A SUMMER TRAINING REPORT ON

WORKING CAPITAL MANAGEMENT

AT

CENTRAL COALFIELDS LIMITED

RANCHI (Head Quarter)

Submitted in Partial fulfillment for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by-

Xxxxxxxxxxx

ACKNOWLEDGEMENT
I would like to express my sincere and deep felt thanks to Mr. xxxxxxx
(Finance Manager), my project guide, whose valuable guidance and constant
co-operation provided invaluable throughout my study.

I would also like to extend my thanks to all the faculty members of

Department of Management for their encouragement, co-operation and
timely suggestions, without which this project has not been possible.

I thanks all whose great efforts kept the project moving so that I could
successfully achieve the completion the project.

TO WHOM IT MAY CONCERN

This is to certify that Mr. xxxxxxxx a student of MBA at
xxxxxxxxxxxxxxxxxxxxxxxxxxx has gone summer training in our
organization from 3rd June 2015 to 2nd July 2015.

During this period he has successfully completed the training and submitted
the Report titled WORKING CAPITAL MANGEMENT at CENTRAL COALFIELDS
LIMITED.

In course of training he showed positive attitudes towards attainment of

training objectives.

We wish him a bright and successful career.

Xxxxxxxxxxx
(Finance Manager)

DECLARATION
I xxxxxxxxxxx, hereby declare that the training project, entitled Working
capital management submitted to the Department of management
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx in partial fulfillment of the
requirements for the award of degree of Master in Business Administration is
a record of original and independent research work done by me during 3 rd
June 2015 to 2nd July 2015 under the supervision and guidance of
xxxxxxxxxxxxxxxxxxx, and it has not formed the basis for the award of any
Degree/Diploma/Associate ship/Fellowship or other similar title to any
candidate of the university.

Date:

Place: Signature of Student

 CONTENTS

Particulars Page no.

Objectives of the Project

Introduction of CIL& CCL

Research methodology

Working capital management

Inventory

Debtors

Recommendation

Conclusion

Bibliography
 OBJECTIVES OF THE STUDY

TO study and analyze the working capital policy of the CENTRAL

COALFIELDS LIMITED.

TO study the affairs of the company with reference to the working

capital management and methods of its estimation used in the
company.

To understand the general performance of the company.

To use quantities data for defining companys financial performance.

To know the profitability, production and efficiency of the firm.

To study the methods of financing working capital.

To analyses the performance effectiveness of the company.

 RESEARCH METHODOLOGY

Research Design: The study is based on descriptive and applied research.

Data Source: Only secondary data are used for the collection of the
information required for the report.

The sources of Secondary Data used are:

1. Annual report of the company.

2. Companys data records.

3. Companys website.
 COAL INDIA LIMITED

Coal India Limited (CIL) is an Indian state-controlled coal company

headquartered in Kolkata, West Bengal, India and the world's largest coal
miner with revenue exceeding Rs 51,925 Cr. It was formerly owned entirely
by the Union Government of India, under the administrative control of the
Ministry of Coal. It is involved in coal mining and production industry. In April
2011, CIL was conferred the Maharatna status by the Union Government of
India.

Coal India Limited was formed in 1973 as Coal Mines Authority Limited. In
1975 it was changed to Coal India Limited as a holding company with five
subsidiaries:

Bharat Coking Coal Limited (BCCL)(Dhanbad, Jharkhand)

Central Coalfields Limited (CCL)(Ranchi, Jharkhand)

Western Coalfields Limited (WCL)(Nagpur region)

Eastern Coalfields Limited (ECL)(Sanctoria, Asansol, West Bengal)

Central Mine Planning and Design Institute Limited (CMPDIL)(Ranchi,

Jharkhand)

In 1985 two more subsidiaries were added:

South Eastern Coalfields Limited (SECL)(Bilaspur)

Northern Coalfields Limited, Singrauli (NCL,Singrauli)

In 1992 one more subsidiary added:

Mahanadi Coalfields Limited (MCL) (Sambalpur)

One International Subsidiary

Coal India Africana Limited (CIAL) (Mozambique)

Two indirect subsidiaries (held through our subsidiary, Mahanadi Coalfields
Limited)

MJSJ Coal Limited

MNH Shakti Limited

Coal India

Contributes around 85% of coal production in India

Is the largest company in the World in terms of coal production.

Employs nearly 4.25 lakh persons and is the largest corporate

employer in the country.

Is one of the largest Companies in the country, turnover being around

Rs. 386.31 billion in 2007 08.

Is one of the largest tax payer (corporate Tax Rd. 35.75 billion) in 2007
08

Has paid Dividend of Rs. 17.054 Billion to the Govt. of India in 2007
08
 Open Cast and Underground mining

Underground mining was the main procedure being followed earlier, the
thrust is shifting from underground to open cast mining. In the 1970s, 80% of
the total coal production was from underground mines. In 1990,
underground mines produced 40% of the total output, the remaining 60%
being from open cast mines. In the CCL mines, in 1990-1991, 82.8 % of the
mining was open cast, which will increase further. All of its new projects in
the last decade in the east and west Bokaro coalfields, Ramgarh and North
Karanpura are open cast mines in Jharkhand state. The land used in open
cast mining is considerable, most of it originally being forest and agriculture
and; Requirement for open cast mines varies with reserves of coal per unit
area, stripping ratio, the type of excavating equipment and the method of
dumping wastes. In an open cast mine in CCL, with a reserve of 345 mt. and
designed to produce about 10 million tones per year, the area of land
assessed to be required is about 1,602 ha for quarries and the rest of a total
of 2,281 ha for magazines, colony, industrial site, etc. This works out to
about 7 ha per million tones of reserves.
 CENTRAL COALFIELDS LIMITED

Central Coalfields Limited (CCL) is a subsidiary of Coal India Limited (CIL), an

undertaking of the Government of India. CCL manages the nationalized coal
mines of the Coal Mines Authority, Central division. The registered and
corporate office is at Darbhanga House, Ranchi, Jharkhand.

It presently has 63 mines (26 underground, 37 open cast) in areas of East

Bokaro, West Bokaro, North Karanpur, South Karanpur, Ramgarh and Giridih.
Their facilites include seven coal preparation plants, three for non-coking
coal and four for medium coking coal. They earned their Mini Ratna status in
2007.

CCL has been on the coal map of the country as a public sector since
October 1956.
CCL are proud to have been on the coal map of the country as a public
sector for over for decades making invaluable contribution in meeting the
energy demand of the nation and to the socio-economic development of the
state of Jharkhand.

Mission:The mission of CCL is to produce and market the planned quantity

of coal economically with due regard to safety, conservation and quality. The
main trust of CCL in the present context is to orient its operations towards
market requirement maintaining at the same time financial viability to meet
the resource need.

Vision:To become a world class, innovative, competitive & profitable coal

mining operation to achieve customer satisfaction as top priority.
Business objective:Coal mining through efficiently operated mines.
Besides fulfilling coal need of the customer in term of quantity, focus on
quality, value addition and beneficiation to the satisfaction of the customers.

Core values (4Cs):

Customer Care

Concern for Environment & Safety

Care for employees

Cost consciousness

OVERVIEW OF CCL

CCL are spread over in the districts of Jharkhand. There are 13 areas of CCL
they are:
Argada
Barka sayal
Kuju
Hazaribagh
Rajrappa
Giridih
Kathara
B & K (Bokaro&Kargali)
Dhori
NK (North Karnapura Area)
Piparwar
Rajhara
Magadh Aamrapali
 WORKING CAPITAL MANAGEMENT

One of the most important areas in the day-to-day management of the firm
deals with the management of Working Capital, which is defined as the short-
term assets used in daily operation.

Funds are needed for short term purposes for the purchase of raw materials,
payment of wages and other day to day expenses etc. These funds are
known as WORKING CAPITAL. In simple words working capital refers to that
part of firms capital which is required for financing short term or current
assets such as cash, marketable securities, debtors and inventories. Funds,
thus invested in current assets keep revolving fast and are being constantly
converted into cash and this cash flows out again in exchange for other
current assets. Hence it is also known as revolving or circulating capital so
working capital is the amount of funds necessary to cover the cost of
operating the enterprise.

Long term funds are required to create production facilities through purchase
of fixed assets such as plant and machinery, land, building, furniture, etc.
Investments in these assets represent that capital which is fixed.

Classification of working capital:

On the basis of concept:

Gross working capital
Net working capital
On the basis of periodicity of requirement:
Fixed and permanent working capital
Variable working capital

On the basis of concept

There are two interpretations of working capital under basis of concept:

a) GROSS WORKING CAPITAL
b) NET WORKING CAPITAL

a) Gross working capital is the capital invested in total current assets of

the enterprise. Current assets are those assets which in the ordinary
course of business can be converted into cash within a short period of
normally one accounting year such as:

o Cash
o Short term securities
o Debtors
o Bills receivable
o Inventory
o Temporary investment of surplus funds

The concept of gross working capital focuses attention on two aspects

of current assets management:
Optimum investment in current assets
Financing of current assets

b) Net working capital:

Net working capital is the difference between current assets and
current liabilities.
According to this concept working capital refers to the difference
between current assets and current liabilities.
It is the excess of current assets over current liabilities. Current
liabilities refers to the claims of outside which are expected to the
mature payment within an accounting year. It includes
Creditors for goods
 Bills payable
Bank overdraft
Short term bank loans and advances
Prepaid expenses

Net working capital can be positive or negative.

Positive net working capital: it arises when current assets

exceed current liabilities.
Negative net working capital: it occurs when current
liabilities are in excess of current assets.

The net working capital concept indicates the liquidity position of the firm
and suggests the extent to which working capital need may be financed by
permanent sources of funds.

Thus gross working capital concept is financing or going concern concept

whereas net working capital is an accounting concept of working capital.
Both concepts have got their own merit, but in general practice net working
capital is given more priority.

On the basis of periodicity of requirement

a) Fixed & permanent working capital

It represents the part of capital permanently locked up in the current assets
to carry out the business smoothly this investment in current assets is of the
permanent nature. It increases as the size of the business expands. Such as
investment required the maintenance of minimum quantity of raw material,
work-in-progress, finished products etc.

b) Variable working capital

Variable working capital change with the increase or decrease in the value of
business. It may also be sub divided into seasonal special working capital.
 Cash/fund management

Cash/Fund, the most liquid assets is the vital importance to the daily
operations of the business firms. The proportion of corporate assets held in
the form of cash is very small, often between 1 and 3 percent, its efficient
management is crucial to the solvency of the business enterprise because in
a very important sense cash is the focal point of fund flows in business. It is
generally referred to as the life blood of a business enterprise.

There are three possible motives for holding cash:

i Transaction motive
ii Precautionary motive
iii Speculative motive

Transaction motive

A company is always entering into transactions with other entities. While

some of these transactions may not result in an immediate inflow/outflow of
cash (e.g. credit purchases and sales), other transactions cause immediate
cash inflows and outflows. So firms always keep a certain amount as cash to
deal with routine transactions where immediate cash payment is required.

Precautionary motive
Contingencies have a habit of cropping up when least expected. A sudden
fire may break out, accidents may happen, employees may go on strike,
creditors may present bills earlier than expected or debtors may make
payments later than warranted. The company has to be prepared to meet
these contingencies to minimize its losses. For this purpose companies
generally maintain some amount in the form of cash.

Speculative motive

Firms would like to tap profit making opportunities arising from fluctuation in
commodity price, security price, interest rate, and foreign exchange rates. A
cash rich firm is better prepared to exploit such bargains. Firms which have
such speculative leanings may carry additional liquidity. Most firms their
reserve borrowing capacity and marketable securities would suffice to meet
their speculative needs.
Fund/cash management in CCL

Fund/cash plays a very important role in every organization, so in CCL

fund/cash is very important to fulfill its day to day requirement. Because of
this importance fund section of CCL is working directly under the centre of
general manager (GM) of finance. Means fund section is directly controlled
by the GM of finance in CCL. Here fund section is responsible for effective
fund/cash management of entire CCL.
There are many sources of funds, from which CCL gets funds according to
their requirement. In CCL cash are mainly realized from sale of coal which is
supplied to various sectors. Some of the main sources of funds are:

o Power sectors like:

Jharkhand State Electricity Board(JSEB)
Punjab State Electricity Board (PSEB)
Haryana State Electricity Board (HSEB)
Delhi Vidyut Corporation (DVC)
National Thermal Power Corporation (NTPC)

o Steel sectors like:

Steel Authority of India Limited (SAIL)

o Other sectors like:

 Defence
Rural
Fertilizers etc.

Thus, the main sources of fund/cash from which CCL gets funds are:
Realization from sundry debtors
Cash sales
Other receipts
In ccl, sales realization is done from two places-
1. Ranchi
2. Kolkata

Interest and dividend is collected through Fds and Mutual Fund.

Some examples of outflow of cashes are-

Salaries
Excheaques of payments
Capital purchases
Shares

Some of the mutual fund houses where investment is done are-

o State bank of india

o Uti mutual fund
o Union bank of india
o Canara bank
o Bank of india
 ACCOUNTING STANDARD 3 CASH FLOW
STATEMENTS

AS-3 cash flow statements (revised 1997), issued by the council of ICAI,
comes into effect in respect of accounting periods commencing on or after 1-
4-1997. This standard supersedes, AS-3 changes in financial position, issued
in June 1981. This standard is mandatory in nature in respect of accounting
periods commencing on or after 1-4-2004 for the enterprises which fall in
any one or more of the categories of level I enterprises, at any time during
the accounting period. The enterprises which do not fall in any of the
categories of level I, are encouraged, but are not required, applying this
standard.

An enterprise should prepare a cash flow statement and should present it for
each period for which financial statements are presented. The cash flow
statement should report cash flows during the period classified by operating,
investing and financing activities. An enterprise should report cash flows
from operating activities using either:

a) The direct method, whereby major classes of gross cash receipts and
gross cash payments are disclosed; or

b) The indirect method, whereby net profit or loss is adjusted for the effects
of transactions of a non-cash nature, any deferrals or accrualsof past or
future operating cash receipts or payments, and items of income or
expense associated with investing or financing cash flows.

c) Cash flow activities-

The cash flow statement is partitioned into three segments,namely:

1)cash flow resulting from operating activities.

2) cash flow resulting from investing activities.

3) cash flow resulting from financing activities.

The money coming into business is called cash inflow, and money going out from the business is
called cash outflow.

Operating activities-

It includes production, sales and delivery of the companys product as well as collecting payment
from its customers. this includes purchasing raw materials building inventory, advertising, and
shipping the product.

Investing activities-

Examples of investing activities are-

Purchase of sale of an asset(can be land, building, equipment, marketable securities etc

Loans made to suppliers or received from customers

Payments related to mergers and acquisition

Financing activities-

It includes the inflow of cash from investors such as banks and shareholders, as well as the
outflow of cash to shareholders as dividends ,as the company generates income.

Examples of financing activities are-

Payments of dividends, payment for repurchase of company shares, dividends paid ,repayment of
debt principal ,payment of dividend tax ,net borrowing.
 METHOD USED BY CCL FOR PREPARING CASH FLOW
STATEMENT

CCL used direct method for preparing cash flow statement. The direct
method provides information which may be useful in estimating the future
cash flows and which is not available under indirect method. Therefore,
direct method is considered more appropriate than indirect method. Under
the direct method information about major classes of gross cash receipts and
gross cash payments may be obtained either:

From the accounting records of the enterprise.

By adjusting sales, cost of sales (in the case of financial enterprise
interest and similar income and interest expense and similar charges)
and other items in the statement of Profit & Loss for:
1) Changes during the period in inventories and operating receivables
and payables;
2) Other non-cash items and
Other items for which the cash effects are investing or financing
cash flows.
The following is the cash flow of CCL Ltd. for the month of October 2014:-

Cash flow statement for the month Oct 2014

PARTICULARS DAYS Rs..in lakhs

CASH FLOWS FROM OPERATING
ACTIVITIES
INCOME
Realisation-credit sale 0.00 3562.62
Realisation-cash sale/road sale 375.45 1535.82
Remittance received-FROM KOLKATA 0.00 9000.00
Remittance received-FROM AREA 0.00 295.00
Refund of sec.dep/E.Money 28.00 38.00
Refund of DGCC/Coal sale 30.00 595.00
Interest against term deposit 0.00 12.29
EXPENSES
Salary and wages 389.00 1020.00
Pension 11.00 11.00
LTC/LLTC 14.00 14.00
Gratuity(Exc. VRS)] 61.00 61.00
EX.Gratia 2.00 2.00
Petrol and Diesel 298.00 336.00
Lubricant 17.00 17.00
Spares for HEMM-Area PI 214.00 214.00
Spares for HEMM 18.00 18.00
Spares for E&M 19.00 19.00
Consumables for HEMM 83.00 83.00
Other consumables 224.00 224.00
Power JSEB/WBSEB -60.00 -60.00
other contractors-Mining 110.00 110.00
Other Contractors-civil(Resi.Bldgs) 196.00 196.00
Other contractors- civil(Wel.Bldgs) 5.00 5.00
Purchase Repair-HEMM 38.00 38.00
Purchase Repair-E&M Others 33.00 33.00
Purchase Repair-Vehicle 1.00 1.00
Medical Reimbursement 31.00 31.00
Other welfare/CD Expenses 1.00 1.00
Misc.Expenses 98.00 98.00
Travelling Allowance 29.00 29.00
Salary to Pvt. Sec. guards 3.00 3.00
Electricity Duty 0.00 2.40
sales tax- central/SED 0.00 1.00
Sales tax- Jharkhand 0.00 81.66
TDS-Employees 0.00 35.38
TDS-Contractors 0.00 8.70
Rehabilation 1.00 1.00
Water Supply 4.00 4.00
NET CASH FLOW FROM OPERATING 1406.5 12388.30
ACTIVITIES 5
CASH FLOWS FROM INVESTING
ACTIVITIES
EXPENSES
Land 0.00 18.00
Plant and Machinery 0.00 15.00
Furniture & Fittings 2.00 2.00
NET CASH FLOW FROM INVESTING -2.00 - 35.00
ACTIVITIES
NET INCREASE IN CASH AND CASH 1404.5 12353.30
EQUIVALENT 5
Cash and cash equivalent at the 16218. 3608.51
beginning 17
Cash and cash equivalent at the end 17622. 15961.81
of period 72
Suggestions for improvement

CCL has positive cash flow from operating activities,a business should
generate positive net cash flow from operating activities and should grow the
amount overtime,if a business fails to generate positive net cash flow from
operating activities,it may need to rely on outside financing to operate which
will not sustain a business in long term.

Here , a negative cash flows from investing activities indicates that the
business is stable and growing since the company is buying more assets
than it sells.
Hence, we can say CCL had not face any liquidity crunch and has maintain
enough cash balance to fulfill its day to day requirement.

INVENTORY MANAGEMENT

Inventory consists of raw material, semi-manufactured products and

completely manufactured products. It has been defined by the Accounting
Principles Board as The aggregate of those items of tangible personal
property which-

(a) are held for sale in the ordinary course of business.

(b) are in the process of production for such sales.

(c) are to be currently consumed in the production of goods or services to be

available for sale.

Every firm invests a huge amount to maintain a certain level of inventory, or

say stocks. Thus a large portion of working capital is involved in stock. On
an average, inventories are approximately 60% of the total current assets in
public limited companies in India.

Because of the large size of inventory and the considerable fund engaged in
Inventories it is become necessary to manage it in an effective and efficient
manner. Material is as much cash as cash as cash itself and any theft, waste
and excessive use of materials leads to immediate and direct financial loss.
The process of managing inventory is called INVENTORY MANAGEMENT.

Types of Inventory-

1.Inventory of raw material.

2.Inventory of work- in- process.
3.Inventory of finished goods.

OBJECTIVES OF INVENTORY MANAGEMENT

The objective of inventory management is to maintain sufficient

inventory for the smooth production and sales operations and to avoid
excessive and inadequate levels of inventory. Some other objectives are
as below;

Ensure a continuous supply of raw material to facilitate

uninterrupted production.

Maintained sufficient stock of raw material in period of short

supply and anticipate price changes.
 Maintain sufficient finished goods inventory for smooth sales
operation and efficient customer service.

Minimize the carrying cost and time and

Control investment in inventories and keep it at an optimum level.

INVENTORIES MANAGEMENT TECHNIQUES

Various techniques commonly used for inventory control are listed below:

ABC technique
Stock level minimum, maximum and re-order level
Economic order quantity (EOQ)

ABC TECHNIQUE
ABC Technique is a value based system of material control. In this technique
material are analyzed according to their value so that costly and more
valuable materials are given greater attention and care. All items are
classified according to their value ie, high, medium and low values, which are
known as A, B and C items respectively.

A items: High in value and low in quantity. These items engage 70% of funds
and 10% of space in the inventory.

B items: Medium in value and medium in quantity. These items engage 20%
of funds and 20% of space in the inventory.

C items: Low in value and high in quantity. These items engage only 10% of
fund and 70% of space in the inventory.

Thus the ratio between A, B and C is as follows:-

1 PRICE WISE 7:2:1

2 QUANTITY WISE 1:2:7

STOCK LEVELS

In order to check under stocking and over stocking most of the large
companies adopt a scientific approach of fixing stock levels.

These levels are:

Maximum level = Re order level + Re order quantity (Max.

consumption* Max. re-order period)

Minimum level = Re-order level-(Normal consumption* Maximum

Re-order period)

Re-order level=Maximum consumption* Maximum re-order period

 Average stock level = (Maximum level + Minimum level)

Danger level = Normal consumption *Maximum re order period

under emergency condition.

ECONOMIC ORDER QUANTITY (EOQ)

Economic order quantity is that size of order which gives

maximum economy in purchasing any material and ultimate contribution
towards maintaining the material at the optimum level and at minimum cost.
It is also called RE-ORDER QUANTITY.

EOQ= (2*O.C.*A.D./C.C)

Where,

O.C. = Ordering cost, the cost of placing an order.

A.D. = Annual demand, annual consumption of material in units.

C.C. = Carrying cost, this is the cost of holding the stock in

storage.

INVENTORY MANAGEMENT IN CCL, RANCHI

Central Coalfield Limited (CCL) one of the nine subsidiaries of Coal India
Limited (CIL) a Navranta company is the pioneer coal mining Company in
India and one of the leading suppliers of coal to power and steel sector in
India. CCL offers a wide grade diversity of coal to the consumers in core and
non-core sector in India. CCL was formed in 1975 with 63 mines grouped in
11 areas (26 underground and 37 open costs) with 7 washeries (4 medium
coking coal and 3 non-coking coal). The Company has six operating
coalfields and Central Workshop (ISO9002 certified) and 5 Regional
Workshops, 3 of them ISO9002 certified.

In CCL inventory are basically consist of three items:

Stock of stores and spears

Stock of coal (finished good)

Workshop job (work in progress)

STOCK OF STORES AND SPARES

The word HEMM means Heavy Earth Moving Machineries and includes its
spares and plotted in the section sheets maintained by the Coal India Ltd.
(eg. Dozers,Dumpers,shovel,Poklenetc

HEMM procurement-

Draglines
Electric shovels
Hydraulic shovels
Dump tracks
Blast hole drills
Wheel dozers
Front-end loaders
Tyre handlers
Motor graders

Stores can be classified into different categories-

1.Lubricant
2.Timber
3.Tyres
4.Nuts
5.Transformer

BIN CARD- Bin card is a record of receipt and issue of materials quantity of
store received is entered with receipt column and the quantity of stores
issued is recorded in the issue column of bin card.
It shows the balance of stock at any moment of time. Bin card is maintained
by the storekeeper. The storekeeper can send the material requisition for the
purchase of material in time.

STOCK OF COAL

It consists of:

1. Raw coal

2. Soft coke

3. Hard coke

4. Washed coal

Presently CCL has:

7 washeries

4 medium coking coal washeries

3 non coking coal washeries

WORKSHOP JOB

Presently CCL has

1 Central workshop

5 regional workshop

The central w/s and 3 regional w/s are ISO 9001 certified.

PURCHASING

Purchasing can be done at centralized level or area wise or local

purchases.Local purchases are financed by project officers. All items are
divided into centralized and decentralized items; centralized items can not
be purchased at local or area level.

STEPS FOLLOWED FOR PURCHASE OF INVENTORIES

 1. For the purchase of inventories CCL invites tender either from
LOCALSUPPLIERS or an OPEN TENDER from other different
suppliers.firstly, tender is being obtained either manually or online
which is also known as E-TENDER.about 10% bidding in ccl is done
online.

2. After this, the user department prepares the budget regarding the
materials to be purchased for one year.an indent is being provided by
the various departments to the user department which consists of
estimated value of materials to be required,no. of materials
accomplished with last three years data regarding the consumption of
the materials so as to check whether the demand of the materials is
reasonable or not.

3. After this the owner of the company that is the director of CCL tells the
purchase department to purchase these goods.
4. NIT is issued inviting for the supply of materials as in the case of
goods of imported origin authorized indian agent of foreign
manufacturers are.these are put in government portals which are
opened to all.

5. It places the TENDER once the suppliers are selected, after which BID
AMOUNT is decided for the purchase. Tender is invited on the basis of
two parameters:
TECHNICAL BID under it materials to be supplied by the
supplier should match with the norms and standard as
prescribed by authorities of CCL.techinical manager checks
the papers and every information and if he is satisfied then
he approves and saysyes the bidder is technically
qualified.
FINANCIAL BID under financial bid, suppliers offering the
lowest bid amount are considered and selected.

6. PRICE BID-Under price bid, price of the tender is not revealed before its
acceptance. When the tender is being checked on the basis of various
parameters mentioned above then it is opened and compared.

L1- L1 stands for the lowest bidder.

L2-L2 stands for the next lowest bidder, and so on.

7. Now comes the purchase of materials. Tender committee checks whether
the lowest tender price is reasonable or not by checking the companys index
and if it satisfies then the company receives the order of purchase. After
undergoing such rigid process, and supplier meeting all specifications of
materials is selected and given the PURCHASE ORDER.

8. Once the materials are purchased and supplied, it undergoes rigid

inspection by the technical staffs of CCL.

9. After getting inspected it is stored in different stores.

10. This process goes on and for this STORES LEDGER is prepared.

NIT(NOTICE INVITING TENDER)- It is a notice issued by CCL tender

committee these are put in government portals.it is opened to all, anyone
from all over the world can apply for it.

Types of tender-

1.Open tender- It is opened to all, anyone can bid such as agent,

distributors, dealers of the company.
2.Limited tender- it is issued to only some parties.
3.Single tender-it is only issued to specific parties who are specialized in
manufacturing a product.
4.Global tender- It is a world base tender. Any country from all over the
world can bid. For e.g- Australia, U.S.A, China, Japan etc.

ACCOUNTING STANDARD-2
(VALUATION OF INVENTORY)

Objective-A primary issue in accounting for inventories is the determination

of the value at which inventories are carried in the financial statements until
the related revenues are recognized. This standard deals with the
determination of such value, including the ascertainment of cost of
inventories and any write -down thereof to net realizable value.
SCOPE-

This standard should be applied in accounting for inventories other

than:
a. Work in progress arising under construction contracts, including
directly related service contracts;
b. Work in progress arising in the ordinary course of business of
service providers;
c. Shares, debentures and other financial instruments held as
stock- in-trade; and
d. Producers inventories of livestock, agricultural and forest
products, and mineral oils, ores and gases to the extent that they
are measured at net realizable value in accordance with well-
established practices in those industries.
The inventories referred to in paragraph 1(d) are measured at net
realizable value at certain stages of production. This occurs for e.g.
when agricultural crops have been harvested or mineral oils, ores and
gases has been extracted and sale is assured under a forward contract
or a government guarantee, or when a homogenous market exists and
there is a negligible risk of failure to sell. These inventories are
excluded from the scope of this Standard.
Definitions-
The following terms are used in this standard with the meanings
specified:
Inventories are assets:
a. Held for sale in the ordinary course of business;
b. In the process of production for such sale or
c. In the form of materials or suppliers to be consumed in the
production process or in the rendering of services

Net realizable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs
necessary to make the sale.

Measurement of inventories-

Inventories should be valued at the lower of cost and net realizable

value.
Cost of inventories-

The cost of inventories should comprise all cost of purchase, cost of

conversion and other cost incurred in bringing the inventories to their
present location and condition.

Cost of purchase-

The cost of purchase consist of the purchase price including duties and taxes
(other than those subsequently recoverable by the enterprise from the
taxing authorities), freight inwards and other expenditure directly
attributable to the acquisition.

Cost of conversion-

The cost of conversion of inventories include cost directly related to the units
of production, such as direct labour. They also include a systematic allocation
of fixed and variable production overheads that are incurred in converting
materials into finished goods.

Cost formula-

The cost of inventories of items that are not ordinarily interchangeable and
good or services produced and segregated for specific projects should be
assigned by specific identification of their individual costs.

METHOD OF PRICING OF MATERIALS

Some important methods of pricing materials are as follows:

LIFO(Last In First Out)

FIFO (First In First Out)

Last in first out-

LIFO, which is a recent innovation, and from which it may be considered to

be derived, reflect an approach to the conception or measurement of income
which differs widely from that reflected in FIFO accounting.

First in first out-

FIFO, which assumes that goods are sold or consumed in roughly the order in
which they are acquired, is the commonest method of pricing inventories at
cost. (Reduction to market need not here be considered.) The method is
often modified for the sake of convenience, or to avoid wide short time
fluctuations, and when so modified may be described as an average cost
method.
POSITION OF INVENTORIES
(Valuation as per significant Accounting Policy
No. 6)
As at
31.03.2014 (in As at
PARTICULARS cr.) 31.03.2013 (in cr.

Stock of coal 1067.28 1103.23

coal under Development 0 0
1067.28 1103.23
less: Provision 0 0
A. stock of coal (Net) 1067.28 1103.23

Stock of stores and spares(at

cost) 185.77 183
Stores-in-transit 0.67 6.1
186.44 189.1
less: Provision 39.26 39.44
B. Net stock of stores and
spares (at cost) 147.18 149.66

WORKSHOP JOBS:
Work-in-progress and Finished
Goods 1.68 2.4
less: Provision 0 0
C. Net Stock of workshop jobs 1.68 2.4

D. Press:
Work-in-progress and Finished
POSITION OF INVENTORIES
Goods 1.18
(Valuation as per significant Accounting Policy 1.25
No. 6)
E.
PARTICULARS
Stock of medicine at Central As at As at 31.03.2011
Hospital 31.03.2012 (in
0.3 (in cr.) 0.37
cr.)
F. Prospecting &
Boring/Development
Stock of coal Exp./Coal 1379.68 1292.31
blocks meant
coal under for sale
Development 1.710 1.720
1379.68 1292.31
Total (A to F)
less: Provision 1219.33 0 1258.630
A. stock of coal (Net) 1379.68 1292.31
Stock of stores and spares(at
cost) 179.58 175.95
Stores-in-transit 5.41 3.81
184.99 179.76
less: Provision 38.12 36.19
B. Net stock of stores and
spares (at cost) 146.87 143.57

WORKSHOP JOBS:
Work-in-progress and Finished
Goods 1.85 2.96
less: Provision 0 0
C. Net Stock of workshop jobs 1.85 2.96

D. Press:
Work-in-progress and Finished
Goods 1.06 0.81

E. Stock of medicine at Central

Hospital 0.32 0.37

F. Prospecting &
Boring/Development Exp./Coal
blocks meant for sale 1.72 6.97

Total (A to F) 1531.5 1446.9

ANALYSIS OF POSITION OF INVENTORY

1. NET STOCK OF COAL Stock of coal in CCL has been declining which
means that the sale of coal in CCL is increasing for the past 4 years,
and this is the reason why there is less stock of coal. Due to increase in
sales, CCL is generating more revenue. This indicates that CCL is on
the way towards expansion and growth.
 2. NET STOCK OF STORES AND SPARES Amount spend on Stock of stores
and spares is increasing every year except in 2014 as compared to
2013. There might be many reasons for increase in stock of stores and
spares. Either the company is acquiring more plant and machinery or
the company is investing more on the spare parts of their inefficient
machinery. Looking at the balance sheet of CCL from past few years we
can say that CCL is investing more on the acquisition of FIXED ASSETS
except for the year 2013, due to which investment in stores and spare
parts have increased. The following data represents investment in
acquisition of fixed assets by the CCL:
Year 2011 Rs 1339.82 cr.
Year 2012 Rs 1447.93 cr.
Year 2013 Rs 1364.44 cr.
Year 2014 Rs 1587.65 cr.

3. WORKSHOP JOBS CCL is trying to convert its inventories that are in

progress into finished goods, so as to generate more sales and earn more
revenue. Because of which net stock of workshop jobs have decreased in
2014 as compared to 2011 and 2013

4. STOCK OF MEDICINES CCL invest a good sum of money for the welfare of
its employees. Stock of medicines in the central hospital of CCL is decreasing
each year; this indicates that the employees are given good and healthy
working environment at the workplaces due to which they dont require to
avail medical facility, or there is less investment in acquisition of medicines.

DEBTORS MANAGEMENT IN CCL

According to New Coal Distribution Policy, sale of coal in CCL is done through
following TWO methods:

1. E-AUCTION the electronic auction (e-auction) is an e-business

between auctioneers and bidders, which takes place on an electronic
marketplace. It is an electronic commerce which occurs business to
business (B2B), business to consumer (B2C), or consumer to consumer
(C2C).

Under E-auction CCL offers its Goods, commodities or services on its auction
site on the internet. Interested parties submit their bid for coal, to be
auctioned in certain specified periods. The auction is transparent; all
interested parties are allowed to participate the auction in timely manner.

Since under E-AUCTION, all the buyers submit and agree upon a bid
amount and make the payment for their purchase in advance. There is
no scope of creating and managing debtors. In other words, under e-
auction coal is supplied to the buyers only after receiving the payment
from them in advance, it is not sold on credit to the buyers and
therefore it is not required to create debtors in the balance sheet of the
company.

2. FUEL SUPPLY AGREEMENT (FSA) under FSA, CCL raises source-wise

bills for the coal supplied to the purchaser on declared grade basis.
CCL shall raise such bills on rake-to-rake basis for delivery of coal by
rail and on daily basis for delivery of coal by road and other modes of
transport. Such bills shall be raised within 7 days of delivery.

The purchaser shall pay in accordance with either of the following

payment mechanisms:

A. The purchaser shall make advance payment for a month in three

instalments for availing coal supplies from the CCL:

First (1st) instalment on the first (1st) day of the month.

Second (2nd) instalment on the eleventh (11th) day of the
month, and
Third (3rd) instalment on the twenty first (21st) day of the
month.
 Each of these payment instalments shall cover the As Delivered Price
of Coal for the coal quantities that is one-ninth (1/9th) of the Quarterly
Quantity (QQ) concerned.

B. The purchaser shall maintain with the CCL, an Irrevocable Revolving

Letter of Credit (IRLC) issued by a bank acceptable to the CCL and fully
conforming to the conditions stipulated in SCHEDULE IV for an amount
equivalent to as Delivered Price of Coal for the coal quantities that is
one-ninth (1/9th) of the QQ concerned.

All the payment shall be made through Demand Draft / Bankers

cheque / Electronic Fund Transfer payable at (to be stated by CCL). In
the event of non-payment within the aforesaid period, the purchaser
shall be liable to pay interest.
Advance payment made by the purchaser shall be non-interest
bearing, and it shall change in accordance with change in the As
Delivered Price of Coal.

Even after following such strict procedure of BILLING, CLAIMS & PAYMENT,
where there is no scope for formation of Debtors, CCL is burdened with huge
amount of Debts. Following are some of the reasons for formation of Debtors
in the accounts of CCL. :

FSA (Fuel Supply Agreement) was introduced in the year 2007, before
that there were simple rules regarding sale of coal and acceptance of
payment from the buyers. Under these rules coal was sold on credit to
public companies. CCL have not realised the full payment of all such
credit sales made before 2007, which have led to the formation of
debtors.

There are some necessities in public interest for which coal needs to be
supplied at any cost, like for generation of electricity. Huge amount of
money of CCL is still due from such companies like National Thermal
Power Corporation (NTPC), Damodar Valley Corporation and other
power generating companies.
 The following are the list of debtors for the accounting year 2013-2014-

Due (Rs. In crores) as on: 31/03/2013 31/03/2014

1. NTPC 384.70 762.20

2. DVC 204.29 256.01
3. SEBs 1101.05 1084.10
4. PRIVATE PARTIES 11.71 0.14
5. OTHERS 0.00 63.18

ANALYSIS:-

1. NTPC: Debt of NTPC is increasing, as it is clear from the above data. In

2013, NTPC had a debt of 384.70 crores which increased to 762.20
crores in 2014 .Following are the reasons for increasing debt of NTPC:

Since NTPC is a public limited company and coal supplied are used for
generating power which is in public interest, therefore CCL is bound to supply
coal to it, even if it does not make the payments on time.

2. Damodar Valley Corporation- DVC is also a power generating public

limited company. The debt of DVC is also increasing from last few
years. It increased from 204.29 in 2012-2013 to Rs. 256.01 crores in
2013- 2014. CCL failed to realize the debt from DVC because of
following reasons:
Both the companies i.e., CCL and DVC are public limited companies
and are administered by government of India, and CCL is bound to
supply required amount of coal to DVC as the power generated by it is
in public interest.
DVC might not be having a good payment mechanism, due to which
the debt has been increasing each year. CCL, being a government
company has no right to enforce any other government company for
the payment.
3. SEBs These days Electricity has become essential to perform all kinds of
work effectively and efficiently and it is also beneficial for general public of
India, Due to this different companies of the STATE ELECTRICITY BOARD has
been regularly buying coal from CCL on credit. They have been debtors of
CCL and has highest debt as compared to all other public limited companies.
It was Rs. 1101.05 crores in 2012-2013, which rose to Rs. 1084.10 in 2014-
15.

4. PRIVATE PARTY: These are creating problems in CCL to a great extent.

Although the amount due by private parties fell from 11.71 crores in 2013 to
0.14 crores in 2014, but still CCL should take necessary steps to clear the
entire due amount and for this CCL should even move to the Court.

5. OTHERS: In 2014 due from other parties became 68.31 from 0.00 in 2013.
This is a big tension for CCL. After asking in CCL we get to know that a
company named DLF has holded the amount of 68.31 cr. due and when
CCLs officer asked for the money, the company directly told that they will
not pay the amount. Now CCL is planning to move to the court.
QUESTIONNAIRE:-

Q.1) What is import parity pricing?

Ans. The supply of coal to steel plants would be based on fuel supply
agreement (FSAs). The price of coal would be on the basis of import parity
pricing with suitable adjustment quality. There should be parity at the same
level of the price.

Q.2) What is floor price?

Ans. In E-Auction there shall not be any floor price. However,coal companies
may be allowed to fix an undisclosed Reserve price not below the notified
price.

Q.3) Does anyone can buy coal through E-Auction?

Ans. Yes, anyone can buy coal through E-Auction.

Q.4) What is the difference between Core and Non-Core Sector?

Ans. Core sector are the most important sector. If coal is not provided to
them, it can cause serious trouble to the nation. For eg: Fertilizer sector,
Electicity sector etc.

And Non-Core sector are also important sector but not as much important as
of Core sector. Eg: Steel sector, Iron sector etc.

Q.5) What is the role of standing linkage committee?

Ans. Standing means fixed and linkage means interlinked. Therefore these
committee is being linked to various sectors like coal sector is being linked to
Railways and Railways are being linked to electricity.

Q.6) Who issues Letter Of Assurance?

Ans. Ministry Of Coal issues Letter Of Assurance.

Q.7) How both the parties i.e. Companies and Consumers entered into the
Fuel supply Agreement?

Ans. Earlier in CIL linkage system was used in which coal is supplied to the
registered companies which are important from the social point of view and
they were given importance as compared to the other companies like to
power sectors.

But later the company decided that it will formulate a new policy in which no
company will be given importance. Thereby, NCDP was formed. Following
steps are followed to enter into FSA according to New Coal Distribution Policy
(NCDP):

i. Firstly, the consumers give their application for the purchase to the
Ministry of coal. Once it is approved, a letter of assurance (LOA) is
being issued.
ii. Then this letter is being provided to the nearest subsidiary of CIL. If the
requirement of coal by the company is above 4200 tonnes per annum
will take coal directly from Coal india limited or from its subsidiary
companies through FSAS and whose requirement is less than 4200
tonnes per annum will get coal through State nominated agencies.
iii. The allottee of LOA is required to fulfill certain conditions and to meet
the milestone and there after they are required to furnish an Earnest
money deposit (EMD). EMD can be in the form of Bank Guarantee.
iv. On failure EMD will be forfeited and the amount of EMD could be initially
kept at 5% of the annual coal requirement.
 How to Improve Working Capital Management

1. The essence of effective working capital management is proper cash

flow forecasting. This should take into account the impact of
unforeseen events, market cycles, loss of a prime customer, and actions
by competitors. The effect of unforeseen demands on working capital
should be factored in.

2. It pays to have contingency plans to tide over unexpected events.

While market leaders can manage uncertainty better, other companies
must have risk management procedures. These must be based on an
objective and realistic view of the role of working capital.

3. Addressing the issue of working capital on a corporate-wide basis has

certain advantages. Cash generated at one location can well be utilized
at another. For this to happen, information access, efficient banking
channels, good linkages between production and billing, internal
systems to move cash and good treasury practices should be in place.

4. An innovative approach, combining operational and financial skills and

an all encompassing view of the companys operations will help in
identifying and implementing strategies that generate short term cash.
This can be achieved by having the right set of executives who are
responsible for setting targets and performance levels. They are then
held accountable for delivering. They are also encouraged to be
enterprising and to act as change agents.

5. Effective dispute management procedures in relation to customers will

go along way in freeing up cash otherwise locked in due to disputes. It
will also improve customer service and free up time for legitimate
activities like sales, order entry, and cash collection. Overall, efficiency
will increase due to reduced operating costs.
6. Collaborating with your customers instead of being focused only on your
own operations will also yield good results. If feasible, helping them to
plan their inventory requirements efficiently to match your production
with their consumption will help reduce inventory levels. This can be
done with suppliers also.

Hence, Working capital management is an important yardstick to measure a

companys operational and financial efficiency. This aspect must form part of
the companys strategic and operational thinking. Efforts should constantly
be made to improve the working capital position. This will yield greater
efficiency and improve customer satisfaction.

CONCLUSION

Central coalfields limited (CCL) one of the subsidiary of the Coal India limited
(CIL). At present it is a Mini-Ratna organization and registered the highest
ever profit in the history of the company in 2014-15, recording around 81%
increase compared to the previous financial year.

According to the latest audit report released by the CCL, the company
recorded profit before tax (PBT) was Rs. 2740.34 crore for 2014-15 against
Rs. 2525.87crores for the previous financial year. Coal production for the
financial year was 50.02 million tons (MT) registering one percent growth
compared to corresponding last fiscal when the production was 48.06 MT.
The company has 60 operational mines in Jharkhand.

Therefore we arrive at a point where we are at a fairly satisfactory position to

comment on the working capital management of CCL.

During the tenure of my project regarding the subject matter at CCL, I have
come to appreciate the fact it is a unique organization in terms of working
capital management in the field of coal mining.

The organization has great potential to run the coal mines in an effective
manner. All employees of the organization are very much supportive.
 BIBLIOGRAPHY

Books & references:-

Pandey, I.M,(2013).Financial Management, Noida: Vikash

Publishing house

Avadhani, V. A. (2009). Investment Analysis. Mumbai: Himalaya Publishing

House.

2014-2015, Annual report. Central coalfields limited.

Websites:-

www.investopedia.com

www.google.co.in

www.cil.nic.in

www.ccl.gov.in