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PROJECT – REPORT ON
STUDY OF
Submitted towards the partial fulfilment of the requirement for the award of
the degree of
2 RESEARCH METHODOLOGY
I. Introduction
II. Type of Research Methodology
3 INTRODUCTION OF COMPANY
I. Company Overview
II. Industrial Overview
III. Literature Overview
4 DATA ANALYSIS
1 Working Capital Size And Analysis
1.1.1 Working Capital Level
1.1.2 Working Capital Trend Analysis
1.1.3 Current Asset Analysis
1.1.4 Current Liabilities Analysis
1.1.5 Change In Working Capital
1.1.6 Operating Cycle
1.1.7 Working Capital Leverage
2 Working Capital Ratio Analysis
2.1.1 Introduction
2.1.2 Role Of Ratio Analysis
2.1.3 Limitation Of Ratio Analysis
2.1.4 Classification Of Ratio
2.1.5 Efficiency Of Ratio
2.1.6 Liquidity Of Ratio
3 Working Capital Component
3.1.1 Receivable Management
3.1.2 Inventory Management
3.1.3 Cash Management
4 Working Capital Finance & Estimation
4.1.1 Introduction
4.1.2 Source Of Working Capital Finance
4.1.3 Working Capital Loan & Interest
4.1.4 Estimation Of Working Capital
5 FINDING, RECOMMENDATION,
CONCLUSION
ANNEXURE
QUESTIONNAIRE
BIBLIOGRAPHY
Date:
Place:
Signature
ACKNOWLEGEMENTS
A project report of a research work cannot be successfully completed without
the help of various persons. I bear my sincere thanks to several people who
have given their time and patience and thus contributed towards the
completion of my project.
I extend my sincere gratitude and thanks to our H.O.D. Dr. Pushpa kumara,
BBMKU, Dhanbad.
I did this entire project in a smooth and confident environment if not for the
support I had from my parents.
ABHISHEK KUMAR
MMS 2018-2020
Abstract
In this project we will perform the financial analysis of Coal India Limited, we will go
through the financial statements of the company to diagnose financial statements.
When the net profit figure is related to the firm’s investment. The relationship between
two accounting figures, expressed mathematically, is known as financial ratio. Ratios
help to summarize large quantities of financial data and to make qualitative judgement
about the financial performance.
1) Introduction
2) Need of working capital
3) Gross W.C. and Net W.C.
4) Types of working capital
5) Determinants of working Capital
1.1) INTRODUCTION
Working Capital Management
Working capital management is concerned with the problems arise in attempting to
manage the current assets, the current liabilities and the inter relationship that exist
between them. The term current assets refers to those assets which in ordinary
course of business can be, or, will be, turned in to cash within one year without
undergoing a diminution in value and without disrupting the operation of the firm.
The major current assets are cash, marketable securities, account receivable and
inventory. Current liabilities ware those liabilities which intended at there inception
to be paid in ordinary course of business, within a year, out of the current assets or
earnings of the concern.
The basic current liabilities are account payable, bill payable, bank over-draft, and
outstanding expenses. The goal of working capital management is to manage the
firm‟s current assets and current liabilities in such way that the satisfactory level of
working capital is mentioned. The current should be large enough to cover its
current liabilities in order to ensure a reasonable margin of the safety.
Definition :
According to Guttmann & Dougall-
The need for working capital gross or current assets cannot be over emphasized. As
already observed, the objective of financial decision making is to maximize the
shareholders wealth. To achieve this, it is necessary to generate sufficient profits
can be earned will naturally depend upon the magnitude of the sales among other
things but sales can not convert into cash. There is a need for working capital in the
form of current assets to deal with the problem arising out of lack of immediate
realization of cash against goods sold. Therefore sufficient working capital is
necessary to sustain sales activity. Technically this is refers to operating or cash
cycle.
The cash outflows resulting from payment of current liabilities are relatively
predictable. The cash inflow are however difficult to predict. The more predictable
the cash inflows are, the less net working capital will be required.
The concept of working capital was, first evolved by Karl Marx. Marx used the
term „variable capital‟ means outlays for payrolls advanced to workers before the
completion of work. He compared this with „constant capital‟ which according to
him is nothing but „dead labour‟. This „variable capital‟ is nothing wage fund
which remains blocked in terms of financial management, in work-in-process
along with other operating expenses until it is released through sale of finished
goods. Although Marx did not mentioned that workers also gave credit to the firm
by accepting periodical payment of wages which funded a portioned of W.I.P, the
concept of working capital, as we understand today was embedded in his „variable
capital‟.
1.4) Type of working capital :
The operating cycle creates the need for current assets (working capital). However
the need does not come to an end after the cycle is completed to explain this
continuing need of current assets a destination should be drawn between permanent
and temporary working capital.
Graph shows that the permanent level is fairly castanet; while temporary working
capital is fluctuating in the case of an expanding firm the permanent working
capital line may not be horizontal.
This may be because of changes in demand for permanent current assets might be
increasing to support a rising level of activity.
1.5) Determinants of working capital
The amount of working capital is depends upon a following
factors :
1) Nature of business
Some businesses are such, due to their very nature, that their requirement of fixed
capital is more rather than working capital. These businesses sell services and not
the commodities and that too on cash basis. As such, no founds are blocked in
piling inventories and also no funds are blocked in receivables. E.g. public utility
services like railways, infrastructure oriented project etc. there requirement of
working capital is less. On the other hand, there are some businesses like trading
activity, where requirement of fixed capital is less but more money is blocked in
inventories and debtors.
6) Profitability
The profitability of the business may be vary in each and every individual case,
which is in turn its depend on numerous factors, but high profitability will
positively reduce the strain on working capital requirement of the company,
because the profits to the extent that they earned in cash may be used to meet the
working capital requirement of the company.
7) Operating efficiency
If the business is carried on more efficiently, it can operate in profits which may
reduce the strain on working capital; it may ensure proper utilization of existing
resources by eliminating the waste and improved coordination etc.
RATIO ANALYSIS
Introduction of Ratio Analysis
Alexander Wall made the presentation of an elaborate system of ratio analysis in
1919. He criticized the bankers for their lopsided development owing to their
decisions regarding the grant of credit on current ratio alone. Alexander Wall, one
of the foremost proponents of ratio analysis, pointed out that in order to get a
complete picture, it is necessary to consider the other relationship in the financial
statement than current ratio. Since then, more & more types of ratios have been
developed and are used for analysis and interpretation point of view.
Ratio analysis is the one of the powerful tools of the financial analysis. “A ratio
can be defined as the indicated quotient of mathematical expression” and as “the
relationship between two or more things”.
1. False results: - Ratios are based upon the financial statement. In case,
financial statements are incorrect or the data upon which ratios are based
is incorrect, ratios calculated will also be false and defective.
The accounting system itself suffers from many inherent weaknesses, so the ratios
based upon it cannot be said to be always reliable.
For instance, if inventory value is inflated, not only will one have an
exaggerated view of profitability of the concern, but also of it financial position.
Also the ratios worked out on its basis are to be relied upon.
3. Price level changes affect ratios: - The third major limitation of the ratio
analysis, as a tool of financial analysis is associated with price level change. This,
in fact, is a weakness of the Traditional Financial Statements, which are based on
Historical cost. As a result, ratio analysis will not yield strictly comparable and,
therefore, dependable results.
To illustrate, there are two firms, which have identical rates of return on
Investment, say, 15%. But one of these had acquired its Fixed Assets when prices
were relatively low while the other one had purchased them when prices were
high. The result will be that the book value of fixed assets of the former firm would
be lower, while that of the later will be high. From the point of profitability the
Return on Investment of the firm with lower book value are over-stated.
4. Absence of standard universally accepted terminology: - Different
meanings are given to particular term, such as some firms take profit before
interest and after tax, other may take profit before interest and tax. Bank overdraft
is taken as current liability but some firms may take it is as non-current. The ratios
can be comparable only when both the firms adopt uniform terminology.
A. Liquidity Ratio,
D. Profitability Ratio.
LIQUIDITY RATIOS
To study the liquidity position of the concern in order to highlight the relative
strength of the concern in meeting their current obligation liquidity ratios are
calculated. These ratios are used to measure the enterprise‟s ability to meet short-
term obligations. These ratios compare short-term obligation to short-term (or
current) resources available to meet these obligations. From these ratios, much
insight can be obtained about the present cash solvency of the enterprise and the
enterprises ability to remain solvent in the event of adversity. A proper balance
between the two contradictory requirements, i.e. Liquidity and Profitability is
required for efficient financial management. The important liquidity ratios are: -
1. Current Ratio: - This is the most widely used ratio. It is the ratio of Current
Assets to Current Liabilities. It shows an enterprise ability to cover its current
liabilities with its current assets. It is expressed as follows: -
Current Assets
Current Ratio =
Current Liabilities
Generally, Current Ratio of 2:1 is considered ideal for any concern i.e. current
assets should be twice the amount of current liabilities. If the current assets are two
times the current liabilities, there will be no adverse effect on business operations
when current liabilities are paid off. If the ratio is less than 2 difficulties may be
experienced in the payment of current liabilities and day-to-day operations of the
business may suffer. If the ratio is higher than 2, it is very comfortable for the
creditors but, for the concern, it indicates accumulation of idle funds and a lack of
enthusiasm for work. However this standard of 2:1 is only quantitative and may
differ from industry to industry.
2. Liquid or Acid Test or Quick Ratio: - This is the Ratio of Liquid Assets
to Liquid Liabilities. It shows an enterprises ability to meet current liabilities with
its most liquid (quick assets). It is expressed as follows: -
Quick Assets
Liquid Ratio =
Current Liabilities
The quick ratio of 1:1 ratio is considered ideal ratio for a concern because it is wise
to keep the liquid assets at least equal to the liquid liabilities at all time. Liquid
assets are those assets, which can be readily converted into cash and will include
cash balance, bills receivable, sundry debtors, and short-term investments.
Inventories and prepaid expenses are not included in liquid assets because the
emphasis is on the ready availability of cash in case of liquid assets. Liquid
liabilities include all items of current liabilities except bank overdraft. This ratio is
the “acid test” of a concerns financial soundness.
3. Super Quick or Absolute liquidity Ratio: - Though receivable are generally
more liquid than inventories, there may be debts having doubt regarding their
realization in time. So, to get idea about the absolute liquidity of a concern, both
receivables and inventories are excluded from current assets and only absolute
liquid assets, such as cash in hand, cash at bank and readily realizable securities are
taken into consideration. Absolute liquidity ratio is computed as follows:
Current liabilities
Or
The desirable norm for this ratio is 1:2, i.e., Rs. 1 worth of absolute liquid assets
are sufficient for Rs 2 worth of current liabilities. Even though the ratio gives a
more meaningful measure of liquidity, it is not in much use because the idea of
keeping large cash balance or near cash items has long since been disapproved.
Cash balance yields no return and as such is barren.
4. Cash Ratio: - Since cash is the most liquid assets, a financial analyst may
examine cash ratio and its equivalent to current liabilities. Trade investment or
marketable securities are equivalent of cash; therefore, they may be included in the
computation of cash ratio:
Cash ratio =
Current Liabilities
Inventory
Working capital is the excess of current assets over current liabilities. Increase in
volume of sales requires increase in size of inventory, but from a sound financial
point of view, inventory should not exceed amount of working capital. The
desirable ratio is 1:1.
LEVERAGE RATIO / SOLVENCY RATIO
Long term creditors like debenture holders, financial institution etc., are more
concerned with long-term financial strength of an enterprise. The leverage/ capital
structure ratios are very helpful in judging the long-term solvency position of an
enterprise. Leverage ratio may be calculated from the Balance Sheet items to
determine the proportion of debt in total financing. Many variations of these ratios
exist; all these ratios indicate the same thing i.e., the extent to which the enterprise
has relied on debt in financing assets. Leverage ratios are also computed from the
income statement items by determining the extent to which operating profits are
sufficient to cover the fixed charges. The important long-term
solvency/leverage/capital structure ratios are as follows:
1. Debt-Equity Ratio: - This ratio relates debts to equity or owners funds. Here,
Equity is used in a broader sense as net worth (i.e., capital + retained earnings)
while debt normally means long-term interest bearing loans.
Debt-Equity Ratio = Or Or
2. Proprietary Ratio: -This ratio indicates the relationship between proprietary fund
and total assets. The Proprietary funds include Equity Share Capital, Preference
Share Capital, Revenue, Capital Reserves and accumulated surplus. Total Assets
include Fixed, Current and Fictitious assets.
This ratio is very important for the creditors, because they know the share of
Proprietors Funds in the total assets and satisfy how far their loan is secured. The
higher the ratio, the more safety will be to the creditor. The ratio also shows the
general financial position of the company also. 50% is supposed to be the
satisfactory Proprietary Ratio for the creditors. Less than 50% is the sign of risk for
creditors. The following formula is used to calculate Proprietary Ratio: -
Proprietary Ratio = Or
Total Debt
Debt Ratio =
4. Capital Employed to Net Worth Ratio: - There is yet another alternative way of
expressing the basic relationship between debt and equity. One may want to know,
how much funds are being contributed together by lenders and owners for each
rupee of the owners contribution. This can be found out by calculating the ratio of
capital employed or net assets or net worth.
Capital Employed
Net Worth
1. Sales to capital Employed (or Capital Turnover) Ratio: - This ratio shows
the efficiency of capital employed in the business by computing how many times
capital employed is turned over in a stated period. The ratio ascertained as follows:
Sales
Capital Employed
The higher the ratio, the greater are the profits. A low capital turnover ratio would
mean that sufficient sales are not being made and profits are lower.
2. Sales to Fixed Assets (or Fixed Assets turnover) Ratio : - This ratio measures
the efficiency of the assets use. The efficient use of assets will generate greater
sales per rupee invested in all the assets of a concern. The inefficient use of the
assets will result in low sales volume coupled with higher overhead changes and
under utilization of the available capacity. Hence the management must strive for
using total resources at optimum level, to achieve higher ratio. This ratio expresses
the number of times fixed assets are being turned over in a stated period. It is
calculated as under:
Sales
This ratio shows how well the fixed assets are being used in the business. The
ratio is important in case of manufacturing concern because sales are produced not
only use of current assets but also by amount invested in fixed assets. The higher in
the ratio, the better is the performance. On the other hand, a low ratio indicates that
fixed assets are not being efficiently utilized.
3. Sales to working capital (or Working Capital Turnover) Ratio: - This ratio is
shows the number of times working capital is turnover in a stated period. It is
calculated as below: -
Sales
4. Total Assets Turnover Ratio: - This ratio is calculated by dividing the net sales
by the value of total assets.
Net Sales
Total Assets
A high ratio is an indicator of overtrading of total assets while a low ratio reveals
idle capacity. The traditional standard for this ratio is two times.
5. Inventory or Stock Turnover Ratio: - This ratio indicates the number of times
inventory is rotated during the year. It is calculated as follows:
Average Inventory
Inventory Turnover =
Closing Inventory
However, this formula should be applied only when the opening inventory figures
are not available.
The inventory turnover ratio measures how quickly stock is sold. It is really a test
of stock (inventory) management. In general high inventory turnover ratio is good.
Yet a very high inventory turnover ratio requires careful analysis. Because very
high ratio will lower investment in inventory, and lower investment in inventory is
considered to be very dangerous. Similarly, very low inventory turnover is also
dangerous as there will be very heavy amount invested in inventory.
Credit Sales
Total Sales
It should be noted that the first formula is superior to second formula as the
question of speed of conversion of sales into cash arises only in case of credit
sales.
7. Creditors Turnover (or Accounts Payable) Ratio: - This ratio gives the
average credit period enjoyed from the creditors and is calculated as under:
Credit Purchases
A low ratio indicates that the creditors are not paid in time while a high ratio gives
an idea that the business in not taking full advantages of credit period allowed.
Profitability Ratio
Profitability is the overall measures of the companies with regard to efficient and
effective utilization of resources at their command. It indicates in a nutshell the
effectiveness of the decision taking by the management from time to time.
Profitability ratios are of at most importance for a concern. These ratios are
calculated to enlighten the end result of business activities, which is the sole
criterion of the overall efficiency of a business concern. The following are the
important profitability ratios:
1. Gross Profit Ratio: - This ratio tells gross profit on trading and is calculated as
under:
Gross Profit
Net Sales
(Gross Profit = Net Profit + Interest + Prior Period Item + Extra Ordinary
Expense –Extra Ordinary Income)
Higher the ratio the better it is, a lower ratio indicates unfavourable trends in the
form of reduction in selling prices not accompanied by proportionate decrease in
cost of goods or increase in cost of production.
A high gross profit margin ratio is a good sign to management or owners. This high
ratio can be due to:
(iv) A combination of variations in sales prices and costs, the margin widening.
(i) Higher cost of goods sold as the enterprise is not getting the raw materials at
lower prices.
Gross Margin
Net Sales
3. Net Profit Ratio: - This ratio explains per rupee profit generating Capacity of
sales. If the cost of sales is lower, then the net profit will be higher and then we
divide it with the net sales, the result is the sales efficiency. The concern must try
for achieving greater sales efficiency for maximizing the Ratio. This ratio is very
useful to the proprietors and prospective investors because it reveals the overall
profitability of the concern. This is the ratio of net profit after taxes to net sales and
is calculated as follows:
Net Profit After Tax
Net Sales
The ratio differs from the operating profit ratio in as much as it is calculated after
deducting non-operating expenses, such as loss on sale of fixed assets etc., from
operating profit and adding non-operating income like interest or dividends on
investments, profit on sale of investments or fixed assets etc., to such profit.
Higher the ratio, the better it is because it gives idea improved efficiency of the
concern.
Operating Expenses
Sales
A higher operating expenses ratio is not favourable, as it will leave a very small
amount of operating income to meet interest and dividend etc.
Expenses
Sales
6. Return on capital Employed: - This ratio is an indicator of the earning
capacity of the capital employed in the business. This ratio is calculated as
follows:
Operating profit
Capital Employed
Or
This ratio considered being the most important ratio because it reflects the overall
efficiency with which capital is used. This ratio is a helpful tool for making capital
budgeting decisions; a project yielding higher return is favoured.
6. Return on Investment (ROI): - The term investment may refer to total assets
or net assets. The funds employed in net assets are known as capital employed.
Net Assets = Net Fixed Assets + Current Assets – Current Liabilities (excluding
Bank loans) Or
I. Return on Investment =
Research Methodology
1) Introduction
2) Types of research methodology
3) Objective of study
4) Scope and limitations of study
2.1) Introduction
Research methodology is a way to systematically solve the research problem. It
may be understood as a science of studying now research is done systematically. In
that various steps, those are generally adopted by a researcher in studying his
problem along with the logic behind them.
It is important for research to know not only the research method but also know
methodology. ”The procedures by which researcher go about their work of
describing, explaining and predicting phenomenon are called methodology.”
Methods comprise the procedures used for generating, collecting and evaluating
data. All this means that it is necessary for the researcher to design his
methodology for his problem as the same may differ from problem to problem.
Data collection is important step in any project and success of any project will be
largely depend upon now much accurate you will be able to collect and how much
time, money and effort will be required to collect that necessary data, this is also
important step. Data collection plays an important role in research work. Without
proper data available for analysis you cannot do the research work accurately.
This project is based on primary data collected through personal interview of head
of account department, head of SQC department and other concerned staff member
of finance department. But primary data collection had limitations such as matter
confidential information thus project is based on secondary information collected
through five years annual report of the company, supported by various books and
internet sides. The data collection was aimed at study of working capital
management of the company
Project is based on
Annual report of BCCL 2005-06
Annual report of BCCL 2006-07
Annual report of BCCL 2007-08
Annual report of BCCL 2008-09
Annual report of BCCL 2009-10
2.3) OBJECTIVES OF THE STUDY
Study of the working capital management is important because unless the working
capital is managed effectively, monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company cannot
earn profits and increase its turnover. With this primary objective of the study, the
following further objectives are framed for a depth analysis.
To study the working capital management of BCCL.
To study the optimum level of current assets and current liabilities of the
company.
To study the liquidity position through various working capital related ratios.
To study the working capital components such as receivables accounts, cash
management, Inventory position etc.
To study the way and means of working capital finance of the BCCL.
To estimate the working capital requirement of BCCL.
To study the operating and cash cycle of the company.
To examine the effectiveness of working capital management polices with
the help of accounting ratio.
To evaluation the financial performance of the company.
To make suggestions for policy makers for effective management of working
capital.
2.4) SCOPE & LIMITATIONS OF THE STUDY
Scope of the study
The scope of the study is identified after and during the study is conducted. The
study of working capital is based on tools like trend Analysis, Ratio Analysis,
working capital leverage, operating cycle etc. Further the study is based on last 5
years Annual Reports of Jain Irrigation Systems Ltd. And even factors like
competitor‟s analysis, industry analysis were not considered while preparing this
project.
1) Limited data:-
This project has completed with annual reports; it just constitutes one part of data
collection i.e. secondary. There were limitations for primary data collection
because of confidentiality.
2) Limited period:-
This project is based on five year annual reports. Conclusions and
recommendations are based on such limited data. The trend of such five year may
or may not reflect the real working capital position of the company.
3) Limited area:-
Also it was difficult to collect the data regarding the competitors and their financial
information. Industry figures were also difficult to get.
CHAPTER III
INTRODUCTION OF COMPANY
INTRODUCTION
Coal has been and shall remain the prime source of commercial energy in India. It
Since coal India contributed almost 90 % of the coal produced in the country it can
be perceived to be the synonym of Indian coal industry. India is currently the third
largest coal producing country in the world after China & U.S.A. The Coal India
has to play a significant role in shaping the destiny of industries of the nation at
large. We currently witness changes that are sweeping economic & social life of
our country, as well as, that of the world. Products, services and manufacturing
goods or no longer limited to any national boundary but are getting across to
countries where they find acceptance. The liberalization and the economic reforms
initiated in our country, in real earnest, since the mid of 1991,are attempt to bring
India in to the economic main stream of global market. Performance for the
competence, if I may say so, is the key word for any company or corporation.
Coal and oil are two primary natural fuels. Coal constitutes approximately 85% of
total fossil fuel reserves in the world. The Gondwana coal contributes about 99%
of the country’s coal resources. They are located in peninsular India and the too in
the south-eastern quadrant bounded by 78 E longitudes & 24 N latitude, thus
leaving a major part of country devoid of any coal deposits. The major Gondwana
Coalfields are represented by isolated basins, which occur along prominent present
day rivers viz Damodar, Sone, Mahanadi, and Kanhan & Godavari. The relative
minor resources of tertiary coal are located on the either extremities of peninsular
India.
Coal has traditionally been a vital input to the industrial heritage of India nearly
200 year ago, in Ranigunj coal field, about 120 miles west of Calcutta. Coal
mining gradually spread to other parts of India as the railway network developed.
By 1900, almost 80% of the country's coal production of 6 million tons came from
Jharia and Raniganj coalfields. In 1975 the government consolidated control over
the coal industry by transferring the ownership & management of all nationalized
coalmines to the newly established coal India limited headquarter in Kolkata Coal
India presently contributes 90% of the total coal production in India. It is the
producing 250 million tons of coal per year. It operates through eight subsidiaries.
l. ECL - 1975: Eastern coalfield ltd, comprising of the eastern division of CMAL
2. BCCL - 1975: Bharat Coking Coal Ltd. Comprising of BCCL together with
3. CCL - 1975: Central coalfield ltd, comprising of the central division of CMAL/
4. NCL-1986: northern coal field ltd, with its registered office at Israeli (M.P).
(Maharastra).
7. CMPDIL-1975: central mining planning & design institute ltd, with head
quarter at Ranchi.
(Orrisa).
All the shares of above-mentioned subsidiaries are held by the President of India
through the holding company of coal industries holds all the shares of above-
mentioned subsidiaries. Coal India currently operates 449 mines & 15 washeries
spread over nine states to produce & beneficent coal for meeting the demand of the
consumers all over the country. 4 major consuming sector i.e. power, steel, railway
& the organized industrial sector units of varying size numbering about 2000
consume cement. 18% presently consume Seventy five percent of coal. The
With the dawn of independence a greater need for efficient coal production was felt
in the first five-year plan. Coal being the most crucial energy resource, was
considered necessary to expedite development of modernization of the coal
industry. Thus, by the end of 1955-56 our country produced 38.4 million tones.
During the second five-year plan too the coal production was stepped up further to
60 million tonnes per annum. In 1956, National Coal Development Corporation
(NCDC) was formed with 11 collieries belonging to railways as its nucleus. NCDC
was given the task of exploring new coal fields and expediting development of new
coal mines in the out laying coal fields. Subsequently, in the context of
conservation, safety, scientific development of coal reserves, systematic and proper
mining of coking coal and increasing demands from iron and steel industries the
Govt. of India took over all the coking coal mines on 16th of October 1971 and
nationalized them on 1st of May 1972. A company known as Bharat Coking Coal
Ltd. was formed to manage the coking coal mines.
through three divisions i.e. Eastern, Western and Central Divisions. On 1 st Nov.
1975, Coal India Ltd was formed as a Holding Company with its registered office
at 10, Netaji Subhash Road, Calcutta. 700001. BCCL and NCDC were transferred
to CIL. Coal India Ltd has seven coal producing Subsidiary Companies and one
Subsidiary for planning, designing and research.
Figure: 4 Coal India & Its Subsidiaries.
The Head Quarters of Coal India Ltd and its subsidiary companies are as below:
To produce & market the planned quantity of coal efficiency and economically
with due attention to safety, conservation and quality.
Optimum utilization of resources with human value.
To improve the quality of life.
To treats the employees not as recourses, but as a human.
Human touch in behavior at work place.
To enhance the morale of employees though welfare means.
FINANCE DEPARTMENT
Finance department play a major role in any organization. Its main objective to
provide strength and stability to organization. All activities of industries and
concern are fully depending on finance. Therefore, in BCCL, all section are
properly arranged and planed. This organization is run by ministry of government
so and this organization is undertaking by BCCL.
All plan and procedure of finance is prepared under the authority of BCCL. All
sections have one finance department. All fund are decided and polices are making
related to distribution and section of funds.
Finance department of CWS is arranging fund for the each shop which is required
to the fulfil the needs of section of workshop. As per requirement of section fund is
issue by the finance department. Like in planning section fund is issue to purchase
of material, in engine repair shop fund is issue to repair of engine etc.
Financial planning is done annually basis. Generally all financial plans are prepare
with the help of previous year data of each section of shop. Required fund is issue
by the finance manager.
Interpretation : From the above figures it is evident that Current Ratio has
decreased from 1.29 to 1.20. The decrease has been on account of decrease in Cash
and Bank balances and Advances. Ideal Current Ratio is taken as 2:1 however it is
quantitative rather than qualitative thus despite the Current Ratio being less than 2
the company’s liquidity position is sound.
2. Quick Ratio
Interpretation :
Generally Quick Ratio / Liquid Ratio of 1:1 is considered satisfactorily. As we
can see the company‟s Quick / Liquid Ratio has decreased from 1.20 to 1.11.
This decrease is mainly on account of decrease in Cash and Bank balance and
Loan and Advances
Interpretation :
Generally the Inventory to Working Capital Ratio less than 1 is considered
satisfactorily. Working Capital has increased from 0.31 in year 2007-08 to 0.42 in
the year 2009-2010, which shows sound working capital position of the company.
Leverage Ratio
( Solvency Ratios)
1. Debt-Equity Ratio –
Interpretation :
This ratio reflects share of debt in the Net Worth. The company‟s Ratio of 0.06
indicates a moderate level of debt in the company. Reduction of Debt – Equity
Ratio shows that the company has liquidated its debt in time. The Debt-Equity of
0.06 also shows that the company is mainly relying on shareholders fund for doing
the business.
2. Proprietary Ratio
Interpretation :
Creditors loan is safe because Proprietary Ratio is 0.39 as against the satisfactory
ratio of 0.5 times.
3. Debt Ratio –
Interpretation :
This ratio reflects share of debt in the Capital Employed. The company‟s ratio of
0.05 in 09-10 indicates a low level of Debt in the company. Reduction of Debt
Ratio from 0.07 in 09-10 to 0.05 in 09-10 shows that the company is continuously
relying on own funds.
4. Capital Employed to Net Worth Ratio
Interpretation :
This shows that as on 31st March 2010 for every rupee of owner‟s contribution. Re
0.81 is contributed together by Lenders and Owners. This reflects that the
company is not dependent on borrowed capital.
Activity Turnover Ratio
1. Sales to Capital Employed ( Capital Turnover Ratio)
Interpretation :
This Ratio ensures whether the capital employed has been effectively used or
not. The increase in the ratio to 2.15 in 09-10 from 1.94 in 08-09 shows better
utilization of resources in the year 09-10.
2. Fixed Assets Turnover Ratio –
Interpretation :
As we know in case of Sales to Fixed Assets Ratio that the higher the ratio the
better in the performance. From the above data there is decrease in ratio from
3.48 to 3.32. This means that the utilization of fixed assets is very ineffective.
3. Working Capital Turnover Ratio –
Interpretation :
This shows that the company could manage to achieve better result in 08-09 with
less Working Capital. This above ratio also shows that during the year 09-10 the
company could utilize its resources in the better way it is utilized in 08-09.
4. Total Assets Turnover Ratio –
Interpretation :
The increase in the ratio in 09-10 shows better utilization of its resources
5. Inventory Turnover Ratio
ITR = Cost of Sales/Average Stock
Interpretation :
It was observed that Inventory turnover ratio indicates maximum sales
achieved with the minimum investment in the inventory. As such, the
general rule high inventory turnover is desirable but high inventory turnover
ratio may not necessary indicates the profitable situation. An organization, in
order to achieve a large sales volume may sometime sacrifice on profit,
inventory ratio may not result into high amount of profit.
6. Receivable Turnover Ratio – Receivable
Turnover Ratio = Credit Sales /
Interpretation :
It was observed from receivable turnover ratio that receivables turned
around the sales were less than 4 times. The actual collection period was
more than normal collection period allowed to customer. It concludes that
over investment in the debtors which adversely affect on requirement of the
working capital finance and cost of such finance.
Profitability Ratios
Interpretation :
The increase in the ratio shows the better performance of the company in the
year 09-10 as compared to 08-09.
2. Debtors in No. of Months Sales (DMS) –
Interpretation :
The decrease in ratio in the year 2009-10 shows better realization position of the
company against its sales.
3. Stores of Stock & Spares in nos. of Months Consumptions ( Revenue
Mines)
Interpretation :
The reduction in the ratio in 09-10 shows better utilization of fund and
better inventory management of the company. It also shows that the
company has avoided unnecessary locking of its funds in inventory.
4. Net Profit Ratio –
Interpretation :
The increase in the ratio shows the better performance of the company in the
year 09-10 as compared to 08-09.
Operating Ratio –
B) Current Liabilities
Current Liabilities 4257.89 5657.38 6409.56
Provisions 2090.72 2072.83 1628.84
Total(B) 6348.61 7730.21 8038.40
W.C. Leverage =
· Working capital of the company was increasing and showing positive working
capital per year. It shows good liquidity position.
· Positive working capital indicates that company has the ability of payments of
short terms liabilities.
· Current assets are more than current liabilities indicate that company used long
term funds for short term requirement, where long term funds are most costly then
short term funds.
· Current assets components shows sundry debtors were the major part in
· Inventory was supporting to sales, thus inventory turnover ratio was increasing,
but company increased the raw material holding period.
· Study of the cash management of the company shows that company lost control
on cash management in the year 2005-06, where cash came from fixed deposits
and ZCCB funds, company failed to make proper investment of available cash.
RECOMMENDATIONS
Recommendation can be use by the firm for the betterment increased of the
firm after study and analysis of project report on study and analysis of working
1) Company should raise funds through short term sources for short term
requirement of funds, which comparatively economical as compare to long
term funds.
3) Company has to take control on cash balance because cash is non earning
assets and increasing cost of funds.
4) Company should reduce the inventory holding period with use of zero
inventory concepts.
Over all company has good liquidity position and sufficient funds to repayment of
liabilities. Company has accepted conservative financial policy and thus
maintaining more current assets balance. Company is increasing sales volume per
year.
Bibliography
Books Referred
Websites References
www.bcclweb.in
www.google.co.in
www.workingcapitalmanagement.com
www.bing.com
www.coalindia.nic.in
Working Notes
4. Cash Sch H
5. Inventory Sch F
8. Net Worth / Shareholders Fund Share Capital Sch A + Reserve & Surplus Sch B
10. Total Assets Net Fixed Assets (Ref Sl no.9) + Investment Sch
E+