A SUMMER INTERNSHIP PROJECT REPORT

ON
“A STUDY ON WORKING CAPITAL MANAGEMENT”
AT

SUBMITTED BY: -

NAME- ASISH THAPA

BRANCH- MBA (BANKING FINANCE)

OF

LOVELY PROFESSIONAL UNIVERSITY, PUNJAB

UNDER THE GUIDEANCE OF: -

 DECLARATION

I do hereby declare that this project report entitled “A STUDY ON WORKING

CAPITAL MANAGEMENT AT MAHANADI COALFIELDS LIMITED, BURLA”.
Within period of 15.07.2020 to 30.08.2020. The report is based on the study undertaken by
me, to the best of my knowledge and belief it has not been published earlier elsewhere or
presented to any University/Institution for award of any degree, diploma or other similar title.
The information used in the study report is collected from published financial statement,
Annual report, various article and in-house journal of the MAHANADI COALFIELDS
LIMITED.
 ACKNOWLEDGEMENT

My debts are many and I acknowledge them with much pride and delight. This project
report was undertaken for the fulfilment of MBA programme pursuing at lovely professional
University. I would like to thank my DEPARTMENT and MAHANADI COALFIELDS
LTD, which has provided me the opportunity for doing this project work.

I am extremely great full to Mis Radhika , DEPUTY MANAGER (FINANCE)

and DEPARTMENT HEAD for his invaluable help and guidance throughout my work. He
kindly evinces keen interest in my work and furnished some useful comments, which could
enrich the work substantially.

In fact, it is very difficult to acknowledge all the name and nature of help and
encouragement provide by them. I would never forget the help and support extended directly
or indirectly to me by all.
 CONTENT
1.INTRODUCTION OF THE COMPANY
 company profile
 india’s energy scenario & coal
 mission of coal india limited
 corporate structure and subsidiary companies
 production and growth
 vision and mission of mcl
 formation of company
 capital structure
 investment
 technology at mcl
 coal production and OB removal
2. SWOT ANALYSIS
3. CONCEPT AND THEORY OF STUDY
 Classification of working capita
 Operating cycle concept
 Advantages of adequate working capital
 Disadvantages of Excessive working capital
 Disadvantages of Inadequate working capital
 Need of working capital

4.RESEARCH DESIGN

 Research
 Data collection
 Tools used in the analysis

5. CALCULATION OF WORKING CAPITAL

6. RATIO ANALYSIS

7. ANALYSIS AND FINDINGS

8. SUGGESTION AND CONCLUSION

 INTRODUCTION: -
INDIA’S ENERGY SENARIO AND COAL: -

India is currently among the top three fastest growing economies of the world. As natural
corollary India’s energy needs too are fast expanding with its increased industrialisation and
capacity addition in power generation. This is where ‘coal’ steps in. In India coal is the
critical input for major infrastructure industries like power, steel and cement.

 Coal is the most dominant energy source in India’s energy scenario.

 Coal meets around 52% of primary commercial energy needs in India against 29% the
world over.
 Around 66% of India’s power generation is coal based.
 India is the 3rd largest coal producing country in the world after China and USA.

COAL INDIA LIMITED AT A GLANCE: -

Coal India limited (CIL) as an organized state-owned coal mining corporate came
into being November 1975 with the government taking over private coal mines. With a
modest production of 79 Million Tonnes (MTs) at the year of its inception CIL today is the
single largest coal producer in the world. Operating through 81 mining areas CIL is an apex
body with 7 wholly owned coal producing subsidiaries and 1 mine planning and Consultancy
Company spread over & provincial states of India. CIL also fully owns a mining company in
Mozambique christened as ‘coal India Africana Limited like workshops, hospitals etc.
Further, it also owns 26 technical & management training institutes and 102 vocational
Training institutes canters. India institute of coal management (IICM) as a state-of-the-art
management. ‘Training canter of Excellence’ the largest corporate Training institute in India-
operates under CIL and conducts multi-disciplinary management development programs.

CIL having fulfilled the financial and other prerequisites was granted the Maharatna
recognition in April 2011. It is a privileged status conferred by Government of India to select
state owned enterprises in order to empower them to expand their operations and emerge as
global giants. So far, the select club has only five members out of 217 central public sector
Enterprises in the country.
MISSION OF COAL INDIA LIMITED:

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

headquartered in Kolkata, West Bengal, India. It is the largest coal producer company in the
world. It contributes around 82% of the coal production in India.

The mission of coal India is to produce & market planned quantity of coal & coal
products efficiently & economically with due regards to safety, conservation & quality.

CORPORATE STRUCTURE AND SUBSIDIARIES COMPANY: -

Coal India is a holding company with seven wholly owned coal producing
subsidiary companies and one mine planning & Consultancy Company. It encompasses the
whole gamut of identification of coal reserves, detailed exploration followed by design and
implementation and optimizing operations for coal extraction in its mines. The producing
companies are:

1. Eastern coalfields Limited (ECI), Sanctoria West Bengal

2. Bharat coking coal Limited (BCCL) Dhanbad, Jharkhand
3. Central coalfields Limited (CCL) Ranchi, Jharkhand
4. South Eastern coalfields Limited (SECL) Bilaspur, Chhattisgarh
5. Northern Coalfields Limited (NCL)
6. Western coalfields Limited (WCL), Nagpur, Maharashtra
7. Mahanadi coalfields Limited (MCL), Sambalpur, Orissa
8. Coal India Africana Limited, Mozambique
9. The consultancy company is central mine planning and Design institute Limited
(CMPDIL), Ranchi, Jharkhand.

North Eastern coalfields (NEC) a small coal producing unit operating in Margherita,
Assam is under direct operational control of CIL.
Coal India’s major consumers are power and steel sectors. Others include cement,
Fertilizers, Brick kilns and small-scale industries.
MAHANADI COAL FIELDS LIMITED: -

General information: -

Type Public Sector Unit (PSU)

Public company

Industry Coal Mining and Mining

Founded 1992

Headquarters Sambalpur, Odisha

, 

India

Area served India

Key people Bhola Nath Shukla

(Chairman & MD)

Products Coal, Bituminous

Owner Government of India

Number of employees 22,352 (1 April 2019)

Website www.mahanadicoal.in

Mahanadi coalfields Limited (MCL) is one of the major coal producing company of
India. It is one of the eight subsidiaries of Coal India Limited. Mahanadi coalfields Limited
was carved out of south Eastern coalfields Limited in1992 with its headquarters at
Sambalpur. It has its coal mines spread across Odisha it has total seven open cast mines and
three underground mines under its fold.
 The organisation of MCL comprises 02 coalfields, consisting of 10
mining Areas with 06 UG and 16 OC mines,02 central workshops,02 central Hospitals, 02
sales offices at Kolkata and Bhubaneswar and Headquarter at Sambalpur.

A. Talcher coalfields

 Jagannath Area
 Bharatpur Area
 Hingula Area
 Lingaraj Area
 Kaniha Area
 Talcher Area (UG)

B. IB valley coalfields

 Lakhanpur Area
 IB valley Area
 Basundhara-Garjanbahal Area
 Orient Area

MCL has five subsidiaries and associate companies. The name of these companies are MJSJ
Coal Ltd., MNH Shakti Ltd., Mahanadi Basin power Limited, Neelanchal power
Transmission company private Limited, Mahanadi Coal Railway Limited.

VISION OF MCL: -

To be the leading energy supplier in the country, through best practices from mine to
market.

MISSION OF MCL: -

To produce and market the planned quality of coal and coal products efficiently and
economically with due regard to safety, conservation quality.
FORMATION OF COMPANY: -
PRESENT MANAGEMENT (AS ON 08.07.2019): -

CHAIRMAN-CUM-MANAGING DIRECTOR :: Shri B N Shukla

FUNCTIONAL DIRECTOR :: Shri O.P singh

Director (Tech/operation)

Shri K.R Vasudevan

Director (Finance)

Shri K.K Mishra

Director (Tech/P & P)

OFFICIAL PART-TIME DIRECTORS :: Shri R.K Sinha

Jt. Secretary, Ministry of Coal,

New Delhi.

Shri S.N. Prasad

Director (Marketing)

CIL Kolkata

NON-OFFICIAL PART-TIME DIRECTORS Shri H.S Patil

Dr. Rajib Mall

Ms Seema Sharma

PERMANENT INVITE Shri D. Panda

Pr. Chief Operation Manager

East Coast Railway,

Bhubaneswar

COMPANY SECRETARY Shri A.K. Singh

FINANCIAL HIGHLIGHTS FOR LAST 10 YEARS:

FINANCIAL PERFORMANCE OF MCL IN 2018-19: -

 Highest ever coal production 144.15 MT. A growth of 1.09 MT over the last year in
spite of facing serious constraints of obstruction and bundhs specially in Talcher
Coalfield and land constraint in almost all mines.
 Highest ever average daily production in the month of March which was 583.3 lakh
Te/ day against the last year average March production of 536 lakh Te/day and against
the yearly average coal production of 395.41 lakh Te/day this financial year.
 Highest eco-friendly coal production (133.67 MT out of total 143.281 MT coal production
through opencast mine, about 93.29%), amongst all Subsidiaries of CIL, through Surface
Miner, totally eliminating the air polluting unit operations used in conventional mining i.e.
Drilling, Blasting & Crushing. Average Surface Miner coal production in CIL Subsidiaries is
about 42% only.
 Highest off-take through environment friendly modes namely Rail, MGR & Belt (112 MT out
of total dispatch 142.30 MT, which is about 79%).
 Highest overall OMS.
  Ahead in non-coking coal washery: Construction of Ib-valley washery (10 MTPA) started,
tender process completed, LoI issued for Jagannath washery (10 MTPA) and Hingula washery
(10 MTPA).
 New Greenfield mine Garjanbahal OCP (13 MTPA capacity) inaugurated by Hon’ble Prime
Minister of India and coal production built up to about 2.81 MT within six months.
 Jharsuguda-Sardega Rail line (53.1 KM) and Sardega Siding inaugurated by Hon’ble Prime
Minister of India @ about Rs.1,007 Crs. and within six months capacity built up to 6
Rakes/day.
 Two numbers 50 bedded Hospital at Lakhanpur and Bashundhara at an expenditure of about
Rs.106 Crs. were inaugurated in March 2019.
 Civil construction work of Medical College at Talcher Coalfield was completed in a record
time at an expenditure of about Rs.493 Crs.
 Coal corridor was made operational at Talcher Coalfield from Hingula OCP to National
Highway connecting all the mines in-between, bypassing about 12 colonies, 10 villages,
market place, Central & Regional Stores, Hospital, School, etc., significantly reducing the air
pollution.
 First company to implement and maintain e-Capital Fund Management System through
CoalNet.
 Highest generation of solar electricity amongst all Subsidiaries of CIL (about 20.32 lakh
units).
 Introduction of most eco-friendly evacuation mode through Pipe Conveyor at Bhubaneswar
OCP and Hingula OCP.

FINANCIAL PERFORMANCES: -

MCL is the highest Contributors to the Govt. Exchequers, both Central and states Govt. in the
state of Odisha. MCL has paid Rs. 9,282.93 Crs. towards Royalty, Cess, Goods and Services
Tax, GST Compensession cess, NMET, DMF, and others levies.

Profit after Tax has been Rs.6,039.54 Crores for the year under review. Your Company
has recommended a dividend of Rs. 3,875 Crores (i.e. Rs. 5854.92 per equity share on a face
value of Rs. 1,000 per share for the year as compared to Rs. 6,160.31 per equity share last
year. The total outflow on account of dividend was Rs. 4,671.52 Crores comprising Rs. 3,875
Crores as dividend paid to CIL and Rs. 796.52 Crores as tax on dividend. Pursuant to DIPAM
Guidelines, MCL Management has also made a buyback of 4,42,967 equity shares valuing
Rs. 355.00 Crores during the year.

CAPITAL STRUCTURE: -

 The Authorised Share Capital of the Company as on 31.03.2018 is 980.00 crore,

divided into 77,58,200 Equity Shares of 1,000/- each and 20,41,800 10% Cumulative
Redeemable Preference Shares of 1,000/- each.
 The paid-up Equity Share Capital of the Company as on 31.03.2019 is
661,83,63,000. The entire Equity Share Capital is held by Coal India Limited (CIL)
and its nominees.
LOAN: -

Unsecured loan: -

The Company has given loan to NLCIL of 1500 crores @ 7% per annum for meeting the
general funding requirements and 1125 is lying outstanding as on 31.03.2019.

INVESTMENT: -

 Non-current Investments in Equity Shares of MNH Shakti Limited, MJSJ Coal

Limited, Mahanadi Basin Power Limited and Mahanadi Coal Railway Ltd,
subsidiaries of MCL are 59.57 Crore, 57.06 Crore, 5.00 Lakh and 3.20 Lakh
respectively.
 12.2Non current Investment in 7.55% secured non-convertible IRFC tax free 2021
series 79 bonds, 8% secured non-convertible IRFC bonds,7.22% secured
nonconvertible IRFC tax free bonds, 7.22% secured redeemable REC tax free bonds
stood on 31.03.2019, at 200.00 Crore, 108.75 Crore, 499.95 Crore and 150.00
Crore respectively.

CAPITAL EXPENDITURE: -

Total Capital Expenditure during the year was 1,540.11 Crore against previous year’s
expenditure of 1374.27 Crore.

BORROWINGS: -

The amount due to M/s Liebherr France SA, France as on 31.03.2019 stands at 6.29 crore for
supply of four Hydraulic Shovels on deferred credit.

TECHNOLOGY AT MCL: -

 Higher capacity HEMMs like 10 cum and 20 cum shovels, 100T and 170T Dumper,
770 HP Dozer ect have been envisaged in the latest sanctioned project report.
 Continuous miner is slated to be introduced in different UG project of MCL tendering
for its introduction in HBI mine is under process.
 MCL is the trend setter in introducing Blast free technology of winning coal in
opencast mine by surface miner now its envisaged to introduced Ripper Dozer to
remove OB also.
 MCL has undertaken geo technical studies for caving characteristic of Talcher
underground mine and Environment impact and impact on ground water of fly ash
filling in Balanda open cast filling excavation.
  SILO with rapid loading system is going to be introduced in all the major opencast
project of MCL.
 Man riding system has already been introduced in 4 underground mines at IB valley
and going to be introduced all other mines in Talcher coalfields.
 MCL has planned to construct 4 no of washeries of 10 Mty capacities each two in
Talcher, one in IB valley and another one in Bashundhara.
 Introduction of GPRS system for coal sale/coal movement information through RFID
(Radio frequency identification). This is a machine that fit in wagons Volvos which
give the details data about the coal.

COAL PRODUCTION AND OB REMOVAL: -

Coal production and OB removal has been given in a tabular form: -

ITEM 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

Coal
production 106.82 125.68 127.81 130.89 133.80
(M.T)
O.B
Removal 89.22 98.41 123.34 138.18 130.00
(m.cu.m)

COAL PRODUCTION AND O.B REMOVAL PRESENTED ON A GRAPHICAL FORM: -

Coal production and OB removal

160
140
120
100
80
60
40
20
0
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

O.B (m.cu.m)
SWOT ANALYSIS: -
STRENGTH: -

 2nd Largest Coal Producer among subsidiaries of CIL.

 Strong track record of growth in terms of Coal production, productivity & revenues.
 Good work culture- Skilled, experienced and dedicated Work force.
 Strong Capabilities of exploration & mine planning
 Mining Operations spread across the coal mining region in the states of Odisha and
serving major consumers in the country.
WEAKNESS: -

 Loss making UG operations

 Evacuation of coal largely dependent on external agencies & lack of evacuation
infrastructure facilities in growing coalfields.
 Dominance of low-grade coal in available resource
OPPORTUNITIES: -

 Huge demand of coal in the country especially for power generation.

 Huge potentiality of coal mining in MCL
 Power Plants located in the northern India are also linked to MCL.
 To formulate a sound marketing strategy& Long-term agreement with Consumers,
Railways and Shippers.
 To set up washeries
 Diversification to power
 JV for coal gasification and coal to liquid (oil).
THREAT: -

 Coal amenable to opencast mining – requirement of more land.

 Land acquisition and consequent social displacement.
 Rehabilitation and resettlement issues.
 Proneness of opencast mining to Environmental pollution.
 Inadequacy of Railways in coal transportation.
 Majority of consumers are far away from coalfields i.e. increase in rail freight means
high landed cost to the consumers.
 The Coastal based TPPs have option to use imported coal.
 Captive Mining – allotment of blocks to MCLs consumers, some Central PSUs and
State PSUs, for power generation and coal mining by state Govt. companies for sale
of coal in the market.
WORKING CAPITAL MANAGEMENT: -
INTRODUCTION: -

The uses of funds of a concern can be divided into two parts namely long-term funds
and short-term funds. The long-term investment may be terms s ‘fixed investment’. A major
part of the long-term funds is invested in the fixed assets. These fixed assets are retained in
the business to earn profits during the life of the fixed assets. To run the business operations
short-term assets are also required.

The term working capital is commonly used for the capital require d for day-to-day
working in a business concern. Such as for purchasing raw material, for meeting day-to-day
expenditure on salaries, wages, rents rates, advertising etc. But there are much disagreement
among various financial authorities (Financiers, accountants, businessmen and economists) as
to the exact meaning of the term working capital.

DEFINATION: -

Working capital is a measure of firm’s efficiency and its current financial health.
Managing the operational capital is called as working capital management.

According to Weston & Brigham,” Working capital refers to a form’s investment in

short-term assets, such as cash amount receivables, inventories etc.”

According to J.S. Mill, “The sum of the current assets is the working capital of the
business.”

CONSTITUENTS OF CURRENT ASSETS: -

 Cash in hand and Bank balances

 Bill Receivables
 Sundry Debtors
 Short-term loans and advances
 Inventories of stocks, as
a) Raw materials
b) Work-in-process
c) Stores and spares
 d) Finished goods.

 Temporary Investments of surplus funds

 Prepaid Expenses
 Accrued Incomes

CONSTITUENTS OF CURRENT LIABILITIES: -

 Bills payable
 Sundry creditors or accounts payable
 Accrued or outstanding expenses
 Short-term loans, advances and deposits
 Dividend payable
 Bank overdraft
 Provision for taxation

CLASSIFICATION OF WORKING CAPITAL: -

Working capital may be classified in two ways:

A. On the basis of concept

B. On the basis of time
A. ON THE BASIS OF COCEPT: -
On the basis of concept, working capital is classified as

 Gross working capital concept

 Net working capital concept

GROSS WORKING CAPITAL CONCEPT: -

Gross working capital refers to firm’s investment in current assets. Current assets
are the assets which can be converted into cash within an accounting year and include cash,
short-term securities, Debtors, Bill receivables and stock.

According to this concept, working capital means Gross working capital which is
the total of all current assets of a business. It can be represented by the following equation:
 Gross working capital = Total current assets

NET WORKING CAPITAL CONCEPT: -

In a narrow sense, the term working capital refers to the net working capital. Net
working capital refers to the difference between currents assets and currents liabilities. Net
working capital may be positive or negative. A positive net working capital will arise when
current assets exceed current liabilities. A negative net working capital occurs when current
liabilities are in excess of current assets.

Net working capital = Current assets – current liabilities

The gross concept is sometime preferred to the concept of working capital for
the following reasons-
 It enables the enterprise to provide correct amount of working capital at correct time.
 Every management is more interested in total current assets with which it has to
operate then the sources from where it is made available.
 It takes into consideration of the fact every increase in the funds of the enterprise
would increase its working capital.
 The concept is also useful in determining the rate of return on investments in working
capital.
The net working capital concept, however, is also important for the following
reasons:-
 It indicates the margin of protection available to short term creditors.
 It is an indicator of financial soundness of enterprise.
 It suggests the need of financing a part of working capital requirement out of
the permanent sources of funds.
B. ON THE BASIS OF TIME: -

On the basis of time, working capital may be classified as:

 Permanent or fixed working capital

 Temporary or variable working capital
PERMANENT WORKING CAPITAL: -
 The need for working capital fluctuates from time to time. However to carry on day-to-
day operations of the business without any obstacles, a certain minimum level of raw
materials, work-in-progress, finished goods and cash must be maintained on a continuous
basis. The amount needed to maintain current assets on this minimum level is called
permanent or regular working capital. As the business grow the requirement of working
capital also increase due to increase in current assets. The permanent working capital can
further be classified as regular working capital and reserve working capital.

REGULAR WORKING CAPITAL: -

This is the amount of working capital required for the continuous operations of an
enterprise. It refers to the excess of the current assets over current liabilities.

RESERVE WORKING CAPITAL: -

It is the excess amount over the requirement for regular working capital which may be
provided for contingencies that may arise at unstated period such as strikes, rise in prices,
depression etc.

TEMPORARY WORKING CAPITAL: -

Depending upon the changes in production and sales, the need for working capital, over
and above the permanent level of working capital is called temporary or variable working
capital. Temporary working capital differs from permanent working capital in the sense that
is required for short periods and can’t be permanent employed gainfully in the business.
Variable working capital can further be classified as seasonal working capital and special
working capital.

SEASONAL WORKING CAPITAL: -

The capital required to meet the seasonal needs of the enterprise is called seasonal
working capital. Such as, a textile dealer would require large amount of funds a few months
before Diwali.

SPECIAL WORKING CAPITAL:

Special working capital is that part of working capital which is required to meet special
exigencies such as launching of extensive marketing for conducting research etc.
SEMI VARIABLE WORKING CAPITAL: -

Current amount of Working Capital is in the field level up to a certain stage and after
that it will increase depending upon the change of sales or time.

OPERATING CYCLE CONCEPT: -

The duration or time required to complete the sequence of events right from the purchase of
raw materials for cash to the realization of sales in cash is called operating cycle or working
capital cycle. The operating cycle consists of three phases: -
 Phase 1: -Cash gets converted into inventory. This would include purchase of raw
materials, conversion of raw materials into work-in-progress, finished goods &
terminate in the transfers of the goods to stock at the end of manufacturing process. In
the case of trading organization, this phase would be shorter as there would be no
manufacturing activity & cash will be converted into inventory directly. This phase
will, of course, be totally absent in case of service organizations.
 Phase 2: -The inventory is converted into receivables as credit sales are made to
customers. Firm’s which do not sell on credit will obviously not have phase 2 of the
operating cycle.

 Phase 3: - In this phase represents, the stage when receivables are collected. This
phase completes the cycle. Thus, the firms have moved from cash to inventory, to
receivables & to cash again.
IMPORTANCE OR ADVANTANGES OF ADEQUATE WORKING
CAPITAL:

1. Solvency of The Business:

Adequate working capital helps in maintaining solvency of the business by providing
uninterrupted flow of production.
2. Goodwill:
Sufficient working capital enables a business concern to make prompt payments and
hence helps in creating and maintaining goodwill.
3. Easy Loans:
Banks do not hesitate to advance even the unsecured loan to a firm which has the
sufficient working capital. This is because the excess of current assets over current
liabilities itself is a good security.
4. Cash Discount:
A firm having the adequate working capital can avail the cash discount by purchasing
the goods for cash or by making the payment before the due date.
5. Regular Supply of Raw Materials:
 Adequacy of working capital makes it possible for a firm to pay the suppliers of raw
materials on time. As a result, it will continue to receive regular suppliers of raw
materials and thus there will be no disruption in production process.
6. Exploitation of Favourable Market Condition:
Whenever there are chances of increase in prices of raw materials, the firm can
purchase sufficient quantity if it has adequate of working capital. Similarly, if a firm
receives a bulk order for the supply of goods it can take advantage of such
opportunity if it has sufficient working capital
7. Ability to Face Crisis:
Adequate working capital enables a concern to face business crisis in emergencies
such as depression. Because during such periods, generally there is much pressure on
working capital.
8. Quick and Regular Return on Investments:
Every investor wants a quick and regular return on his investments. Sufficiency of
working capital enables a concern to pay quick and regular dividends to its investors
as there may not be much pressure to plough back profits. This gains the confidence
of its investors and creates a favourable market to raise additional funds in the future.
9. Excess or Inadequate Working Capital:
Every business concern should have adequate working capital to run its business
operations. It should have neither redundant or excess working capital nor inadequate
nor shortage of working capital. Both excess as well as short working capital position
are bad for any business. However, out of the two it is the inadequacy of working
capital which is more dangerous from the point of view of the firm.

4.5 DISADVANTAGE OF EXCESSIVE WORKING CAPITAL:

1. Excessive Inventory:
Excessive working capital will result in unnecessary accumulation of large inventory.
It increases the chances of misuse, waste, theft etc.
2. Excessive Debtors:
Excessive working capital will result in liberal credit policy which, in turn, will
results in higher amount tied up in debtors and higher incidence of bad debts.
3. Adverse Effect on Profitability:
 Excessive working capital means idle funds in the business which adds to the cost of
capital but earns no profits for the firm. Hence it has a bad effect on profitability of
the firm.
4. Inefficiency of Management:
Management becomes careless due to excessive resources at their command. It results
in laxity of control on expenses and cash resources.

4.6 DISADVANTAGE OF INADEQUATE WORKING CAPITAL:

i. Difficulty in Availability of Raw Material:

Adequacy of working capital results in non-payment of creditors on time. As a result,
the credit purchase of goods on favourable terms becomes increasingly difficult. Also,
the firm cannot avail the cash discount.
ii. Full Utilization of Fixed Assets Not Possible:
Due to the frequent interruption in the supply of raw materials and paucity of

stock, the firm cannot make full utilization of its machines etc.
iii. Decrease in Credit Rating:
Because of inadequacy of working capital, firm is unable to pay its short-term
obligations on time. It decays the firm’s relations with its bankers and it becomes
difficult for the firm to borrow in case of need.
iv. Decrease in Sales:
Due to the shortage of working capital, the firm cannot keep sufficient stock of
finished goods. It results in the decrease in sales. Also, the firm will be forced to
restrict its credit sales. This will further reduce the sales.
v. Difficulty in The Distribution of Dividends:
Because of paucity of cash resources, firm will not be able to pay the dividend to its
shareholders.
vi. Decrease in Efficiency of Management:
It will become increasingly difficult for the management to pay its creditors on time
and pay its day-to-day expenses. It will also be difficult to pay the wages regularly
which will have an adverse effect on the moral of managers.

COMPONENT OF WORKING CAPITAL: -

CASH MANAGEMENT: -

Cash is one of the current assets of a business. It is needs at all times to keep the business
going. A business concern should always keep sufficient cash for meeting its obligations.
Cash is the most unproductive of all the assets.
Cash management is process of collecting, managing and utilizing the cash inflow
to optimize the short-term financial stability. The key component in accomplishing this task
is solvency successful cash management is useful when any unexpected demand for cash
occurs out the blue.
RECEIVABLE MANAGEMENT: -
Receivables management is another key area of working capital management apart from cash
and inventory. Receivables constitution a substantial portion of current assets of a firm. As
substantial amounts are involved, proper management of receivables is very important.
INVENTORY MANAGEMENT: -

Inventories constitute the most significant part of current assets of the business concern.
It is also essential for smooth running of the business activities.
A proper planning of purchasing of raw material, handling, storing and recording is
to be considered as a part of inventory management. Inventory management means,
management of raw materials and related items. Inventory management considers what to
purchase, how to purchase, how much to purchase, from where to purchase, where to store
and when to use for production etc.
PRODUCTION HIGHLIGHTS: -
Production performance of MCL for last five year (incl. 2018-19)
Total Coal Production of MCL

Financial year Target Achievement Growth over last % age

year achievement
against target

Absolute %age
2014-15 127.00 121.38 10.94 9.00 95.57
2015-16 150.00 137.90 16.52 13.61 91.93
2016-17 167.00 139.21 1.31 0.95 83.36
2017-18 150.00 143.06 3.85 2.76 95.37
2018-19 151.50 144.15 1.09 0.76 95.15
 production performance

2018-19

2017-18

2016-17

2015-16

2014-15

0 20 40 60 80 100 120 140 160 180

Target Archievment Absolute %age Archeivemrnt%

NEEDS OF WORKING CAPITAL: -

Working Capital is an essential part of the business concern. Every business concern
must maintain certain amount of Working Capital for their day-to-day requirements and meet
the short-term obligations.
Working Capital is needed for the following purposes.
1. Purchase of raw materials and spares: The basic part of manufacturing process is raw
materials. It should purchase frequently according to the needs of the business concern.
Hence, every business concern maintains certain amount as Working Capital to purchase raw
materials, components, spares, etc.
2. Payment of wages and salary:
The next part of Working Capital is payment of wages and salaries to labour and employees.
Periodical payment facilities make employees perfect in their work. So a business concern
maintains adequate the amount of working capital to make the payment of wages and
salaries.
3. Day-to-day expenses:
A business concern has to meet various expenditures regarding the operations at daily basis
like fuel, power, office expenses, etc.
4. Provide credit obligations: A business concern responsible to provide credit facilities to
the customer and meet the short-term obligation. So the concern must provide adequate
Working Capital.
SOURCES OF ADDITIONAL WORKINGCAPITAL: -
Sources of additional working capital include the following-

1. Existing cash reserves

2. Profits (when you secure it as cash)

3. Payables (credit from suppliers)

4. New equity or loans from shareholders

5. Bank overdrafts line of credit

6. Long term loans

If we have insufficient working capital and try to increase sales, we can easily over stretch
the financial resources of the business. This is called overtrading. Early warning signs
include:

 Pressure on existing cash

 Exceptional cash generating activities. Offering high discounts for clear cash payment

 Bank overdraft exceeds authorized limit

 Seeking greater overdrafts or lines of credit

 Part paying suppliers or their creditor.

 Management pre occupation with surviving rather than managing.

RESEARCH: -
Research is a careful investigation or inquiry specifically through search for new
facts in any branch of knowledge. It is an original contribution to the existing stock of
knowledge making for its advancement.
Research can simply be defined a task of searching from available data to modify a
certain result or theory.
OBJECTIVE OF RESEARCH: -
 The purpose of research is to discover answers to questions through the application
of scientific procedures. The main aim of research is to find out the truth which is hidden and
which has not been discovered as yet. Though each research study has its own specific
purpose, we may think of research objectives as falling into a number of following broad
groupings:

1. To gain familiarity or achieve a new insight towards a certain topic.

2. To verify and test important facts.
3. To analyse an event, process or phenomenon.
4. To identify the cause and effect relationship.
5. To find solutions to scientific, non-scientific and social problems.
6. To determine the frequency at which something occurs.

RESEARCH DESIGN: -
The research design used in this project is Analytical in nature the procedure using, which
researcher has to use facts or information already available, and analyse these to make a
critical evaluation of the performance.

DATA COLLECTION: -

1 Primary Sources
1. Data are collected through personal interviews and discussion with Finance
Executive.
2. Data are collected through personal interviews and discussion with Material
Planning- Deputy Manager.

2 Secondary Sources
1. From the annual reports maintained by the company.
2. Data are collected from the company’s website.
3. Books and journals pertaining to the topic.
4. Some more information collected from internet.
TOOLS USED IN THE ANALYSIS: -
1 Working capital
2 Ratio analysis.
PERIOD OF STUDY: -
 The present study has taken into account 5 years viz., 2014-2015,2015-2016,2016-
2017,2017-2018 & 2018-2019.

ANALYSIS AND FINDINGS: -

CALCULATION OF WORKING CAPITAL: -

As at 31st
As at 31st As at 31st As at 31st As at 31st
march
march march march march
Particulars 2019 (Rs.
2015 (Rs. 2016 (Rs. 2017 (Rs. 2018 (Rs.
In
In Crores) In Crores) In Crores) In Crores)
Crores)
CURRENT
ASSETS: -
Current Investment 247.70 1345.00 202.00 - 1,000.83

Inventories 476.41 430.50 322.13 474.76 502.30

Trade Receivables 447.30 1123.16 1066.49 433.41 465.24

Cash & Cash

10882.37 11555.16 14662.95 204.85 356.41
equivalents

Short term loans &

3055.49 2347.71 2078.50 0.32 500.32
advances

Other Current Assets 825.74 635.93 1024.43 1,387.95 1,541.53

TOTAL CA 15935.01 17437.46 19437.46 17,042.14 18,672.88

CURRENT
LIABILITIES: -

Short term borrowings - - 2200.00 - -

Trade payables 275.26 304.18 420.52 - -

 Other current
3166.33 3183.98 4123.32 1,316.57 1,307.70
liabilities

Short term provisions 372.35 572.19 1030.27 2,903.17 3,911.17

TOTAL CL 3813.94 4060.35 7774.11 6,106.95 6.668.76

Net Working Capital

12,121.07 13,377.11 11,663.35 10,935.19 12,004.12
(Total CA–Total CL)
NET WORKING CAPITAL: -
Net working capital is defined as the difference between the current assets and current
liabilities of a business. It is that part of the current asset which is left after paying off all the
current liabilities. Positive net working capital represents the ability of the business to pay off
its liabilities. On the other hand, negative net working capital is a concern.

Formula for net working capital as follows:

Net working capital = Current Assets – Current Liabilities

Year Current Assets Current Liabilities Net Working

(Rs. In Lakhs) (Rs. In Lakhs) Capital

2014-15 15935.01 3813.94 12,121.07

2015-16 17437.46 4060.35 13,377.11
2016-17 19437.46 7774.11 11,663.35
2017-18 17042.14 6,106.95 10,935.19
2018-19 18672.88 6,668.76 12,004.12
 Net working capital
25000

20000

15000

10000

5000

0
2014-15 2015-16 2016-17 2017-18 2018-19

Current Assets (Rs. In Lakhs) Current Liabilities (Rs. In Lakhs)

Net Working Capital
INTERPRETATION: -

This ratio establishes difference between the current assets and current liabilities.

MCL has net working capital in the year 2015-16 was recorded 13,377.11 cr. After in
2016-17 it was in decreasing trend.

CALCULATION OF PERCENT CHANGE IN NET WORKING CAPITAL: -

% change in Net working

Year Net working Capital
capital
2015 12121.07 -
2016 13377.11 -10.362
2017 11582.32 -13.416
2018 10,935.19 -5.587
2019 18672.88 -70.755
Formula used for calculating increase in working capital:

A−B
increase∈working capital = X 100
B

Where,

A = Current year working capital

B = Previous year working capital

RATIO ANALYSIS: -
Ratio Analysis is a powerful tool of financial analysis. A Ratio is defined as “the
indicated quotient of two mathematical expressions” and as “the relationship between two or
more things”. In financial analysis, a ratio is used as a benchmark for evaluating the financial
position and performance of a firm.
 Ratio helps to summarize large quantities of financial data and to make qualitative
judgment about the firm’s financial performance. Following are some of the important ratio
to analyse the data better.

The study is conducted in MCL to measure the working capital management of the
company. The working capital management is the most important tool of measure the
liquidity position of the company. This study is undertaken to observe the management of
working capital through ratio analysis technique, because ratio analysis is the important tool
to measure the working capital management. So i had taken the five years annual reports to
measure the working capital management.
The present study ascertained with the help of following ratios:
1. Current Ratio
2. Quick Ratio
3. Inventory turnover Ratio
4. Debtors turnover Ratio
5. Working capital turnover Ratio
6. Current assets turnover Ratio

CURRENT RATIO: -

The current ratio is also called the working capital ratio, as working capital is the
difference between current assets and current liabilities. This ratio measures the ability of a
company to pay its current obligations using current assets. The current ratio is calculated by
dividing current assets by current liabilities.

Current Ratio = Current Assets

Current Liabilities
 Current Current
Current
Year Assets (Rs. In Liabilities (Rs. In
Ratio
Lakhs) Lakhs)
2014-15 15935.01 3813.94 4.17
2015-16 17437.46 4060.35 4.29
2016-17 19437.46 7774.11 2.50
2017-18 17042.14 6,106.95 2.79
2018-19 18672.88 6,668.76 2.80

Current ratio
25000

20000

15000

10000

5000

0
2014-15 2015-16 2016-17 2017-18 2018-19

Current Assets (Rs. In Lakhs) Current Liabilities (Rs. In Lakhs)

Current Ratio
INTERPRETAT
ION:

The current ratio calculated by dividing Current Assets with Current Liabilities. It is a
measure of firm’s short-term solvency. As conventional rules a current ratio of 2:1 is
satisfactory.
MCL has current ratio in the year 2014-15 was recorded 4.17 and in the year 2015-16
was 4.29. After 2016-17 it was in decreasing trend but during in the ratio is 2.50 which are
above the standard ratio.
QUICK RATIO: -

The quick ratio, also known as the Acid test or Liquidity ratio, measures the

Ability of a business to pay its short-term liabilities by having assets that is readily
convertible into cash. These assets are, namely, cash, marketable securities and accounts
receivable. The Quick ratio is the ratio between quick current assets and current liabilities.

Quick Ratio = Quick Assets

Current Liabilities
Quick Assets = Current Assets – Inventory

Quick Assets Current

Year (Rs. In Liabilities (Rs. Quick Ratio
Lakhs) In Lakhs)
2014-15 14900.78 3947.94 3.77
2015-16 16884.9 4121.34 4.10
2016-17 19034.3 8116.13 2.34
2017-18 16777.09 6292.81 2.66
2018-19 18170.58 6668.76 2.72

QUICK RATIO
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2014-15 2015-16 2016-17 2017-18 2018-19

Quick Assets (Rs. In Lakhs) Current Liabilities (Rs. In Lakhs)

Quick Ratio

INTERPRETATION:
 This ratio establishes relation between the quick assets and current liabilities. As
assets are liquid if it can be converted into cash immediately or reasonably soon without loss
of value the accepted standard is 1:1.

The quick ratio of MCL was favourable in the years of 2014-15 & 2015-16 as 3.77
& 4.10, where as in the years 2016-17, it was in decrease to 2.34 and in the year of 2017-18,
it was increase. At last the company’s overall liquidity position is not in good.

INVENTORY TURNOVER RATIO:

The inventory turnover ratio is an efficiency ratio that shows how effectively
inventory is managed by comparing cost of goods sold with average inventory for a period.
This measures how many times average inventory is “turned” or sold during a period. In
other words, it measures how many times a company sold its total average inventory dollar
amount during the year. This ratio establishes relationship between cost of goods sold during
a given period of time and average amount of inventory held during that period.

It can be ascertained by following formula:

Inventory Turnover Ratio = Cost of goods sold

Average Inventory

Cost of goods sold = Sales – Gross profit

Cost of goods Average

Inventory
Year sold (Rs. In Inventory (Rs.
turnover ratio
Lakhs) In Lakhs)
2014-15 43278.53 5617.82 7.70
2015-16 45872.48 5568.07 8.24
2016-17 50423.38 6183.82 8.15
2017-18 54034.53 7595.34 7.11
2018-19 60764.92 8945.27 6.79
 Inventory turnover ratio
70000

60000

50000

40000

30000

20000

10000

0
2014-15 2015-16 2016-17 2017-18 2018-19

Cost of goods sold (Rs. In Lakhs) Average Inventory (Rs. In Lakhs)

Inventory turnover ratio

INTERPRETATION:

The ratio indicates the efficiency of the firm in selling its product it is calculated by
dividing the cost of goods sold with average inventory.

For MCL, the efficiency is decreasing. In the year of 2015-16 it is 8.24 which is
highest recorded. After that it went on decreasing to lowest of 6.79 in 2018-19. It shows that
no proper control over the inventory by the management.

INVENTORY CONVERSION PERIOD:

Inventory period is the time lag between the purchase of raw materials & sale of
finished goods.

It includes

 Raw materials conversion period

 Work-in-process conversion period
 Finished goods conversion period
The inventory conversion period can be ascertained by following formula:

Inventory conversion period = No of days in a year

Inventory turnover ratio

No. Of days in a year = 365 days

Year No of days in a Inventory Inventory

 turnover
year conversion period
ratio
2014-15 365 7.70 47
2015-16 365 8.24 44
2016-17 365 8.15 45
2017-18 365 7.11 51
2018-19 365 6.79 54

inventory conversion period

400
350
300
250
200
150
100
50
0
2014-15 2015-16 2016-17 2017-18 2018-19

No of days in a year Inventory turnover ratio Inventory conversion period

INTERPRETATION:

This ratio indicates the speed with which the stock or inventory gets converted into
cash i.e. sales the lower the period, the better liquidity of the inventory.

WORKING CAPITAL TURNOVER RATIO:

Working capital turnover ratio is used to determine the relationship between net sales
and working capital of a business. It shows the number of net sales generated for every single
unit of working capital employed in the business.

Companies may perform different types of analysis such as trend analysis, cross-
sectional analysis etc to find out effective utilization of its resources, in this case working
capital. Working capital is calculated by subtracting current liabilities from current assets.
 It is calculated by following formula:

Working capital turnover ratio = Cost of goods sold

Net working capital

Cost of goods sold = sales – Gross profit

Net working capital = Current assets – Current Liabilities

Net working
Cost of goods sold
Year capital (Rs. In Ratio
(Rs. In Lakhs)
Lakhs)
2014-15 43278.53 13995.25 3.10
2015-16 45872.48 11459.46 4.00
2016-17 50423.38 11424.34 4.41
2017-18 54034.53 13189.15 4.10
2018-19 60764.92 11240.3 5.40

Working capital turnover ratio

70000

60000

50000

40000

30000

20000

10000

0
2014-15 2015-16 2016-17 2017-18 2018-19

Cost of goods sold (Rs. In Lakhs) Net working capital (Rs. In Lakhs)
Ratio

INTERPRETATION:
 This ratio established relation between the cost of goods sold and net working
capital.

Working capital turnover ratio is decreasing trend. In the year 2015-16 & 2016-17
the ratio is high i.e. 4.00 & 4.41. It shows the MCL is properly utilized the working capital
for making the sales. But in the year 2015-16 the working capital turnover ratio is low i.e.
4.10. But in the year 2018-19 again increased i.e. 5.40.

FINDINGS
By the study of the whole data I find some facts which are as follows:

 As it is a steel industry its production process time is long in which it manages the
current ratio over 1:1 which is satisfied.
 In spite of increase in Working Capital there is decreasing working capital turnover
ratio which is largely due to increase in fixed deposit of surplus fund generated out of
operations and as a matter of policy, the company has to go for this mode of
investment only.
 The current assets and liabilities are increasing year by year. A further analysis of
component wise current assets shows a considerable increase of bank balance over the
period of time. It means that the company as well as the coal industry is enjoying
absolute monopoly in the market and it has increased its production every year as per
the market demand.
 The company had increased their consumption by this year and they are trying to
decrease holding periods which will increase their profitability.
 Since the company is a large organization its working capital requirement is more.
And that’s why it maintains huge amount of working capital.
SUGGESTION AND RECOMMENDATIONS

The management of working capital plays a vital role in running of a successful business.
So, things should go with a proper understanding for managing cash, receivables and
inventory.

Mahanadi Coalfields Limited is managing its working capital in e good manner, but still
there is some scope for improvement in its management. This can help the company in
raising its profit level by making less investment in accounts receivables and stocks etc. This
will ultimately improve efficiency of its operations.

CONCLUSION
 The working capital position of the company is sound and the various sources through
which it is funded are optimal.
 The company has used its purchasing, financing and investment decisions to good
effect can be seen from the inferences made earlier in the project.
 The various ratios calculated are an indicator as to the fact that the profitability of the
firm and sales are on a rise and also deletion of the inefficiencies in the working
capital management.
 The firm has not compromised on profitability despite the high liquidity is
commendable.
 Mahanadi Coalfields Limited has reached a position where the default costs are as
low as negligible and where they can readily factor their accounts receivables for
availing finance is noteworthy.

REFERENCE: -
 Maheshwari, S.N. (2006) Financial Management, New Delhi, Sultan Chand & Sons.
 Last 5-year annual report of MCL
 www.mahanadicoal.in
 www.wikipedia.com
 www.investopedia.com
 Google.com