A Summer Internship Report on Working Capital Management

EXECUTIVE SUMMARY… The on the job training is an integral part of MBA course which gives the student a practical knowledge about the functioning of an organization. The main objective of the training is to provide a platform to learn and acquire different business skills from the professionals. It teaches the students to adapt themselves to various challenges in the work front, which helps to develop professionalism within them. The sole objective of this project was to analyze the working capital management of Rourkela steel Plant (RSP) for four years from 2005-06 to 200809. Working capital involves deciding upon the amount and composition of current asset and the manner in which to finance them. Determining the appropriate levels of working capital involves fundamental decisions with regard to the firm's liquidity and trade off between risk and profitability. Greater the amount of working capital level maintained, the lesser is the risk of running out of cash, although profitability will be less, in case of lower level working capital, the profitability will be greater but the risk of running out of capital to meet the day-today requirement will be more. This two and half months of training gave me valuable information about the Rourkela Steel Plant, its performance, liquidity position, sales, funds availability, working capital requirement, etc. The area of study is as follows: 1. 2. 3. Analyzing the working capital of RSP. Measuring the operating cycle. Ratio analysis.

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A Summer Internship Report on Working Capital Management

Study

OBJECTIVES

Each and every firm has got a specified source of funds. The objectives of the study comes out to be enhancing one's knowledge by analyzing how a firm like RSP with limited amount of funds has been progressing by a better fund management. The objective of my project is as follows:To learn the functioning of the organization and skills, roles and responsibilities, of the financial manager in an organization.

 To know the day to day finance of RSP.

 To know the efficiency of financial operations of RSP.  To know the trends of the working capital over the last four years.

To analyze the elements of the current asset and current liabilities and to identify those elements which are responsible for the changes in the working capital?

 6.To assess the significance of the working capital by selecting a few parameters such as Current Ratio, Quick Ratio, Working Capital Ratio.
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A Summer Internship Report on Working Capital Management

To familiarize with the various financial statistics such as sales, profit, production and manpower resource of a large scale-manufacturing unit like RSP for the last four years.

PROJECT DESIGN AND METHODOLOGY

Sources of information Mainly the study was based on two types of data. 1. Primary data 2. Secondary data 1. Primary data : Primary data are those data collected from individual official guides view from organizations these data are collected through personnel interview observation of records, ledger, file, etc, collection of those data is time consuming but these are most important and reliable. 2. Secondary data: Secondary data are those data which are already gathered and available. There may be internal source within plant; externally that source may include book, periodicals, published report, data service, annual reports. For collections of secondary data following are considered:• • • • • Books on subject Published reports relevant to the subject Commercial data Files Published Records of the plant

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A Summer Internship Report on Working Capital Management

 Period of the study: In the summer training project I have analysed the management of working capital of Rourkela steel plant (RSP) Rourkela for the past four years from 2004-05 to 2007-08.

 Area of the study: In the summer training project I have prepared the report entitled Management of working capital in Rourkela steel plant. The area of the Study is as follows:

1. Analysis of operating cycle 2. Measuring the working capital 3. Ratio analysis

In this study, the samples of four financial years 2004-05 to 2007-08 are taken from in Rourkela steel plant, Rourkela. in this study I am using secondary data for collecting the valuable information. The sources of secondary data for the study are the balance sheet and their related schedules of the plant four financial years 2004-05 to 2007-08 of Rourkela. Globally, the steel production is close to 28 million tone and growing at the rate of 5-6 % every year. The main demand creators for Steel Industry are Automobile industry, Construction Industry, Infrastructure Industry, Oil and Gas Industry, and Container Industry. New innovations are also taking place in Steel Industry for cost minimization and at the same time production maximization. Some of the cutting edge technologies that are being implemented in this industry are thin-slab casting, making of steel through the use of electric furnace, vacuum degassing, etc. The Steel Industry has enough potential to grow at a much accelerated pace in the coming future due to the continuity of the developmental projects around the world. This industry is at present working near its productive capacity which needs to be
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Sample design

Over the years. particularly after the adoption of the liberalization policies all over the world. Rourkela INTRODUCTION TO STEEL INDUSTRY Steel. There have been almost revolutionary changes in the global steel scene with fierce competitive pressures on performance. The per capita consumption of steel is generally accepted as a yardstick to measure the level of socioeconomic development and living standards of the people. productivity. GLOBAL STEEL INDUSTRY SCENARIO Page |5 . As such. India being one among the fastest growing economies of the world has been considered as one of the potential global steel hub internationally. National boundaries have melted to encompass an ever increasing world market.A Summer Internship Report on Working Capital Management increased with increasing demand. no developing country can afford to ignore the steel industry. the World steel industry is growing very fastkela steel plant. plays a vital role in the development of any modern economy. Trade in steel products has been on the upswing with the production facilities of both the developed and the developing countries complementing each other in the making of steel of different grades and specialty for the world market. price reduction and customer satisfaction.

A Summer Internship Report on Working Capital Management Steel Industry is a booming industry in the whole world. real estate and automobiles. The Indian steel industry is organized in three categories i.. The increasing need of steel by the developing countries for its infrastructural projects has pushed the companies in this industry near their operative capacity SCENARIO OF INDIAN STEEL INDUSTRY INTRODUCTION:. India is the seventh largest steel producer in the world. It has been observed that steel industry has grown tremendously in the last one and a half decade with a strong financial condition. The main producers are Tata Steel. main producers. India's rapid economic growth and soaring demand by sectors like infrastructure. Steel Industry is becoming more and more competitive with every passing day. other major producers and the secondary producers. The main producers and other major producers have integrated steel making facility with plant capacities over 0. has put Indian steel industry on the global map. The increasing demand for it was mainly generated by the development project that has been going on along the world.5 mT and utilize iron ore and coal/gas for production of steel. at home and abroad. the steel market used to be dominated by OECD (Organization for Economic Cooperation and Development) countries. During the period 1960s to late 1980s. The balance of trade line is also tilting towards these countries. According to the latest report by International Iron and Steel Institute (MSI). India and South Korea in this sector has led to slipping market share of OECD countries. especially the infrastructural works and real estate projects that has been on the boom around the developing countries. and Page |6 . Steel Industry was till recently dominated by the United Sates of America but this scenario is changing with a rapid pace with the Indian steel companies on an acquisition spree. But with the fast Emergence of developing countries like china. SAIL.Steel Industry in India is on an upswing because of the strong global and domestic demand.e.

owing to moderate revival in demand from Chinese steel producer. Furthermore. based on the status of Memoranda Of Understanding (MOUs) signed by the private producers with the various state government.A Summer Internship Report on Working Capital Management RINL. 1. 2. is planning to build a blast furnace steel plant in India with mid. Steel consumption grew at 3.  A credit Suisse Group study states that India steel consumption will continue to grow by 16 percent annually till by 2012.   INVESTMENTS:. India's steel capacity is likely to be 293 MT by 2020. investments of over US$ 30 billion is in the pipeline over the next 5 years. It consumes about 1.  CONSUMPTION:-lndia is the 5th largest consumer of steel in the world.8 MT in the same month a year ago. ISPAT and JVSL. wagon. PRODUCTION:. hotel and retail stores is growing immensely. Tata Steel.Out of India's annual iron-ore production of more than 200 MT. with an expanding consumer market. Page |7 .A host of steel companies have lined up major investment proposals. Japan's Sumitomo Metal Industry. about 5 to 12. According to Investment Commission of India. The national steel policy has a target for taking steel production up to 110 MT by 2019-20.5 MT of stainless steel a year with around 70 percent accounting for kitchenware. fuelled by demand for construction projects worth US s 1 Trillion EXPORT:.6 MT in February 2009 from 10.tier producer Bhushan steel investing as much as US $ 3 billion. the Indian steel industry is likely to receive domestic and foreign investments.06 MT by 2011-12.2 percent in the January-march quarter of 2008-09 over the same period last year. while the other major producers are ESSAR.Steel production grew at 1.8 percent in the January-March quarter of 2008-09 over the same period last year. Demand for steel in India is likely to grow at around 12 percent against the' global average of 5-6 percent. However. In. Essar and JSW operating at full capacity. The fourth quarter saw most of the large steel companies such as SAIL. airport. The ministry of steel has projected India's steel capacity to touch 124. its uses in railway coaches.

semi-finished products.Subsequently the recent fall in international prices of commodities and to protect Indian producer. The outlook for Indian steel industry is very bright.A Summer Internship Report on Working Capital Management 3.Mittal." Steel Authority of India Limited (SAIL) is India's largest steel producing company. Iron and steel products like pig iron. productivity. GOVERNMENT INITIATIVES:. the largest steel maker of the world. It is a Page |8 . India's lower wages and favourable energy prices will continue to promise substantial cost advantages compared to production facilities in (Western) Europe or the US. spiegeleisen. is planning to set up a captive port near Paradip in Orissa. the top five highest profit earning corporate of the country. This is evident from the recent acquisition of Corus by Tata. 000 crore. The port will be used to serve to mega integrated steel plants of the company proposed in Orissa and Jharkhand. profitability and customer satisfaction. The deployment of modern production systems is also enabling Indian steel companies to INTRODUCTION TO SAIL:improve the quality of their steel.  Vision statement: "To be a respected world class corporation and the leader in Indian steel business in quality. the Indian government has announced some changes in the custom duty rates. 40. With a turnover of Rs. It is also expected that steel industry will undergo a process of consolidation since industry players are engage in an unfettered rush for scale. which were effective from November 2008.  CONCLUSION:. flat products and long products are now subject to a basic custom duty of 5 per cent ad valorem. Arcelor.

This gives SAIL a competitive edge in terms of captive availability of iron ore. The company has the distinction of being India's largest producer of iron ore and of having the country's second largest mines network. located principally in the eastern and central regions of India and situated close to domestic sources of raw materials. power. Special steel plants • Alloys steel plants (ASP) in West Bengal • Salem steel plant (SSP) in Tamilnadu • Visvesvarya Iron and Steel Plant (VISL) in Karnataka 3. Integrated steel plants • Bhilai steel plant (BSP) in Chhattisgarh • Durgapur steel plant (DSP) in West Bengal Rourkela steel plant(RSP) in Orissa • Bokaro steel plant(BSL) in Jharkhand • IISCO steel plant in West Bengal 2. However. engineering. SAIL. lime. plates. including the Company's iron ore. railway. OWNERSHIP AND OWNERSHIP AND MANAGEMENT:The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. automotive and defense industries and for sale in export markets. electrical sheets. Subsidiaries  Maharashtra Elektrosmelt limited (MEL) in Maharashtra  Bhilai Oxygen Limited (BOL) in New Delhi  SAIL Consultancy Division in New Delhi  Research and Development Centre for Iron and Page |9 . limestone and dolomite mines. SAIL produces iron and steel at five integrated plants and three special steel plants. structural’s. stainless steel and other alloy steels. SAIL manufactures and sells a broad range of steel products. bars and rods. producing both basic and special steels for domestic construction. galvanized sheets. enjoys significant operational and financial autonomy. by virtue of its 'Navratna' status. railway products.A Summer Internship Report on Working Capital Management fully integrated iron and steel maker. including hot and cold rolled sheets and coils. Major Units of SAIL 1.

SAIL ahs also planned to raise its output of finished steel to 16.A Summer Internship Report on Working Capital Management       Steel in Ranchi Management and Training Institute in Ranchi SAIL Safety Organization Environment Management Division in Kolkata Growth Division in Kolkata Central power Training institute in Rourkela Center Coal Supply Orgainisation in Jharkhand 4. and reduce generation of semi-finished steel from 20% of saleble steel to 40%. Joint Ventures • Bokaro Power Supply Company Pvt Limited • Bhilai Electric Supply Company Pvt Limited • UEC SAIL Information Technology Limited Metaljunction.6 MTPA by 2011-12 from the current level of 8. P a g e | 10 .in view of emerging market requirement.This will enable inclusion of more value-added products in the company's product basket. The envisaged growth in volumes are planned to be achieved by• Realization of full potential of existing assets • De-bottlenecking • Linked facilities for value addition • • Capacity enhancement in growth segments MANAGEMENT OF THE SAIL:• Steel Authority of India Limited is managed by an efficient and experienced board of directors aided by the chairman.com private Limited • SAIL Bansal Service Center Pvt Ltd • Bengal Dolomite Limited • PRODUCTION: As part of the plan SAIL will increase hot metal production from its plants to a level of about 20 million tones per annum (MTPA) by 2012 against the current level of 13MT.6 MT.

However. Dr. Steel Authority of India Limited has also arranged for All awareness programs. enjoys significant operational and P a g e | 11 .C Jain.N. Elias. Sengupta. Romelt SAIL (India) Ltd 4. Dr. Ojha. The company strives to improve the condition of women in India and has therefore. Other board of directors of SAIL are:Shri Mohammad Yusuf Khan. Assistance during natural calamities. created certain samities within the steel manufacturing units. G. SOCIAL CONTRIBUTION OF STEEL AUTHORITY OF INDIA LIMITED:- • Steel Authority of India Limited is involved in a number of social activities and has taken up the job of the overall management and restoration of 5 monuments within the Lodhi Gardens. Providing vocational training to women 4. K. SAIL.A Summer Internship Report on Working Capital Management • • • • • • • • Chairman of SAIL: shri S.K.Community Welfare Activities 2. Shri Arun Kumar Rath. Manufacturing products for general use in plants . MD of IISCO Steel Plant: Shri Nilotpal Roy.S. Roongta MD of Rourkela Steel Plant: Shri B. Singh MD of Bokaro Steel Plant: Shri V. and dolomite which are OWNERSHIP AND MANAGEMENT :The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. Srivastava. by virtue of its 'Navratna' status.K. Velu Annamalai. These units are involved in: 1. located at Delhi as a part of its social responsibility. Shri G. anti-leprosy camps and a host of other social welfare programs tone. Shri P.

Subsidiaries  Maharashtra Elektrosmelt limited (MEL) in Maharashtra  Bhilai Oxygen Limited (BOL) in New Delhi  SAIL Consultancy Division in New Delhi  Research and Development Centre for Iron and Steel in Ranchi  Management and Training Institute in Ranchi  SAIL Safety Organization  Environment Management Division in Kolkata  Growth Division in Kolkata  Central power Training institute in Rourkela Center Coal Supply Orgainisation in Jharkhand 4. Special steel plants • Alloys steel plants (ASP) in West Bengal • Salem steel plant (SSP) in Tamilnadu • Visvesvarya Iron and Steel Plant (VISL) in Karnataka 3. Major Units of SAIL 1.com private Limited • SAIL Bansal Service Center Pvt Ltd Bengal Dolomite Limited  SAIL IN FUTURE As the largest steel producer in the country. Joint Ventures • Bokaro Power Supply Company Pvt Limited • Bhilai Electric Supply Company Pvt Limited • UEC SAIL Information Technology Limited Metaljunction. Integrated steel plants • Bhilai steel plant (BSP) in Chhattisgarh • Durgapur steel plant (DSP) in West Bengal Rourkela steel plant(RSP) in Orissa • Bokaro steel plant(BSL) in Jharkhand • IISCO steel plant in West Bengal 2.A Summer Internship Report on Working Capital Management financial autonomy. Steel Authority of P a g e | 12 .

in its November 2002 report dealing with perspectives up to 2025. TMT Bars &Rods. In the backdrop of the upheavals faced by the global steel business in the recent past.orientation. and will be supplemented by market borrowing if the need arises.'corporate plan. The capital expenditure envisaged will be financed mainly through internal accruals. structural. SAIL felt it necessary a long term perspective plan for itself.A Summer Internship Report on Working Capital Management India limited (SAIL) has always believed in structured planning for achieving organization growth. further intensification of market. superceding the last such plan drawn up in 1992. which has been drawn up as a consequence. By 2012. This has also contributed significantly to national interests. Besides. Care will be taken to ensure that the company's debt-equity ratio attains. including stepped.up production. and market growth projections of around 13%. The immediate priority schemes. Changes in business environment call for periodical review of long term plans. given the steel sector's strong backward and forward linkages. the consumption of steel in india is expected to reach around 55 to 60 million tones (MT). SAIL has the comparative advantage to supply additional volumes at the most competitive cost to the nation. the scenario holds a huge potential for growth. nearly double the current level. indicates that the construction. provides a blueprint for the company's growth in the coming years in tandem with a growing market. to be taken/ completed by 2006-07. For SAIL which is an established and significant player in these products segments. Given its available infrastructure and skill base. and improved and multiple managerial interventions to optimize resource u SAIL has estimated that the measures to be taken to achieve the targeted levels of growth and sustain higher levels of cost and quality competitiveness will require investment in the region of rs 25000 crore by 2011-12. Corporate Plan.span.2012'. have been estimated to be around RS4300 crore. cold-reducing and oil &gas transportation segments are poised for major growth in India. HR/CR Coils. Corporate Plan 2012 envisages enhancement in SAIL's domestic market share from the current level of around 50% (it is estimated that in 2003-04 steel consumption in the country crossed 100MT) to around 47% (of the projected 100-150 MT) through a mix of measures. 2012 (CP12) was formulated in 2004 for 4 P a g e | 13 . the general perception that the current phase of buoyancy in the market will last for a longer time. the centre for policy research. plates and pipes have been identified as the key growth products for the domestic steel industry.

introduce customer centric processes and have matching infrastructure facilities in the Plant to support higher production volumes. the survey work was completed in the year 1954. the Hot Metal production Plan was revised to 22. After merger of in IISCO February 2006. Investment to the tune of Rs 34. energy savings. pollution control. Expansion of Special Steel Plants was also included. developing mines & collieries to meet higher requirement of key raw materials. the plan also addresses the need of SAIL Plants towards eliminating technological obsolescence.982 crore was envisaged under the Corporate Plan. of India under the ablest leadership of the then Prime Minister Pt. Almost thirty-two villages were P a g e | 14 . dolomite and limestone's. Rourkela and its adjacent areas are rich in iron ores.A Summer Internship Report on Working Capital Management integrated steel plants for increase in Hot Metal production to 20 MT by 2012.5 Mt by 2012. Considering Rourkela to be best place for a steel plant. decided to set up large Steel Plants by the Govt. the basic materials for production of iron and steel. The infrastructure work of the plant was accomplished in between 1955 and 1960. manganese. itself after the general election of 1952. Besides capacity enhancement. enriching product mix. Jawaharlal Nehru. ROURKELA STEEL PLANT The Govt. It was envisaged to take up the Projects in segregated manner based on the Techno-economic viability of each project.

cold rolled coils. iron sheets.H. G. selling of dolomite plant. Cemens and Voist Eipine etc. The Republic of Germany extended technical knows how for the construction of the steel plant and the plant was considered a joint venture of the Govts. electric steel plates. ultra thin plates. It could also established itself as one of the premier industries of the world under the system of basic oxygen converter. bitumen and benjol etc. The extension work of the plant was over by the year 1968. tin plates and different kinds of pipes etc. Some nine main packages including some ancillary packages were executed at the first phase. The process of modernization entailed an expenditure outlay of rupees 4500 cores. new oxygen plant. Similarly with the implementation of some sophisticated systems in the second phase of modernization Rourkela Steel Plant could get the status squo of a modern industrial unit in the world.W. The initial production limit of one million tones steel per annum was raised to 1.A Summer Internship Report on Working Capital Management alienated and the people of the villages were resettled. To avoid scarcity of power supply the plant set up a power plant by itself with a capacity of 120 M. Dimag. The byproducts of the plant are fertilizer "Sona". This phase revamped the process of supply of raw materials. Supplied different machines and machinery parts to the plant at the beginning stage. techniques. The power plant is able to cater the requirement of power supply from the year 1986. Cast house slag glandular plant. The Rourkela Steel Plant took the part of leadership in the process of steel production under L. A circular welding pipe plant and special plate plant were set up in the decade of seventies for production of different ready-made materials. hot rolled coils.D. improved techniques in blast furnaces. P a g e | 15 . Of Indian and Germany.H. The materials being produced from the Steel Plant are steel in gots.8 million tones in the subsequent years. The modernization of Rourkela steel plant was begun in the month of August 1988 with a view to producing qualitative materials and establishing its importance in the world market. Sag. Scholomen. The internationally reputed firms like the Krrups. supply of raw materials two number of Sintering plant and coal handling plants etc.

2 . optimum cost and maximum productivity in a harmonious environment.A Summer Internship Report on Working Capital Management MISSION STATEMENT OF RSP:"The future of our steel plant lies in our hands." THE SAMSKAR OF RSP:"We have to create and sustain a peaceful work environment where every employee can contribute to the plant in assigned area of work with full freedom and dignity and without fear". Finest plant in India to adopt L.Exclusively produces flat products." SPECIAL FEATURE OF RSP:1. Steel Township and in the region. 4. It is our Sankaipa to spread Samridhi in our steel plant. It has a special plate plant where special alloy steel plates are shaped to different shapes as per requirement in the P a g e | 16 . We will do whatever things are necessary which are good for our plant. We shall never do anything that hurts our plant". harmonious and vibrant organization. 5. It is our individual and collective responsibility to rebuild our plant into a profitable.D process of steel making. THE SANKALPA STATEMENT OF RSP:"We the employees of Rourkela Steel Plant have full faith in our unlimited potential and we resolve to sustain our samskar and commit ourselves to achieving total safety. OBJECTIVE OF THE RSP:"Achieving total safety. 1st public sector integrated plant to be set up in the country. It has got an electrical sheet mill capable of capable of producing both Dynamo and Transformer grade electric sheet. perfect quality. optimum cost and maximum productivity. 3. perfect quality.

A Summer Internship Report on Working Capital Management defence sector. Rourkela also has an Airstrip maintained by Rourkela Steel Plant. Bhubaneswar (378 km) 3. The city is built around a large iron and steel plant. Ranchi(173km) 2. central India. It has two captive power plant(CPP) with a generation capacity of around 120 mw. fertilizers. Rourkela is very well connected with most of the important cities of India. 7. New Delhi (1706 km) 7. The nearby airports are:1.E railways RAW MATERIAL AND ITS SOURCES:- P a g e | 17 . 6. and chemicals. The nearest railway station is Rourkela railway station of the S. Rourkela Steel Plant is located in the northwestern tip of Orissa and at the heart of a rich mineral belt.RSP has the distinction of being the unique steel plant in india with an integrated Fertilizer Complex. Orissa state. Chennai (1440 km) The steel plant is well connected with rail and road. Mumbai (1555 km) 5. OVERVIEW OF ROURKELA STEEL PLANT Rourkela city. Being situated on the Howrah-Mumbai mainline. 4. Others products are heavy machinery. Kolkata(413KM). at the confluence of the Koel and Sankh rivers.

Australia. Meghtaburu. Coal-----------------------------Indigenous source-BCCL/CCL. Limestone---------------------Jaisalmer. on grounds of penalties for delays this segment depends on the market for its daily requirement and hence. Kalta.A Summer Internship Report on Working Capital Management RAW MATERIAL SOURCES Iron ore------------------------Captive mines of Barsua. Canada. With the pressure of completing construction within the stipulated time. the increase has been by around 60% from around Rs 14000 to over rs 22000 per tones. Dolomite----------------------Biramitrapur. Katini Manganese---------------------Barjamada.aug2003. seems to suffer the most. Kiribur. There is an urgent need to balance the interest of the producers and the consumers of steel. On certain special steels used by automobile component manufacturers the increased from around rs 15600 per tones to around rs23000 per tones during November. These coils are used in tube making &cold rolling of low carbon DD&EDD quality HR coils are also used like telephone poles and also used in railway coaches and auto poly components.On flat products widely used by a variety of consumers industries. SW P a g e | 18 . Every attention thus needs to be given to steeping up capacity for steel. Koira Ferro-----------------------------Maharashtra Electro Mill LTD. Bolani etc.Hr coils are used in number of engineering application. USA PRODUCT USES:-Steel as a basic building block will determine growth over several other sectors.

000 85.000 55. galvanized sheets are used in roofing paneling. Cold rolled coils/ sheets are the primary products of rsp and used making steels furniture .500 3.000 4. railway coaches.99. natural gas. Electrolytic tin plates available in equal and differential coating range from 5.A Summer Internship Report on Working Capital Management Pipes are also used in transportation of crude oil.6 gm/m square coating weight and variety suitable for manufacture of beautifully printed and plan containers for packing all kinds of products. automobiles bodies. etc.60.500 16. PRODUCT MIX:PRODUCT PLATE MILL PLATES HR PLATES HR COILS ERW PIPES SW PIPES CR SHEETS AND COILS GALVANIZED SHEETS(GP &GC) ELECTROLYTIC TIN PLATES SILICON STEEL PLATES TOTAL SALEABLE STEEL TONNES/ANNUM 2.000 1. industrial sheeting.000 75.000 73. refrigerator bodies.000 P a g e | 19 .33.000 92. air conditioning ducts and in structural constructions.71.98.

A Summer Internship Report on Working Capital Management PRODUCTS AND THEIR APPLICATIONS:Products HR Coils Plates Chequered Plates CR Sheets & Coils Applications LPG Cylinders. railway wagon chassis and all types of high Pressure vessels. washing machines. automobile. drums. Steel furniture. white goods like refrigerators. barrels. deep drawing and extra deep drawing etc. automobile bodies. ship building and engineering structures Flooring & staircases in the industrial sectors and railway platforms etc. P a g e | 20 . railway .

bicycle frames. ships. civil engineering pilings etc. natural gas and slurry transportation. are the largest product category of the company in terms of both sales volume and revenue. Silicon Steel sheets & Coils Spiral Weld pipes ERW Pipes DIFFERENT TYPES OF PRODUCT Hot Rolled Coils. Small generators. sheets and skelp (narrow coil). grain silos.A Summer Internship Report on Working Capital Management Galvanised Sheets Roofing. industrial sheeting. including the construction of tanks. High pressure transportation of crude oil. vegetables and confectionary items. Hot rolled coils are primarily used for making pipes and have many direct industrial and manufacturing applications. sewage disposal. railway cars. tube wells etc. stators for high efficiency rotating equipment and relays etc. air conditioner ducting and structural Electrolytic Tin Plates Containers for packaging of various products including edible oils. P a g e | 21 . water supply. paneling. High pressure transportation of oil and water. Sheets and Skelp Hot rolled coils. sewage disposals.

steel structures. storage tanks. boilers. Hot rolled coils are also delivered to the company's own cold rolling mills and silicon sheet mill and pipe plant in a wide range of widths and thicknesses as the feedstock for higher value-added steel products. including blooms. Plates Steel plates are used mainly for the manufacture of bridges. ships. sold to rerollers for conversion to finished products.A Summer Internship Report on Working Capital Management engineering and military equipment and automobile and truck wheels. The company also produces weatherproof steel plates for the construction of railcars. The company is the largest producer of hot rolled coils. billets and slabs. large diameter pipes. The company is currently the largest producer of steel plates in India with a domestic market share of more than 80 per cent for these products. which are converted into finished products in the company's processing plant and. sheets and skelp in India. Hot rolled coils are also used as feedstock for cold rolling mills where they undergo further processing. such as P a g e | 22 . The company is the only producer of wide and heavy plate products in India. to a lesser extent. frames and body parts. Cold Rolled Products Cold rolling of hot rolled products produces a superior surface finish. railway wagons and pressure vessels. Semi-Finished Products The company produces semifinished products. improves the physical properties of the steel.

marketing department for disposal of old assets). Cold rolled products are also used for further processing. Galvanizing lines 10. bicycles. As a result. and ispat general hospital). furniture and for use by the automobile industry to produce car body panels. spares.     Finance and accounting Central accounts.A Summer Internship Report on Working Capital Management tensile strength.Silicon steel mills 11.HRD centre 16. and reduces its thickness to precise gauges. Hot strip mills 8. including galvanized sheets and tin plates. which are used primarily for precision tubes. Traffic & Raw material 13. import.Plate mills 7. Steel melting shop 6.Sintering plants 4. The products of the cold rolling mill include cold rolled sheets and coils. MAJOR UNITS OF RSP:1. refractories.(operation) Finance (operation) P a g e | 23  . Pipe plants 12. Environment Management 14. galvanizing and tinning. containers. Marketing (central marketing organization for main product. Computerization 15. The company also produces further processed cold rolled products. including for colour coating.Blast furnace 5. cold rolled products generally command higher prices than hot rolled products. Electrolytic tinning line 9. Costing and budget.Coke oven 3. CPTI IMPORTANT DEPARTMENTS OF RSP: Purchase (general purchase. Ore Bedding and Blending plant 2.

A Summer Internship Report on Working Capital Management        Cash Sales tax and excise Pay section Claims and frights Stock verification Works modernization and expansion (motivating employees.89 sq km covered by 23km long perimeter long wall)  Project department (working as project purchase. rationalization Personnel man power)  Human resource (for induction training. ISPAT press. project execute) P a g e | 24 . competence enhancement. foreign & external training)   LAW (responsible for protecting the policies of the company) Town engineering (looks after the maintenance of 18 sectors in the industrial township)    Sports (conduct various sports activities in the state TQM department (to establish companywide total Public relation department (RSTV. project finance. and district level) quality movement) Documentation centre)  CISF (for safeguarding the total 33.

 Operational and purchase cost reduction. spelled out in the mission are : Employee motivation and employee pride.  Small investment schemes for maintaining current operations.  Leadership practice  Environment relations and organizational image.A Summer Internship Report on Working Capital Management GOAL SETTING:The major reforms and interventions at Rourkela Steel Plant are aimed at enhancing the motivation of the employees and addressing all HRD issues that generally hamper performance and progress.  Sustaining the benefits of operation Vijay the turnaround project of RSP.  Loyalty and pride in the company. *  Respect for dignity and potential of individual.  Sustained operation and consistent production.  Enhancing Gross Margin and Net sales realization VALUE  Meeting commitments made to external and internal customers  Fostering learning. creativity and speed of response.  Plant maintenance and equipment health.  Strengthening secondary streams of cash generation. The ten priorities.  Team playing  Zeal to excel P a g e | 25 .

Second the setting up of overseas banking units in special Economic Zones has been permitted. Third the duty matters. The housing construction that constitutes about 3-5% of GDP in developed countries. apart from it the development of national highway development programme will also increase the demand of steel.A Summer Internship Report on Working Capital Management  Integrity and fairness in all GOVERNMENT POLICIES:SAIL has been one of the navartnas of the PSU. We can site the government initiative to increase the consumption of steel in the construction sector in India. First the quantitative restrictions on exports have been removed except in the case of a few sensitive items. in India it is just about 1%. We can site the government initiative to increase the consumption of steel in the construction sector in India. through NGOs and self . GOVERNMENT POLICIES:SAIL has been one of the navartnas of the PSU.The iron and steel sector has received various incentives to promote exports in the current EXIM policy (20022007). So the government has been keen towards the growth in this sector. The housing construction that constitutes about 3-5% of GDP in developed countries. The government is revising its policies from time to time to help revive the steel industry in India. In order to produce it the government has announced several schemes such as Valmiki Ambedkar Awas Yojna. etc. Birla Awas Yojana. The government is revising its policies from time to time to help revive the steel industry in India. So the government has been keen towards the growth in this sector.help groups. Indira Awas Yojana. in India P a g e | 26 .

met coke. Birla Awas Yojana. etc. A steel exporters forum has also been set up to meet the need of producers and exporters and to resolve issues problems and bottlenecks related to exports. Also the advance licensing scheme has been introduced which allows duty free import of raw material for exports.A Summer Internship Report on Working Capital Management it is just about 1%. In order to produce it the government has announced several schemes such as Valmiki Ambedkar Awas Yojna. VARIOUS ACHIEVEMENTS OF RSP:First the P a g e | 27 .other promotional measures relates to the tariff structure. The most important move has been the abolition of duty Exemption Entitlement scheme in order to reduce the transaction time. Indira Awas Yojana. To safeguard the interest of the domestic producers. The iron and steel sector has received various incentives to promote exports in the current EXIM policy (2002-2007). nickel ) and even nil ( cooking coal). apart from it the development of national highway development programme will also increase the demand of steel. the government tried to enhance domestic production by reducing the import of raw materials to as low as 5% (non-coking coal. The tariffs saw a sharp reduction (25% to 50%) in the liberalization era. quantitative restrictions on exports have been removed except in the case of a few sensitive items. through NGOs and self . Third the duty suspended in March 04.help groups. it had proved to be quite beneficial in helping exporters increase their overseas market. opening up the domestic sector to international competition. The. Second the setting up of overseas banking units in special Economic Zones has been permitted.

A Summer Internship Report on Working Capital Management

RSP bagged the CII-Exim Bank award for business etal(2MT), crude steel(1.9

excellence in 2008. RSP created history by surpassing the annual rated capacity in hot years. Rourkela steel plant was awarded second prize in the integrated steel plant category on 14th November 2007 by Indian Institute of Metals.

MT), total saleable steel(1.67 MT) for three consecutive

 Govt, of India conferred the steel plant with the certificate of merit for energy conservation in 2007  Golden Peacock Innovation award for excellence in environment management

The prestigious Greentech environment excellence Gold award for fourth consecutive year by Greentch foundation.

It was the first steel plant in Asia and third in the world to have introduced LD steel making technology when it was I it's nascent state of development.

Rourkela Steel Plant bagged two awards under the natural safety awards 2005 instituted by Union Ministry of Labor and Employment.

Five quality circle teams of RSP created a new record by bagging the excellent award at the 20th National Convention of Quality Circles 2006 organized by the Quality circle Forum of India at IIT Kanpur.

MODERNIZATION OF ROURKELA STEEL PLANT:In order to overcome technological obsolescence and to continue to remain competitive in the market place, even internationally, RSP went in for modernization, which was conceived in the year 1988. Phase-I of modernization, which emphasized on improving the
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A Summer Internship Report on Working Capital Management

quality of raw materials consisted of a new Oxygen Plant, upgradation schemes for Blast Furnaces, Dolomite Brick Plant, Cast House Slag Granulation Plant at Blast Furnace-4, Raw Material Handling system, Coal Handling Plant (in Coke Ovens) and Power Distribution system, was completed in the year 1994. Phase-ll consisted of a new Sinter Plant, Basic Oxygen Furnace and Slab Casting Shop in Steel Melting Shop-ll, modification of Plate Mill & Hot Strip Mill and installation of Slab Casting Shop in SMS-I, Except for Hot Strip Mill, which was completed in the year 1999, all the other areas were completed in the year 1997. SOCIAL RESPONSIBILITY:Caring, sharing and spreading smiles— Rourkela Steel Plant has imbibed a credo to make quality steel and spread lasting smiles amongst the people living in its neighborhood. Going beyond the realms of philanthropy or charity, RSP has adopted a strategy of ushering in sustainable development in its peripheral villages. From education to women's empowerment, providing health care facilities to improving infrastructure, promoting advanced techniques of agriculture to skill enhancement, land and water management to livestock development - the multi-faceted approach of RSP aims at touching and shaping every aspect of life and living of its community neighbors. Taking a unique step forward, the Steel Plant has set up the Institute for Periphery Development that is functioning as the nerve centre of all the activities taken up under periphery development. Villagers from nearby areas are being trained in various income generation activities in this Institute. Adoption of 18 villages as Model Steel Villages is another significant stride taken up by Rourkela Steel Plant to create sustainable models of economic development. The objective of Rourkela Steel Plant, which is 'Spreading Samridhi', finds its true expression in the myriad activities taken up by the Steel Plant for the people living in its periphery.

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ENHANCING THE QUALITY OF LIFE: Rourkela steel plant is playing a responsible as well as a responsive role to spread prosperity in the peripheral villages. An institute for Peripheral Development (IPD), has been set up which is now functioning as the nerve centre of RSP's efforts. The plant has also signed a Memorandum of Understanding (MoU) with BAIF, pune on 4th august 2005 to enhance livelihood opportunities. A long- term sustained initiative has been undertaken to educate, empower and create a favorable environment for the local population to lead an independent and respectable life. PARTNERS IN PROGRESS Rourkela steel plant has always treated the small scale industries (SSI) as its partners in progress. An exclusive wingperipheral industries and vendor Development (PIVD) has been set up in RSP under its Materials Management Department for catering to the development needs of local SSI units. THE PICTUREQUE STEEL TOWNSHIP With the sincere efforts being made to beautify the steel township and upgrade the facilities today the steel city of Rourkela can be considered as one of the modern industrial townships. A number of aesthetically designed and artistically crafted monuments have been grace of the sylvan surroundings significantly, but have also showcased the innovation usage of steel for creating objects of art. The Indira Gandhi Park of RSP is another effort made by the plant to showcase nature in all its glory and grandeur, right at centre of the steel city. RONMECREATING A HEALTHY ENVINT Rourkela Steel plant 's concern for a healthy environment is symbolized by its medical and Health Services. Ispat General Hospital (IGHI), a 685 bed hospital run by RSP for its employees is a premier medical centre in the eastern region. A wide network of medical services provides adequate health care to the employees. In IGH the doctors to bed ratio is 1:4.8 and the occupancy is 87%.

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A Summer Internship Report on Working Capital Management

MAKING ROURKELA A SPORTS HUB RSP strongly believes that one of the most fruitful investments that can be made in the present generation in the field of sports. The Biju Patnaik Hockey stadium is the only full-fledged hockey stadium in the region to be equipped with synthetic turf. The sports department of Rourkela steel plant has conducted several national, regional, steel plant, district and even school level tournaments to impart a fresh impetus to the sports activities and hone the budding talents. AN HIV/AIDS POLICY HAS BEEN PREPARED AND HAS BEEN APPROVED BY THE BOARD OF DIRECTORS OF SAIL Rourkela steel plant provides ample opportunities to its employees and their children for nurturing their creative talents in the field of art • and culture. The company maintains and manages an auditorium of 650 seating capacity, in the centre of the city, where various socio-cultural activities are organized. RSP activity supports the various socio-cultural organization which operate in the township, by providing various facilities. SAIL has been continuously trying to maintain its social concerns towards the people. SAIL has undertaken various projects, and always contributed towards various calamities and other disastrous that affected the nation. SAIL is committed to provide a healthy environment in and around its steel plant. Over 2 lakhs trees have been planted in 2004-2005. Greentech foundation, New Delhi, gives gold award in metal sector for outstanding achievement in environment management for 2003-2004 to RSP. SAIL has set up various education institutes to provide compulsory education to children. It also contributed heftily towards the tsunami relief fund programmes etc.

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65 6335.16 INTERPRETATION:- P a g e | 32 .A Summer Internship Report on Working Capital Management FINANCIAL OVERVIEW OF ROURKELA STEEL PLANT  SALES OF RSP FROM YEAR 2005-06 TO 2008-09 ARE AS FOLLOWS:YEAR 2005-06 2006-07 2007-08 2008-09 SALES 4586.90 7321.66 7623.

A Summer Internship Report on Working Capital Management • Sales of RSP shows gradual rise in every year.51 PROFIT P a g e | 33 .5 crores in 2007-08 compared to 2004-. it has reached 7321. • Sales has by increased 2642.66 crores in 200708. from 4679.05.40 2007-08 1401.ARE AS FOLLOWS:YEAR 2005-06 2006-07 1336. • Thus .62 NET 496.13 2008-09 1018.16 crores. NET PROFIT OF ROURKELA STEEL PLANT FROM YEAR 2005-06 TO 2008-09. • Increase in sales indicate a strong position of the company.

• In the year 2007-08 there was a increase in profitability due to again increase in sales.But in 2008-09 there was a downfall in profitability which was manily due to decrease in sales in that year. • This increase was manily due to the increase in sales in that year. • Thus the profit of RSP has increased over three years n in last year it was decreased due to manily deceased in sales.51 in 2005-06.40 crores in 2006-07.then there was a rise and the profitability increased to 1336.there was a increase in sales. PRODUCTION OF SALEABLE STEEL FROM YEAR200506 TO 2008-09 ARE AS FOLLOWS: P a g e | 34 .A Summer Internship Report on Working Capital Management INTERPRETATION:YEAR 2005-06 2006-07 2007-08 2008-09 PRODUCTION OF SALEABLE STEEL 1615839 1942144 207735 1988570 • Profitability of RSP was 496.

MTs) 0 0 0 0  P a g e | 35 . Officer(JO) 0 0 0 0 Total executives 2296 2210 2179 2790 Non-executives 20001 19470 18926 17780 Total 22297 21680 21105 20570 Trainees(Excl.A Summer Internship Report on Working Capital Management INTERPRETATION: • Production has shown gradual increase over two years but it downfall in 2008-09. • Production of saleable steel was 1615839 tonnes in 2005-06 and it decreased to 1988570 tonnes in 2008-09 • This indicates that demand for saleable steel has decreased. executives 607 576 530 510 Jr. MANPOWER RESOURCE OF RSP FROM YEAR 2005-06 TO 2008-09 ARE AS FOLLOWS:YEAR 2005-06 2006-07 2007-08 2008-09 YEARYEAR MT) Executive(incl 1689 1634 1649 2280 Func.

P a g e | 36 .manpower fig.A Summer Internship Report on Working Capital Management Grand Total 22297 21680 21105 20570 Note:. • In 2005-06. The better a company manages its working capital. it was 22297 which has decreased over the four years to reach 20570. Even companies with cash surpluses need to manage working capital to ensure that those surpluses are invested in ways that will generate suitable returns for investors.there is increase in production since 2005-06. The above analysis shows that although manpower resource has decreased over the four years . or. for financing the conversion of raw materials into finished goods. are taken from relevant files of the plant INTERPRETATION:• Manpower resource of RSP shows a gradual decrease over the four years. more specifically. the less the company needs to borrow.Thus it is conluded that there is improvement of machinery and advancement in technology in Rourkela Steel Plant. Among the most important items of working capital are levels of inventory. which the company ultimately sells in the market for payment. and accounts payable. WORKING CAPITAL MANAGEMENT INTRODUCATION Working capital refers to the quantum of capital resource a business requires for day-to-day operations. accounts receivable. Analysts look at these items for signs of a company's efficiency and financial strength.

To be sure. Its importance stems from two reasons:  Investment in current assets represents a substantial portion of total investment. It is very important to a company to manage its working capital carefully. They have to have funds available to pay their day to day bills. However.  Investment current assets and the level of current liabilities have to be geared quickly to changes in sales. This is particularly true where there is a substantial time lag between making the product and receiving the money for it.A Summer Internship Report on Working Capital Management Working capital is vital to a business. fixed assets investment and long term financing are also responsive to variation in sales. Working capital management is a significant fact of financial management. CONCEPT OF WORKING CAPITAL There are two concepts of working capital: • • Gross working capital Net working capital GROSS WORKING CAPITAL The gross working capital refers to the firm's investment in current assets. raw materials and so on) but not yet got any money for it. In this situation the company has paid out all the costs associated with making the product (labour. They must therefore ensure they have enough cash to do this. P a g e | 37 . Current assets are the assets which can be converted into cash within an Accounting year. The term Gross Working Capital means the total current assets. wages and so on. THEORETICAL ASPECT OF WORKING CAPITAL One of the most important areas in the day to-day management of firms is the management of working capital. this relationship is not as close and direct as it is in the case of working capital components.

Net working capital=current assets . A weak liquidity position poses a threat to the solvency of the company and makes it unsafe and unsound.term creditors always like a company to maintain current assets at a higher level than current liabilities.current liabilities Net working capital is a qualitative concept. It indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. In order to protect their interest. short. It may be due to mismanagement of current assets. A positive net working capital will arise when current assets exceed current liabilities. The net working capital may be positive or negative. A negative working capital means a negative liquidity and may prove to be harmful for the company reputation. which are P a g e | 38 . Current assets should be sufficiently in excess of current liabilities to constitute a margin or buffer for maturing obligations within the ordinary operating cycle of a business. A negative net working capital occurs when current liabilities are in excess of current assets.Net working capital is the excess of current assets over current liabilities. CURRENT LIABILITIES Current liabilities are those claims of outsiders.A Summer Internship Report on Working Capital Management Gross Working Capital = Total Current Assets The total Current assets are: Cash in hand  Cash at Bank  Marketable securities  Short term investments  Bills receivable  Sundry Debtors  Inventories  Work in process NET WORKING CAPITAL Net working capital refers to the difference between current assets and current liabilities. Excessive liquidity is also bad because it requires servicing which puts burden on the company's profitability. It is a conventional rule to maintain the level of current assets twice the level of current liabilities.

Each of the short-term sources of financing must be continuously managed to ensure that they are obtained and used in the best possible way. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. it is likely to become insolvent and may. Each of the current assets must be managed efficiently in order to maintain the liquidity of the firm while not keeping to high a level of any one of them. even be forced into bankruptcy. FOCUS ON MANAGEMENT OF CURRENT ASSETS The gross working capital concept focuses attention on two aspects of current management:  Q How to optimize investment in current assets?  Q How should current assets be financed? P a g e | 39 . therefore. and outstanding expenses. The interaction between current assets and current liabilities is.A Summer Internship Report on Working Capital Management expected to mature for payments within an accounting year and include creditors (account payable). the main theme of the theory of working capital management. The         total current liabilities are:Sundry creditors Outstanding Bills Payable Short term Income tax payable payable Dividends Bank overdraft Prepaid expenses THE GOAL OF WORKING CAPITAL MANAGEMENT The goal of working capital management is to manage the firm's current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. bill payable. This is so because if the firm cannot maintain a satisfactory level of working capital.

 To maintain the inventories of raw material. Thus the financial manager should have knowledge of the sources of working capital funds as well as investment avenues where idle funds may be temporarily invested.day expenses and overheads such as fuel. Whenever a need for working capital funds arise due to increasing level of business activity or for other reason.A Summer Internship Report on Working Capital Management The consideration of the level of investment in current assets should avoid two-danger point . power and office expenses etc. Similarly if suddenly.to .  To provide credit facilities to the consumers. Investment in current assets should be just adequate to the needs of the business firm. Excessive investment in current assets should be avoided because it impairs the firm's profitability. The working capital is needed for the following purpose: For the purchase of raw materials components and spares. advertising etc. but should be invested in short-term securities.  To meet the selling costs as packing. some surplus funds arise they should not be allowed to remain idle. each having a different importance. stores and spares and finished stock. financing arrangement should be made quickly. P a g e | 40 . THE NEED AND OBJECT OF WORKING CAPITAL Every business needs some working capital. FINANCING POLICIES FOR WORKING CAPITAL MANAGEMENT:A large number of factors .in -progress. On the other hand inadequate amount of working capital can threaten solvency of the firm because of its inability to meet its current obligations.excessive or inadequate investment in current assets. The management should be prompt to initiate an action and correct imbalances. as idle investment earns nothing. work . The need for working capital arises due to the time gap between production and realization of cash from sales. Another aspect of the gross working capital point to the need of arranging funds of finance current assets.  To pay wages and salaries  To incur day.

The importance of factors also changes for a firm over time. When competition is keen . assets.  Seasonality of operations Firms which have marked seasonality in their operation usually have . Thus working capital need tend to be high because of greater investment in finished goods inventory P a g e | 41 .  Nature of business Trading and financial firms have a small investment in fixed assets. a larger inventory of finished goods is required to promptly serve customers who may not be inclined to wait because other manufacturer are ready to meet their needs. Some manufacturing businesses. The sale of ceiling fans reaches a peak during the summer months and drops sharply during the winter period. Therefore an analysis of relevant factors should be made in order to determine total investment in working capital. Further generous credit terms may have to be offered to attract customers in a highly competitive market. The following is the description of factors which generally influence the working capital requirements of firms. also have to invest substantially in working capital and a nominal amount in fixed The working capital requirements of a firm are basically influence by the nature of its business. In contrast public utilities may have limited need for working capital and have to invest abundantly in fixed assets. but require a large sum of money to be in working capital.  Production policy firm marked by pronounced seasonal fluctuation in its sales may pursue a production policy which may reduce the sharp variation in working capital requirements.  Market conditions:The degree of competition prevailing in the market place has an important bearing on working capital needs.highly fluctuating working capital requirement. The working capital need of such a firm is likely to increase considerably in summer month and decrease significantly during the winter period. On the other hand a firm manufacturing a * product like lamps which have fairly even sales round the year tends to have stable working capital needs. such as tobacco and construction firms.A Summer Internship Report on Working Capital Management influence working capital needs of firms.

There is no explicit cost of spontaneous financing. The real choice of financing current assets.A Summer Internship Report on Working Capital Management and account receivables. It is arranged in advance from banks and other suppliers of short term finance in the money market. if the supply is unpredictable and scant. Short term finances include working capital funds from banks. once the spontaneous sources of financing have been fully utilized.The short term financing is obtained for a period less than one year. preference share capital. then the firm in to ensure continuation of production. • Long term financing: . Trade credit and outstanding expenses are examples of spontaneous financing.term borrowings from financial institutions and resources and surplus. FINANCING POLICIES FOR WORKING CAPITAL MANAGEMENT:A firm can adopt different financing policies for its current assets. is between the long term and short term sources of finances. Three types of financing may be distinguished. • Spontaneous financing: . If the supply is prompt and adequate.  Conditions of supply The inventory of raw materials spares and stores depend on the conditions of supply. A firm is expected to utilize their sources of finance to the fullest extent. • Short term financing: .debentures. would have to acquire stocks as and when they are available and carry inventory on an average.Spontaneous financing refers to the automatic sources of short term funds arising in the normal course of business. long. factoring of receivable etc. commercial paper. However. public deposit deposits.The sources of long term financing include ordinary share capital. Depending on the mix of short and long term P a g e | 42 . the firm can manage with small inventory. A similar policy may have to be followed when the raw material is available only seasonally and production operations are carried out round the year.

it represents the most important source for financing of current assets. In fact. a firm has to decide how it is to be financed. The need for financing arises mainly became the investment in working capital/current assets. Thus. • Trade credit: Trade credit refers to the credit extended by the supplier of goods and services in the normal course of transaction/business/sale of the firm. • Bank Credit: Bank credit is the primary institutional source of working capital finance in India. that is. • Forms of Credit: Working capital finance is provided by banks in five ways :      1. work-inprocess. • Financing of working capital After determining the level of working capital.the bank predetermined borrowing/credit limit. The borrower can draw/borrow up to the stipulated credit/overdraft limit. raw materials.A Summer Internship Report on Working Capital Management financing. The interest is determined on the basis of the running P a g e | 43 . According to trade practices cash is not paid immediately for purchases but after an agreed period of time. deferral payment of trade credit represents a source of finance for credit purchase. finished goods and receivables typically fluctuations during the year. Cash credit/overdraft Loans purchase/discount bills letter of credit working capital loans Cash credit/overdrafts: Under cash credit/overdraft form of arrangement of bank finance.

payable on demand or after a usance period not exceeding 90 days. 3. a minimum charge may be payable on the unutilized balance irrespective of the level of borrowing for availing of the facility. However. 5. banks advance loans for 3-7 years repayable in yearly or half-yearly installments. the entire amount of borrowing is credited to the current account of the borrower or released in cash. On discounting the bill. The seller of goods draws the bill on the purchaser of goods. The loans are repayable or demand or in periodic installments.A Summer Internship Report on Working Capital Management balance/ amount actually utilized by the borrower and not on the sanctioned limit. The bank undertakes the responsibility to make payment to the supplier in case the buyer fails to meet his obligation. Term loans for working capital:Under this arrangement. the bank releases the funds to the seller. Letter of Credit:Under this method the purchaser of goods on credit strains a letter of credit from a bank. 4. ANALYSIS OF THE ELEMENTS OF CURRENTS ASSETS OF RSP P a g e | 44  . They can also be renewed from time to time. The bill is presented by the bank to the purchaser / acceptor of the bill on due date for payment. 2. Bills purchased / discounted: The modes operandi of bill finance as a source of working capital financing is that a bill arises out of a trade sale-purchase transaction on credit. The borrower has to pay interest on the total amount. On acceptance of the bill by the purchaser the seller offers it to the bank for discount/purchase. Loans: Under this arrangement.

12% compared to 2005-06 whereas in 2007-08.22 2006-07 18.A Summer Internship Report on Working Capital Management FROM YEAR 2005-06 TO 2008-09:CASH AND BANK BALANCE:(Rs in crores) YEAR CASH & BANK BALANCE GRAPHICAL 2005-06 17.44 BANK BALANCE REPRESENTATION INTERPRETATION:• Cash is the most important liquid asset of the business.e an increase of 9. • The increasing trend has been over 9% in all the 3 years when compared to the previous years. Any firm should keep sufficient liquid asset for day to day operation.79 OF CASH 2007-08 20. • In 2006-07. it has increased P a g e | 45 .e from 2006-07 to 200809.79 crores i. it has increased to 18. • There has been continuous increase in the cash and bank balance of RSP for 3 consecutive years i.66 AND 2008-09 22.

61% increase compared to 2007-08. stores and spares.11 2006-07 877.e an increase of 9.56 2007-08 870.13 2008-09 1228.A Summer Internship Report on Working Capital Management to 20.66 crores i. finished/semi-finished products taken from schedules of the balance sheet.56 GRAPHICAL REPRESENTATION OF INVENTORIES Note: . • From the above analysis it can be inferred that the liquidity position of RSP is very strong.  INVENTORIES:(Rs in crores) YEAR INVENTORIE S 2005-06 718.there is 8.95% and in 2008-09 .inventories are the total of raw materials. INTERPRETATION:P a g e | 46 .

8% and in 200809 again there is increase in inventories.66 13. • As can be seen from the bar chart. stores and spares and finished and semi-finished products.  SUNDRY DEBTORS:(Rs in crores) 2007-08 2008-09 11.32 YEAR SUNDRY DEBTORS 2005-06 14. the inventories have increased by 22% compared to the previous year. the inventories have increased for 1st years i.A Summer Internship Report on Working Capital Management • • • • Inventories of RSP include raw materials. when compared with sales figure shows that productivity and efficiency of the company has improved as sales have gone up subsequently. Being a manufacturing company.6 2006-07 12.96 GRAPHICAL REPRESENTATION OF SUNDRY CREDITORS P a g e | 47 . In 2006-07. Inventories. inventories constitute the maximum aportion of current assets of RSP.e in 2006-07 and in 2007-08 there is negligible fall of 0.

6 crores to 12.96 crores it has decreased to 11. Thus it can be inferred that credit sales of RSP has decreased.e 2008-09.there is a downfall in 2 consecutive year and it has increased in last year i. INTERPRETATION:• Sundry debtors have shown a downfall in 2006-07 compared to 2005-06 i.94 (Rs in crores) 2007-08 2008-09 243.66 crores and in next it has increased to 13. • However for the next years.72 2006-07 230.which normally calls for credit sales • Thus.15 00 GRAPHICAL REPRESENTATION OF LOANS AND ADVANCES P a g e | 48 .32crores. sundry debtors have shown a downfall i. are taken from balance sheet of RSP.which indicates increase in defective products of RSP. • Thus.e from 12.  LOANS AND ADVANCES YEAR LOANS AND ADVANCES 2005-06 212.96 crores. downfall in sundry debtors is a good.e from 14.A Summer Internship Report on Working Capital Management Note: sundry debtors fig.

are taken from balance sheet.83 Rs in crores) 2007-08 2008-09 1.58 1.41 GRAPHICAL REPRESENTATION OF OTHER CURRENT ASSETS P a g e | 49 . INTERPRETATION:• Loans and advances play a major role in current asset of RSP after inventories. • It has shown a gradual rise from 2005-06 to 2007-08 and becomes zero in 2008-09  OTHER CURRENT ASSETS YEAR OTHER CURRENT ASSETS 2005-06 2.A Summer Internship Report on Working Capital Management Note: loans & advances fig.47 2006-07 1.

• However. PROCEDURE FOR CALCULATING TRENDS: One year is taken as a base year. then it can be inferred that the company is unable to collect money from outside parties and it adversely affects the operation of the company.A Summer Internship Report on Working Capital Management Note:. is taken as a base year. And if it shows a higher percentage.other current asset fig.  Trend percentages are calculated in relation to base year. The analyst is able to see the trend of figures. the first or the last is taken as a base year. Each year's figure is divided by the base year's figure. TREND ANALYSIS OF CURRENT ASSETS The financial statements may be analyzed by computing trends of series of information. This method determines the direction upwards or downwards and involves the computation of the percentage relationship that each statement item bears to the same item in base year. Generally. it can be inferred that RSP has got a good collection policy which increases the profitability of RSP. TREND ANALYSIS OF CURRENT ASSETS OF RSP FROM YEAR 2005-06 TO 2008-09 TREND PERCENTAGE (BASE YEAR 2005-06=100) P a g e | 50 . If a figure in other year is less than the figure in base year the trend percentage will be less than 100 and it will be more than 100 if figure is more than base year figure. are taken from balance sheet of RSP. • It shows the claim of RSP against its customers and outside parties. INTERPRETATION:• In case of RSP. whether upward or downward. accrued interest an important component of other current assets plays an important role in the operation of RSP. • Thus.  The figure of base year is taken as 100. generally the first year. The information for a number of years is taken up and one year. there is continuous downfall of other current assets over the four years. If it shows lower percentage then it can be said that the company has got a conservative collection policies.

• All the elements of the current asset have increased in 200809 except other current assets.08 118 2007-08 1147. • The increase in current assets is more in 2008-09 compared to other years.18 119 2008-09 1522.A Summer Internship Report on Working Capital Management YEAR AMOUNT(Rs in crores) TREND PERCENTAGE 2005-06 965.12 100 2006-07 1142. • This increase has been mainly due to the huge rise in inventory in 2008-09 specially finished and semi-finished products.97 158 GRAPHICAL REPESENTATION OF TREND % OF CURRENT ASSETS INTERPRETATION:• The current assets have continuously increased in all the year from 2005-06 to 2008-09. ANALYSIS OF ELEMENTS OF THE CURRENT LIABILITIES OF RSP FROM YEAR 2005-06 TO 2008-09:SUNDRY CREDITORS:(Rs in crores) P a g e | 51 .

e 2008-09 there is a downfall.94 2008-09 265. which is a bad sign as inventories are not financed by these creditors.23 2007-08 307.08 2006-07 32. there is rise in sundry creditors but in last year i.72 (Rs in crores) 2007-08 2008-09 33. • However.04 2006-07 292. are taken from balance sheet of RSP. INTERPRETATION:• Sundry creditors have shown a increase in two consecutive year.77 P a g e | 52 .77 GRAPHICAL REPRESENTATION OF SUNDRY CREDITORS:- Note: sundry creditors fig. • Thus.25 43.A Summer Internship Report on Working Capital Management YEAR SUNDRY CREDITORS 2005-06 233. SECURITY AND OTHER DEPOSIT YEAR SECURITY AND OTHER DEPOSIT 2005-06 27. for the next two years. it can be inferred that the creditworthiness of the RSP has decreased.

08 crores. In 2005-06. • PROVISIONS YEAR PROVISION 2005-06 49.57 2006-07 80. then it increased to 32.A Summer Internship Report on Working Capital Management GRAPHICAL REPRESENTATION OF PROVISIONS INTERPRETATION:• Security and other deposits are obligatory deposits of outside parties.72crores in 2006-07. which are necessary for the company to keep as guarantee.06 2007-08 327. • Then it has shown an upward trend for the next 2 years. it was 27. It ensures the credibility of the company towards fulfillment of obligations.09 (Rs in crores) 2008-09 300 GRAPHICAL REPRESENTATION OF PROVISIONS P a g e | 53 .

• Provision has shown a huge increase in 2007-08 compared to the previous years because of the pending wage revision payments. OTHER CURRENT LIABILITIES: (Rs in crores) P a g e | 54 . either to be paid at the time of final decision or terminal point as the case may be.A Summer Internship Report on Working Capital Management INTERPRETATION:• Provisions are deferred payments due to employees etc.

59 2008-09 176.L 2005-06 160.A Summer Internship Report on Working Capital Management YEAR OTHER C.44 TREND PERCENTAGE 100 120 184 184 P a g e | 55 . • Aim of RSP should be to reduce the other current liabilities to maintain the optimum working capital level. These are the liabilities of unusual nature which may occur one time as the case may be.58 2007-08 198.77 crores in 2005-06 then it decreased to 159. In the next year it increased and then it has again decreased in 2008-09.77 2006-07 159.59 866.71 GRAPHICAL REPRESENTATION OF OTHER LIABILITIES Note:other current liabilities fig. INTERPRETATION:• Other current liabilities show a fluctuating trend.58 crores in 2006-07.87 866. * TREND PERCENTAGE(BASE YEAR 2005-06=100) YEA R 200 200 200 7-08 200 06 07 08 09 AMOUNT(Rs.46 564. are taken from balance sheet. • TREND ANALYSIS OF CURRENT LIABILITIES OF RSP from YEAR 2005-06 TO 2008-09.crores) 470. It was 160.

NET WORKING CAPITAL OF ROURKELA STEEL PLANT FROM YEAR 200506 TO 2008-09 ARE AS FOLLOWS:• (Rs in Crores) PARTICULARS 2005-06 2006-07 2007-08 2008-09 A.79 20. the increase in current liabilities has mainly due to rise in other current liabilities which has increased by 26. This is because sundry creditors has increased which means creditworthiness of the company has increased.each year figure is divided by the base year's figure INTERPRETATION:• The current liabilities show an upward trend from year 2004-05 to 2007-08.22 18.66 22.44 .24%. • In 2005-06.A Summer Internship Report on Working Capital Management GRAPHICAL REPRESENTATION OF TREND ANALYSIS OF CURRENT LIABILITIES OF RSP Note:. • The rise in current liabilities is more in the year 2007-08 compared to other years because there is mammoth rise in provision in that year.CURRENT ASSETS: CASH AND BANK P a g e | 56 17.

08 173.23 32.18 11.83 1020.77 36.25 198.53 265.06 564.66 404.35 899.57 470. It indicates the direction in which working capital has moved and its quantum.53 292.34 307.64 396.32 00 1.16 184.58 1147.67 780.A Summer Internship Report on Working Capital Management RAW MATERIALS STORES AND SPARES FINISHED/SEMIFINISHED PRODUCTS SUNDRY DEBTORS LOANS AND ADVANCES OTHER CURRENT ASSETS TOTAL(A) B.71 300 779.87 280.73 176.49 552.31 300.NET CURRENT ASSETS RELATING TO RSP IN CMO'S BOOKS NET WORKING CAPITAL 122.67 424.95 80. 94 1.08 160.72 2.18 225.21 158. SCHEDULE OF CHANGES IN THE WORKING CAPITAL f2004-05 -2005P a g e | 57 .12 174.41 937.42 14.47 965.77 49.94 33.08 393.31 740.88 233.46 494.96 230.56 278.33 12.59 577.08 866.72 158.84 939.83 1142.61 202.60 212.08 13.19 1129.CURRENT LIABILITIES: SUNDRY CREDITORS SECURITY AND OTHER DEPOSITS OTHER LIABILITIES PROVISIONS TOTAL(B) WORKING CAPITAL(A-B) AS PER RSP'S BOOKS ADD-.59 327.66 243.15 1.47 491.02 SCHEDULE OF CHANGES IN THE WORKING CAPITAL The schedule of changes is supplementary to fund flow statement s.04 27.

91 12.49 ADD:NET CURRENT 404.64 233.22 1.C 1.06 470.19 49.12 2006-07 INCREA SE IN W.19 5.94 18.32 00 1.15 P a g e | 58 .58 1.24 PARTICULARSS A.46 564.CURRENT LIABILITIES SUNDRY CREDITORS SECURITY AND OTHER DEPOSITS OTHER CURRENT LIABILITIES PROVISIONS 200506 17.47 965.59 147.C INCREASE NET TOTAL 899.8 1129.72 160.95 278.A Summer Internship Report on Working Capital Management 061:PARTICULARS A.64 22.60 212.78 52.47 491.31 300.08 32.44 225.83 1142.57 80.CURRENT ASSETS CASH N BANK BALANCE RAW MATERIAL STORES N SPARES INCREASE IN W.66 243.53 552.C DECREASE IN W.57 174.C 20.33 30.81 59.49 TOTAL CURRENT LIABILITIES(B) WORKING CAPITAL (A)-(B) 494.08 DECREA SE IN W.59 424.64 0.64 1129.91 1.83 230.42 14.64 30.24 3 2007-08 2008-09 230.66 173.56 51.C 18.22 122.77 159.18 GOODS SUNDRY DEBTORS LOANS N ADVANCES 11.16 627.79 1.08 393.23 27.52 230.09 13.CURRENT ASSETS CASH AND BANK BALANCES RAW MATERIALS STORES AND SPARES FINISHED AND SEMI FINISHED PRODUCTS SUNDRY DEBTORS LOANS AND ADVANCES OTHER CURRENT ASSETS TOTAL CURRENT ASSETS (A) B.83 328.72 2.16 190.64 328.19 1129.34 ASSET RELATING TO RSP IN CMO'S BOOKS TOTAL WORKING CAPITAL IN W.15 FINISHED N SEMI FINISHED 396.66 243.61 202.04 292.66 577.67 76.96 230.

4 crores in 2005-06 compared to the previous year to reach a figure of 899. sales has decreased in 2005-06.C NET TOTAL 1020.59 327.84 641.NET CURRENT 740.26 1228.97 10.77 161. • Cash and bank balances.56 134. P a g e | 59 . This increase is mainly due to the sharp increase in inventories i.17 1.CURRENT LIABILITIES SUNDRY CREDITORS SECURITY N OTHER DEPOSITS OTHER CURRENT LIABILITIES PROVISION TOTAL CURRENT LIABILITIES 307.e finished/ semi-finished products which has increased by 86%.25 198.52 614. sundry debtors and loan and advances have also increased in 2005-06. • On careful analysis it is found that there is 32.89 265. • Compare sales and working capital.A Summer Internship Report on Working Capital Management OTHER CURRENT ASSETS 1.84 1020.87 1.28 1020.C INC IN W.77 43.86 42.67 169.68 106.7% increase in current asset compared to previous year. we will find that although • Working capital has increased.58 TOTAL CURRENT ASSETS 1147.19 crores.54 1274.94 33.18 B.41 1380.09 866.84 134.73 941.26 INTERPRETATION:Working capital has increased by 287.25%. which says that there has not been proper utilization of resources in that particular year.45 WORKING CAPILTAL(A-B0 280. The current liabilities have also shown a negligible increase of 4.14 886.31 ADD.28 1228.77 36.This is mainly due to the rise in other current liabilities which includes accured interest.53 ASSETS RELATING TO RSP IN CMO’S BOOK TOTAL W.21 1381.

A Summer Internship Report on Working Capital Management • Decrease in sales has lead to the accumulation of inventory i.83 136 Note :. • Net current assets according to CMO's books have also shown an increase of 20%.84 P a g e | 60 . TREND ANALYSIS OF OVERALL NET WORKING CAPITAL FROM YEAR 2005-06 TO 2008-09 ARE AS FOLLOWS:TREND PERCENTAGE(BASE YEAR 2005-06=100) YEAR 2005-06 2006-07 2007-08 TREND PERCENTAGE 100 125 113 2008-09 1228.19 crore.83 1020. Thus.each year's figure is divided by the base year's figure AMOUNT(Rs in crores) 899.19 1129. as a total effect the working capital has increased to 899.e stock of finished products have increased sharply.

42 1988570 2250000 The above graph shows the difference between actual working capital as per RSP's books and budgeted working capital.e from 1129. Thus it is concluded that RSP is achieving profit.84 crores. Depletion of stock has taken place in the actual working capital of 2006-07. P a g e | 61 . more provision has been kept in budgeted working capital.56 2067735 2065000 2008-09 158. • This downfall is mainly due to increase in the items of the current liabilities ie provision. increase in budgeted production has lead to the increase in budgeted working capital. it has reached to 1020. Although working capital has decreased in 200708. there is increase in sales as well as profit in the same year.67 181.e confidence of the creditors on the company has increased. There is continuous increase in cash and bank balance which states that the liquidity position of the company is strong. RSP is also able to avail more credit i. it can be inferred that there has been proper utilization of raw material.31 581.49 690.66 200. THE FOLLOWING TABLE SHOWS THE ACTUAL WORKING CAPITAL AS PER RSP'S BOOKS AND BUDGETED WORKING CAPITAL:YEAR Actual working capital as per RSP's books Budgeted working capital Actual production Budgeted Production 2005-06 494.48 1942144 1920000 2007-08 280.36 1615839 1758000 2006-07 577. Introduction: In 2004-05. However.A Summer Internship Report on Working Capital Management INTERPRETATION:• Net working capital shows an upward trend in 2005-06 and 2006-07. there is a sudden downfall in 2007-08 i. • Thus.83 crores. In 2007-08. Thus RSP has sufficient liquidity to pay the day to day expenses.

Credit sales account receivable for collection. They are not synchronized because cash outflows usually occur before cash inflows. It needs to maintain liquidity to purchase raw materials and pay expenses such as wages and salaries. Q Manufacture of the product which includes conversion of raw material into work . required to invest in current assets for a smooth. administrative and selling expenses and taxes as there is hardly a matching between cash inflows and outflows.in .A Summer Internship Report on Working Capital Management OPERATING CYCLE Operating cycle is the time duration required to convert sales after the conversion of resources into inventories. Debtors are created because goods are sold on credit for marketing and competitive reasons. other manufacturing.progress into finished goods. Cash outflows. Thus a firm makes adequate investment in inventories and debtors for smooth. uninterrupted functioning. The firm holds stock of finished goods to meet the demand of customers on continuous basis and sudden demand from some customers. Stock of raw material and work . The operating cycle of a manufacturing company involve three phases:Q Acquisition of resources such as raw material. P a g e | 62 . Cash inflows are not certain because sales and collection which give rise to cash inflows are difficult to forecast accurately.process are kept to ensure smooth production and to guard against non-availability of raw material and other components. into cash. Sale of the product either for cash or on credit. The firm is therefore. on the other hand are relatively certain. power and fuel etc.in . labour. uninterrupted production and sale. These phases affect cash flows which most of the time are neither synchronized nor certain.

it includes (a) raw material conversion period (RAMCP) (b) work. The inventory conversion (ICP) is the sum of raw material conversion period (RMCP).inprocessing conversion period (WIPCP). Raw material conversion period can be calculated as follows:Raw material conversion period (RMCP)= P a g e | 63 . The operating cycles begins with the acquisition of raw materials and end with the collection of receivables. and finished goods conversion period (FGCP). It may be broadly classified in to the following four stages:1) Raw material and storage stage 2) Work in process 3) Finished goods inventory stage 4) Receivable collection stage  GROSS OPERATING CYCLE (GOC) The total of inventory conversion period and debtor's conversion period is referred to as gross operating cycle (GOC). Recently this method has gained importance because of more rational approach based on operating cycle of a firm. work-inprocess conversion period (WIPCP). According to this approach the requirement of working capital depends upon the operating cycle of the business. A firm's gross operating cycle (GOC) can be determined as inventory conversion period (ICP) plus debtor conversion period (DCP) GOC=ICP+DCP  INVENTORY CONVERSION PERIOD (ICP) The inventory conversion period is the total time needed for producing and selling the products. and (c) finished goods conversion period (FGCP) . Typically. ICP = RMCP + WIPCP + FGCP  RAW MATERIAL CONVERSION PERIOD (RMCP) The raw material conversion period (RMCP) is the average time period taken to convert material in to work-in-process.A Summer Internship Report on Working Capital Management OPERATING CYCLE METHOD This method is more dynamic and refers to working capital in realistic way.

A Summer Internship Report on Working Capital Management Average stock of raw materials Consumption of raw material per day  WORKINPROCESS CONVERSION PERIOD (WIPCP) Work-in-process conversion period (WIPCP) is the average time taken to complete the semi-finished or work-in-process. Debtor's conversion is calculated as follows:- Debtor's conversion period (DCP) = Average debtors Credit sales per day NET OPERATING CYCLE (NOP) The.in-process conversion period(WIPCP)= Average work in process inventory Cost of production per day  FINISHED GOODS CONVERSION PERIOD Finished goods conversion period (FGCP) is the average time taken to sell the finished goods. Net operating cycle (NOC) = gross operating cycle (GOC) creditors Deferral period (CDP) • CREDITOR'S DEFERRAL PERIOD (CDP) Creditor's deferral period (CDP) is the average time taken by P a g e | 64 . Work-in -process conversion period can be calculated as follows:Work. Finished goods conversion period can be calculated as follows:Finished goods conversion period (FGCP)= Average finished goods inventory Cost of goods sold per day  Debtor's conversion period (DCP) is the average time taken to convert debtors into cash. The Debtor's conversion period is the time required to collect the outstanding amount from the customers. difference between gross operating cycle and payable deferral period is net operating cycle (NOC).

2008-09 06 07 08 A.42 8.67 26 25 27 23 Note: raw material consumed fig. AVERAGE =(A+B)/2 122.93 199. are taken from profit & loss P a g e | 65 .67 5.31 RAW MATERIAL B.68 2311.61 174.RAW MATERIAL CONVERSION PERIOD =(C/E) 1680.39  D. CLOSING STOCK OF 122.31 225.56 173.46 148.96 6.A Summer Internship Report on Working Capital Management the firms in paying its suppliers (creditors). Raw material conversion period can be calculated as follows:FORMULA:Raw material conversion period (RMCP) = Average stock of raw material Raw material consumed per day RAW MATERIAL CONVERSION PERIOD OF ROURKELA STEEL PLANT FROM YEAR 2005-06 TO 2008-09 ARE AS FOLLOWS:YEAR 200520062007.46 1 4.61 174.47 RAW MATERIAL C.Creditor's deferral period is calculated as:Creditor’s deferral period= Average creditors Credit purchases per day CALCULATION OF RAW MATERIAL CONVERSION PERIOD OF ROURKELA STEEL PLANT DEFINITION:Raw materials conversion period The raw material conversion period (RMCP) is the average time period taken to convert material in to work-in-process.RAW MATERIAL CONSUMED E. OPENING STOCK OF 122.59 2144.8 3122.58 173.32 122.RAW MATERIAL CONSUMED PER DAY F.56 173.

33 396. in 2007-08 it has increased to 27days.in-process conversion period(WIPCP)= Average work in process inventory  Cost of production per day WORK.2007. And in 2008-09.2008-09 06 A. it has decreased to 23 days.PROCESS CONVERSION PERIOD OF ROURKELA STEEL PLANT FROM YEAR 2005-06 TO 2008-09 ARE AS FOLLOWS:YEAR 2005.e the average time taken to convert raw material into work in progress was 26days. Work-in -process conversion period can be calculated as follows:FORMULA:Work.18 PROCESS P a g e | 66 . • In 2005-06.56 07 393. INTERPRETATION:• The raw material conversion period of RSP is consistent over the last four years. the raw material conversion period has decreased to 25 days.42 08 424.A Summer Internship Report on Working Capital Management account of RSP.2006. • However. • In the next year. OPENING WORK IN 211.IN. • This has happened because both average stock of raw increased but the increase in raw material conversion period is much less than the increase in stock of raw material.PROCESS CONVERSION PERIOD (WIPCP) Work-in-process conversion period (WIPCP) is the average time taken to complete the semi-finished or work-in-process. the raw material conversion period was 26 days i.IN. CALCULATION OF WORK-IN-PROCESS CONVERSION PERIOD (WIPCP) OF ROURKELA STEEL PLANT DEFINITION:WORK.

49 3153.COST OF PRODUCTION PER DAY =(D/360) E.96 21 Note:. AVERAGE=(A+B)/2 D.42 302.18 410. • Work in progress conversion period has increased for next years i. it decreased to reach 21 days.13 5072.e in 2006-07.02 13. COST OF PRODUCTION E.35 36 396.08 290.33 408. it increased to reach 36 days.96 11.25 4677. CLOSING WORK IN PROCESS C.76 34 424.56 13 31 184. FINISHED GOODS CONVERSION PERIOD OF ROURKELA STEEL PLANT  Finished goods conversion period (FGCP) = Finished goods conversion period (FGCP) is the average time taken to sell the finished goods. • Again in the next year.A Summer Internship Report on Working Capital Management B.62 8. The upward trend doesn’t continued in 2007-08 and the work in progress conversion period in 2007-08 reached to 31days. INTERPRETATION:• Work in progress conversion period is the average time taken to complete semi-finished work in progress.87 4084.data of cost of production has been taken from relevant files of RSP. Finished goods conversion period can be calculated as follows:Finished goods conversion period (FGCP) = Average stock of finished goods inventory Cost of sales per day FINISHED GOODS CONVERSION PERIOD OF ROURKELA STEEL PLANT FROM YEAR 2005-06 TO 2008-09 ARE AS FOLLOWS:P a g e | 67 . WORK IN PROCESS CONVERSION PERIOD IN DAYS=(C/E) 393.

42 424.49 D.96 11.60 12.CREDIT SALES 917.66 B. In 2006-07.AVERAGE=(A+B)/2 13.54 3. OPENING DEBTORS 12.07 4.DEBTORS 5 4 3 3 CONVERSION PERIOD=(C/E) F.86 DAY=(D/360) A. it increased to reach 37 days and in 2007-08.18 F. FINISHED GOODS 34 CONVERSION PERIOD=(C/E) Note :. • In 2005-06. the time taken to sell finished products decreased to 31 days.33 396.96 11.52 13.59 5025.78 12.33 396.42 302. DEBTORS TURNOVER CONVERSATION PERIOD OF ROURKELA STEEL PLANT FROM THE YEAR 2005-06 TO 2008-09:YEAR 20052006.66 13.2007-08 2008-09 A. in 2008-09.49 20062007-08 2008-09 07 393.COST OF SALES PER 8.31 12.10 31 443.cost of sales is the total of cost of production and CMO'S figure from the expenditure column of profit and loss a/c INTERPRETATION:• The finished goods conversion period is the average time taken to sell finished products.37 E.18 408.87 410.84 4716. OPENING STOCK OF FINISHED GOODS B.60 12.44 14.CLOSING DEBTORS 14. COST OF SALES 200506 211.19 13. CLOSING STOCK OF FINISHED GOODS C.A Summer Internship Report on Working Capital Management YEAR A. • However.25 11.18 424. it further decreased to reach 31 days.32 C. AVERAGE=(A+B)/2 D.63 E.CREDIT SALES PER 2.52 4.33 1267.44 36 13.56 393. the average time taken to sell finished products was 34 days.01 419.1 1464.31 4118.95 30 3190.33 1524.DEBTORS 5 4 3 3 CONVERSION PERIOD=(C/E) credit sales is 20% of total sales taken from Note:profit & loss account INTERPRETATION:P a g e | 68 .

e the average time taken to convert debtors into cash was 5 days.94 265.OPENING CREDITORS B.A Summer Internship Report on Working Capital Management • Debtor conversion period is the average time taken to convert debtors into cash.94 2008-09 307. the debtors conversion period was 5 days i.94 300. • It further decreased to 3 days in 200809.04 235.63 2007-08 293.CLOSING CREDITORS C.77 286. • In 2005-06.89 233.AVERAGE=(A+B)/2 P a g e | 69 2005238.creditors deferral period is calculated as FORMULA : Creditor deferral period (CDP) = Average Creditor Credit purchase per day CREDITORS DEFERRAL PERIOD OF ROURKELA STEEL PLANT FROM YEAR 2005-06 TO 2008-09 ARE AS FOLLOWS:YEAR A.85 .04 293. It decreased to 4 days in 2006-07 and again it decreased in 200708 to 3 days.04 2006233.23 307.23 262. CALCULAT I ON OF CREDITORS DEFERRAL PERIOD OF ROURKELAVSTEEL PLANT DEFINITION: Creditor deferral period (CDP) =Creditors deferral period (CDP) is the average time taken by the firms in paying its suppliers (creditors).

In 2006-07. INTERPRETATION:• Creditor's deferral period is the average time taken by RSP in paying its creditors.7 1849.76 5.47 1715.A Summer Internship Report on Working Capital Management D.44 2497. • The creditor's deferral period of RSP was 63 days in 200506. • However.73 4.14 6. in the next year.CREDIT PURCHASE 1344.97 E. the creditor's deferral period shows a huge decrease and the average time taken by RSP in paying its creditors is 41 days.CREDIT PURCHASE 3.CREDITORS 63 55 58 41 DEFERRAL PERIOD=(C/E) purchase is 80% of raw material consumed taken Note: credit from profit & loss account.2007. RAW MATERIAL CONVERSION PERIOD 26 25 27 23 P a g e | 70 .94 PER DAY=(D/360) F.  ANALYSIS OF OPERATING CYCLE OF ROURKELA STEEL PLANT FROM YEAR 2005-06 TO 2008-09:YEAR 2005-06 2006.200807 08 09 A.it shows a huge downfall to reach 55 days and it increased to 58days.

• Here. P a g e | 71 . in case of RSP. the net working capital in 2005-06 was 36 days.e raw material conversion period. WORK IN PROCESS CONVERSION PERIOD C. This has happened because there was increase in all the components of the inventory conversion period i. • If working capital increases. INVENTORY CONVERSION PERIOD=(A+B+C) E.CREDITORS DEFERRAL PERIOD H. work in process conversion period and finished goods conversion period have increased in 2006-07. • However in the next year it jumped to 45 days. GROSS OPERATING CYCLE=(D+E) G.NET OPERATING CYCLE=(F-G) 34 36 31 21 34 36 31 30 94 97 89 74 5 99 4 100 3 92 3 77 63 36 55 45 58 34 41 36 INTERPRETATION:• Net operating cycle is the net time interval between cash collection from sale of the product and cash payments for resources acquired by the firm. FINISHED GOODS CONVERSION PERIOD D. Also creditor’s deferral period has shown a sharp fall. it means there is further need for negotiated working capital. • The speed with which operating cycle completes one cycle determines the requirement of the working capital.A Summer Internship Report on Working Capital Management B. DEBTORS CONVERSION PERIOD F.

A Summer Internship Report on Working Capital Management • In 2007-08. • Therefore it is unfavorable for Rourkela Steel Plant as rise in duration of net operating cycle need more working capital. Ratio analysis is a technique of analysis and interpretation of financial statements.  Interpretation of the ratio.  Calculation of appropriate ratios from the above data. or the ratios developed from projected financial statements or the ratios of some other firms or the comparison with the ratios of the industry to which the firm belongs. The ratio may be used as a symptom like blood pressure. there is decrease in the net operating cycle as the creditors deferral period has shown further increased to reach 58 days. LIMITATIONS: P a g e | 72 . It may be defined as the indicated quotient of two mathematical expressions. • The total period of operating cycle is between 1-2 months which resembles a better position of the company. • * In 2007-08. The following four steps involved in the ratio analysis:  Selection of relevant data from the financial statement depending upon the objective of the analysis. This has happened because of reduction in inventory conversion period.lt is the process of establishing and interpreting the various ratios for helping in making certain decisions.  Comparisons of the calculated ratios with the ratio of the same firm in the past. The pulse rate or the body temperature and their interpretation depend upon the caliber and competency of the analysts. the net operating cycle has decreased to 36 days. RATIO ANALYSIS OF ROURKELA STEEL PLANT FROM YEAR 2004-05 TO 2007-08 A ratio is a simple arithmetical expression of the relationship of one number to another. the duration of the net operating cycle in 2006-07 is 34 days. but the analyst has to select the appropriate data and calculate only a few appropriate ratios from the same keeping in mind the objective of analysis.lt is a means of better understanding of financial strength and weakness of a firm. There are a number of ratios which can be calculated from the information given in the financial statement. Therefore.

The current ratio is calculated by dividing the total current assets by current liabilities. which can be accepted as norms. Current Assets Current Ratio = ---------------------Current liabilities THE CURRENT RATIOS OF ROURKELA STEEL PLANT FROM YEAR 2005-06 TO 2008-09 ARE AS FOLLOWS:- P a g e | 73 . Current ratio is a measure of general liquidity of a short term financial position or liquidity of a firm.A Summer Internship Report on Working Capital Management  There are no well-accepted standards or rules of thumb for all the ratios.  The ratio of other organization in the same industry may not be readily available. The technique of ratio analysis can be employed for measuring short term liquidity or working capital of a firm.  Different people may interpret the same ratio in different ways.  Ratio analysis often gives leading indication of the effect of changes in the price levels is not taken into account. The following ratios may be calculated for this purpose. CURRENT RATIO:DEFINITION:-Current ratio may be defined as the relationship between current assets and current liabilities. Current ratio is a measure of the firm's shortterm liquidity.  Change in accounting procedure by a firm often makes ratio analysis misleading.lt is calculated by dividing the total of current assets by total of the current liabilities. FORMULA:.  The ratio only highlights the strong or problem areas They do not provide any solution to rectify the problem .

44 1.The acid test ratio can be calculated by dividing the total of quick assets by total current liability.87 2.91 2006-07 2007-08 1694.71 564. The term acid test refers to the ability of a firm to pay its short term obligation as and when they become due. Current assets inventories Acid test ratio = ----------------------------------------------------------Current liabilities P a g e | 74 .75 ACID TEST RATIO:DEFINITION:-Acid-test ratio also known as quick ratio.A Summer Internship Report on Working Capital Management YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO =CURRENT ASSET/ CURRENT LIABILITIES 2005-06 1369.46 2. Cash is the most liquid asset. FORMULA:.42 1887. An assets is liquid if it can be converted into cash immediately or reasonably soon without a loss of value.65 470.18 2008-09 1522.97 866. Inventories are considered to be less liquid. establishes a relationship between quick.59 3 866. Inventories normally require some time for realizing into cash. Other assets that are considered relatively liquid and include in quick assets are debtors and bill receivables and other current assets. or liquid assets and current liabilities.

It is generally thought that if quick assets are equal to the current liabilities then the concern may be able to meet its short term obligation.45 1017.38.A Summer Internship Report on Working Capital Management ACID TEST RATIOS OF ROURKELA STEEL PLANT FROM YEAR 2004-05 TO 2007-08 ARE AS FOLLOWS:YEAR 2005-06 2006-07 2007-08 2008-09 CURRENT ASSETS -INVENTORIES CURRENT LIABILITIES ACID TEST RATIO (CURRENT ASSETSINVENTORIES)/CURRENT LIABILITIES INTERPRETATION:• Acid test ratio is a more rigorous test of liquidity than the current ratio.5 866. • As a rule of thumb.17 1228.87 1.44 1.54 470.17. • The acid test ratio has been more than the standard ratio in all the years.41 P a g e | 75 . the acid test ratio in 2005-06 was 1.45.59 1. However in 2008-09. it increased to 1.41. it decreased 1. 651. or a convention. then in the next year. It is used as a complementary ratio to the current ratio.38 816. then in 2006-07.58 866. • In case of RSP. Thus it can be said that RSP is able to pay off its current obligations immediately.46 1.86 564. it increased to 1. quick ratio of 1:1 is considered satisfactory.

31 4118.84 3.84 4716. FORMULA:- sales Working capital turnover ratio = -----------Net working capital WORKING CAPITAL TURNOVER RATIO OF ROURKELA STEEL PLANT FROM YEAR 2004-05 TO 2007-08 ARE AS FOLLOWS:• Cost of YEARS COST OF SALES 2005-06 2006-07 2007-08 3190.37 1129.83 1020.64 4. Working capital turnover ratio is calculated by dividing sales by net working capital.62 2008-09 5025.54 WORKING TURNOVER RATIO=COST OF SALES/NET WORKING P a g e | 76 .44 NET 900.19 1130.09 WORKING CAPITAL CAPITAL 3.08 4.A Summer Internship Report on Working Capital Management WORKING CAPITAL TURNOVER RATIO:DEFINITION:-A firm may like to relate net working capital to sales.

This ratio tries to highlight how effectively working capital is being used in terms of the turnover it can help to generate. the ratios have increased which indicates working capital has been efficiently utilized.then for the next 2 years. The average inventory is the average of opening and closing balance of inventory. • INVENTORY TURNOVER RATIO DEFINITION:-inventory turnover indicates the efficiency of the firm in producing and selling its products.A Summer Internship Report on Working Capital Management INTERPRETATION:Working capital turnover ratio indicates the velocity of the utilization of net working capital. Inventory turnover ratio also known as stock velocity is normally calculated as sales / average inventory or cost of goods sold / average inventory. • The ratio was 4. then 2005-06 . It would indicate whether inventory has been efficiently used or not.54.it decreased to 3. It is calculated by dividing cost of goods sold by average inventory.31 in 2004-05. FORMULA:- sold Inventory turnover ratio= -----------------------Average inventory Cost of goods P a g e | 77 . Inventory turnover ratio measures the velocity of conversion of stock into sale.

11 877.A Summer Internship Report on Working Capital Management INVENTORY TURNOVER RATIO OF ROURKELA STEEL PLANT FROM YEAR 2004-05 TO 2007-08 ARE AS FOLLOWS:YEAR 2005-06 2006-07 2007-08 2008-09 OPENING 500.27 797.83 873.28 COST OF 3190.84 4716.56 870.19 GOODS SOLD INVENTORY 5.13 1228.4 4.31 4118.78 TURNOVER RATIO-COST OF GOODS SOLD/AVERAGE P a g e | 78 .56 INVENTORY AVERAGE 609.24 5.44 718.37 5025.16 5.84 1049.56 870 INVENTORY CLOSING 718.11 877.

P a g e | 79 . it is not possible to collect data from every department. A low inventory turnover ratio implies excessive inventory level than warranted by production and sales activities.  published report only.moving or obsolete inventory. then it shows a downfall for next year’s after which it has increased to reach 5. LIMITATIONS OF THE STUDy  RSP is a large organization with many departments. or a slowing.24 in 2005-06. • A high inventory ratio indicates efficient inventory management. • Thus.4. •Inventory turnover ratio was 5. it can be inferred that RSP has managed its inventory efficiently.  This study is restricted to the application of working Data is collected mainly from annual report and capital management only. Since this study is restricted to 2 months.A Summer Internship Report on Working Capital Management INTERPRETATION:• The inventory turnover ratio measures the velocity of conversion of stock into sales.

SAIL and RSP being major producer of steel products should enhance its production capacity.  Cost of production of RSP is going on increasing day by day. These raw materials include P a g e | 80 .A Summer Internship Report on Working Capital Management RECOMMENDATION  There is huge demand for steel products all over the world. Therefore Rourkela steel plant maintains huge amount of working capital to pay day to day business expenses. contributing to the cost of production.  RSP requires huge amount of raw material to manufacture huge amount of finished products especially steel.  Marketing organization should scientifically organize its marketing network so that synchronization takes between production and sales. huge manpower cost is also essential. following are the major findings of the study: RSP is a huge manufacturing organization so its working capital requirement is also more. reduction of manpower is FINDINGS OF THE STUDY After studying the working capital management of RSP.  Raw material is the major component of working capital of RSP. Though high rate of raw material is major reason. In this scenario.

It also markets carbon steel produced by five integrated steel . P a g e | 81 marketing set up. So the cost of raw material is also very huge.A Summer Internship Report on Working Capital Management iron ore. imported coal. more specifically.  Current ratio and acid test ratio of RSP is either equal or more than the standard norm which indicate that RSP has sufficient liquid to meet day to day expenses. or.  Import of raw materials is done by central marketing organization (CMO). dolomite. CONCLUSION Working capital refers to the fund required by an organization for day-today operations. This is due to the pending wage revision of the RSP. limestone. which the company sells for payment. Therefore. Ferro manganese. for financing the conversion of raw materials into finished goods. These raw materials come to RSP in long goods train.  Provision has shown a huge rise in 2007-08.  Net operating cycle of RSP has always remained between 1-2 months which indicates good financial position of the company. CMO is India's largest plant. In normal practice firms mobilize working capital through short term loan from banks. Wage revision of all the PSUs are pending as they need the approval of the government. The limestone often comes from omen and other gulf countries.

it has made proper utilization of its resources. Since this is a Public sector unit the decision making process is quite slow.But every year profit is increasing rapidly as well as the production capacity. the less it needs to borrow. P a g e | 82 .A Summer Internship Report on Working Capital Management the better a company manages its working capital. need to manage working capital at an optimum level to ensure that those surpluses are invested in ways that will generate suitable returns for investors. BIBLIOGRAPHY Data Sources:  Annual reports of RSP from year 2005-06. Its working capital decreased in 2007-08 and profitability and sales of the company has shown a rise. because of Govt. It not only provides maximum benefits to its owners but also to the society at large. Even companies with cash surpluses. 2006-07. 2007-08. interference . 2008-09  Published report relevant to the subject. Rourkela Steel Plant is a profitable organization. Hence. It comes under NAVARTNA PSU.

com • www.co.worldsteeldynamics.globalsteelconsultants.com P a g e | 83 .M Pandey :financial management Management accounting: Sharma & Gupta Websites: • www.steelworld.sail.com • www.in • www.A Summer Internship Report on Working Capital Management    Commercial data Files Published record of the plant Books & Articles:  I.