A Project Report ON AT: "Working Capital Management" Tata Refractories Limited, Belpahar, Orissa

A
PROJECT REPORT
ON
“WORKING CAPITAL MANAGEMENT”
AT
TATA REFRACTORIES LIMITED,
BELPAHAR, ORISSA
SUBMITTED BY
JINESH J. TANNA
MASTER OF BUSINESS ADMINISTRATION
2007-2009
VISHWAKARMA INSTITUTE OF MANAGEMENT

KONDHWA, PUNE
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UNIVERSITY OF PUNE
ACKNOWLEDGEMENT
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
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TO WHOM IT MAY CONCERN
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 to and prepared a Project
Report on “WORKING CAPITAL MANGEMENT” at TATA Refractories Ltd,
Belpahar.
He has completed his Project Successfully.
We wish him all success in life.
Date Faculty Guide
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DECLARATION BY THE CANDIDATE
I, Jinesh J. Tanna, a student of M.B.A 2nd Year of Vishwakarma Institute of

Management, Pune, 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
.
Date Signature of Candidate
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TABLE OF CONTENTS
1. EXECUTIVE SUMMARY 05
2. METHODOLOGY 06
3. OBJECTIVES OF STUDY 07
4. INDUSTRY ANALYSIS 08
5. COMPANY ANALYSIS 16
6. WORKING CAPITAL MANAGEMENT 28
7. RECEIVABLE MANAGEMENT 43
8. INVENTORY MANAGEMENT 55
9. CASH MANAGEMENT 62
10. WORKING CAPITAL FINANCE 74
11. CONCLUSION AND SUGGESTIONS 78
12. BIBLIOGRAPHY 80
13. APPENDIX 81
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EXECUTIVE SUMMARY
This project is aimed at studying Working Capital Management at TATA

REFRACTORIES LIMITED for five years (2003-04 to 2007-08). The analysis of
working capital management of the company includes Operating cycle, Receivables
management, Inventory management, Cash management and Working capital
financing of the company.
In the operating cycle ‘Net Working Capital’ is required to be calculated.

Net working capital includes Raw material conversion period, Work in progress
conversion period, Stores and Spares conversion period, Fuel conversion period,
finished goods conversion period, Account receivable conversion period and
Payable deferral period. Liquidity ratios, Activity ratios and Profitability ratios are
calculated.
For receivable management, collection procedure of a company is studied

and outstanding debtors are also ascertained. For inventory management inventory
control system of the company is studied and its effect on working capital. An
overview of cash management has been undertaken in order to ascertain the cash
position of the company.
By studying the working capital of a company the efficiency of different

functional departments come into picture along with that of finance department.
Though TRL is managing its working capital well, a thorough study of the working
capital management of the company brings out many opportunities for improvement.
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METHODOLOGY
This report is based on experience while working as a trainee at TATA

REFRACTORIES LTD, Belpahar.
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.
Secondary data – Annual report (2003-04 to 2007-08), magazines and journals in

knowledge centre in TRL; internet formed the secondary information source.
The following steps have been taken while preparing the report:
 Observation and handling of activities in the finance department

 Preparing financial statements, cash flow statement, operating cycle and
other related documents.
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OBJECTIVES OF THE STUDY
 To know the financial performance of the company.

 To study the Refractories industry and determine the position of the
company viz. a viz. its competitors
 To study the overall operating cycle of the company
 To study receivable management, inventory management and cash
management
 To study the working capital financing practices of the company.
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CHAPTER-1
INDUSTRY ANALYSIS
 REFRACTORY INDUSTRY
 REFRACTORY INDUSTRY LINKED TO IRON AND STEEL INDUSTRY
 INDIAN REFRACTORIES INDUSTRY
 SIZE OF THE INDUSTRY
 CRITICAL APPRECIATION OF DOMESTIC REFRACTORIES INDUSTRY
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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, resistance to
corrosive and erosive action of hot gases, liquids and solids at high temperatures in
various kilns, furnaces, driers, gas fires and reformers.
Refractories are consumed by the iron and steel, non-ferrous, cement,

copper, glass, aluminum, fertilizer, thermal power plants and petro-chemical
industries etc, which are witnessing robust growth. These sectors are giving high
thrust on productivity, quality cost, energy, conservation and cleaner environment
which necessitates new generation of Refractories with specific requirements.
Sources: www.irmaindia.org
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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.
Demand for steel continues to be strong in emerging markets of the BRIC countries.
Stupendous growth in the steel sector is being witnessed with the announcement of
ambitious capacity expansion plans by SAIL, TISCO, Essar Steel, JSW Steel and
many other players in the private sector.
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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 refractory production is expected to
increase by 16% per annum for the next few years.
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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.
Today, the industry comprises over 100 established units, with 11 large plants,
24 medium-scale units and the rest in the small-scale sector. However, while the
refractory industry in India took off in the late 19th century, 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.
Currently, the Indian refractory industry has an aggregate production capacity

of 20 lakh tones per annum. The capacity utilization, however, currently stands at
around 60 per cent, or 11.5-12 lakh tones per annum.
About 75 per cent of the Refractories that are manufactured find application in
the steel industry, 12 per cent in the cement industry, 5-6 per cent in non-ferrous
industries, three per cent in the glass industry and the balance in other industries.
Necessarily, Refractories are used either where high temperature or high rate
of abrasion / corrosion/erosion is involved. Traditionally, Refractories are made of
naturally-occurring minerals, such as bauxite, kyanite, magnetite, fireclay, chrome
ore, etc. Lately, however, the industry has been using man-made raw materials,
such as brown-fused alumina, tabular alumina, fused magnesia, silicon carbide,
magnesia alumina, etc.
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SIZE OF THE INDUSTRY
Dr J.J Irani, former MD of Tata Steel
The size of the Indian refractory industry has been pegged at Rs 2,300 crore
and it is stated to be growing at 8-10 per cent per annum. 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, the scope for growth is good in
view of the continuing growth in the Indian economy and the government’s focus on
infrastructure development.
Says Dr J.J. Irani, Director of Tata Sons and Former Managing Director of
Tata Steel: “With the government aiming to invest more and more on infrastructure
development, the steel industry in the country is slated to grow to, possibly, 120
million tones or even up to 150 million tones by 2015. According to most reports, the
cement, aluminum and other industries are also to grow to unprecedented heights.
This should be good news for refractory producers in India”.
According to Dr Irani, Refractory producers in India “have to rise to the

occasion by providing ready, regular, speedy and consistent supplies”. It would also
be important for Indian refractory manufacturers to focus on their raw materials
security, he says.
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. Cheaper refractory imports from
China are also putting a pressure on the industry’s margins . Hiring and retaining
skilled manpower is a major challenge that the Indian refractory industry has to cope
with.
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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.
This is partly due to an easing of the cash flow problems of the steel industry,
which accounts for 75 per cent of the total domestic refractories consumption. But,
perhaps, a more important reason is the significant export performance. In fact, the
export prospects have never been so encouraging for the refractory makers in the
past. Standing the refractory makers in good stead also is the reduction, after
repeated pleas to the Finance Ministry, 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. Further, the Centre has
revised the DEPB entitlement for export of certain high alumina and alumina carbon
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; for there was total
uncertainty about payments against supplies made.
In view of their cash flow problems, 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, in turn, were giving it to dealers at a discount of
2.5 to 3 per cent, depending on the products, to realize their dues.
With conditions permitting the steel companies to increase prices in

installments from April 2002, as a result of which their liquidity has improved, they
have discontinued the practice of giving credit notes. This has meant a welcome
change in the situation for the refractory units; although the steel plants are still
taking four to five months to square up their dues.
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, there had been a significant drop in the specific consumption of iron and
steel making refractories.
In some steel plants, the specific consumption of refractories is down to about

11 kg per tone of liquid metal from about 23 kg three years ago.
This factor also applies to the other refractory consuming industries, such as
cement, glass and non-ferrous metals, which, like steel, also have not seen much
growth in recent years.
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No wonder, the refractory industry, which has a capacity of about 15-lakh

tones, has not been able to go beyond 46 to 47 per cent utilization.
This was mentioned by Mr C.D. Kamath, the immediate past chairman of
Indian Refractory Makers Association, at its AGM held here on July 22 last.
The upturn in export performance, in these circumstances, has, therefore,

come as a major relief and confidence booster.
The value of the refractory industry's exports, which stood at Rs 55 crore in

1998-99, rose to Rs 86 crore in the last financial year.
Judging by the orders already received and expected, the industry is hoping
to register exports worth Rs 100 crore in 2002-03. Its assessment is that if the trend
persists, Rs 200 crore worth of exports will be a reality, say, by the terminal year of
the Tenth Plan.
Some 13 years ago, it could export only Rs 1 crore worth of refractories.
The volume of exports and unit realization in 1998-99 were 23,682 tones and
Rs 23,500 respectively. The figures in 2001-02 were 29,912 tones and Rs 29,000
respectively.
Earlier, exports would be only to Bangladesh, Sri Lanka, Malaysia, Indonesia,

Egypt and Syria. Now, its products are also being shipped to the US, the UK,
Germany, Sweden, Finland and Chile. The market diversification has given the
industry a confidence level that it never had in the past.
The export growth logically should facilitate better capacity utilization.
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CHAPTER-2
COMPANY ANALYSIS
 TATA GROUP
 TATA REFRACTORIES LIMITED
 SWOT ANALYSIS
 FINANCIAL OVERVIEW OF TRL
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TATA GROUP
Best known most

135 years respected business in
old India
Group Turnover US $ 70 Billion
5 % of India’s GDP
Total Sale Represent
US $ 1.42 Billion
India’s Largest Foreign Exchange Earner
India’s The Largest Employer on The Private 300000 Employees

Sector
PURPOSE
Improve the quality of life through leadership in targeted sectors of national economy
significance.
GROUP AS A PIONEER
 India’s first indigenous steel mill.

 India’s first power utility.
 India’s first hotel chain.
 India’s largest salt work.
 India’s first international airline.
 India’s first fully indigenous passenger car.
 India’s first software venture.
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TATA REFRACTORIES LIMITED
Tata Refractories limited is one of India most modern plants, was promoted as
joint Venture of TATA STEEL & DIDIER WERKEA.G, of Germany. The plant is
situated at Belpahar in Jharsuguda district of Orissa with an installed capacity Of 1,
49,000 tones of refractories per annum & is equipped with a modern research &
development laboratory & a pilot plant. The production activities extended to
Jamshedpur & Chennai to meet customer requirements. Besides TRL has its own
sintering plant at KARUPPUR, TAMILNADU, for dead burnt magnetite & non-plastic
fire clay mines at TALBASTA, ORISSA.
TRL product range includes various types of fire clay & high alumina bricks,
coke oven, silica bricks, various types of basic bricks like magnesite bonded mag
chrome bricks, burnt mag-dole bricks with & without tar imprenation. Special product
likes slide gate refractory (basic & high alumina slide plates) & its accessories
zirconia nozzles mullite, zircon. With technical know –how from KUROSAKI
refractories company limited (KRC), One of the largest manufacturers of hi tech
refractories in JAPAN, TRL is now producing improved variety of magnesia carbon
bricks, basic gunning mixes, superior grade well blocks for various applications. TRL
has in hand an expansion programmed which will include production of dolomite
bricks & continues costing refractories.
It major client are integrated mini & other steel plant & various non-ferrous,
Glass, petro chemical & fertilizer industries. TRL also extends technical services to
its customers 7 helps in designing & application of refractories.
HISTORY – Major Milestone
 1958 promoted by TATA Steel.

 1959 Started production of basic, high alumina and silica.
 1971 Research and development facilities establish.
 1986 Christened as “TRL”.
 1993 Established leading market position.
 1994 Commissioned 30000MT pa dolomite plant.
 1999 ISO9002 Certification for the whole plant.
 2006 Expansion on modernization projected detected to nation (10 th April, 06).
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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. 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, it flows
TATA code of conduct and encourages all its stakeholders.
VISION
A Global Refractories Company.
MISSION
TATA Refractories shall be a high performance and technology driven organization

committed to create value for all its stakeholders.
VALUES
 Customer delight
 Leadership by example
 Integrity and transparency
 Fairness
 Furthering excellence
QUALITY POLICY
We, at TATA Refractories, dedicate ourselves to Total Quality.

We are committed to enhance customer satisfaction on a continuous basis through
implementation of an effective Quality Management System.
Continuous improvement, credibility, consistency and concern shall be our guiding
values.
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FOREIGN COLLABORATIONS
Various organizations have made collaborations with TRL viz.
 M/S KROSAKI REFRACTORIES, JAPAN.

 M/S DOLOMIT WERKE, GMBH, GERMANY
 M/S STOPINC SWITZERLAND.
 A.P. GREEN U.S.A.
 ELKEM, NORWAY
MAJOR PRODUCTS
 Basic bricks
 High Alumina bricks
 Silica bricks
 Dolomite bricks
 Monolithic refractories
 Flow control products.
MAJOR SERVICES
 Total refractories solution for equipment for making steel, copper, aluminum,
glass etc.
 Total refractories management i.e. providing running maintainces of
customers’ equipment such as ladles, kilns, Furnaces etc.
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SWOT ANALYSIS
Strength:
 Tata brand image & code of conduct.

 Implementation of TQM.
 Implementation of ERP system (Baan).
 TRL provides “Total Refractory Solutions” (TRS)
 Technical collaboration with global alliances.
 Set up of high tech machinery ex- SACMI for pressing of products.
 New packaging solution.
 Team TRL.
Weakness:
 Lack of profitable investment.

 Over stocking of assets.
 High cost of production.
 Low yield.
Opportunity:
 Cost control.
 Increased efficiency.
 Quality product.
 Increased profit
Threats:
 Global challenges: Large refractory manufacturers such as RHI have now

targeted.
 Indian refractories market.
 Business challenge: Existence of large number of small refractories in the
unorganized sectors operating at 40-50% capacity utilization.
 Customer: Customers of refractories product generally belongs to large
industrial organization therefore have strong negotiating position.
 Suppliers: In highly competitive environment & ever increasing customer
expectations.
 Key challenge is to meet the need of continuous cost reduction demand
through efficient supply chain management.
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 Environment: Intrinsic nature of raw material & manner of their processing

result in air pollution, high dust content water contamination.
COMPETITORS OF TRL:
As other fields have competitions, the Refractories market also has a

competition. Here we are discussing about the main competitors of TRL.
 ORISSA CEMENT – It has the turnover of 200 crore & the export worth RS 25
crore. Presently they are trying to establish the production & quality of ladle
tundish shrouds. 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.
 BHARAT REFRACTORIES – BRL as around 125 M.T of specialty product per

month as INDO FLOGATES are presently taking from OAL, the slide plates.
They are approaching MSP & TISCO for supply specialty product.
 ACC CEMENT – It has turnover for the year was 179 crore. Along with other
competitors, acc is also making his presences in domestic market.
 IFGL REFRACTORIES
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 VISHUVYAS REFRACTORIES.
POTENTIAL THREAT:
TRL competitors M/S oil operating from china is a major threat in the
Southeast Asia & the Far East. 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.
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.
It has already set up many of the potential outsider’s customer in

AUSTRALIA, SRILANKA, BHUTAN. In future this company may become the world
number 1 Refractories company.
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FINANCIAL OVERVIEW OF TRL
During year 2007-2008 the company encountered innumerable challenges.
Firstly, 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. This has adversely effected
production and profitability of the company.
Secondary, soaring energy prices are negatively impacting the profitability.

Thirdly, 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.
Fourthly, due to closer of all gas producers and Silica tunnel Kiln on account
of pollution problem, not only Silica bricks production had to be stopped for about
four months, excess energy costs had also to be incurred due to substitution of gas
by oil.
Fifthly, appreciation of Rupee against Dollar had a serious impact on export

performance and profitability.
Despite the above adverse situations the company has achieve highest ever
performance in terms of production, sales and revenues, there by the company
continued to retain its leadership position in the Indian Refractories Industry. This
was possible because of the inherent strengths of the company in aspects such as
technological advancement, innovation capabilities professional competence,
financial stability and above all determination of employees to face adverse
situations with full commitment.
For the year 2007-08 the revenues of the company- at Rs 587 Crores on
stand alone basis-were higher by Rs 66 Crores compared to previous year,
establishing an all time record. The consolidated revenues of the company along
with those of TRL China were Rs. 610 Crores, a new milestone in the 50-year history
of the company.
The company continues to be the No. 2 fired dolomite Refractories producer

in the world. In India the company is the commercial producer of dolomite
Refractories and has a market share of over 90%.
The company achieved the highest ever export turn over of Rs. 68 Crores, i.e.
an increase of 21% company to that of previous year.
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Performance
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%).
Exports
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.
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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 : Rs. 63.09 Lakhs
b) Recurring : Rs. 129.75 Lakhs
c) Total : Rs.192.84 Lakhs
d) Total R & D expenditure
as a percentage of total turnover : 0.33%

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Foreign Exchange Earnings and Outgo
Total foreign exchange used and earned:

Foreign Exchange used Rs. 98 Crores.
Foreign Exchange earned Rs. 69 Crores.
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CHAPTER-3
WORKING CAPITAL MANAGEMENT
 INTRODUCTION
 CONCEPT OF WORKING CAPITAL
 OPERATING CYCLE
 ISSUES IN WORKING CAPITAL MANAGEMENT
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INTRODUCTION
Working capital is the life blood and every manager’s primary task is to help
to keep it managing. Good management of working capital generate cash and helps
to improves profits and reduce risk. In other words working capital is the current
asset the management of which is different from fixed asset. For example the
discounting and compounding techniques, in capital budgeting is not required in
WCM. 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. Current
asset can be adjusted with sales fluctuations in the short run. Thus the firm has a
greater degree of flexibility in managing current or working capital.
CONCEPT OF WORKING CAPITAL
Each components of working capital has two dimensions. One is time and
another is money. When it comes managing working time of money, if M/S TRL can
get money to move faster around the cycle or reduce the amount of money tied up,
the business will generate more cash or it will need to borrow less money to found
working capital. As a consequence it will reduce the cost of bank interest. There are
two concepts of working capital—ggross working capital and Net working capital.
1. Gross Working Capital refers to the firm’s investment in current assets.

Current assets are the assets which can be converted in to cash within an
accounting year and include cash, short term securities, debtors, and stocks.
The table below shows the gross working capital of TRL from 2005 to 2008
i.e. of four accounting years.
A Glance At TRL's Current Assets

As on As on As on As on
Current Assets 31.03.2008 31.03.2007 31.03.2006 31.03.2005
a) Stores and Spare
Parts (at cost) 8,53,67,154 6,40,02,684 4,35,67,566 4,46,55,042
b) Loose Tools 18,22,760 11,64,815 10,77,258 11,69,508
c) Stock-in Trade 85,13,94,581 58,61,30,368 63,21,91,956 63,65,90,022
d) Sundry Debtors 109,44,61,154 103,75,57,010 78,13,27,686 66,67,41,534
e) Cash and Bank
Balances 6,47,80,695 3,42,38,276 3,47,76,842 9,27,98,670
Total Current Assets 2097826344 1723093153 1492941308 1441954776
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Sources: Annual Report, TRL

2. Net Working Capital refers to the difference between current assets and
current liabilities. Current liabilities those claims of outsiders which are
expected to matured for payment within an accounting year and include
creditor, bills payables, and outstanding expanses. Net working capital can be
positive or negative. A positive net working capital will arise when current
assets exceeds current liabilities. Negative net working capital occurs when
current liabilities are in excess of current assets.
The table below shows the net working capital of TRL from 2005 to
2008 i.e. of four accounting years.
A GALANCE AT TRL'S NET WORKING CAPITAL

As on As on As on As on
Current Assets 31.03.2008 31.03.2007 31.03.2006 31.03.2005
a) Stores and Spare
Parts (at cost) 8,53,67,154 6,40,02,684 4,35,67,566 4,46,55,042
b) Loose Tools 18,22,760 11,64,815 10,77,258 11,69,508
c) Stock-in Trade 85,13,94,581 58,61,30,368 63,21,91,956 63,65,90,022
d) Sundry Debtors 109,44,61,154 103,75,57,010 78,13,27,686 66,67,41,534
e) Cash and Bank
Balances 6,47,80,695 3,42,38,276 3,47,76,842 9,27,98,670
Total Current Assets 2,097,826,344 1,723,093,153 1,492,941,308 1,441,954,776
Current liabilities
a) Acceptances 6,17,43,902 64,82,700 96,25,532 8,41,65,532
b) Sundry Creditors 66,84,41,252 64,36,62,467 62,39,47,395 56,61,04,791
c) Advances received
from customers 10,83,12,593 14,96,82,413 2,82,85,001 10,92,81,991
d) Interst accrued but
not due 1,86,88,757 89,06,511 72,91,624 27,30,208
e) Other Liabilities 3,31,894 10,64,452 11,02,460 12,95,679
Total Current
Liabilities 85,75,18,398 80,97,98,543 67,02,52,012 76,35,78,201
NET WORKING
CAPITAL(Net
Current Assets) 1,240,307,946 913,294,610 822,689,296 678,376,575
Page88
OPERATING CYCLE
The need for working capital to run the day to day to day business activities
cannot be over emphasized. The firm has to invest enough funds in current assets
for generating sales. Current assets are needed because sales don’t convert in to
cash instantaneously. There is always an operating cycle involved in the conversion
of sales into cash.
Operating cycle is the time duration required to convert sales, after the
conversion of resources into inventories, into cash. The operating cycle of TRL
includes three phases:
 Acquisition of resources, such as raw materials, labour, power, and fuel etc.
 Manufacture of the product which includes conversion of raw material into
work-in-progress in to finished goods.
 Sale of the product either for cash or credit. A credit sale creates accounts
receivable for collection.
Page88
The above cycle is the TRL’s operating cycle which shows different stages of
conversion of raw materials into cash. The length of the operating cycle of TRL is the
sum of inventory conversion period and debtor conversion period. The inventory
conversion period is the total time taken for producing and selling the product.
Typically it includes, raw material conversion period, work-in-progress conversion
period, stores and spares conversions period, fuel conversion period, and finished
goods conversion period. The debtor conversion period is the time required to collect
the outstanding amount from the customer. 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. Payables, which the firm can differ, are spontaneous
sources of capital to finance investment in current assets. The creditor’s deferral
period (CDP) is the length of time the firm is able to differ payments on various
resource purchases.
The difference between gross operating cycle and payable deferral

period is net operating cycle (NOC).
We had calculated the raw material conversion period, work-in-progress

conversion period and finished goods conversion periods, debtors conversion
period, creditor conversion period, 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.
WORKING CAPITAL AS ON 31.03.2008

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Rs. Crores
ACTUAL
AS PER
ITEMS NORMS AS ON DIFF.
NORM
31.03.2006
DEBTORS 70 DAYS OF SALES 113.67 109.44 -4.23

( 70 DAYS ) ( 68 DAYS )
RAW MATERIAL 45 DAYS OF CONSMN. 24.80 32.00 7.2

( 45 DAYS ) ( 59 DAYS )
WIP 15 DAYS COST OF PROD. 20.03 13.47 -6.56

( 15 DAYS ) ( 11 DAYS )
STORES & SPARES 120 DAYS OF CONSMN. 2.52 5.15 2.63

(120 DAYS ) (246 DAYS )
FUEL 15 DAYS OF CONSMN. 2.41 3.56 1.15

( 15 DAYS ) (23 DAYS )
FINISHED GOODS 30 DAYS COST OF PROD. 44.85 39.66 -5.19

PLUS E.D. ( 30 DAYS ) ( 27 DAYS )
OTHERS ACTUAL 46.59 46.59 0.00
TOTAL CURRENT ASSETS 254.87 249.87 -5
CREDITORS ( OPERATION ) 45 DAYS, COST OF PROD. 60.10 73.01 12.91

( 45 DAYS ) ( 66 DAYS )
OTHER CREDITORS &

PROVISIONS ACTUAL 25.29 25.29 0.00
Incl. Not due within one
year
TOTAL CURRENT LIAB. 85.39 98.3 12.91
NETWORKING CAPITAL 169.48 151.57 17.91

Page88
Rs. Crores
ACTUAL
AS PER
NORM
31.03.2006
DEBTORS 60 DAYS OF SALES 86.12 103.75 17.63

( 60 DAYS ) ( 73 DAYS )

( 30 DAYS ) ( 35 DAYS )
WIP 15 DAYS COST OF PROD. 17.66 14.06 -3.6

( 15 DAYS ) ( 12 DAYS )
STORES & SPARES 90 DAYS OF CONSMN. 2.52 3.82 1.3

( 90 DAYS ) (137 DAYS)
FUEL 15 DAYS OF CONSMN. 1.96 2.68 .72

( 15 DAYS ) (21 DAYS )

TOTAL CURRENT ASSETS 201.73 205.85 4.12
CREDITORS ( OPERATION ) 45 DAYS, COST OF PROD. 52.98 65.01 12.03

( 45 DAYS ) ( 56 DAYS )
OTHER CREDITORS &

year
TOTAL CURRENT LIAB. 70.67 82.7 12.03
NETWORKING CAPITAL 131.06 123.15 -7.91

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Rs. Crores
ACTUAL
AS PER
NORM
31.03.2006

( 60 DAYS ) ( 62 DAYS )

( 45 DAYS ) ( 51 DAYS )
WIP 15 DAYS COST OF PROD. 14.42 15.39 0.97

( 15 DAYS ) ( 16 DAYS )
STORES & SPARES 90 DAYS OF CONSMN. 4.66 3.42 -1.24

( 90 DAYS ) ( 66 DAYS )
FUEL 15 DAYS OF CONSMN. 1.57 1.05 -0.52

( 15 DAYS ) (10 DAYS )

CREDITORS ( OPERATION ) 45 DAYS COST OF PROD. 43.19 63.35 -20.16

( 45 DAYS ) ( 66 DAYS )
OTHER CREDITORS &

year
TOTAL CURRENT LIAB. 97.18 117.34 -20.16
Page88

Rs. Crores
ACTUAL
AS PER
NORM
31.03.2006

( 60 DAYS ) ( 61 DAYS )

( 45 DAYS ) ( 70 DAYS )

( 15 DAYS ) ( 18 DAYS )

( 90 DAYS ) ( 80 DAYS )

( 15 DAYS ) (9 DAYS )


( 45 DAYS ) ( 79 DAYS )
OTHER CREDITORS &

year
Page88

Rs. Crores
ACTUAL
AS PER
NORM
31.03.2006
DEBTORS 70 DAYS OF SALES 60.25 49.82 -10.43

( 70 DAYS ) ( 58 DAYS )

( 35 DAYS ) ( 68 DAYS )

( 15 DAYS ) ( 18 DAYS )

( 90 DAYS ) ( 78 DAYS )

( 15 DAYS ) (14 DAYS )


( 45 DAYS ) ( 62 DAYS )
OTHER CREDITORS &

year
Page88
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. 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. Investment in current asset represents a very significant
portion of the total investment in assets.
Current Assets in proportion to Total Assets

Year Current Assets Total Assets Ratios
2007-2008 2097826344 5404232797 38.82%
2006-2007 1723093153 4979337525 34.60%
2005-2006 1492941308 4623036317 32.30%
2004-2005 1441954776 3692769264 39.04%
2003-2004 1126367562 2984771626 37.74%

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There is a direct relationship between an firm’s growth and its working capital
needs. As sales grow company needs to invest more in inventories and debtors. As
the firm’s out put and sales increases, the need for current asset increases, but
current asset don’t increase in direct proportion to output.
TRL’s sales for five years are shown below. The amount of current asset in
relation to current asset in not a function of direct proportionality. These figures are
shown below in table and graph.
Current asset Turnover Ratio

Year Sales Current Assets Ratio
2007-2008 584,59,23,088 2097826344 2.79
2006-2007 516,75,44,869 1723093153 3
2005-2006 455,70,76,293 1492941308 3.05
2004-2005 400,54,21,306 1441954776 2.78
2003-2004 317,07,24,228 1126367562 2.81

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Current Asset to Fixed Asset Ratio:

The level of current asset can be measured by relating to current asset by
fixed assets.
 A higher CA/FA – indicates a conservative current asset policy.

 A lower CA/FA – indicates a aggressive current asset policy.
A conservative policy implies greater liquidity and lower risk; while an

aggressive policy indicates higher risk and poor liquidity. Moderate current asset
policy fall in the middle of conservative and aggressive policy.
CURRENT ASSETS FINANCING POLICY

Years Current Assets Fixed Assets CA/FA
2007-08 249,72,17,831 330,64,06,453 0.75526
2006-07 254,66,60,234 325,62,44,372 0.78208
2005-06 230,24,50,905 313,00,95,009 0.73558
2004-05 185,44,90,292 225,08,14,488 0.82391
2003-04 135,45,16,543 185,84,04,064 0.72886
Interpretation: By seeing the increasing and decreasing trend of investment in

current asset as compared to investment in fixed assets, it is clears that TRL adopts
moderate current asset policy. In other words it pays more attention towards
profitability and liquidity.
Aim of working capital management

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 Measuring Profitability.
 Measuring Solvency.
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.
LIQUID RATIOS
Ratios 2007-08 2006-07 2005-06 2004-05 2003-04
Current Ratio 2.446 2.128 2.227 1.888 2.082
Quick Ratio 2.35 2.04 2.16 1.83 2.71
Cash Ratio 0.076 0.042 0.052 0.1215 0.055
Interval Measure 155.474 139.59 142.741 159.8 155.57
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.
ACTIVITY RATIO
Ratios 2007-08 2006-07 2005-06 2004-05 2003-04
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Inventory Turnover Ratio 5.623 7.168 5.498 4.764 4.431

Debtors Turnover Ratio 5.341 4.98 5.832 6.007 6.364
Net Asset Turnover Ratio 1.673 1.554 1.512 2.155 2.209
Current Asset Ratio 2.787 2.99 3.052 2.778 2.815
Working Capital Turnover Ratio 4.713 5.658 5.539 5.904 5.416
Page88
CHAPTER-4
RECEIVABLES MANAGEMENT
 INTRODUCTION:
 ASPECTS OF CREDIT MANAGEMENT
 MODE OF PAYMENT BY DEBTORS
 MONITORING RECEIVABLES
 FACTORING
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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. Trade credit creates
accounts receivable or trade debtors that the firm is expected to collect in the
near future. 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. A credit sale has three characteristics.
 It involves an element of risk that should be carefully analyzed. Cash sales

are riskless, but not the credit sales as the cash payments are yet to be
received.
 It is based on economic value. To the buyer, the economic value in goods
or services passes immediately at the time of sale, while the seller expects
an equivalent value to be received later on.
 It implies futurity. The buyer will make the cash payment for goods or
services received by him in a future period.
A firm’s investment in accounts receivables depends on volume of credit

sales and collection periods. Trade credit arises when a firm sales it products or
services on credit and doesn’t receive cash immediately. Due to which debtors are
arises in the firm, thus trade debtors represent investment. As substantial amounts
are tied-up in trade debtors, it needs careful analysis and proper management, so
this arise receivable management.
Debtors constitute a substantial portion of current asset of several firms.

Basically trade debtors, after inventories, are the major component of current assets.
They form about one third of current asset in India. Granting credit and creating
debtors amounts to the blocking of the firm’s fund. The interval between the date of
sale and the date of payment has to be financed out of working capital. This
necessitates the firm to get funds from banks or other sources.
Page88
Percentage of debtors over current asset of TRL for five years is shown below in the
form of table and graph.
YEARS DEBTORS CURRENT RATIOS

ASSETS
2007-2008 109,44,61,154 249,72,17,831 43.83%
2006-2007 103,75,57,010 209,19,80,916 49.60%
2005-2006 78,13,27,686 209,19,80,916 33.94%
2004-2005 66,67,41,534 185,44,90,292 35.95%
2003-2004 49,82,40,490 135,45,16,543 36.78%
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 2006-
2007, which are Rs 102.507 corers more than its norms. However it may be
observed that in subsequent years TRL has reduced the gap and brought the
debtors position at par level of norms. As debtors plays a vital role in working capital
management, TRL has properly analyzed in details how exactly debtors are
managed here.
A firm’s investment in accounts receivable depends on the volume of credit

sales and the collection period. So it is also essential to find out the collection period
to know the system of collection on time. It is finding by the following formula i.e.
Page88
Average collection period (ACP) = Debtors/Credit Sales x 360

It also helps to find the firm’s average investment in account receivable.
Average collection period of TRL for five years is shown below in the form of table
and graph.
YEARS DEBTORS CREDIT SALES ACP
67.398
2007-2008 109,44,61,154 584,59,23,088 days
72.282
2006-2007 103,75,57,010 516,75,44,869 days
61.723
2005-2006 78,13,27,686 455,70,76,293 days
59.926
2004-2005 66,67,41,534 400,54,21,306 days
56.57
2003-2004 49,82,40,490 317,07,24,228 days
So in above table the average collection period i.e. ACP determines the
speed of payment by customers. It measures the number of days for which credit
sales remains outstanding. The longer the ACP, the higher the firm’s investment in
account receivable.
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.TRL has setup a task force comprising of members from marketing and
finance department. The task force is mostly set to identify the loc mina in the
Page88
system of collection on time and also given more attention for collecting the old
dues.
ASPECTS OF CREDIT MANAGEMENT
1. Terms of payment
 100% advance.
 30 days credit.
 60 days credit.
 Letter of credit.
 Payment on the basis of performance
2. Credit policy variables
 Credit standard: It is the criteria which a firm follows in selecting

customers for the purpose of credit extension.TRL gives credit
according to the past history and past experience of the customer.
 Credit period: The credit period given by TRL is generally 60 days.
 Cash discount: The discount rate is 3% on list price if it is paid on
advance.
 Collection effort: In TRL collection effort is done by the marketing
department.
3. Credit evaluation of customer
TRL adopt traditional credit analysis, so it calls for assessing

prospective customers in terms of four “C. Character, capacity, condition and
collateral.
TRL has categories it’s customers in three categories:
 Red- It indicates financially very weak, high risk customers.

 Yellow- It indicates customers with moderate health and risk.
 Green- It indicates financially strong customers.
4. Credit-granting decision
Once the firm has assessed the creditworthiness of a customer, it has

to decide weather or not credit should be granted. In TRL the basically there
is no thumb rule for credit granting decision. All decisions related to credit
granting is taken by the heads of three profit centre i.e. (Basic and Dolomite,
Alumina and Silica, Monolithic and Flow control), joint MD and MD.
5. Control of accounts receivables
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TRL has set up a task force comprising of members from marketing

and finance department. 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.
6. Measures commonly employed for studying bad debt losses ratios.
Default rate can be measured in terms of bad losses ratios indicates

default risk. Default risk is the likelihood that a customer will fail to repay the
credit obligation.
YEAR 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004

CONSIDERED 12,58,142 29,58,142 29,01,255 1,78,83,524 1,56,66,605
DOUBTFUL
So while seeing on the above table we can conclude that TRL has
taken some major steps to control doubtful debts.
Mode of Payments by Debtors
The debtors pay to TRL in the form of:
1. Advance Payment
It is the payment received in advance before delivering the goods or services

to the customer. Advance Payments are usually made by small customers or
for short term. In other words TRL usually take advance payment from their
Red customers and sometimes from yellow customers.
2. 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. Technically a letter of credit is not a
guarantee although it does guarantee payment of an obligation to a
beneficiary.
Contents of LC:
 Terms
 Conditions
 Procedures
Page88
Parties of LC: There are five parties to the letter of credit
 Issuer
 Applicant
 Beneficiary
 Advising bank
 Confirming Bank
Basically LC is win- win situation for both the parties.
TRL uses SBI Commercial Branch, Rourkela as an issuer bank for letter
of credit.
3. 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. For
Other customers the credit payment is 30 days or 60 days.
4. Other modes of payment by debtor
i) Postdated cheques: many customers of TRL in northern region prefer to

make this mode of payment.TRL takes postdated cheques with Bank
guarantee certificate.
ii) 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. Guarantee of the product performance is
supported by the help of R&D’s approval certificate with bank guarantee
certificate, which is issued by SBI Samada, Belpahar. A slab has been
made by TRL which shows the payment procedure. 10% of payment at
the time of delivering the product, for that bank guarantees, 80% of
payment during the performance of the product and another 10% of
payment after customer satisfaction.
MONITORING RECEIVABLES
A firm needs continuously monitoring and controlling its receivables to ensure

the success of collection effort. TRL uses Aging Schedule method for evaluating the
management of receivables.
Page88
Aging Schedule shows the outstanding amount with a limited credit period
which is remains uncollected that period. It breakdown the receivables according to
the length of time for which they have been outstanding.
Aging Schedule provides more information about the collection experience. It

helps to spot out the slow paying debtors.
The Aging Schedule of TRL for the financial year 2006-2007 has been shown below.
Page88
DEBTORS OUTSTANDING AS ON 31.03.2007
(Rupees in Lakhs )
Bills
Bills Bills Bills Bills Bills more
within 3 3-6 6-9 9-12 12-24 than 24
Customer’s code and name BG Balance months mths mths mths mths mths
D20001 TATA STEEL LIMITED 100 1,806.51 1,658.22 43.64 51.34 24.80 28.51 0.00
D20002 SAIL - BHILAI STEEL PLANT 100 233.10 149.18 21.69 34.76 13.33 14.13 0.00
D20003 SAIL-ROURKELA STEEL PLANT 100 348.21 248.28 32.44 67.49 0.00 0.00 0.00
D20004 SAIL-BOKARO STEEL PLANT 100 182.35 174.62 7.74 0.00 0.00 0.00 0.00
D20005 SAIL-DURGAPUR STEEL PLANT 200 90.71 53.92 13.49 0.05 3.89 12.75 6.60
D20006 SAIL - ALLOY STEEL PLANT 100 21.72 15.36 1.36 0.31 4.70 0.00 0.00
D20007 INDIAN IRON & STEEL CO. LTD., 300 9.29 9.21 0.08 0.00 0.00 0.00 0.00
D20009 RASHTRIYA ISPAT NIGAM LTD,(RIN 200 468.35 110.98 69.32 90.53 99.38 98.15 0.00
Total 3,160.24 2,419.77 189.76 244.48 146.10 153.54 6.60
Tata International Ltd 45.24 2.41 0.00 37.93 0.00 4.91 0.00
Direct Export 755.37 635.27 65.38 45.64 0.00 9.08 0.00
D10007 AARTI STEELS LIMITED 100 12.01 12.01 0.00 0.00 0.00 0.00 0.00
D16041 ACTION ISPAT & POWER (P) LTD 600 32.57 32.43 0.00 0.00 0.14 0.00 0.00
D15122 ADHUNIK METALIKS LTD 300 12.05 12.05 0.00 0.00 0.00 0.00 0.00
D21009 ADITYA COKE PVT. LTD 200 13.19 13.19 0.00 0.00 0.00 0.00 0.00
D07244 AIA ENGINEERING LTD 300 12.34 9.25 3.08 0.00 0.00 0.00 0.00
D10006 AMBICA STEELS LIMITED 100 60.96 60.96 0.00 0.00 0.00 0.00 0.00
D95025 APEX TRADING AGENCY 400 19.71 17.60 0.51 1.32 0.28 0.00 0.00
D96009 ARORA REFRACTORIES 400 15.93 15.72 0.21 0.00 0.00 0.00 0.00
D07239 ASSOCIATED INDUSTRIAL FURNACES 300 55.60 49.81 5.79 0.00 0.00 0.00 0.00
D10033 BANIAN & BERRY ALLOYS PVT. LTD 100 43.76 43.76 0.00 0.00 0.00 0.00 0.00
D58005 BHARAT ALUMINIUM COMPANY LIMIT 200 41.18 31.13 3.68 0.00 0.01 5.14 1.22
D07002 BHARAT HEAVY ELECTRICALS LIMIT 300 10.33 4.74 0.00 5.24 0.35 0.00 0.00
D97092 BHAWANI INDUSTRIES LTD 300 11.56 11.56 0.00 0.00 0.00 0.00 0.00
D15120 BHUSHAN POWER & STEEL LIMITED 300 54.04 54.04 0.00 0.00 0.00 0.00 0.00
D15078 BHUSHAN STEEL & STRIPS LTD., 600 137.91 137.91 0.00 0.00 0.00 0.00 0.00
D07182 BHUTAN FERRO ALLOYS LTD. 600 18.84 0.00 0.00 6.65 12.19 0.00 0.00
D04003 BRIJ LAL PAWAN KUMAR 400 19.40 18.44 0.96 0.00 0.00 0.00 0.00
D05019 ELETROTHERM (INDIA) LTD 300 244.06 241.49 2.57 0.00 0.00 0.00 0.00
D20011 ESSAR STEEL LIMITED 100 141.09 106.05 35.02 0.00 0.01 0.00 0.00
D10003 FACOR STEELS LIMITED 500 328.63 301.02 23.43 4.18 0.00 0.00 0.00
D10032 GEE ISPAT PVT. LTD 100 20.66 20.66 0.00 0.00 0.00 0.00 0.00
D07243 GLOBAL HITECH INDUSTRIES LIMIT 300 30.94 30.94 0.00 0.00 0.00 0.00 0.00
D10008 HARYANA STEEL & ALLOYS LIMITED 100 18.77 15.13 3.64 0.00 0.00 0.00 0.00
D50001 HINDALCO INDUSTRIES LTD. 100 283.04 250.60 3.03 2.94 5.00 21.46 0.00
D16003 HITECH SERVICES 400 47.75 34.94 4.34 3.94 4.43 0.00 0.10
D96001 IFGL REFRACTORIES LIMITED 300 74.00 74.00 0.00 0.00 0.00 0.00 0.00
D95020 INTEGRATED SERVICES 400 83.28 83.28 0.00 0.00 0.00 0.00 0.00
D15005 ISMT LIMITED 300 23.23 19.03 4.19 0.00 0.00 0.00 0.00
D20012 ISPAT INDUSTRIES LIMITED 100 265.02 265.02 0.00 0.00 0.00 0.00 0.00
D07014 JAMSHEDPUR ENGG.& MACHINE 300 16.08 5.93 10.15 0.00 0.00 0.00 0.00
D07175 JAYASWALS NECO LIMITED 500 18.56 0.00 0.00 0.00 12.60 5.96 0.00
D50007 JHAGADIA COPPER LIMITED 100 32.33 2.64 3.53 0.00 26.17 0.00 0.00
D10031 JINDAL STAINLESS LIMITED 600 96.70 96.70 0.00 0.00 0.00 0.00 0.00
D10001 JINDAL STAINLESS LIMITED 100 33.94 29.02 2.96 0.85 0.11 1.00 0.00
D15017 JINDAL STEEL & POWER LIMITED-U 300 148.95 31.06 11.69 15.53 17.35 73.31 0.00
D20010 JSW STEEL LIMITED 200 54.53 33.75 0.00 17.65 3.14 0.00 0.00
D15018 KALYANI CARPENTER SPECIAL STEE 300 24.45 22.09 0.06 0.00 2.29 0.00 0.00
D97008 LARSEN & TOUBRO LIMITED 200 1,016.44 1,014.10 2.34 0.00 0.00 0.00 0.00
D15023 MAHINDRA UGINE STEEL CO. LTD., 100 22.37 22.37 0.00 0.00 0.00 0.00 0.00
D15024 MARMAGOA STEEL LIMITED 300 33.51 33.51 0.00 0.00 0.00 0.00 0.00
D27001 MEENA AGENCY PRIVATE LIMITED 300 533.04 0.07 38.30 46.12 263.15 185.41 0.00
D15027 MODERN STEELS LIMITED 300 20.05 19.97 0.00 0.00 0.00 0.01 0.06
D95001 MORTEX (INDIA) 400 38.81 38.81 0.00 0.00 0.00 0.00 0.00
D15028 MUKAND LIMITED 100 41.18 33.24 2.20 0.65 0.00 0.00 5.10
D96066 NAVEEN TRADERS 400 12.36 12.36 0.00 0.00 0.00 0.00 0.00
D65009 NEUTRAL GLASS & ALLIED INDS. L 200 11.57 11.57 0.00 0.00 0.00 0.00 0.00
D95030 OSWAL HYDRAULICS & PNEUMATICS 400 11.52 11.52 0.00 0.00 0.00 0.00 0.00
D95006 PADMAJA INC 400 116.45 104.38 12.08 0.00 0.00 0.00 0.00
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Total 5,215.30 4,127.53 239.14 188.64 347.22 306.28 6.48

Grand Total 8,375.54 6,547.30 428.90 433.12 493.32 459.82 13.08
FACTORING
Factoring is a popular mechanism of managing, financing and collecting

receivables by companies.It is a method of converting a non-productive, inactive
asset into a productive asset by selling receivables to a company that specializes in
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, controls the credit, extended to customers.
Factoring facility is given by TRL only to its green customers.
The factor (bank) which gives service to TRL for bills discounting facility is
HSBC, Bhubaneswar.
Types of factoring done by TRL:

.
 Recourse: In this method of factoring TRL is not protected against the risk of
bad debts.TRL has no indemnity against unsettled or uncollected debts. If the
factor (Bank) has advance funds against book debts on which a customer
subsequently defaults, the TRL will have to refund the money. Basically this
facility is only given to green customers.
 Non-Recourse: Under this method book debts are purchased by the factor,
assuming 100% credit risk. The company is protected against the bad debt. In
this customer are required to make payment directly to the factor. The factor
maintains the sales ledger and accounts and prepares age wise reports of
outstanding book debts.
TRL only gives this facility to its holding company which is Tata Steel,
Jamshedpur.
The specimen of factoring of TRL for the financial year 2007-2008 has been
shown below.
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CHAPTER-5
INVENTORY MANAGEMENT
 INTRODUCTION
 DECISION IN INVENTORY MANAGEMENT
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INTRODUCTION
Inventory constitutes about 60 percent of current assets of public limited
companies. The inventories can be in the form of raw materials, work-in-process and
finished goods, fuel, stores and spares.
Need for inventory management:
 To facilitate smooth production and sales operations.

 To guard against the risk of unpredictable changes in usage rate and delivery
time.
 To take advantage of price fluctuations.
1. A fundamental requirement for good inventory management is extensive

database with respect to monthly consumption and lead time
2. 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.
In order to reduce the working capital days TRL has to force on inventory
control. In TRL the Baan ERP software system has been implemented. 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.
 Inventory on hand.
 Inventory on hold.
 Inventory on order.
 Allocated inventory.
 Economic stock.
For inventory control EOQ method, max level, min level, reordering level is used.
i) Average monthly consumption= total consumption

No. of month
ii) Lead time = Lead for procurement.
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The formula used for inventory control is:

a) Minimum stock level: MSL
1.65*L.T*std.deviation (AMC)
b) Maximum stock level: Max.S.Level=min S.L+ (LT*AMC)
c) Reordering quantity: = 2*AMC*Ord.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. This is also known
as procurement period.
b) Three control points :

 Minimum stock level (MSL)
 Re-order point(ROP)
 Re-order quantity (ROQ)
Definition
Monthly Consumption (MC) - Average of monthly consumption of the three months

in the previous quarter.
Q1- April- June
Q2- June- September
Q3- October- December
Q4- January- March
Note – The MC for the months of Q2 will be the avg. of consumption during the Q1
quarter month.
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High MC- Avg. MC is higher than a days/ shift’s production (Each department to
decide this norm for itself.)
Low MC- Where the MC is less than the above norm.
Formulas-
MSL- High MC item= .5MC
Low MC item= MC
ROP- High MC item= MC
Low MC item= 2MC
ITEMS MSL ROP ROQ

High MC .5MC MC MC
Low MC MC 2MC 3MC
Note: - 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.
Factors which are not taken into account in fixing ROP
 Sudden/ unanticipated scarcities.

 Price changes
 Obsolescence risk.
 Govt. restrictions.
 Marketing/ strategic considerations.
Four different models of inventory management depending upon.
 Constant MC and constant lead time (LT).

 Constant MC and variable LT.
 Variable MC and variable LT.
 Varying MC and constant LT.
Note: - Model 1 is the simplest and model 4 is the most complex. In our case 4 is
normally applicable.
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Cost associated with order size:

Ordering cost: Requisition, placing of order, transportation, receiving, inspecting
and storing and clerical and staff services. Ordering cost is fixed per order.
Therefore, they decline as the order size increases.
Carrying cost: warehousing, handling, clerical and staff services, insurance and
taxes. Carrying cost vary with inventory holding. As order size increases,
average inventory holding increases and therefore the carrying cost increases.
Note: -These costs should be optimized in order to minimize overall costs.
Re-order point (ROP):
 In the real world procurement of material takes time.

 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. I.e. during lead time.(LT).
 ROP= (ALT*AMC)+minimum stock
 Where, ALT is the average lead time
 AMC is the average monthly consumption.
Minimum stock level (MSL):
 It is also known as safety stock level. (SSL).

 Inventory carrying cost is proportional to the level of inventories carried.
Hence it is rarely make sense to seek 100% protection against stock out.
 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.
 Normally a satisfaction level (also called service level of 95% or 99% is
selected as the goal.
 Formula for MSL is: MSL= Z*F
Where, Z= (ALT*dm² + AMC² * dl²)½.
dm= Standard deviation of monthly consumption.
dl= standard deviation of lead time.
F= “F” factor (service level)
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For example: ALT= 5
dm²= .0228
AMC²= 29.832
dl²= 1.619
So, Z= (5*.0228 + 29.832*1.619)½
Z= 6.958
F= 1.64(constant)
Therefore, MSL= 6.958*1.64
= 11.411
For calculating the ROP, ROQ, AMC and MSL, We have taken data from
TRL’s ERP software system. We have taken ten items for calculating the above
mentioned values. Baan ERP uses the formulas for calculating these values. Those
formulas are displayed earlier on the above.
On the date 9th July 2008 the ROP, ROQ, AMC, and MSL for ten items are given
below.
st.
on Rate/ Inv. MSL ROP ROP ROQ ROQ AMC AMC LT in
Item Description Hand Unit value MSL value Qty Value Qty. Value. Qty. Value days
22300035 Bearing ball
1211 K 10 368 0.03 1 0 2.4 878.03 0.88 324.03 5.31 1956 5
1213 K.TV.C 6 1262 0.07 2 0.02 2.65 3346.12 0.65 820.74 3.91 4924 5
1218 K.C3 2 3154 0.06 0 0.02 1.2 3831.9 0.31 993.04 1.88 5958 5
1318 K 3 6750 0.2 2 0.13 2 13500.22 0 0 0 0 10
2308 K 5 1435 0.07 4 0.06 5 7153.8 0.45 649.55 2.71 3897 5
6004-2 RS 8 82 0 2 0 2.3 193.82 0.35 29.36 2.14 176 5
6202 ZZ 10 48 0 6 0 6.8 335.94 0.88 43.14 5.3 258 5
6203 11 46 0 10 0 10.5 484.42 0.51 23.92 3.11 143 5
6203 ZZ 14 59 0 10 0 11.6 688.32 1.047 62.27 6.28 373 5
Sources; ERP data base, TRL.
Guidance For The Above Table From TRL.
 Use a two year data base for monthly consumption and lead time for
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determining AMC, ALT, dm and dl.

 Recalculate these figures on 1st April and 1st October every year.
We have analyzed the balance sheet of TRL then it can be observe that out of
total current assets major amount is inventory. 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.
TRL has adopted BaaN ERP software system display item data of all the raw
materials forming part of inventory.
The percentage of inventory over current assets is calculated and displaced

below in form of table and graph for five years.
Percentage of Inventory over Current Assets
Year Inventory Current Assets Ratios

2007-2008 85,13,94,581 249,72,17,831 34.094%
2006-2007 58,61,30,368 209,19,80,916 28.018%
2005-2006 63,21,91,956 230,24,50,509 27.457%
2004-2005 63,65,90,022 185,44,90,292 34.327%
2003-2004 56,02,67,707 135,45,16,543 41.363%
Sources: Annual report, TRL.
Interpretation: Inventory amount to forty percent of current asset investment of

TRL. Inventories are stock of the product, company is manufacturing for sale and
component that make up the product.
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CHAPTER-6
CASH MANAGEMENT
 INTRODUCTION
 CASH PLANNING
 MANAGING CASH COLLECTIONS AND DISBURSMENTS
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INTRODUCTION
Cash is one of the most important current assets of the firm. Cash or fund is
the basic input needed to keep the business in a running condition; it is also the
ultimate output expected to be realized by selling the service or product
manufactured by the firm. The firm should keep sufficient cash, neither more nor
less. Cash shortage will disrupt the firm’s manufacturing operations while excessive
cash will simply remain idle, without contributing anything towards the firm’s
profitability. So to effective cash flow inside and outside the firm there should be
effective management of cash. Basically in TRL cash management is known as
funds management.
An asset is liquid if it can be converted into cash immediately or reasonably

soon without a loss of value. Cash is the most liquid asset. Other assets that are
considered relatively liquid and included in quick assets are debtors, loose tools, and
marketable securities. Inventories are considered to be less liquid. Inventories
normally require some time for realizing in to cash; their value also has a tendency
to fluctuate. The quick ratio is found out by dividing quick assets by current liabilities.
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.
YEAR CURRENTASSETS CURRENT LIABILITIES RATIOS

2007-2008 201,24,59,190 85,75,18,398 2.35
2006-2007 165,90,90,469 80,97,98,543 2.04
2005-2006 144,93,73,742 67,02,52,012 2.16
2004-2005 139,72,99,734 76,35,78,201 1.83
2003-2004 108,14,21,667 39,96,72,264 2.71
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Interpretation: A quick ratio of 1 to 1 is considered to represent a satisfactory

current financial condition. Although quick ratio is a more penetrating test of liquidity
than the current ratio, a quick ratio of 1 to 1 or more does not necessarily imply
sound liquidity position. It should be remembered that all debtors may not be liquid,
and cash may be immediately needed to pay operating expenses. It should also be
noted that inventories are not absolutely non-liquid. To a measurable extent,
inventories are available to meet current obligations. So here TRL is having high
value of quick ratio which tends to shortage of funds if it has slow paying, doubtful
and long duration outstanding debtors.
Since we know that cash is the most important liquid asset, so here TRL has
to also examine cash ratio and its equivalent to current liability.
Cash Ratio = (Cash + marketable securities) / current liabilities.
The Ratio of cash over current liabilities of TRL for five years is shown below in the
form of table and graph.
CASH AND CURRENT

YEAR BANK LIABILITIES RATIOS
2007-2008 6,47,80,695 85,75,18,398 0.076
2006-2007 3,42,38,276 80,97,98,543 0.042
2005-2006 3,47,76,842 67,02,52,012 0.052
2004-2005 9,27,98,670 76,35,78,201 0.1215
2003-2004 2,19,89,892 39,96,72,264 0.055
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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.
Cash management is concerned with the managing of:
1. 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, Silica,
etc), spares and parts, machinery etc is the cash outflow.
2. Cash flow within the firm – Cash flow within TRL would constitute:
a) TRL is paying wages and salary to their employees and labour.
b) It has made separate department for provident fund (PF) trust.
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.
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, Belpahar)
and at the time of surplus cash it does not invest in marketable securities until
it pays its debts.
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CASH PLANNING
It’s a technique to plan and control the use of cash. 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).
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. The forecast may be based on the present operations or the
anticipated future operations. Cash plans are very crucial in developing the overall
operating plans of the firm.
In TRL the management makes 5 year business plan for future, if it requires
they also make 10 year business plan. Taking this into consideration they make cash
planning for annual business plan for one year.
Cash Budgeting
Cash budget is the most significant device to plan for and control cash
receipts and payments. Cash budget is a summary statement of the firm’s expected
cash inflows and outflows over a projected time period. It gives information on the
timing and magnitude of expected cash flows and cash balances over the projected
period.
In TRL the cash budgeting is done for every month for determining cash
requirements if cash flows show extreme fluctuations. 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.
Cash forecasts are needed to prepare cash budgets. In TRL cash forecasting
is done on short term and long term basis. 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.
The cash inflow includes sales realization, export packing credit, short term
loan, term loan, receipt of fixed deposit etc. The cash outflows from the firm are raw
materials, fuel, salary and wages, gratuity, bonus, stores and spares, repairs, power,
sales tax, income tax, interest capital expenditure (CAPEX) etc. The Projected cash
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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 Apr May June July Aug Sep Oct Nov Dec Jan
2008 2008 2008 2008 2008 2008 2008 2008 2008 2009
IN-FLOW
Sales Realization 51.00 51.00 56.00 58.00 58.00 60.00 60.00 60.00 60.00 60.00
Export Packing Credit 2.00 2.00 2.00 5.00 2.00 2.00 2.00 2.00 2.00 2.00
Miscellaneous Income 0.50 0.50 0.50 0.50 0.50 0.50 1.00 1.00 1.00 1.00
Short Term Loan 20.00 20.00 20.00
Term Loan 10.00 10.00 20.00
Receipt of Fixed Deposits. 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02
Recourse bill discounting 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00
TOTAL IN-FLOW 53.52 58.52 93.52 68.52 65.52 97.52 68.02 68.02 88.02 88.02
OUT-FLOW
Raw Materials 27.00 27.00 28.50 28.50 28.50 28.50 28.50 28.50 28.50 29.75
Fuels 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.50
Salaries & Wages 2.60 2.60 4.10 3.06 3.06 3.06 3.06 3.06 3.06 3.06
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Gratuity/Superannuation 0.30 0.30 0.30
Bonus &Cash reward 1.70
Stores, Spares and
Repairs 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40
Power 1.10 1.10 1.10 1.20 1.20 1.20 1.20 1.20 1.25 1.25
Other Expenses 2.50 2.50 2.50 3.13 3.13 3.13 3.45 3.45 3.45 3.45
Freight & Forwarding 2.10 2.10 2.10 2.10 2.10 2.10 2.20 2.30 2.30 2.30
Excise Duty 1.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00
Sales Tax 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50
Income Tax 1.86 3.66 3.66
Interest 0.95 0.95 0.95 1.05 1.05 1.05 1.05 1.05 1.05 1.10
Capital Expenditure 0.60 2.05 11.55 2.00 3.26 3.04 1.56 5.00 7.05 15.35
Repayment of F.D. 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02
Repayment of Packing
Credit 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00
Repayment of TL - CBI 2.50 2.50 2.50
Repayment of TL - SBI 1.00 1.00 1.00
Repayment of STL 20.00 20.00 20.00
Repayment of HSBC 5.00 5.00 2.45 5.00 5.00 5.00 5.00 5.00 5.00 5.00
Friendly Departure
Scheme 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23
Dividend Tax 11.82
TOTAL OUT-FLOW 55.00 59.45 95.06 74.01 65.15 90.69 62.17 65.71 95.27 77.91
Surplus/(Deficit) for the
month (1.48) (0.93) (1.54) (5.49) 0.37 6.83 5.85 2.31 (7.25) 10.11
Opening Balance (19.73) (21.21) (22.14) (23.68) (29.17) (28.80) (21.97) (16.12) (13.81) (21.06
Closing Balance (21.21) (22.14) (23.68) (29.17) (28.80) (21.97) (16.12) (13.81) (21.06) (10.95
Sanctioned Cash Credit 38.00 38.00 38.00 38.00 38.00 38.00 38.00 38.00 38.00 38.00
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Once the cash budget has been prepared and appropriate net cash flow
established, so TRL should ensure that there does not exist a significant deviation
between projected cash flows and actual cash flows. TRL prepares every year the
projected cash flow for the next financial year. The projected and actual cash flows
are compared and differences are calculated and the variances are highlighted. The
comparison between the projected and actual cash flow for the previous year 2007-
2008 is shown below.
CASH FLOW ACTUAL VS PROJECTION

FOR THE PERIOD FROM APR'07 TO MARCH'08
( Rupees in Crores )
Apr'07 to Mar'08 DIFF.
No. PARTICULARS Actual Projection

RECEIPT
543. 601.0 (57.4
1. Collection from Debtors 56 0 4)
12.1 6.1
2. Miscellaneous Income 6 6.00 6
41.8 41.8
3. Recourse bill discounting 4 - 4
597. 607.0 (9.4
TOTAL 56 0 4)
PAYMENT
604.5 (31.7
1 Total Payments 572.80 7 7)
Borrowings, Other than CC 6.3 20.9 (14.5
2 (Net) 1 0 9)
29.4 29.4
3 Repayment of bill discounting 3 3
608. 625.4 (16.9
TOTAL 54 7 3)
CASH CREDIT
(10.9
Surplus/(Deficit) 8) (18.47) 7.49
(8.7 (8.7
Opening Balance 5) 5) -
(19.7 (27.2 7.4
Closing Balance 3) 2) 9
38.0
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Sanctioned Cash Credit 0 38.00

Interpretation: It can be seen from above table that only 90 percent i.e.Rs.543.56
Crores had been collected from debtors and remaining 10 percent i.e. Rs.57.44
Crores are expected to be collecting in next financial year. So here TRL has to be
more conscious about its collection procedure. To achieve this, cash management
efficiency will have to be improved through a proper control of cash collection and
disbursement. 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.
MANAGING CASH COLLECTIONS AND DISBURSMENT
1. Accelerating cash collections – A firm can conserve cash and reduce its
requirements for cash balances if it can speed up its cash collections. The
first hurdle in accelerating the cash collections is the extra time enjoyed by
the customers in clearing of bills. 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.
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. CMS a/c makes online payment transactions possible which leads to
drastic reduction in processing time than the traditional way.
ICICI bank charges .05 paisa per thousand per day collection.
HDFC bank charges are nil for these transactions.
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).
2. Stretching Accounts Payables – One basic strategy of efficient cash

management is to stretch the accounts payables. In other words, a firm
should pay its accounts payable as late as possible without damaging its
credit standing. It should, however take advantages of the cash discount
available on prompt payment.
As in TRL collection procedure is very fast in same way it also makes prompt
payment to their suppliers. So TRL does not adopt the policy of stretching
account payables. It pays to their suppliers according to their convenience in
one of the following ways:
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i) Multicity cheques – The banker issuing this cheque is SBI Belpahar.
With this cheque being presented in any of the SBI branches, the
amount due thereon is immediately paid and the a/c of TRL with SBI,
Samada is debited respectively.
ii) At par cheque – The banker issuing this cheque is SBI, Samada and
CBI, Gomadera. No charges are deducted by the bank when encashed.
iii) MICR – The banker issuing this instrument is SBI. In this the clearing
process has been highly automated. Electronic data is used instead of
paper. So TRL have started using MICR to automate the clearing
process. They maintain an account with Reserve Bank of India (RBI)
which is debited for inward clearing and credited for outward clearing.
3. Other income – Sources of other income for TRL are:
i) Scrap sale
ii) Hospital – Jehangir Ghandy hospital.
iii) Application (of Refractories product)
Note:-TRL does not invest its surplus cash in short term marketable securities. The
surplus cash is used to repay the debts.
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)
a. Working capital
b. Termed loan (e.g. Project finance)
Cash credit facility renewal of hypothecation takes once in a year

Demand loan
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Short-term loan
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.e. without prior notice), rather than on
a specific date. Certain loan limit is set-aside to the company the loan as and when
required. Generally, the rate of interest of the above said loan is higher than the
short term loan.
TRL takes demand loan from CBI, Gomadera and SBI, Samada. 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.
CASH CREDIT
Cash credit means the firm can overdraw up to a certain limit. A bank
provides this type of funding, but only after the required security is given to secure
the loan. Once a security for repayment has been given, the business that receives
the loan can continuously draw from the bank up to a certain specified amount. This
type of financing is similar to a line of credit.
TRL takes cash credit from CBI, Gomadera having a cash credit limit of 21 Crores
with an interest rate of 13 %.
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PACKING CREDIT
 You have an extended, 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, fuel after the placement of the
order.
1) This is specifically meant to encourage exports.
 Rate of interest will be lesser than the STL as well as Demand Loan.
 It can be avoided both in Rupee as well as any foreign currency.
 The loan is adjusted against export realization.
 Packing credit is available to TRL at an interest rate of 7.5% to 9%.
2) Margin (75%, 80%, 90%)
EXAMPLE – 75% of 100,000 orders

Loan – 75% of loan = 75,000
3) Realization should be done in 180 Days from the date of disbursement.

(Reserve Bank Notification)
4) In case your material is rejected and unable to realize in 180 days it is to be

reported to RBI.
5) Some private banks demand ECGC (Export Credit Guarantee Corporation)

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

PLR of SBI is 12.75%
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CHAPTER-7
WORKING CAPITAL FINANCE

 INTRODUCTION
 BANK FINANCE FOR WORKING CAPITAL
 OTHER SOURCES OF FINANCE
Page88
INTRODUCTION
External funds available for a period of one year or less are called short term
finance. In TRL, short term funds are used to finance working capital. Two most
significant short term sources of finance for working capital are: trade credit and
bank borrowing. Trade credit as a ratio of current asset is about forty percent. Bank
borrowing is the next important source of working capital finance.
Two other sources of working capital finance which have recently used in TRL
are factoring and commercial paper.
Trade credit
Trade credit refers to the credit that of customer gets from supplier of goods in
the normal course of business. In practice, 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, and is granted on
an open account basis. A supplier sends goods to the buyer on credit which the
buyer accepts, and thus, in effect, agrees to pay the amount due as per sales terms
in the invoice.
Credit term
It refers to the condition under which the supplier sells on credit to the buyer,
and the buyer is required to repay the credit. This condition includes the due date
and the cash discount given for prompt payment. Due date is the date by which
supplier expects payment. Credit term indicate the length and beginning date of the
credit period.
The due date for trade credit for TRL
 Normal goods - 30 to 90 days.
 Imported goods- 60 to 90 days.

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Cash discount
Cash discount is the concession offered to the buyer by the supplier to

encourage him to make payment him promptly. The cash discount can be availed by
the buyer if he pays by a certain date which is quite earlier than the due date.
The cash discount enjoyed by TRL is about 10 to 15 percent per annum.
In context of TRL there are three types of creditors – Suppliers, Employees and
Miscellaneous creditors.
In addition to trade credit deferred income are other spontaneous source of

short term financing. Deferred income represents funds received by the firm for
goods and services which it has agreed to supply in future. This receipt increases
the firm’s liquidity in the form of cash; therefore they constitute an important source
of financing. 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.
BANK FINANCE REQUIRED FOR WORKING CAPITAL
Banks are the main institutional sources of working capital finance. After trade
credit, bank credit is the most is the most important source of financing working
capital requirements. A bank considers a firm’s sales and production plans and the
desirable levels of current assets in determining it’s working capital requirements.
The amount approved by the bank for the firm’s working capital is called credit limit.
Credit limit is the maximum fund which a firm can obtain from the banking system. In
practice banks don’t lends 100 percent of the credit limit, they deduct the margin
money from the amount applied for.
SBI, Samada and CBI, Gomadera deducts 25% margin from short term loans
extended to TRL. It uses following forms of work finance
:
 Cash credit
 Discounting of bills
 Letter of credit
 Short term loans
Page88
Security required in Bank Finance
Bank generally does not provide working capital finance without adequate
security. 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, CBI) against the security of inventories and debtors
for obtaining short term loans. Hypothecation is the charge against property
for an amount of debt where neither ownership nor possession is passed to
the creditors.
OTHER SOURCES OF FINANCE
 Commercial paper – It is an important money market instrument, used to

raise short term finance. On the recommendation of vaghul working group,
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 .
Page88
CONCLUSION AND SUGESSTIONS
Working capital being the life and blood of a company, so it is but natural that
different major departments like production, marketing, purchase, material
management, maintenance along with the finance department have to function
efficiently for maintaining a good working capital management.
Though TRL is trying to overcome its shortcomings at various levels, here are some
suggestions for TRL, which may help to improve the working capital position.
1. TRL has introduced task force to study the drawbacks of method of collecting
money. At one area where TRL is lacking and it has to take immediate action
is regularity in collection from debtors. Many times it has been observed that
the focus on collections is irregular.
2. In the 30 days credit payment M\S TRL actually receives its money by the end
of 55th or 60th day. 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.
 Track and purse late payers.

 Getting external help if TRL’s efforts fail.
 Debtors should not given any excuses or not paying.
 TRL marketing personals have to be hard on issue.
 Solve the problem of the customers viz. problem of invoice not
received, problem of wrong invoice etc.
3. Manufacturing cycle of a product does effect the working capital cycle days. If
individual production department can reduce the manufacturing cycle days by
implementing better technology and proper planning to reduce time.
4. The production departments can try to improve the quality and minimize the
rejections with aid of suitable techniques.
5. 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.
6. Special care should be taken to reduce the non-moving finished stock should
be evaluated and production departments have to plan to minimize
Page88
occurrence of such causes.

7. TRL gets coal from MCL which is very near to Belpahar working unit. TRL can
negotiate with MCL and receive coal on regular basis thus stock of coal can
be reduced more.
8. Material management department along with finance department can try to

bargain with supplier to reduce the price and change the mode off payment,
which is suitable for the company.
9. Individual person assigned for different task which directly or indirectly effects
the working capital should be made realize their responsibilities. This can be
done by giving the persons at work more authority, responsibility,
remuneration for increasing their efficiency. All different works relating
persons, as it is needed as together form a team.
10. The work-in-process at different stages kept in the plant is high considering
their cycle time. Steps may by taken to reduce such high stock, which will
help in reducing current assets.
By studying the working capital of a company the efficiency of different

functional departments come into picture along with that of finance department.
Though TRL is managing its working capital well, a thorough study of the working
capital management of the company brings out many opportunities for improvement
of the company.
Page88
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.tataref.com
 www.irmaindia.org
 www.skpsecurities.com
 www.ifgl.com
 www.bharatrefractories.com
 www.tatasteel.com
Page88
ANNEXURE
BALANCE SHEET AS ON 31ST MARCH, 2008 AND 2007

Particulars As at 31.3.2008 As at 31.3.2007
FUNDS EMPLOYED Rupees Rupees

1. Share Capital 20,90,00,000 20,90,00,000
2. Reserves and Surplus 179,96,37,740 166,86,67,304
3. Share Application Money
Pending Allotment Nil Nil
4. Total Shareholder’s Funds 200,86,37,740 187,76,67,304
5. Loans :
a) Secured 124,34,93,987 113,71,48,864
b) Unsecured 1,69,15,448 2,39,43,000
6. Deferred Payment Credit Nil Nil

7. Deferred Tax Liability (Net) 13,81,95,577 17,50,65,246
8. Provision for Employee
Separation Compensation 8,74,21,010 11,22,54,335
9. Total Funds Employed 349,46,63,762 332,60,78,749
APPLICATION OF FUNDS
10. Fixed Assets
a) Gross Block 330,64,06,453 325,62,44,372
b) Less : Depreciation 153,77,49,761 137,54,29,725
c) Net Block 176,86,56,692 188,08,14,647
11. Investments 33,89,34,595 33,89,34,595
12. Current Assets, Loans and

Advances
a) Stores and Spare Parts (at cost) 8,53,67,154 6,40,02,684

b) Loose Tools 18,22,760 11,64,815
c) Stock-in Trade 85,13,94,581 58,61,30,368
d) Sundry Debtors 109,44,61,154 103,75,57,010
e) Cash and Bank Balances 6,47,80,695 3,42,38,276
f) Income accrued on deposits 7,945 52,627
g) Loans and Advances 39,93,83,542 36,88,35,136
Total Current Assets 249,72,17,831 254,66,60,234
13. Less: Current Liabilities &

Provisions
a) Current Liabilities 85,75,18,398 89,95,46,583
b) Provisions 25,26,26,958 54,07,84,144
111,01,45,356 144,03,30,727
14. Net Current Assets 138,70,72,475 110,63,29,507

15. Total Assets (Net) 349,46,63,762 332,60,78,749
Page88
BALANCE SHEET AS ON 31ST MARCH, 2006, 2005, AND 2004
Particulars As at 31.3.2006 As on 31.3.2005 As on 31.3.2004
Rupee
FUNDS EMPLOYED Rupees s Rupees
1. Share Capital 20,90,00,000 11,00,00,000 11,00,00,000
2. Reserves and Surplus 161,65,65,593 61,46,64,680 38,62,91,362
3. Share Application Money
Pending Allotment Nil 26,44,69,840 Nil
4. Total Shareholder’s Funds 182,55,65,593 98,91,34,520 49,62,91,362
5. Loans :
a) Secured 80,34,24,,189 37,15,94,969 40,86,54,812
b) Unsecured 8,77,10,855 12,95,91,749 12,67,79,147
6. Deferred Payment Credit 2,02,28,416 7,87,77,632 12,98,57,895

7. Deferred Tax Liability (Net) 13,85,51,901 12,72,07,749 8,65,34,833
8. Provision for Employee
Separation Compensation 13,84,69,881 16,22,16,980 18,74,90,094
9. Total Funds Employed 301,39,50,835 185,85,23,599 143,56,08,143
APPLICATJON OF FUNDS
10. Fixed Assets
a) Gross Block 313,00,95,009 225,08,14,488 185,84,04,064
b) Less : Depreciation 125,49,49,206 116,32,54,660 110,18,68,978
c) Net Block 187,51,45,803 108,75,59,828 75,65,35,086
11. Investments 1,00,96,325 1,00,96,270 1,19,50,530
12. Current Assets, Loans and

Advances
a) Stores and Spare Parts (at
cost) 4,35,67,566 4,46,55,042 4,49,45,895
b) Loose Tools 10,77,258 11,69,508 9,23,578
c) Stock-in Trade 63,21,91,956 63,65,90,022 56,02,67,707
d) Sundry Debtors 78,13,27,686 66,67,41,534 49,82,40,490
e) Cash and Bank Balances 3,47,76,842 9,27,98,670 2,19,89,892
f) Income accrued on deposits 9,750 25,739 1,16,424

g) Loans and Advances 80,94,99,847 41,25,09,777 22,80,32,557
Total Current Assets 230,24,50,905 185,44,90,292 135,45,16,543
13. Less: Current Liabilities &

Provisions
a) Current Liabilities 67,02,52,012 76,35,78,201 51,77,75,891
b) Provisions 50,34,90,186 33,00,44,590 16,96,18,125
117,37,42,198 109,36,22,791 68,73,94,016
14. Net Current Assets 112,87,08,707 76,08,67,501 66,71,22,527
Page88
15. Total Assets (Net) 301,39,50,835 185,85,23,599 143,56,08,143

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2008 & 2007
31st March 31st March
Particulars 2008 2007
INCOME
1. Sale of products and services 584,59,23,088 516,75,44,869
Less : Excise duty 57,38,24,714 57,20,23,668
527,20,98,374 459,55,21,201
2. Other income 2,66,93,209 4,40,54,013
3. Total Income 529,87,91,583 463,95,75,214
EXPENDITURE
4. Manufacturing and Other Expenses 464,17,32,539 410,69,91,619

5. Depreciation 18,10,51,81 17,17,71,165
6. Interest 11,74,80,260 8,82,37,087
7. Less : Expenditure included in above (1,45,08,497 (4,00,65,0

items (other than interest) capitalized ) 89)
8. Employee Separation Compensation 54,04,319 66,90,836
Total Expenditure 493,11,59,802 433,36,25,618
PROFIT BEFORE TAXES 36,76,31,781 30,59,49,696

9. Provision for Income Tax :
a) Current (12,60,00,000) (5,00,00,000)
b) Deferred 3,68,69,669 (6,29,52,787)
c) Fringe Benefit Tax (38,00,000) (33,52,637)
d) Taxation for earlier years (5,81,49,171) 1,48,492
PROFIT AFTER TAXES 21,65,52,279 18,97,92,664
10. Balance brought forward from last
year 19,30,09,320 23,87,98,499
11. Amount available for appropriation 40,95,61,599 42,85,91,163
12. Appropriations :
a) Proposed dividend 7,31,50,000 7,31,50,000
b) Corporate dividend tax 1,24,31,843 1,24,31,843
c) Transferred to General Reserve 15,00,00,000 15,00,00,000
Balance carried to Balance sheet 17,39,79,756 19,30,09,320
Earnings per share 10.36 9.08

Nil Nil
Face value per share 10 10

Page88
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2006, 2005
AND 2004
31st march 31st March 31st March
Particulars 2006 2005 2004
INCOME
1. Sale of products and services 455,70,76,293 400,54,21,306 317,07,24,228
Less : Excise duty 63,31,74,649 47,24,81,890 37,28,14,875
402,39,01,644 353,29,39,416 279,79,09,353
2. Other income 4,71,73,897 3,01,32,355 1,70,20,326
3. Total Income 407,10,75,541 356,30,71,771 281,49,29,679
EXPENDITURE
4. Manufacturing and Other Expenses 354,40,72,995 306,62,56,350 242,00,72,065
5. Depreciation 11,13,17,185 8,15,97,822 8,22,55,900
6. Interest 3,16,49,521 3,37,40,749 4,94,81,837
7. Less : Expenditure included in above
items (other than interest) capitalized (14,47,43,641) (9,61,31,330) (3,18,02,514)
8. Employee Separation Compensation 1,20,63,999 1,10,53,529 2,90,73,092
Total Expenditure 355,43,60,059 309,65,17,120 254,90,80,380
PROFIT BEFORE TAXES 51,67,15,482 46,65,54,651 26,58,49,299

9. Provision for Income Tax :
a) Current (14,45,00,000) (13,26,00,000) (8,60,00,000)
b) Deferred (1,13,44,152) (4,06,72,916) (1,43,80,862)
c) Fringe Benefit Tax (68,29,895) Nil Nil
d) Taxation for earlier years Nil (27,20,604) Nil
PROFIT AFTER TAXES 35,40,41,435 29,,05,61,131 16,54,68,437
10. Balance brought forward from last
year 12,93,97,586 5,10,24,268 2,27,83,956
11. Amount available for appropriation 48,34,39,021 34,15,85,399 18,82,52,393
12. Appropriations :
a) Proposed dividend 8,29,99,800 5,50,00,000 3,30,00,000
b) Corporate dividend tax 1,16,40,722 71,87,813 42,28,125
c) Transferred to General Reserve 15,00,00,000 15,00,00,000 10,00,00,000
Balance carried to Balance sheet 23,87,98,499 12,93,97,586 5,10,24,268
Earnings per share 21.33 26.41 15.04

21.33 25.73 15.04
Face value per share 10 10 10

Page88
CASH FLOW STATEMENT FOR THE YEAR END 31st March (Rs. In Lakhs)
Sl No. PARTICULARS 2007-08 2006-07
A. Cash Flow from Operating Activities
Net Profit Before Tax & Extraordinary Item 3676.32 3059.50
Adjustment for Depreciation 1810.51 1717.71
Profit/Loss on Sale of Assets 19.29 71.05
Profit on Sale of Investment 0.00 0.00
Interest Income (118.87) (112.97)
Dividend Income (14.34) (19.76)
Miscellaneous Expenses (Amortized) 0.00 0.00
Interest Charged to P/L Account 1174.80 882.37
Employee Separation Compensation 54.04 66.91
Refund of Sale Tax 0.00 (112.13)
Provision for Wealth Tax 1.18 1.18
TOTAL 2926.61 2498.36
Operating Profit before W.C Changes 6602.93 5557.55
Trade & Other Receivables (94.24) (2426.71)
Inventories (2872.87) 255.39
Trade Payables & Other Liabilities (467.66) 2684.64
Cash Generated from Operation 3168.16 6067.18
Direct Tax Refund (666.00) (884.57)
Sales Tax 0.00 112.13
Cash Flow Before Extraordinary Item 2502.16 5294.74
Employee Separation Compensation (302.37) (329.07)
Net Cash from Operating Activities (A) 2199.79 4965.67
B. Cash Flow from Investing Activities
Purchase of Fixed Assets (728.66) (1876.04)
Sales of Fixed Assets 20.45 30.60
Purchase/Sale of Investment 0.00 (2679.98)
Interest Received 5.04 112.97
Dividend Received 14.34 19.76
Net Movement in Creditor (265.90) (1263.02)
Advance of TRL Asia Pvt. Ltd. 0.00 0.00
Net Cash from Investing Activities (B) (954.73) (5655.71)
C. Cash Flow from Financing Activities
Proceeds from Share Application 0.00 0.00
Deferred Payment Credit 0.00 (202.28)
Borrowings 993.17 2699.57
Interest Paid (1076.98) (866.22)
Dividend Paid (855.82) (946.41)
Net Cash from Financing Activities (C) (939.63) 684.66
Net Inc/Dec in Cash & Cash Equivalent(A+B+C) 305.43 (5.38)
Add: Opening Cash and Cash Equivalent 342.38 347.76
Closing Cash and Cash Equivalent 647.81 342.38
Page88
Page88
CASH FLOW STATEMENT FOR THE YEAR END 31st March (Rs. In Lakhs)
Sl
No. PARTICULARS 2005-06 2004-05 2003-04
A. Cash Flow from Operating Activities
Net Profit Before Tax & Extraordinary Item 5167.15 4665.55 2658.49
Adjustment for Depreciation 1113.17 815.98 822.56
Profit/Loss on Sale of Assets (113.05) (107.53) (57.38)
Profit on Sale of Investment (12.89) (17.76) 0.00
Interest Income (6.46) (8.15) (4.67)
Dividend Income (25.33) (21.90) (17.01)
Miscellaneous Expenses (Amortized) 0.00 0.00 290.73
Interest Charged to P/L Account 316.50 337.41 489.83
Employee Separation Compensation 120.64 110.54 0.00
Refund of Sale Tax 0.00 (40.00) 0.00
Provision for Wealth Tax 1.06 1.25 0.36
TOTAL 1393.64 1069.84 1524.42
Operating Profit before W.C Changes 6560.79 5735.39 4182.91
Trade & Other Receivables (2695.85) (1737.25) (982.30)
Inventories 55.77 (762.77) (913.21)
Trade Payables & Other Liabilities (182.85) 1359.85 1471.23
Cash Generated from Operation 3737.86 4595.22 3758.63
Direct Tax Refund (1811.37) (1818.85) (924.10)
Sales Tax 0.00 40.00 100.25
Cash Flow Before Extraordinary Item 1926.49 2816.37 2934.78
Employee Separation Compensation (358.11) (363.27) (349.42)
Net Cash from Operating Activities (A) 1568.38 2453.10 2585.36
B. Cash Flow from Investing Activities
Purchase of Fixed Assets (9187.65) (4329.04) (2676.50)
Sales of Fixed Assets 312.07 310.34 57.79
Purchase/Sale of Investment 12.89 36.31 0.00
Interest Received 6.46 8.15 4.16
Dividend Received 25.33 21.90 17.01
Net Movement in Creditor (900.95) 1165.74 0.00
Advance of TRL Asia Pvt. Ltd. (608.40) 0.00 0.00
Net Cash from Investing Activities (B) (10340.25) (2786.60) (2597.54)
C. Cash Flow from Financing Activities
Proceeds from Share Application 5770.30 2644.70 0.00
Deferred Payment Credit (585.50) (510.80) 854.44
Borrowings 3899.48 (342.47) (305.27)
Interest Paid (270.76) (379.11) (548.87)
Dividend Paid (621.88) (370.73) (198.51)
Net Cash from Financing Activities (C) 8191.64 1041.59 (198.21)
Net Inc/Dec in Cash & Cash Equivalent(A+B+C) (580.23) 708.09 (210.39)
Add: Opening Cash and Cash Equivalent 927.99 219.90 430.29
Closing Cash and Cash Equivalent 347.76 927.99 219.90
Page88
BALANCE SHEET ABSTRACT ON COMPANY’S GENERAL BUSINESS PROFILE
1. Registration details :
Registration No. 349/ 8
State Code. 15
Balance sheet date 31st march 2008.
2. Capital raised during the year

Public issue Nil
Right issue Nil
Bonus issue Nil
Public issue Nil
Private placement Nil
3. Position of mobilization and development of funds.

Total Liabilities 349,46,63,762
Total Assets 349,46,63,762
Sources of Funds:
Paid-up-capital 20,90,00,000
Reserves and Surplus 179,96,37,740
Secured loan 124,34,93,987
Unsecured loan 1,69,15,448
Deferred tax liability 13,81,95,577
Other liabilities 3,31,894
Application of Funds:
Net fixed assets 176,86,56,692
Investments 33,89,34,595
Net current assets 138,70,72,475
4. Performance of Company:
Turnover 584,59,23,088
Total expenditure 493,11,59,802
Profit before tax 36,76,31,781
Profit after tax 21,65,52,279
Earnings per share (EPS) in Rs 10.36
Dividend rate % 35
5. Generic names of three principal products of company

A) Item code number. : 69021004
: Bricks & shape,
Product description. magnesia carbon.
B) Item code number. : 69039004

: Monolithic/
Castables (Fireclay,
Basic, Silica, High
Product description. Alumina, Insulating).
C) Item code number : 69022002
Page88
: Bricks & shapes,

Product description. High Alumina.
GRAPHS
GROSS REVENUE (Rupees in Crores)

YEARS GROSS
REVENUE
2007-2008 587.26
2006-2007 521.17
2005-2006 460.43
2004-2005 403.55
2003-2004 318.77
Sources: Annual Report
SHAREHOLDER’S FUNDS (Rupees in Crores)

Page88
YEARS SHAREHOLDER’S
FUND
2007-2008 200.86
2006-2007 187.77
2005-2006 182.56
2004-2005 98.91
2003-2004 49.63
Sources: Annual Report
Page88

A Project Report ON AT: "Working Capital Management" Tata Refractories Limited, Belpahar, Orissa

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A Project Report ON AT: "Working Capital Management" Tata Refractories Limited, Belpahar, Orissa

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A

VISHWAKARMA INSTITUTE OF MANAGEMENT

A large number of individual have contributed in making this project analysis

My project has been influenced by annual report of the company and

My special thank to Mr.K.V.Rao for his special guidance.

I would very much appreciate and sincerely acknowledge suggestions from

He has completed his Project Successfully.

We wish him all success in life.

Date Faculty Guide

I, Jinesh J. Tanna, a student of M.B.A 2nd Year of Vishwakarma Institute of

Date Signature of Candidate

6. WORKING CAPITAL MANAGEMENT 28

10. WORKING CAPITAL FINANCE 74

11. CONCLUSION AND SUGGESTIONS 78

This project is aimed at studying Working Capital Management at TATA

In the operating cycle ‘Net Working Capital’ is required to be calculated.

For receivable management, collection procedure of a company is studied

By studying the working capital of a company the efficiency of different

This report is based on experience while working as a trainee at TATA

Two sources of data are used:

Secondary data – Annual report (2003-04 to 2007-08), magazines and journals in

 Observation and handling of activities in the finance department

 To know the financial performance of the company.

Refractories are consumed by the iron and steel, non-ferrous, cement,

Global capacity is also expected to continue to grow strongly, as some

Currently, the Indian refractory industry has an aggregate production capacity

Dr J.J Irani, former MD of Tata Steel

According to Dr Irani, Refractory producers in India “have to rise to the

Industry insiders do acknowledge that raw materials security is a concern

With conditions permitting the steel companies to increase prices in

In this context, it may be mentioned that because of the up gradation of

In some steel plants, the specific consumption of refractories is down to about

No wonder, the refractory industry, which has a capacity of about 15-lakh

The upturn in export performance, in these circumstances, has, therefore,

The value of the refractory industry's exports, which stood at Rs 55 crore in

Some 13 years ago, it could export only Rs 1 crore worth of refractories.

Earlier, exports would be only to Bangladesh, Sri Lanka, Malaysia, Indonesia,

The export growth logically should facilitate better capacity utilization.

Best known most

Group Turnover US $ 70 Billion

India’s The Largest Employer on The Private 300000 Employees

 India’s first indigenous steel mill.

HISTORY – Major Milestone

 1958 promoted by TATA Steel.

A Global Refractories Company.

TATA Refractories shall be a high performance and technology driven organization

We, at TATA Refractories, dedicate ourselves to Total Quality.

Various organizations have made collaborations with TRL viz.

 M/S KROSAKI REFRACTORIES, JAPAN.

 Tata brand image & code of conduct.

 Lack of profitable investment.

 Global challenges: Large refractory manufacturers such as RHI have now

 Environment: Intrinsic nature of raw material & manner of their processing

As other fields have competitions, the Refractories market also has a

 BHARAT REFRACTORIES – BRL as around 125 M.T of specialty product per

It has already set up many of the potential outsider’s customer in

During year 2007-2008 the company encountered innumerable challenges.

Secondary, soaring energy prices are negatively impacting the profitability.

Fifthly, appreciation of Rupee against Dollar had a serious impact on export

The company continues to be the No. 2 fired dolomite Refractories producer

In 2007-08 the company reached new milestones surpassing all previous

Research & Development

New product development, quality improvement of existing products, process