) Cash and 6. The table below shows the gross working capital of TRL from 2005 to 2008 i.91.67 Page88 . 1.

76.153 31.532 8.2008 31.82. bills payables.296 678. 3.91.511 e) Cash and Bank Balances 6.001 10.700 96.30.894 10.581 63.368 d) Sundry Debtors 109.2005 Current Assets 31.27.308 1.02.022 58.240.791 c) Advances received from customers 10. TRL 2.35.991 d) Interst accrued but not due 1.276 Total Current Assets 2.826.695 14.03.508 11.679 Total Current Liabilities 85.543 67.042 6.686 Current liabilities those claims of outsiders which are expected to matured for payment within an accounting year and include creditor. 56.30.398 A positive net working capital will arise when current assets exceeds current liabilities.154 78.67.757 89.90.413 2.097.252 64.39.47.Bank Balances Total Current Assets 2 0 14929413 14419547 08 76 Sources: Annual Report.760 a) Stores and Spare Parts (at cost) 8.307.02.467 62. of four accounting years.344 1.201 Page88 NET WORKING CAPITAL(Net Current Assets) 4.46.815 c) Stock-in Trade 85.441.684 b) Loose Tools 18.460 12.61.82. and outstanding expanses.17.376.492.946 913. .75.47.534 103.03. 5 20978263 44 6 17230931 53 The table below shows the net working capital of TRL from 2005 to 2008 i.35.21.723. Net Working Capital refers to the difference between current assets and current liabilities.956 63.258 11. Net working capital can be positive or negative.44.610 822. A GALANCE AT TRL'S NET WORKING CAPITAL As on As on As on As on 31.532 b) Sundry Creditors 66.53.902 64.04.e.92.452 11.842 e) Other Liabilities 3.689.64.85.154 Current liabilities a) Acceptances 6.94.47. Negative net working capital occurs when current liabilities are in excess of current assets.624

There is always an operating cycle involved in the conversion of sales into cash. Page88 . The firm has to invest enough funds in current assets for generating sales. Manufacture of the product which includes conversion of raw material into work-in-progress in to finished goods. and fuel etc. TRL OPERATING CYCLE The need for working capital to run the day to day to day business activities cannot be over emphasized. into cash. A credit sale creates accounts receivable for collection. power. Sale of the product either for cash or credit.Sources: Annual Report. The operating cycle of TRL includes three phases:    Acquisition of resources. Current assets are needed because sales don’t convert in to cash instantaneously. after the conversion of resources into inventories. such as raw materials. labour. Operating cycle is the time duration required to convert sales.

Page88 . The difference between gross operating cycle and payable deferral period is net operating cycle (NOC). work-in-progress conversion period. which the firm can differ. The total of inventory conversion period and debtors conversion period is refers to as gross operating cycle (GOC). TRL may also acquire resources on credit and temporarily postponed payment of certain expenses. Typically it includes. stores and spares conversions period. and finished goods conversion period. fuel conversion period. raw material conversion period. The debtor conversion period is the time required to collect the outstanding amount from the customer.The above cycle is the TRL’s operating cycle which shows different stages of conversion of raw materials into cash. The creditor’s deferral period (CDP) is the length of time the firm is able to differ payments on various resource purchases. Payables. The inventory conversion period is the total time taken for producing and selling the product. are spontaneous sources of capital to finance investment in current assets. The length of the operating cycle of TRL is the sum of inventory conversion period and debtor conversion period.

03. -6.67 ( 70 DAYS ) 24.We had calculated the raw material conversion period.2 006 109.00 ( 59 DAYS ) 13.2 Page88 WIP 15 DAYS COST OF PROD.80 ( 45 DAYS ) 20.03 ( 15 DAYS ) RAW MATERIAL 45 DAYS OF CONSMN.47 ( 11 DAYS ) -4.56 . work-in-progress conversion period and finished goods conversion periods.44 ( 68 DAYS ) 32. debtors conversion period. Crores ACTUAL AS ON DIFF. WORKING CAPITAL AS ON 31.03. and net working capital of TRL for five years from the dates available by the annual report and the other sources as given by our guide at TRL. 31. 7. creditor conversion period.23 ITEMS NORMS AS PER NORM DEBTORS 70 DAYS OF SALES 113.2008 Rs.

15 FINISHED GOODS 30 DAYS COST OF PROD.29 12.STORES & SPARES 120 DAYS OF CONSMN.9 1 85.10 ( 45 DAYS ) 25.66 ( 27 DAYS ) 46. 1.00 -5 45 DAYS. COST OF PROD.87 5.D.00 12. 2.2007 Page88 ITEMS NORMS AS PER NORM Rs.2 .59 249.01 ( 66 DAYS ) 25.03.85 ( 30 DAYS ) 46.52 (120 DAYS ) 2. Not due within one year TOTAL CURRENT LIAB.56 (23 DAYS ) 39.48 98.39 169. 31.87 2.19 OTHERS TOTAL CURRENT ASSETS CREDITORS ( OPERATION ) ACTUAL 0. Crores ACTUAL DIFF AS ON . NETWORKING CAPITAL ACTUAL 0. -5. PLUS E. 60.9 1 17.15 (246 DAYS ) 3.03.29 73.59 254.41 ( 15 DAYS ) 44.63 FUEL 15 DAYS OF CONSMN.91 OTHER CREDITORS & PROVISIONS Incl.3 151.57 WORKING CAPITAL AS ON 31.

68 (21 DAYS ) 17.63 WIP 15 DAYS COST OF PROD.6 STORES & SPARES 90 DAYS OF CONSMN.75 ( 73 DAYS ) 19. PLUS E.85 14. 2.00 201.96 ( 15 DAYS ) 103. -3.0 3 45 DAYS.08 ( 30 DAYS ) 37.3 FUEL 15 DAYS OF CONSMN.69 OTHER CREDITORS & PROVISIONS ACTUAL 0.01 ( 56 DAYS ) 17.5 6 OTHERS TOTAL CURRENT ASSETS CREDITORS ( OPERATION ) ACTUAL 0. 1.12 12. .82 (137 DAYS) 2.00 4.73 25. 40.72 FINISHED GOODS 30 DAYS COST OF PROD.00 Page88 .006 DEBTORS 60 DAYS OF SALES 86.02 ( 35 DAYS ) 14.69 65.98 ( 45 DAYS ) 17.39 ( 30 DAYS ) 17.00 205.52 ( 90 DAYS ) 1. 52.66 ( 15 DAYS ) 2.12 ( 60 DAYS ) 16.D.52 ( 18 DAYS ) 37.06 ( 12 DAYS ) 3. COST OF PROD.6 3 RAW MATERIAL 30 DAYS OF CONSMN.

2 006 78. NETWORKING CAPITAL 70. -0.42 ( 66 DAYS ) 1.61 ( 60 DAYS ) 22.67 131.03.05 (10 DAYS ) DIFF .Incl.91 WORKING CAPITAL AS ON 31.27 ( 51 DAYS ) 15.24 FUEL 15 DAYS OF CONSMN.06 82.97 STORES & SPARES 90 DAYS OF CONSMN.66 ( 90 DAYS ) 1.30 ( 45 DAYS ) 14.57 ( 15 DAYS ) 2. ITEMS NORMS DEBTORS 70 DAYS OF SALES 75.2006 Rs.97 WIP 15 DAYS COST OF PROD. Not due within one year TOTAL CURRENT LIAB.52 RAW MATERIAL 35 DAYS OF CONSMN. AS PER NORM Crores ACTUAL AS ON 31. -1.39 ( 16 DAYS ) 3. 0.7 123.42 ( 15 DAYS ) 4.52 Page88 .15 12.03. 2.0 3 7.13 ( 62 DAYS ) 25.

1 6 16.67 ( 61 DAYS ) 1.1 6 45 DAYS COST OF PROD.53 OTHERS TOTAL CURRENT ASSETS CREDITORS ( OPERATION ) ACTUAL 0.90 117.09 ( 30 DAYS ) 84.2 .91 WORKING CAPITAL AS ON 31. 006 66.03.57 ( 60 DAYS ) .18 129. 24.10 Page88 ITEMS NORMS AS PER NORM DEBTORS 70 DAYS OF SALES 65.99 0. NETWORKING CAPITAL ACTUAL 53.43 227. ( 45 DAYS ) OTHER CREDITORS & PROVISIONS Incl. Crores ACTUAL AS ON DIFF 31.FINISHED GOODS 30 DAYS COST OF PROD.25 63.D.34 112.17 20.35 ( 66 DAYS ) 53.19 22. PLUS E.00 20.99 -1.08 43.43 230.56 ( 24 DAYS ) 84.03.9 9 97.00 3.2005 Rs. Not due within one year TOTAL CURRENT LIAB.

19.D.4 81.09 Page88 .48 ( 45 DAYS ) 9.5 0 27.31 ( 70 DAYS ) 14.95 37.37 93.28 ( 24 DAYS ) 50.RAW MATERIAL 35 DAYS OF CONSMN. Not due within one year TOTAL CURRENT LIAB.32 STORES & SPARES 90 DAYS OF CONSMN.81 OTHERS TOTAL CURRENT ASSETS CREDITORS ( OPERATION ) ACTUAL 0.34 0.53 185.34 -4.13 ( 15 DAYS ) 24.9 9 45 DAYS COST OF PROD.49 FUEL 15 DAYS OF CONSMN.07 ( 18 DAYS ) 3.45 65.75 ( 15 DAYS ) 4.91 ( 80 DAYS ) 0.00 10. NETWORKING CAPITAL ACTUAL 44.58 109. 19. -0.40 ( 90 DAYS ) 1.36 76. ( 45 DAYS ) OTHER CREDITORS & PROVISIONS Incl.45 FINISHED GOODS 30 DAYS COST OF PROD.00 27.53 174.9 9 17. PLUS E. -0. 4.8 3 WIP 15 DAYS COST OF PROD.03 30.68 (9 DAYS ) 10.02 ( 79 DAYS ) 44.09 ( 30 DAYS ) 50.

2004 Rs.00 ( 15 DAYS ) 22.08 FINISHED GOODS 30 DAYS COST OF PROD.4 3 ITEMS NORMS AS PER NORM DEBTORS 70 DAYS OF SALES 60.D.42 ( 27 DAYS ) RAW MATERIAL 35 DAYS OF CONSMN. 006 10.64 ( 18 DAYS ) 3.82 ( 58 DAYS ) 23. 11.89 STORES & SPARES 90 DAYS OF CONSMN.59 FUEL 15 DAYS OF CONSMN.92 (14 DAYS ) 20.75 ( 15 DAYS ) 4. 1. Crores ACTUAL AS ON DIFF 31.26 ( 90 DAYS ) 1.03.19 ( 35 DAYS ) 9. -0.97 ( 68 DAYS ) 11. -0.03.9 WORKING CAPITAL AS ON 31.67 ( 78 DAYS ) 0.25 ( 70 DAYS ) 12.7 8 WIP 15 DAYS COST OF PROD.2 .20 Page88 . -2.62 ( 30 DAYS ) 49. PLUS E.

44 OTHER CREDITORS & PROVISIONS Incl. Not due within one year TOTAL CURRENT LIAB.01 135.45 0. Page88 .25 ( 45 DAYS ) 30.3 6 45 DAYS COST OF PROD.44 40.3 6 10.69 75.01 135.37 11.61 ( 62 DAYS ) 30.05 64.OTHERS TOTAL CURRENT ASSETS CREDITORS ( OPERATION ) ACTUAL 25.08 25.00 11. 29. NETWORKING CAPITAL ACTUAL 0.39 71. Investment in current asset represents a very significant portion of the total investment in assets.9 9 59. It is necessary to determine the level and composition of current assets and then see the right sources to finance the current asset and pay the current liability on time.40 Determinants of working capital of TRL • • • • • Seasonality of operation Market conditions Present position of Refractories market Condition of supply Nature business ISSUES IN WORKING CAPITAL MANAGEMENT Working capital management is the administration of all components of working capital.00 0.

TRL’s sales for five years are shown below. These figures are shown below in table and graph.60 1723093153 5 % 2005-2006 462303631 32.30 1492941308 7 % 2004-2005 369276926 39. As the firm’s out put and sales increases.Current Assets in proportion to Total Assets Year Current Total Assets Assets Ratios 2007-2008 540423279 38. The amount of current asset in relation to current asset in not a function of direct proportionality. the need for current asset increases.04 1441954776 4 % 2003-2004 298477162 37. TRL There is a direct relationship between an firm’s growth and its working capital needs.82 2097826344 7 % 2006-2007 497933752 34. Page88 . As sales grow company needs to invest more in inventories and debtors. but current asset don’t increase in direct proportion to output.74 1126367562 6 % Sources: Annual Report.

81 Sources: Annual Report.05 1723093153 1492941308 1441954776 1126367562 Ratio 2. while an aggressive policy indicates higher risk and poor liquidity.59.75.293 400.Year 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004 Current asset Turnover Ratio Sales Current Assets 584.088 2097826344 516.78 2.24.   A higher CA/FA – indicates a conservative current asset policy. .54. A lower CA/FA – indicates a aggressive current asset policy.07. Page88 A conservative policy implies greater liquidity and lower risk. TRL Current Asset to Fixed Asset Ratio: The level of current asset can be measured by relating to current asset by fixed assets.44.79 3 3.76.306 317.869 455.23. Moderate current asset policy fall in the middle of conservative and aggressive policy.

it is clears that TRL adopts moderate current asset policy.00.72886 Sources: Annual Report.82391 135. TRL Interpretation: By seeing the increasing and decreasing trend of investment in current asset as compared to investment in fixed assets.2 325.CURRENT ASSETS FINANCING POLICY Current Fixed Years Assets Assets CA/FA 249.0 2005-06 05 09 230.4 2007-08 31 53 0.44.64. Page88 .90. In other words it pays more attention towards profitability and liquidity.50.73558 185.3 2006-07 34 72 0.5 2004-05 92 88 0.08.75526 254.8 330.24. Aim of working capital management   Measuring Profitability. Measuring Solvency. 225.0 2003-04 43 64 0.04.9 313.

Methodology used for working capital analysis
i) Liquidity Ratios – Liquidity ratios measure the ability of the firm to meet its current obligations (liabilities). In fact, analysis of liquidity needs the preparation of cash budget and cash fund flow statement; but liquidity ratios, by establishing a relationship between cash and other current assets to current obligations, provide a quick measure of liquidity.

Ratios Current Ratio Quick Ratio Cash Ratio Interval Measure

LIQUID RATIOS 20072006200508 07 06 2.446 2.128 2.227 2.35 2.04 2.16 0.076 0.042 0.052 155.474 139.59 142.741

200405 2003-04 1.888 2.082 1.83 2.71 0.1215 0.055 159.8 155.57

Sources: Annual Report, TRL

ii) Activity Ratios – Funds of creditors and owners are invested in various assets to generate sales and profits. The better the management of assets the larger the amount the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are also called turnover ratios because they indicate the speed with which assts are being converted or turned over into sales. Activity ratio, thus, involve a relationship between sales and assets. A proper balance between sales and assets generally reflects that assets are managed well. Several activity ratios can be calculated to judge the effectiveness of asset utilization.

Ratios Inventory Turnover Ratio


ACTIVITY RATIO 2007200608 07 5.623 7.168

200506 5.498

200405 4.764

200304 4.431

Debtors Turnover Ratio Net Asset Turnover Ratio Current Asset Ratio Working Capital Turnover Ratio Report, TRL

5.341 1.673 2.787 4.713

4.98 1.554 2.99 5.658

5.832 1.512 3.052

6.007 2.155 2.778

6.364 2.209 2.815

5.539 5.904 5.416 Sources: Annual





  A firm’s investment in accounts receivables depends on volume of credit sales and collection periods. Page88 . The customer from whom receivable or book debt have to be collected in the future are called trade debtors or simply as debtors and represents the firm’s claim or asset. This necessitates the firm to get funds from banks or other sources. it needs careful analysis and proper management. Trade credit creates accounts receivable or trade debtors that the firm is expected to collect in the near future. As substantial amounts are tied-up in trade debtors. Basically trade debtors. the economic value in goods or services passes immediately at the time of sale. Cash sales are riskless.  It involves an element of risk that should be carefully analyzed. but not the credit sales as the cash payments are yet to be received. thus trade debtors represent investment. Due to which debtors are arises in the firm. It implies futurity. Trade credit arises when a firm sales it products or services on credit and doesn’t receive cash immediately. while the seller expects an equivalent value to be received later on. A credit sale has three characteristics. It is based on economic value. The interval between the date of sale and the date of payment has to be financed out of working capital. They form about one third of current asset in India. so this arise receivable management. The buyer will make the cash payment for goods or services received by him in a future period. are the major component of current assets. after inventories. Granting credit and creating debtors amounts to the blocking of the firm’s fund.INTRODUCTION A firm grants trade credit to protect it sales from the competitors and to attract the potential customers to buy its product at favorable terms. To the buyer. Debtors constitute a substantial portion of current asset of several firms.

80.13. TRL Interpretation: If we evaluate the gross current asset of TRL we can very well observe that about 49% of it is represented by debtors in the financial 7year 20062007.5 34 49.44.75. So it is also essential to find out the collection period to know the system of collection on time. A firm’s investment in accounts receivable depends on the volume of credit sales and the collection period.e.60% 33. 831 209. which are Rs 102.67. 543 RATIOS 43. YEARS 20072008 20062007 20052006 20042005 20032004 DEBTORS 109.27. 010 78.19.95% 36. 916 185.45.507 corers more than its norms.83% 49.90. It is finding by the following formula i.40. 154 103. TRL has properly analyzed in details how exactly debtors are managed here.19.16.Percentage of debtors over current asset of TRL for five years is shown below in the form of table and graph.94% 35. 916 Sources: Annual Report.6 86 66.44.4 90 CURRENT ASSETS 249. As debtors plays a vital role in working capital management.57. 292 135.17. However it may be observed that in subsequent years TRL has reduced the gap and brought the debtors position at par level of norms.41.72. Page88 .

27. 869 455.44.282 days 61.67.5 34 49.57 days So in above table the average collection period i.44.723 days 59. 228 ACP 67.75.40. YEARS 20072008 20062007 20052006 20042005 20032004 DEBTORS 109.23.75. 154 103. 306 317.4 90 CREDIT SALES 584.13. the higher the firm’s investment in account receivable.82. It measures the number of days for which credit sales remains outstanding.07.398 days 72.Average collection period (ACP) = Debtors/Credit Sales x 360 It also helps to find the firm’s average investment in account receivable.57.e. ACP determines the speed of payment by customers. Page88 .41. Average collection period of TRL for five years is shown below in the form of table and graph.70. The longer the ACP.926 days 56.24.59. 088 516.6 86 66.21. 293 400.76.54. 010 78.61.

ASPECTS OF CREDIT MANAGEMENT 1. 30 days credit.Sources: Annual Report. Terms of payment      100% advance. TRL Interpretation : So here we are seeing that in financial year 2006-2007 the average collection period is very high that means TRL’s investment in account receivable is also higher. The task force is mostly set to identify the loc mina in the system of collection on time and also given more attention for collecting the old dues.TRL gives credit according to the past history and past experience of the customer.TRL has setup a task force comprising of members from marketing and finance department. Letter of credit. Payment on the basis of performance 2. 60 days credit. Credit policy variables  Credit standard: It is the criteria which a firm follows in selecting customers for the purpose of credit extension. Cash discount: The discount rate is 3% on list price if it is paid on advance. Credit period: The credit period given by TRL is generally 60 days.   Page88 .

Control of accounts receivables TRL has set up a task force comprising of members from marketing and finance department.58. (Basic and Dolomite. so it calls for assessing prospective customers in terms of four “C. condition and collateral.5 24 20032004 1.14 2 20052006 29.e. In TRL collection effort is done by the marketing 3. TRL has categories it’s customers in three categories:    Red. The task force is mostly set to identify the loc mina in the system of collection on time and also given more attention for collecting the old dues. Green.It indicates financially strong customers. In TRL the basically there is no thumb rule for credit granting decision. Alumina and Silica. it has to decide weather or not credit should be granted. 5.6 05 Page88 . Collection effort: department. high risk customers.78.83.25 5 20042005 1.56. capacity. 4. All decisions related to credit granting is taken by the heads of three profit centre i.58.66. Default risk is the likelihood that a customer will fail to repay the credit obligation. joint MD and MD.01.14 2 20062007 29. Character. Credit evaluation of customer TRL adopt traditional credit analysis. Yellow.It indicates customers with moderate health and risk. 6. Credit-granting decision Once the firm has assessed the creditworthiness of a customer. YEAR CONSIDER ED DOUBTFUL 20072008 12.It indicates financially very weak. Measures commonly employed for studying bad debt losses ratios. Default rate can be measured in terms of bad losses ratios indicates default risk. Monolithic and Flow control).

Letter of Credit Payment(L/C) A letter of credit (LC) is a Bank Instrument that is issued to protect the beneficiary in a commercial transaction. Advance Payment It is the payment received in advance before delivering the goods or services to the customer. In other words TRL usually take advance payment from their Red customers and sometimes from yellow customers. Contents of LC:    Terms Conditions Procedures Parties of LC: There are five parties to the letter of credit  Issuer  Applicant  Beneficiary  Advising bank  Confirming Bank Page88 . Mode of Payments by Debtors The debtors pay to TRL in the form of: 1. Technically a letter of credit is not a guarantee although it does guarantee payment of an obligation to a beneficiary. TRL So while seeing on the above table we can conclude that TRL has taken some major steps to control doubtful debts.Sources: Annual Report. 2. Advance Payments are usually made by small customers or for short term.

win situation for both the parties. Payment on the basis of performance: For customers like Integrated Steel Plants (ISP) TRL collect the money from them on the basis of performance of the product. 80% of payment during the performance of the product and another 10% of payment after customer satisfaction. Belpahar. Credit Payment Of 30 days and 60 days: Steel plants are the major customers of the company and they have generally makes the payment for the credit allowed to them in 30 days. 4. The Aging Schedule of TRL for the financial year 2006-2007 has been shown below. 10% of payment at the time of delivering the product. A slab has been made by TRL which shows the payment procedure. TRL uses Aging Schedule method for evaluating the management of receivables. Aging Schedule provides more information about the collection experience. ii) MONITORING RECEIVABLES A firm needs continuously monitoring and controlling its receivables to ensure the success of collection effort. For Other customers the credit payment is 30 days or 60 days. for that bank guarantees. It breakdown the receivables according to the length of time for which they have been outstanding. Guarantee of the product performance is supported by the help of R&D’s approval certificate with bank guarantee certificate. Page88 . Other modes of payment by debtor i) Postdated cheques: many customers of TRL in northern region prefer to make this mode of payment. It helps to spot out the slow paying debtors. 3.TRL takes postdated cheques with Bank guarantee certificate.Basically LC is win. TRL uses SBI Commercial Branch. which is issued by SBI Samada. Rourkela as an issuer bank for letter of credit. Aging Schedule shows the outstanding amount with a limited credit period which is remains uncollected that period.

72 49.53 244.96 2.00 0.98 2.04 137.00 0.71 21.93 55.51 14.00 0.00 0.00 Bills more than 24 mths 0.28 0. LTD BHARAT ALUMINIUM COMPANY LIMIT BHARAT HEAVY ELECTRICALS LIMIT BHAWANI INDUSTRIES LTD BHUSHAN POWER & STEEL LIMITED BHUSHAN STEEL & STRIPS LTD.00 0.00 0.00 12.63 20.419.37 12..19 0.7 7 2.00 0.ALLOY STEEL PLANT INDIAN IRON & STEEL CO.00 0.00 0.00 3.00 0.64 21.01 0.21 5.00 0.160.00 0.00 65.DEBTORS OUTSTANDING AS ON 31.00 0.00 0.00 0.15 153.89 4.19 12.00 0.2007 (Rupees in Lakhs ) Customer’s code and name D20001 D20002 D20003 D20004 D20005 D20006 D20007 D20009 TATA STEEL LIMITED SAIL .00 0.00 0.05 13.00 0.5 1 233.43 0.69 32.80 13. RASHTRIYA ISPAT NIGAM LTD.00 0.00 0.00 0.00 Page88 .34 34.00 0.04 137.24 755.05 301.96 17.64 0.54 4.40 244.22 0.21 110.76 67.00 0.36 0.00 0.09 328.01 32.00 Bills 9-12 mths 24.33 11.76 41.00 0.806.00 0.27 12.79 0.49 106.00 0.00 0.00 0.66 Bills within 3 months 1.18 10.34 60.00 1.56 54.05 13.00 0.00 3.00 0.81 43.00 0.00 5.38 146.00 Bills 12-24 mths 28.BHILAI STEEL PLANT SAIL-ROURKELA STEEL PLANT SAIL-BOKARO STEEL PLANT SAIL-DURGAPUR STEEL PLANT SAIL .43 12.00 18.57 12.60 43.00 0.35 3.00 0.92 15.00 0.00 0.68 0.75 0.00 0.00 0.03.14 0.00 0.00 0.71 15.36 9. BHUTAN FERRO ALLOYS LTD.76 31.00 0.24 0.658.44 7.49 0.00 0.00 5.00 0.00 90.00 0.74 11.00 0.00 0.35 0.14 0.00 0.00 0.65 0.00 6.91 0.00 0.08 69.32 0.00 0.00 0.51 0.74 13. LTD AIA ENGINEERING LTD AMBICA STEELS LIMITED APEX TRADING AGENCY ARORA REFRACTORIES ASSOCIATED INDUSTRIAL FURNACES BANIAN & BERRY ALLOYS PVT.00 0.35 90.00 0.00 4.00 0.13 0.00 0.02 20.66 Bills 3-6 mths 43.00 0.00 0.00 0.2 2 149.60 0.21 182..41 635.18 248.10 0.00 0.00 0.00 3.60 15.00 0.38 0.57 35.00 0.00 0.00 12.00 1.96 19.00 6.56 54.25 60.76 0.00 0. LTD.29 468.91 9.01 32. BRIJ LAL PAWAN KUMAR ELETROTHERM (INDIA) LTD ESSAR STEEL LIMITED FACOR STEELS LIMITED GEE ISPAT PVT.00 0.28 174.00 0.06 141.00 99.93 45.00 98.00 0.00 0.00 0.62 53.44 241.00 0.00 0.00 0.60 0.01 0.48 37.05 0.00 0. LTD 10 0 60 0 30 0 20 0 30 0 10 0 40 0 40 0 30 0 10 0 20 0 30 0 30 0 30 0 60 0 60 0 40 0 30 0 10 0 50 0 10 BG 10 0 10 0 10 0 10 0 20 0 10 0 30 0 20 0 Balance 1.18 0.00 0.00 Bills 6-9 mths 51.00 0.70 0.00 0.00 0.00 0.00 0.49 1.72 9.10 348.(RIN Total Tata International Ltd Direct Export D10007 D16041 D15122 D21009 D07244 D10006 D95025 D96009 D07239 D10033 D58005 D07002 D97092 D15120 D15078 D07182 D04003 D05019 D20011 D10003 D10032 AARTI STEELS LIMITED ACTION ISPAT & POWER (P) LTD ADHUNIK METALIKS LTD ADITYA COKE PVT.32 189.84 19.02 23.19 9.31 0.91 18.2 4 45.00 0.08 0.00 6.33 0.08 0.00 0.00 0.13 4.

00 0.00 263.29 0.24 12.00 0.96 11.52 104.00 185.07 19.38 4.00 0.85 15.00 0.51 0.64 3.28 459.00 0.14 428.00 0.65 0.94 3.02 16.00 0.45 5.00 12.23 265.014.00 0.00 0.00 0.03 265.57 11.94 74.37 33.00 0.18 12.00 5.81 33.00 0.00 0.32 0.36 11.06 33.1 0 22.00 0.00 2.00 0.00 0. L OSWAL HYDRAULICS & PNEUMATICS PADMAJA INC Total Grand Total 0 30 0 10 0 10 0 40 0 30 0 40 0 30 0 10 0 30 0 50 0 10 0 60 0 10 0 30 0 20 0 30 0 20 0 10 0 30 0 30 0 30 0 40 0 10 0 40 0 20 0 40 0 40 0 30.00 0.02 5.00 12.00 2.00 0.00 0.00 2.28 19.00 0.00 4.00 3.00 38.00 0.15 0.15 0.75 74.19 0.3 0 0.04 47.46 0.20 0.82 0.06 0.00 0.00 0.00 5. HITECH SERVICES IFGL REFRACTORIES LIMITED INTEGRATED SERVICES ISMT LIMITED ISPAT INDUSTRIES LIMITED JAMSHEDPUR ENGG.12 0.00 1.00 0.00 0.00 0.00 83.94 18.95 54.00 0. inactive asset into a productive asset by selling receivables to a company that specializes in Page88 .00 0.90 0.60 34.65 0.00 0.10 0.00 0.45 1.00 0.00 0.00 83.51 533.03 4.00 0.00 0.016.00 0.00 0.52 116.48 13.04 20.00 0.& MACHINE JAYASWALS NECO LIMITED JHAGADIA COPPER LIMITED JINDAL STAINLESS LIMITED JINDAL STAINLESS LIMITED JINDAL STEEL & POWER LIMITED-U JSW STEEL LIMITED KALYANI CARPENTER SPECIAL STEE LARSEN & TOUBRO LIMITED MAHINDRA UGINE STEEL CO.00 0.56 32.00 0.08 FACTORING Factoring is a popular mechanism of managing.70 29.31 0.00 4.00 0.00 0.00 0.00 306.10 0.00 0.00 0.08 18.00 0.547.94 148.00 0.96 0.00 0.00 0.00 0.00 0.57 11.00 0.00 0.00 0.00 347.127.00 0.00 0.70 33.00 6.00 5.375.06 2.53 0.00 0.35 3.00 0. MARMAGOA STEEL LIMITED MEENA AGENCY PRIVATE LIMITED MODERN STEELS LIMITED MORTEX (INDIA) MUKAND LIMITED NAVEEN TRADERS NEUTRAL GLASS & ALLIED INDS.00 0.01 0.00 0.3 0 8.00 2.00 21.37 33.00 0.4 4 22.53 17.09 1.13 250..22 493.97 38.00 0.30 0.36 11.215.34 0. LTD.00 3.00 0.5 4 30. financing and collecting receivables by companies.94 0.34 0.64 433.00 73.43 0.5 3 6.00 46.81 41.00 188.41 0.00 0.53 24.08 239.64 96.00 0.00 0.77 283.69 0.D07243 D10008 D50001 D16003 D96001 D95020 D15005 D20012 D07014 D07175 D50007 D10031 D10001 D15017 D20010 D15018 D97008 D15023 D15024 D27001 D15027 D95001 D15028 D96066 D65009 D95030 D95006 GLOBAL HITECH INDUSTRIES LIMIT HARYANA STEEL & ALLOYS LIMITED HINDALCO INDUSTRIES LTD.00 0.00 10.28 23.00 0.00 0.00 0.14 2.00 0.00 0.75 22.00 0.It is a method of converting a non-productive.00 0.94 15.12 0.05 38.02 31.11 17.60 26.17 0.33 96.00 0.00 0.93 0.

Types of factoring done by TRL: . Page88 . the TRL will have to refund the money. The factor maintains the sales ledger and accounts and prepares age wise reports of outstanding book debts. Basically this facility is only given to green customers. Jamshedpur. The factor (bank) which gives service to TRL for bills discounting facility is HSBC. assuming 100% credit risk.  Non-Recourse: Under this method book debts are purchased by the factor. In this customer are required to make payment directly to the factor. If the factor (Bank) has advance funds against book debts on which a customer subsequently defaults.their collection and administration. In other words it means getting the money before due date (selling bills receivables to bank) The factor is the financial institution that purchases the client’s accounts receivable and in relation thereto. The company is protected against the bad debt. TRL only gives this facility to its holding company which is Tata Steel. Factoring facility is given by TRL only to its green customers.  Recourse: In this method of factoring TRL is not protected against the risk of bad debts. The specimen of factoring of TRL for the financial year 2007-2008 has been shown below.TRL has no indemnity against unsettled or uncollected debts. extended to customers. Bhubaneswar. controls the credit.

Page88 .

Page88 .


max level. In TRL the Baan ERP software system has been implemented. work-in-process and finished goods. Inventory on hold. of month ii) Lead time = Lead for procurement. Economic stock. This makes easier for the control of inventory. For procurement and control of raw material stock the material management department in TRL looks at the following in display item data –       Safety stock. stores and spares. Need for inventory management:    To facilitate smooth production and sales operations.INTRODUCTION Inventory constitutes about 60 percent of current assets of public limited companies. fuel. Allocated inventory. In order to reduce the working capital days TRL has to force on inventory control. The inventories can be in the form of raw materials. min level. To guard against the risk of unpredictable changes in usage rate and delivery time. 1. Higher the fluctuation in either of the parameter larger should be the database that is data to be available for a longer period of time. i) Average monthly consumption= total consumption No. A fundamental requirement for good inventory management is extensive database with respect to monthly consumption and lead time 2. reordering level is used. Page88 . Inventory on order. For inventory control EOQ method. To take advantage of price fluctuations. Inventory on hand.

of consumption during the Q1 quarter month.June Q2.T*std. Q1.December Q4.cost Inventory cost DECISION IN INVENTORY MANAGEMENT  What should be the size of the order for replenishment of stock?  At what level of stocks should the order be placed? Inventory Management Involves: a) Two primary variables:  Monthly consumption(MC) or demand  Lead time from order initiation to stock replenishment.September Q3.April.deviation (AMC) b) Maximum stock level: Max.October. b) Three control points :  Minimum stock level (MSL)  Re-order point(ROP)  Re-order quantity (ROQ) Definition Monthly Consumption (MC) .June.January.S.Level=min S.L+ (LT*AMC) c) Reordering quantity: = 2*AMC*Ord.March Note – The MC for the months of Q2 will be the avg. This is also known as procurement period.Average of monthly consumption of the three months in the previous quarter.65*L. Page88 .The formula used for inventory control is: a) Minimum stock level: MSL 1.

Constant MC and variable LT. Govt.Model 1 is the simplest and model 4 is the most complex. Four different models depending upon.     of inventory management Constant MC and constant lead time (LT).High MC. MC is higher than a days/ shift’s production (Each department to decide this norm for itself. In our case 4 is normally applicable.5MC Low MC item= MC ROP. . Variable MC and variable LT. restrictions.Avg. Factors which are not taken into account in fixing ROP      Sudden/ unanticipated scarcities. FormulasMSL. Varying MC and constant LT.High MC item= . Page88 Note: .High MC item= MC Low MC item= 2MC ITEMS High MC Low MC MSL .In the above formulas lead time has been eliminated for the sake of simplification to that extent there will be some inaccuracy which can mostly be corrected after 3months of experience.) Low MC.5MC MC ROP MC 2MC ROQ MC 3MC Note: . Price changes Obsolescence risk.Where the MC is less than the above norm. Marketing/ strategic considerations.

handling. insurance and taxes. Hence it is rarely make sense to seek 100% protection against stock out. transportation. Re-order point (ROP):   In the real world procurement of material takes time. Note: -These costs should be optimized in order to minimize overall costs. The optimal level of safety stock is usually less than the level of safety stock required less than the level of safety stock required to achieve total protection against stock out.Cost associated with order size: Ordering cost: Requisition. clerical and staff services. inspecting and storing and clerical and staff services. ROP= (ALT*AMC)+minimum stock Where. Hence the order level must be such that the inventory at the time of ordering must be sufficient to meet the need of production during the procurement period. placing of order. they decline as the order size increases. receiving. dm= Standard deviation of monthly consumption. As order size increases.e.(LT). Inventory carrying cost is proportional to the level of inventories carried. Therefore. (SSL). dl= standard deviation of lead time. ALT is the average lead time AMC is the average monthly consumption. Normally a satisfaction level (also called service level of 95% or 99% is selected as the goal.   • Minimum stock level (MSL):    It is also known as safety stock level. Z= (ALT*dm² + AMC² * dl²)½. during lead time. Ordering cost is fixed per order. Formula for MSL is: MSL= Z*F Where. F= “F” factor (service level)   Page88 . I. Carrying cost: warehousing. average inventory holding increases and therefore the carrying cost increases. Carrying cost vary with inventory holding.

1 4 5.07 0. AMC.3 3. st. on Ha nd 10 6 2 3 5 8 10 11 14 MS L val ue 0 0.27 Page88 Descripti on Bearing ball 1211 K Bearing ball 1213 K. and MSL for ten items are given below.03 3346. Those formulas are displayed earlier on the above. AMC and MSL.14 .9 1 1.4 2. 0.02 0. We have taken data from TRL’s ERP software system.TV.06 0. 22 7153.06 0 0 0 0 RO Q Qty .3 6.For example: ALT= 5 dm²= .2 0. Z= (5*.88 0.619 So. ROQ. 324.8 ROP Value 878.07 0 0 MS L 1 2 0 2 4 2 6 RO P Qty 2.42 688.619)½ Z= 6. MSL= 6. 5.32 23.1 1 6.9 13500.92 62.45 0. ROQ.832*1.6 484.832 dl²= 1. We have taken ten items for calculating the above mentioned values.65 0.65 1. Baan ERP uses the formulas for calculating these values.2 8 AM C Val ue 195 6 492 4 595 8 0 389 7 176 258 143 373 LT in da ys 5 5 5 10 5 5 5 5 5 Item 223000 35 223000 40 223000 55 223001 00 223001 60 223002 50 223003 16 223003 20 223003 25 Bearing ball 6203 Bearing ball 6203 ZZ 46 59 0 0 10 10 10.C3 Bearing ball 1318 K Bearing ball 2308 K Bearing ball 60042 RS Bearing ball 6202 ZZ Rat e/ Unit 368 126 2 315 4 675 0 143 5 82 48 Inv.31 0 0.7 4 993.5 5 29.958 F= 1.C Bearing ball 1218 K.88 0.35 0.411 For calculating the ROP.1 2 3831.82 335.51 1.0 4 0 649.0228 AMC²= 29.64(constant) Therefore. val ue 0.2 2 5 2.13 0.04 7 AM C Qty .8 8 0 2.5 11.7 1 2.02 0.0 3 820.36 43.03 0.94 ROQ Value .958*1.3 1 3.64 = 11. On the date 9th July 2008 the ROP.0228 + 29.8 193.

21.707 Current Assets 249.292 135. It is one of the major factors affecting working capital cycle of TRL in order to reduce working capital days TRL has to force on inventory control.13.327% 41.91. We have analyzed the balance sheet of TRL then it can be observe that out of total current assets major amount is inventory.02.  TRL has adopted BaaN ERP software system display item data of all the raw materials forming part of inventory. TRL. dm and dl.80.509 185. Percentage of Inventory over Current Assets Year 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004 Inventory 85. ERP data base.45. Guidance For The Above Table From TRL. The percentage of inventory over current assets is calculated and displaced below in form of table and graph for five years.61.44.72.Sources.831 209. ALT.022 34.956 63.17.018% 27.90.50. Use a two year data base for monthly consumption and lead time for determining AMC.916 230.581 28. Page88 .19.  Recalculate these figures on 1st April and 1st October every year.543 Ratios 34. TRL.30.16.363% Sources: Annual report.368 63.

CHAPTER-6 CASH MANAGEMENT  INTRODUCTION  CASH PLANNING  MANAGING CASH COLLECTIONS AND DISBURSMENTS Page88 . Inventories are stock of the product. company is manufacturing for sale and component that make up the product.Interpretation: Inventory amount to forty percent of current asset investment of TRL. their value also has a tendency to fluctuate.543 67.78. CURRENTASSE TS 201. neither more nor less.72. and marketable securities. Quick Ratio = (Current Assets – Inventories) / Current liabilities) Percentage of Quick assets over current liabilities of TRL for five years is shown below in the form of table and graph. Other assets that are considered relatively liquid and included in quick assets are debtors. Inventories are considered to be less liquid. without contributing anything towards the firm’s profitability. The quick ratio is found out by dividing quick assets by current liabilities.93.398 80.469 144. Cash or fund is the basic input needed to keep the business in a running condition.98.16 1.667 CURRENT LIABILITIES 85.742 139.75.90. Inventories normally require some time for realizing in to cash.24. So to effective cash flow inside and outside the firm there should be effective management of cash.INTRODUCTION Cash is one of the most important current assets of the firm. Cash shortage will disrupt the firm’s manufacturing operations while excessive cash will simply remain idle.190 165. loose tools. The firm should keep sufficient cash. it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm.734 108. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value.97.201 Page88 .35 2.83 2.264 YEAR 20072008 20062007 20052006 20042005 20032004 RATIOS 2. Cash is the most liquid asset.012 76.18. Basically in TRL cash management is known as funds management. 2.59.

doubtful and long duration outstanding debtors.78.012 76.97.695 80.1215 . The Ratio of cash over current liabilities of TRL for five years is shown below in the form of table and graph.052 0. inventories are available to meet current obligations. It should also be noted that inventories are not absolutely non-liquid.47.80. CASH AND BANK 6.18. To a measurable extent.264 0.75.055 Page88 YEAR 20072008 20062007 20052006 20042005 20032004 RATIOS 0.98.Sources: Annual Report. Cash Ratio = (Cash + marketable securities) / current liabilities.47.892 CURRENT LIABILITIES 85. Since we know that cash is the most important liquid asset.19.42.076 0.201 39.52. Although quick ratio is a more penetrating test of liquidity than the current ratio. So here TRL is having high value of quick ratio which tends to shortage of funds if it has slow paying. and cash may be immediately needed to pay operating expenses.543 3.27. a quick ratio of 1 to 1 or more does not necessarily imply sound liquidity position.98. It should be remembered that all debtors may not be liquid. TRL Interpretation: A quick ratio of 1 to 1 is considered to represent a satisfactory current financial condition. so here TRL has to also examine cash ratio and its equivalent to current liability.96.842 9.670 2.042 0.

Cash flow into and out of the firm – In TRL the cash which comes from debtors through the sale of product(Bricks) is the cash inflow and the cash which is paid to creditors for the purchase of raw-materials(Dolomite. Cash flow within the firm – Cash flow within TRL would constitute: a) TRL is paying wages and salary to their employees and labour. Belpahar) and at the time of surplus cash it does not invest in marketable securities until it pays its debts. etc). 2. spares and parts. b) It has made separate department for provident fund (PF) trust. Page88 . Cash management is concerned with the managing of: 1.Sources: Annual Report. machinery etc is the cash outflow. 3. Cash balances held by the firm at a point of time by financing deficit or investing surplus cash – At the time of deficit of cash TRL takes short term loans(STL) from their respective bankers(SBI. Samada and CBI. TRL Interpretation: So here TRL don’t have to be worried about the lack of cash because it’s having a high reserve borrowing power and it also having a credit limit sanctioned from banks and can easily draw cash in future. Silica. c) For the payment of gratuity TRL has tie up with LIC gratuity. d) For super annuation TRL is deducting 15% of basic salary which is deposited with LIC for 55 years after which a monthly pension is given to employee for lifetime.

Cash budget is a summary statement of the firm’s expected cash inflows and outflows over a projected time period. receipt of fixed deposit etc. It gives information on the timing and magnitude of expected cash flows and cash balances over the projected period. short term loan. It helps to anticipate the future cash flows and needs of the firm and reduces the possibility of idle cash balances(which lowers firm’s profitability) and cash deficits(which can cause the firm’s failure). fuel. The forecast may be based on the present operations or the anticipated future operations. In TRL the cash budgeting is done for every month for determining cash requirements if cash flows show extreme fluctuations. export packing credit.CASH PLANNING It’s a technique to plan and control the use of cash. For short term decisions the head of finance department takes his own decision and for long term board of directors (BOD) of TRL takes decision. In TRL the management makes 5 year business plan for future. Taking this into consideration they make cash planning for annual business plan for one year. gratuity. power. bonus. term loan. The cash outflows from the firm are raw materials. The Projected cash Page88 . Cash plans are very crucial in developing the overall operating plans of the firm. Cash Budgeting Cash budget is the most significant device to plan for and control cash receipts and payments. In TRL cash forecasting is done on short term and long term basis. sales tax. The cash inflow includes sales realization. Cash forecasts are needed to prepare cash budgets. interest capital expenditure (CAPEX) etc. if it requires they also make 10 year business plan. repairs. salary and wages. income tax. stores and spares. Cash planning protects the financial condition of the firm by developing a projected cash statement from a forecast of expected cash inflows and outflows for a given period. It is highly advantageous because it helps to determine the net cash inflow or outflow so that at the end it can arrange its funds.

00 2.00 0.20 3.50 0.00 2.05 5.00 5.00 2.73) (21.81) 38.02 5.00 2.52 27.50 6.10 4.26 0.02 5.17) 38.05 2.00 1.00 2.02 2.00 0.00 0.00 0.54) (22.00 0.05 1.95 38.00 2.00 1.20 4.75 6.50 1.68) 38.06 (1.00 5.02 2.00 0.00 (1.45 0.40 1.00 0.00 2.23 59.00 5.81) (21.10 1.68) (29.50 6.25 3.40 1.inflow and cash outflow statement for the financial year 2008-2009 has been prepared by TRL and it has been shown in the below table PARTICULARS IN-FLOW Sales Realization Export Packing Credit Miscellaneous Income Short Term Loan Term Loan Receipt of Fixed Deposits.02 2.11 (21.00 1.00 1.00 20.00 1.50 2.86 0.00 0.10 2.13 2.69 6.14) 38.49) (23.52 28.02 5.95 11.12) 38.00 0.17) (28.50 0.50 2.02 2.71 2.00 97.00 20.40 1.45 2.05 3.50 3.50 1.50 0.00 5.00 2.50 1.D.00 1.00 1.60 0.82 74.50 1.37 (29.50 1.10 15.23 90.20 3.00 93.02 29.12) (13.10 4.00 2.00 1.30 4.15 0.50 3.00 2.14) (23.02 28.00 0.50 1.50 6.00 68.50 20.00 5.02 28.50 6.21) 38.30 Jan 2009 60.00 3.00 0.50 3.50 2.05 0.00 3. Spares and Repairs Power Other Expenses Freight & Forwarding Excise Duty Sales Tax Income Tax Interest Capital Expenditure Repayment of F.95 0.01 (5.20 3.10 0.00 88.66 1.00 0.02 28.40 1.30 2.70 2.20 3.30 4.00 2. Recourse bill discounting TOTAL IN-FLOW OUT-FLOW Raw Materials Fuels Salaries & Wages Gratuity/Superannuation Bonus &Cash reward Stores.06 2.50 0.00 68.00 2.00 0.45 (0.06 0.00 20.00 2.56 0.00 Sep 2008 60.05 0.97) (16.50 6.05 3.00 2.00 5.02 2.40 1.23 65.45 2.10 4.02 5.00 0.00 0.52 28.00 88.02 5.02 5.00 0.30 4.02 5.48) (19.23 95.00 3.60 May 2008 51.25) (13.93) (21.23 65.00 68.23 11.02 2.50 1.23 77.00 2.00 4.35 0.85 (21.83 (28.02 2.25 3.40 1.SBI Repayment of STL Repayment of HSBC Friendly Departure Scheme Dividend Tax TOTAL OUT-FLOW Surplus/(Deficit) for the month Opening Balance Closing Balance Sanctioned Cash Credit Apr 2008 51.00 1.45 2.00 0.10 2.06 Dec 2008 60.52 28.00 20.23 62.40 1.40 1.00 2.00 2.31 (16.13 2.97) 38.00 1.06 0.10 4.50 0.00 6.66 1.02 53.00 July 2008 58.02 2. Repayment of Packing Credit Repayment of TL .00 65.80) (21.20 3.02 2.55 0.00 1.06 Nov 2008 60.00 5.50 20.00 0.00 3.27 (7.00 1.50 6.13 2.00 Page88 .00 0.23 55.40 1.06) 38.30 Oct 2008 60.23 95.00 2.00 5.50 6.02 5.CBI Repayment of TL .00 10.21) (22.40 1.06 Aug 2008 58.10 2.52 28.91 10.00 0.50 1.00 0.50 1.06 (10.00 3.02 2.00 5.02 5.00 5.00 58.00 3.00 2.00 20.00 0.60 June 2008 56.00 2.80) 38.00 6.50 0.17 5.52 27.00 1.04 0.45 2.10 4.05 7.00 0.06 1.95 2.00 1.00 2.00 2.00 10.

CASH FLOW ACTUAL VS PROJECTION FOR THE PERIOD FROM APR'07 TO MARCH'08 ( Rupees in Crores ) Apr'07 N o.84 ( 9.44) (3 1.54 ( 10. 1 . The comparison between the projected and actual cash flow for the previous year 20072008 is shown below.00 04.49 Page88 to Mar'08 Projectio n 6 DIFF. Other than CC (Net) 6. discounting 41.56 6.75) ( 7. PARTICULARS RECEIPT Actual (5 7.Once the cash budget has been prepared and appropriate net cash flow established. Miscellaneous Income 12.00 (18. TRL prepares every year the projected cash flow for the next financial year.93) 7.98) (8.00 27.47) (8.56 01.90 6 25.31 Repayment of bill discounting 29.73) 38.16 3 Recourse bill .80 Borrowings.84 TOTAL PAYMENT 1 2 3 597.00 6 07.16 4 1.59) 2 9.49 - .47 (1 6.57 20.43 TOTAL CASH CREDIT Surplus/(Deficit) Opening Balance Closing Balance Sanctioned Cash Credit 608.22) 38. so TRL should ensure that there does not exist a significant deviation between projected cash flows and actual cash flows.43 Collection from Debtors 543. The projected and actual cash flows are compared and differences are calculated and the variances are highlighted.77) (1 4.75) ( 19.00 6 Total Payments 572.44) 6. 2 .

56 Crores had been collected from debtors and remaining 10 percent i. So TRL does not adopt the policy of stretching .44 Crores are expected to be collecting in next financial year. Page88 As in TRL collection procedure is very fast in same way it also makes prompt payment to their suppliers. Cash collection can be accelerated by reducing the lag or gap between the time a customer pays bill and the time the cheque is collected and funds become available for the firm’s use.e. To achieve this. cash management efficiency will have to be improved through a proper control of cash collection and disbursement. The first hurdle in accelerating the cash collections is the extra time enjoyed by the customers in clearing of bills. MANAGING CASH COLLECTIONS AND DISBURSMENT 1.Rs. So here TRL has to be more conscious about its collection procedure. In other words. CMS a/c makes online payment transactions possible which leads to drastic reduction in processing time than the traditional way. however take advantages of the cash discount available on prompt payment. Stretching Accounts Payables – One basic strategy of efficient cash management is to stretch the accounts payables. 2. a firm should pay its accounts payable as late as possible without damaging its credit standing.Interpretation: It can be seen from above table that only 90 percent i. For accelerating cash collection TRL has adopted several strategies viz. use of cash management system a/c (CMS a/c) with ICICI bank and HDFC bank. Rs.543. ICICI bank charges . HDFC bank charges are nil for these transactions. Accelerating cash collections – A firm can conserve cash and reduce its requirements for cash balances if it can speed up its cash collections. It should.05 paisa per thousand per day collection. The twin objective in managing the cash flows should be to accelerate cash collections as much as possible and to decelerate or delay cash disbursements as much as possible. TRL is planning to close it’s a/c with ICICI bank and open a new a/c (CMS a/c) with AXIS bank (charges nil).e.57.

Gomadera.account payables. Two scenario of cash management (A) Ample cash  Inter corporate deposits (a decade back) (B) Limited funds   Unsecured loan Secured loan (hypothecation of working capital) Page88 a. the amount due thereon is immediately paid and the a/c of TRL with SBI.g. Termed loan (e. They maintain an account with Reserve Bank of India (RBI) which is debited for inward clearing and credited for outward clearing. In this the clearing process has been highly automated. Project finance) . No charges are deducted by the bank when encashed. Samada is debited respectively. Application (of Refractories product) Note:-TRL does not invest its surplus cash in short term marketable securities. So TRL have started using MICR to automate the clearing process. At par cheque – The banker issuing this cheque is SBI. With this cheque being presented in any of the SBI branches. Electronic data is used instead of paper. It pays to their suppliers according to their convenience in one of the following ways: i) Multicity cheques – The banker issuing this cheque is SBI Belpahar. ii) iii) 3. Other income – Sources of other income for TRL are: i) ii) iii) Scrap sale Hospital – Jehangir Ghandy hospital. The surplus cash is used to repay the debts . Samada and CBI. Working capital b. MICR – The banker issuing this instrument is SBI.

e. Once a security for repayment has been given. Certain loan limit is set-aside to the company the loan as and when required. without prior notice). Samada.Cash credit facility Demand loan Short-term loan renewal of hypothecation takes once in a year LOAN Unsecured loan Secured loan (Hypothecation) Promissory note Letter of delivery Working capital Term loan Cash credit Demand loan Short-term loan Packing credit loan DEMAND LOAN A loan which is repayable on demand (i. 80% of the demand loan is payable in a certain period of time while remaining 20% is can be withdrawn and deposited as per its convenience. the business that receives the loan can continuously draw from the bank up to a certain specified amount. Generally. TRL takes demand loan from CBI. the rate of interest of the above said loan is higher than the short term loan. but only after the required security is given to secure the loan. A bank provides this type of funding. Gomadera and SBI. CASH CREDIT Cash credit means the firm can overdraw up to a certain limit. Page88 . This type of financing is similar to a line of credit. rather than on a specific date.

5) Some private banks demand ECGC (Export Credit Guarantee Corporation) these conditions. Gomadera having a cash credit limit of 21 Crores with an interest rate of 13 %. 90%) EXAMPLE – 75% of 100. (Reserve Bank Notification) 4) In case your material is rejected and unable to realize in 180 days it is to be reported to RBI. It can be avoided both in Rupee as well as any foreign currency. 2) Margin (75%.000 3) Realization should be done in 180 Days from the date of disbursement. 1) This is specifically meant to encourage exports. fuel after the placement of the order. Page88 .5% to 9%.000 orders Loan – 75% of loan = 75. flexible finance period – usually 90 days before the shipment date The credit covers manufacturing costs such as raw materials and employee wages Supports cash flow while goods are being packed and waiting for shipment Simple pro-rata repayment from Documentary Credit proceeds or buyer remittance Credit terms can be structured to suit your business You can win new business by offering more competitive terms to trading partners Purpose: It is given to procure the given raw material. • • • • Rate of interest will be lesser than the STL as well as Demand Loan. The loan is adjusted against export realization. 80%. PACKING CREDIT       You have an extended. Packing credit is available to TRL at an interest rate of 7.TRL takes cash credit from CBI.

and 270 days. Finished stock PLR of CBI is 13% PLR of SBI is 12.SHORT TERM LOAN The loan is usually repayable with in one year. 180 days.75% Page88 . Hypothecation – Inventory. It can be floating rate or fixed rate. It can be availed for 90 days. Fixed rate is fixed for the term loan. Floating rate means it is linked to PLR or MIBOR. It may be a secured or unsecured loan.


Two other sources of working capital finance which have recently used in TRL are factoring and commercial paper. Imported goods. A supplier sends goods to the buyer on credit which the buyer accepts. The due date for trade credit for TRL   Normal goods . Trade credit as a ratio of current asset is about forty percent. and thus.INTRODUCTION External funds available for a period of one year or less are called short term finance. and is granted on an open account basis. Due date is the date by which supplier expects payment. This condition includes the due date and the cash discount given for prompt payment. short term funds are used to finance working capital. In TRL. and the buyer is required to repay the credit.60 to 90 days. Bank borrowing is the next important source of working capital finance. Page88 . Credit term It refers to the condition under which the supplier sells on credit to the buyer.30 to 90 days. Two most significant short term sources of finance for working capital are: trade credit and bank borrowing. Trade credit Trade credit refers to the credit that of customer gets from supplier of goods in the normal course of business. Credit term indicate the length and beginning date of the credit period. agrees to pay the amount due as per sales terms in the invoice. In practice. in effect. immediate cash payment is not required to be made for the purchase. This deferral of payments is a short term financing called trade credit. Trade credit is mostly an informal arrangement.

Cash discount Cash discount is the concession offered to the buyer by the supplier to encourage him to make payment him promptly. After trade credit. The cash discount can be availed by the buyer if he pays by a certain date which is quite earlier than the due date. BANK FINANCE REQUIRED FOR WORKING CAPITAL Banks are the main institutional sources of working capital finance. Samada and CBI. It uses following forms of work finance :  Cash credit  Discounting of bills  Letter of credit  Short term loans Page88 . Credit limit is the maximum fund which a firm can obtain from the banking system. they deduct the margin money from the amount applied for. Deferred income represents funds received by the firm for goods and services which it has agreed to supply in future. Employees and Miscellaneous creditors. In practice banks don’t lends 100 percent of the credit limit. Advance payments made by customer constitute the main item of deferred income. These payments are not recorded as revenue until goods and services have been delivered to the customers. The amount approved by the bank for the firm’s working capital is called credit limit. This receipt increases the firm’s liquidity in the form of cash. Gomadera deducts 25% margin from short term loans extended to TRL. In addition to trade credit deferred income are other spontaneous source of short term financing. bank credit is the most is the most important source of financing working capital requirements. The cash discount enjoyed by TRL is about 10 to 15 percent per annum. A bank considers a firm’s sales and production plans and the desirable levels of current assets in determining it’s working capital requirements. SBI. therefore they constitute an important source of financing. In context of TRL there are three types of creditors – Suppliers.

On the recommendation of vaghul working group. CBI) against the security of inventories and debtors for obtaining short term loans. the RBI introduces the scheme of commercial paper in 1989. The commercial paper of TRL continued to be rated at “A1+” by ICRA. the highest credit rating assigned to this instrument . used to raise short term finance. OTHER SOURCES OF FINANCE  Commercial paper – It is an important money market instrument. Hypothecation is the charge against property for an amount of debt where neither ownership nor possession is passed to the creditors. TRL uses following mode of security which a bank may require:  Hypothecation – Under hypothecation. TRL is provided with working capital finance by the bank (SBI. Page88 .Security required in Bank Finance Bank generally does not provide working capital finance without adequate security.

At one area where TRL is lacking and it has to take immediate action is regularity in collection from debtors. marketing. The finished stocks should be stored properly other wise some of the products which get hydrated very fast will be damaged quickly and they will be treated as non-moving current asset. 2. so it is but natural that different major departments like production. If individual production department can reduce the manufacturing cycle days by implementing better technology and proper planning to reduce time. problem of invoice not received. purchase. 3. In the 30 days credit payment M\S TRL actually receives its money by the end of 55th or 60th day. Debtors should not given any excuses or not paying. 1. material management. Manufacturing cycle of a product does effect the working capital cycle days. If possible they can try to reduce the number of credit days and encourage customers by allowing some discounts or lowering price of the product. here are some suggestions for TRL. Though TRL is trying to overcome its shortcomings at various levels. The production departments can try to improve the quality and minimize the rejections with aid of suitable techniques. which may help to improve the working capital position. TRL has introduced task force to study the drawbacks of method of collecting money. Page88 .CONCLUSION AND SUGESSTIONS Working capital being the life and blood of a company. problem of wrong invoice etc. 5.      Track and purse late payers. Getting external help if TRL’s efforts fail. Many times it has been observed that the focus on collections is irregular. TRL marketing personals have to be hard on issue. Solve the problem of the customers viz. 4. maintenance along with the finance department have to function efficiently for maintaining a good working capital management.

8. a thorough study of the working capital management of the company brings out many opportunities for improvement of the company. The work-in-process at different stages kept in the plant is high considering their cycle time. This can be done by giving the persons at work more authority. Page88 . Material management department along with finance department can try to bargain with supplier to reduce the price and change the mode off payment. Individual person assigned for different task which directly or indirectly effects the working capital should be made realize their responsibilities. Though TRL is managing its working capital well.6. All different works relating persons. which is suitable for the company. Special care should be taken to reduce the non-moving finished stock should be evaluated and production departments have to plan to minimize occurrence of such causes. 7. responsibility. By studying the working capital of a company the efficiency of different functional departments come into picture along with that of finance department. TRL can negotiate with MCL and receive coal on regular basis thus stock of coal can be reduced more. remuneration for increasing their efficiency. 9. Steps may by taken to reduce such high stock. as it is needed as together form a team. 10. TRL gets coal from MCL which is very near to Belpahar working unit. which will help in reducing current assets.

org www.irmaindia.bharatrefractories.com www.skpsecurities.com Page88 .tatasteel.com www.ifgl.com www.tataref.BIBLIOGRAPHY            Annual report (2003-04 to 2007-08) The Analyst (magazine published by CFA) Magazines (published by TATA group and TRL) The Hindu Business Standard www.com www.

692 33.00.304 Nil 187.368 103.815 58.17.581 109.647 54.945 39.761 176.398 25.66.762 11.45.356 138.80.010 349.595 325.93. Total Assets (Net) 8.246 11.03.75. Less: Current Liabilities & Provisions a) Current Liabilities b) Provisions 14. Share Application Money Pending Allotment 4.30. Deferred Tax Liability (Net) 8. Reserves and Surplus Total Shareholder’s Funds 5.84.475 349. As at Rupees 20.95.448 Nil 13.864 330.22.276 52.725 188.154 6.26.372 137. Deferred Payment Credit 1.44.010 3.13.595 85.48.76. Investments 12.53.831 6. Loans : a) Secured b) Unsecured 6. Total Funds Employed APPLICATION OF FUNDS 10.01.154 18.ANNEXURE BALANCE SHEET AS ON 31ST MARCH.34.37.335 332.136 254.577 Nil 17.46. Net Current Assets Nil 200.86.000 2008 AND 2007 Particulars FUNDS EMPLOYED Share Capital 2.06. Provision for Employee Separation Compensation Page88 .740 As at 31.30.627 85.507 332.542 249.000 166.727 110.64. Loans and Advances a) Stores and Spare Parts (at cost) b) Loose Tools c) Stock-in Trade d) Sundry Debtors e) Cash and Bank Balances f) Income accrued on deposits g) Loans and Advances Total Current Assets 111.21.2007 Rupees 20.00.695 7.74. Fixed Assets a) Gross Block b) Less : Depreciation c) Net Block 11.304 124.67. Current Assets.762 113.

42.956 13.530 4.488 116.833 Total Shareholder’s Funds 26. Deferred Tax Liability (Net) 8.670 Share Capital 2.34.828 Nil 182.2005 Rupee s 11.91. Net Current Assets As at 2.527 Page88 . 161.09. Loans : a) Secured b) Unsecured 10.02.501 51.91.842 9.08. Loans and Advances a) Stores and Spare Parts (at cost) b) Loose Tools c) Stock-in Trade d) Sundry Debtors e) Cash and Bank Balances f) Income accrued on deposits g) Loans and Advances Total Current Assets 13.67. Total Funds Employed APPLICATJON OF FUNDS Rupees 20.14. Less: Current Liabilities & Provisions a) Current Liabilities b) Provisions 14.969 12.881 301.362 80.67.BALANCE SHEET AS ON 31ST MARCH.65.95.803 2.543 Rupees 11.086 1.00.750 80.739 41.65.557 135.69.980 185. Current Assets.98.62.707 76.51.99. Provision for Employee Separation Compensation 9.042 37.707 49.00.895 8. Reserves and Surplus 3.44.270 185.520 As on 31.84. Share Application Money Pending Allotment Fixed Assets a) Gross Block b) Less : Depreciation c) Net Block 11.578 1.08. Investments 12. 2006.00.44.660 108.3.362 Nil 125.064 As on 31.891 16.292 68.22. AND 2004 Particulars FUNDS EMPLOYED 4.590 38.39.012 50.32.201 33.791 8.416 13.749 16.424 22.325 225.094 230.00.258 63.534 66.94.749 7.96.895 9.90.632 12.198 112.28.77. Deferred Payment Credit 7.77.50. 2005.143 313.016 66.000 61.65.686 3.

279 15.000 17.143 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH.40. 2008 & 2007 Particulars INCOME 1. Total Assets (Net) 301. Depreciation 6.000 19.201 4. Other income 57.374 2. Employee Separation Compensation Total Expenditure PROFIT BEFORE TAXES (4.65.013 463. Provision for Income Tax : a) Current b) Deferred c) Fringe Benefit Tax d) Taxation for earlier years PROFIT AFTER TAXES 10.29.0 89) 66. Manufacturing and Other Expenses 433.55.00.599 143.492 18.000) 3.802 527. 9.669 (38.00.664 493. Amount available for appropriation 15.088 57.81.163 21.98.81 11.50.000) (6.23.583 31st March 2007 516.618 30.75. Appropriations : a) Proposed dividend b) Corporate dividend tax c) Transferred to General Reserve Balance carried to Balance sheet Earnings per share 464.000 1. Less : Expenditure included in above items (other than interest) capitalized 8.93. Sale of products and services Less : Excise duty 2.00.17. Total Income EXPENDITURE Nil 10 31st March 2008 584. 40.165 8.209 529. (12.00.668 459.260 (1.835 185.20.214 Face value per share Page88 . ( (5. Interest 7.36 Nil 10 410.497 ) 54.619 1. Balance brought forward from last year 11.696 (5.499 42.10.50.

Provision for Income Tax : a) Current b) Deferred c) Fringe Benefit Tax d) Taxation for earlier years PROFIT AFTER TAXES 10.97. Sale of products and services Less : Excise duty 2.800 46.01.586 26.541 31st March 2005 400.63.000) ( Nil (27. Employee Separation Compensation Total Expenditure PROFIT BEFORE TAXES 9.28.822 402.00.80. 2005 AND 2004 Particulars INCOME 4.00.521 (14.000 71.393 3.31.065 8.72.268 15.04 Nil 35.PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH. 5.43.956 18.52.33 10 306.83.092 254.482 (14.749 (9.125 10. Less : Expenditure included in above items (other than interest) capitalized 4.75.355 356.604) 3.380 26.15.41 48.24.021 8.09.059 34. Other income ( 21..44.326 281.87.152) (68.81.999 355.771 31st March 2004 317.399 5.293 5. Balance brought forward from last year 11.890 353.875 (3.56.437 2.15.04 10 31st march 2006 455.862) Nil Nil 37.651 ( 2. Depreciation 6. Interest 10 242.416 3.93.499 42.000 309.60.435 1.16.306 47.299 ( Total Income EXPENDITURE 4.17. 2006.13.87.995 11.000) (4. Manufacturing and Other Expenses 5. Appropriations : a) Proposed dividend b) Corporate dividend tax c) Transferred to General Reserve Balance carried to Balance sheet Earnings per share 354. 1.61.897 407.641) Amount available for appropriation 12.350 8.679 Face value per share Page88 .000 12.

87) (14.18 2926.90) 0.00 993.98) (855.34 (265.00 (954.98) 112.55 (2426.80 54.00 (202. PARTICULARS Cash Flow from Operating Activities Net Profit Before Tax & Extraordinary Item Adjustment for Depreciation Profit/Loss on Sale of Assets Profit on Sale of Investment Interest Income Dividend Income Miscellaneous Expenses (Amortized) Interest Charged to P/L Account Employee Separation Compensation Refund of Sale Tax Provision for Wealth Tax TOTAL Operating Profit before W.66 (5.87) (467.39 2684. In Lakhs) Sl No.00 (112.37) 2199.28) 2699.18 (884.04) 30.67 (1876.16 (666.32 1810.C Changes Trade & Other Receivables Inventories Trade Payables & Other Liabilities Cash Generated from Operation Direct Tax Refund Sales Tax Cash Flow Before Extraordinary Item Employee Separation Compensation Net Cash from Operating Activities (A) Cash Flow from Investing Activities Purchase of Fixed Assets Sales of Fixed Assets Purchase/Sale of Investment Interest Received Dividend Received Net Movement in Creditor Advance of TRL Asia Pvt.71) 255. A.05 0.43 2006-07 3059.38) B.00 0.24) (2872.91 (112.74 (329.79 (728. Ltd.00 5.34) 0.63) 305.66) 3168.71) 0.97) (19.57 (866.02) 0.00 (5655.13 5294.04 14.00 (118.00 2502.82) (939.22) (946.00 882.93 (94.00 1174.60 (2679.37 66.71 71.45 0.64 6067.61 6602. C. Net Cash from Investing Activities (B) Cash Flow from Financing Activities Proceeds from Share Application Deferred Payment Credit Borrowings Interest Paid Dividend Paid Net Cash from Financing Activities (C) Net Inc/Dec in Cash & Cash Equivalent(A+B+C) 2007-08 3676.76) 0.29 0.04 0.97 19.76 (1263.17 (1076.51 19.07) 4965.73) 0.16 (302.50 1717.41) 684.00 1.66) 20.36 5557.CASH FLOW STATEMENT FOR THE YEAR END 31st March (Rs.18 2498.00) 0. Page88 .57) 112.13) 1.

38 Page88 .38 647.Add: Opening Cash and Cash Equivalent Closing Cash and Cash Equivalent 342.81 347.76 342.

00 0.00 (2597.29 219.76) (8.15 21.85) 55.27) (548.30 (585.88) 8191.11) (370.90 1165.00 316.98 (107.16 17.46 25.25 2934.25 1069.31 8.64 0.99 347.36 1524.47) (379.86 (1811.89 6.74 0.17 (113.90 927.00 1.CASH FLOW STATEMENT FOR THE YEAR END 31st March (Rs.33) 0.79 (2695.76 2004-05 4665.01 0.38 (9187.85) 40.83 0.33 (900.00 854.23 3758. Ltd.59 708.00 (2786.22 (1818. A.67) (17.50) 57.54) 0.42 4182.00) 1.63 (924.00 4.49 822.30) (913.21) (210.85 4595.85) 3737.64 (580.09 219.04) 310.77 (182.15) (21.00 (4.00 2816.23) 927.56 (57.37) 0.27) 2453.76) (621.00 1926.44 (305.89) (6. Page88 .53) (17.34 36.36 (2676.64 6560.90 B. In Lakhs) Sl No.90) 0.10) 100.05) (12.01) 290.00 0.73 489.38) 0.49 (358.99 2003-04 2658. PARTICULARS Cash Flow from Operating Activities Net Profit Before Tax & Extraordinary Item Adjustment for Depreciation Profit/Loss on Sale of Assets Profit on Sale of Investment Interest Income Dividend Income Miscellaneous Expenses (Amortized) Interest Charged to P/L Account Employee Separation Compensation Refund of Sale Tax Provision for Wealth Tax TOTAL Operating Profit before W.51) (198.06 1393.39 (1737.70 (510.21) 1471.25) 5770.41 110. Net Cash from Investing Activities (B) Cash Flow from Financing Activities Proceeds from Share Application Deferred Payment Credit Borrowings Interest Paid Dividend Paid Net Cash from Financing Activities (C) Net Inc/Dec in Cash & Cash Equivalent(A+B+C) Add: Opening Cash and Cash Equivalent Closing Cash and Cash Equivalent 2005-06 5167.78 (349.07 12.65) 312.10 (4329.50 120.15 1113.46) (25.54 (40.80) (342.00 0.C Changes Trade & Other Receivables Inventories Trade Payables & Other Liabilities Cash Generated from Operation Direct Tax Refund Sales Tax Cash Flow Before Extraordinary Item Employee Separation Compensation Net Cash from Operating Activities (A) Cash Flow from Investing Activities Purchase of Fixed Assets Sales of Fixed Assets Purchase/Sale of Investment Interest Received Dividend Received Net Movement in Creditor Advance of TRL Asia Pvt.39) 430.25) (762. C.95) (608.40) (10340.11) 1568.55 815.37 (363.91 (982.84 5735.00 337.50) 3899.48 (270.42) 2585.77) 1359.73) 1041.79 0.87) (198.60) 2644.

894 176.088 493.93.00.96. Basic.31. Capital raised during the year Public issue Right issue Bonus issue Public issue Private placement Nil Nil Nil Nil Nil 3.90. Position of mobilization and development of funds. 20.448 13.37.BALANCE SHEET ABSTRACT ON COMPANY’S GENERAL BUSINESS PROFILE 1.762 349.46. 2.46. : 69021004 : Bricks & shape.76. Generic names of three principal products of company A) Item code number.81.86.000 179. magnesia carbon. : 69022002 C) Product description. B) Item code number.63. Silica.577 3.63. High Alumina.781 21.36 35 5. Balance sheet date 349/ 8 15 31st march 2008.70.56.475 4.595 138. Registration details : Registration No.279 : 69039004 : Monolithic/ Castables (Fireclay.740 124. Performance of Company: Turnover Total expenditure Profit before tax Profit after tax Earnings per share (EPS) in Rs Dividend rate % 584. Insulating).15.59.692 33.802 36. Product description. Total Liabilities Total Assets Sources of Funds: Paid-up-capital Reserves and Surplus Secured loan Unsecured loan Deferred tax liability Other liabilities Application of Funds: Net fixed assets Investments Net current assets 349. Item code number Page88 .72. State Code.65.31.987 1.

High Alumina.Product description.77 Sources: Annual Report SHAREHOLDER’S FUNDS (Rupees in Crores) Page88 .17 460. : Bricks & shapes.26 521. GRAPHS GROSS REVENUE (Rupees in Crores) YEARS 20072008 20062007 20052006 20042005 20032004 GROSS REVENUE 587.43 403.55 318.

YEARS 20072008 20062007 20052006 20042005 20032004 SHAREHOLD ER’S FUND 200.56 98.77 182.63 Sources: Annual Report Page88 .91 49.86 187.

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