A STUDY ON

“WORKING CAPITAL MANAGEMENT”

WITH REFERNCE TO

RASHTRIYA ISPAT NIGAM LIMITED, VISAKHAPATNAM

PROJECT REPORT

(A Report submitted in partial fulfillment of the requirements for the

degree Of master of Business Administration in Sri Vasavi Engg.
College, Tadepalligudem.)
Submitted by

S.RAMESH
MASTER OF BUSINESS ADMINISTRATION
Under the guidance of

Mr.A.JAMMAYA Mrs. Sathyanarayana

Manager, (F&A Department) Faculty guide,

RINL, Visakhapatanam. Sri Vasavi Engg.College,

TADEPALLIGUDEM.

2007-2009
 Certificate

This is to certify that the project work entitled “A STUDY ON

WORKING

CAPITAL MANAGEMENT IN RASHTRIYA ISPAT NIGAM LIMITED,

VISHAKAPATNAM” is a bonafied work done and submitted by

S.RAMESH in a partial fulfillment of the requirements for the award of

MASTER OF A BUSINESS ADMINISTRATION in Sri Vasavi

Engineering college,Tadepalligudem is a record of bonified

Work carried out by him under my guidance.

Place: Visakhapatnam
Mr.A.JAMMAYA

Date: Manager,

F&A
Department
 STUDENT’S DECLARATION

I, S.RAMESH, here by declare that the project report entitled

“WORKING CAPITAL MANAGEMENT” with regard to Rastriya Ispat

Nigam limited, Visakhapatnam submitted by me under the guidance of

Mr.A.JAMMAYA, Manager (F&A Dept) RINL of my own work and

Has not been submitted to any other University or Institute or

published

Earlier.

( Signature of the student

)

(S.RAMESH)
 ACKNOWLEDGEMENT

It is of great pleasure to take the opportunity to acknowledge

and express my gratitude to all who helped me throughout my project.

I have great pleasure in expressing my profound gratitude

and indebtedness to Sri A.JAMMAYA, Manager (F&A Dept) ,RASTRIYA
ISPAT NIGAM LIMITED,Visakhapatnam who is my project guide and who
has been a constant source of inspiration for me through out the study
of project .

My special thanks to shri.Kosireddi Raja (Asst.Manager), HRD GROUP of

Rastriya Ispat Nigam Limited, Andhra Pradesh for their valuable
suggestions and co-operation through out of the project work.

My special thanks toMr. Sathyanarayana ( M.B.A. Faculty) my project

guide in Sri Vasavi Engineering College for giving excellent guidance,
valuable suggestions and motivate me a lot.

(S.RAMESH)
 PREFACE

This project report is a presentation of my effort to study the practice

of Financial management in a public sector enterprise, with reference
to Rastriya Ispat Nigam Limited, Visakhapatnam. The report presents
the practical approach in the subject of financial management, mainly
in the field of “MANAGEMENT OF WORKING CAPITAL”. It intends
to provide brief knowledge of various concepts, principles,
approaches, considerations relevant to this field. The project report
has undergone a realistic survey of actual theory of practices in RINL
although there may be much gap to be bridged.

This report seeks to cover the topics of Financial Management,

mainly focusing on the aspects like working capital management,
current ratio, working capital turn over ratio ratio analysis etc.

The report has been divided into five chapters and the
arrangements of topics in various chapters have been grouped
according to the analysis of the subject.
 CONTENTS

CHAPTER I INTRODUCTION

⇒ Introduction
⇒ Scope of the study
⇒ Objective of the study
⇒ Methodology of the study
⇒ Limitations of the study

CHAPTER II INDUSTRIAL PROFILE

⇒ Growth in chronological order

⇒ Recession period
⇒ Out look
⇒ Major steel industries in India
⇒ Global scenario
⇒ Market scenario
CHAPTER III COMPANY PROFILE

⇒ Mile stones of RINL

⇒ Mission
⇒ Vision
⇒ Objectives
⇒ Core values
⇒ Policies in RINL
⇒ Welfare measures in RINL
⇒ Achievements & awards
⇒ Major units & major sources
⇒ Main products of RINL
⇒ Performance of RINL

CHAPTER IV CONCEPTUAL FRAME WORK

⇒ Working capital management

⇒ Introduction
⇒ Meaning
⇒ Definition
⇒ Concepts
⇒ Need
⇒ Importance
 ⇒ Factors determining
⇒ Management
⇒ Principles
⇒ Sources
⇒ Working capital financing mix
⇒ New trends in financing working
capital

CHAPTER V DATA ANALYSIS & INTERPRETATION

⇒ Analysis and interpretation

⇒ Graphs
a) Current ratio
b)Working capital turn over ratio
c) Gross working capital
d)Net working capital
⇒ Conclusions & suggestions
⇒ Bibliography

INTRODUCTION
 The focus of the study is an analysis of the financial performance of rashtriya ispat
nigam ltd. By using working capital management, which is widely used technique of
management. This evokes the interest and need for the study.

Finance is an integral part of modern economic life and occupies an important

place in all economic activities. Finance is “The science of money” and life blood of
industrial system. Financial management is that managerial activity, which is concerned
with the planning and controlling of the firms financial resources. Financial management in
its infancy dealt with the financing of corporate enterprises. Its evolution may be divided
into two broad phases, the traditional phase and the modern phase. Its scope was treated
in the narrow sense of procurement of funds. Thus the field of study dealing with the
finance was treated as encompassing here inter related aspects of rising and
administrating resources from outside.

Financial instruments through which funds area raised from the capital
market and the related aspects of capital market.

The legal and accounting relationship between a firm and its sources of
funds. These decisions were assumed to be given to him, and one was requiring rising the
needed funds from a combination of various sources.

The traditional approach of looking at the role of the financial manager

locked a connected frame work for making financial decisions, miss placed emphasis on
rising of funds and neglected the real issues relating to the allocation and management of
funds, the second criticism of the traditional approach was that the focus was on facing
problems of corporate enterprises on its scope was contained to industrial enterprises and
non- corporate organizations lay out side its scope. In this broader view the central issue
of financial policy is the wise use of funds and the central process involved is a rational
matching of advantages potential uses against the cost of alternative potential sources so
as to achieve its broad financial goals which an enterprise sets for itself. At another basis
on which it was challenged was that it was a closely combine to a description of infrequent
happenings like promotion, incorporation, merger etc; and day- to-day activities were
ignored
 Finally, it was found to have a lacuna to the extent the focus was on
long term financing and working capital management in a broad sense and provide a
conceptual and analytical frame work for financial decision making. The development of a
number of management skills and decision making techniques facilitated its
implementation of a system of optimum allocation of the firm’s resources. The emphasis
shifted from rising of funds to efficient and effective of funds.

SCOPE OF THE STUDY:

The scope of the study is confined to one of the key areas of finance i.e. inventory
management, which plays a vital role in the working capital management. The study
concentrates on the methods and techniques followed by Rashtriya Ispat Nigam ltd. For its
inventory management and its relative merits and demerits. This present study also
concentrates on the importance of inventory management for effective management of
working capital management of the company.

The data required for the study inventory management and its impact
on working capital is collected from the past six year’s published annual reports of the
company.

To ensure that each of the current assets is efficiently managed to ensure the
overall liquidity of the unity and at the same time not keeping too high level of any one of
them working capital management is a must. Working capital management ensures
smooth working of the unit with out any production held ups due to the paucity of funds.
Thus as working capital is the life blood and nerve centre of a business. It is managed in
order to attain a smooth running of the business.

OBJECTIVES OF THE STUDY:

 The present study is intended to analyze the practices of working capital management in
rashtriya ispat nigam ltd. The efficiency of the firms working capital management is
determined by the efficient administration on its various components.

Keeping in the view of above facts and figures of the following are the
objectives of the study.

 To examine working capital needs of rashtriya ispat nigam ltd.

 To know the financial strength and weaknesses of the company.
 To know the short term solvency of the firm.
 To understand the capital structure of the firm.
 To find out the reasons of the problem and to evaluate possible way to resolving
them.
 To determine the efficiency and effectiveness of the management n each segment
of the working capital management is being financed.
 To know the various methods to be followed by RINL for inventories and accounts
receivables.

METHODOLOGY OF THE STUDY:

Methodology is a systematic procedure of collecting information in order to

analyze and verify a phenomenon. The collection of information is done through two
principle sources, viz.

1. Primary data

2. Secondary data

PRIMARY DATA: It is the information collected directly with out any references. In this
study it is gathered through interviews with concerned officers and staff, either
individually and collectively, sum of the information has been verified and supplemented
with personal observation conducting personal interviews with the concerned officers of
finance department of VSP.
SECONDARY DATA: It is the information collected from already published sources such as
pamphlets of annual reports, returns and internal records. The data collection includes:

(a) Collection of required data from annual records of VSP.

(b) Reference from text books and journals relating to financial management.

LIMITATIONS OF STUDY:

The limitations that came across during the course of this work are listed below:

• The entire study is based on only financial data i.e. provided by the company
financial statements.
• The smaller time i.e. eight weeks are available for understanding this study is one
of the significant limitations of the study.
• These calculations may not be future indicators.
• The study is purely based on the date available in the form of annual reports.
• As VSP is multi product manufacturing unit the cycle time of each product varies
and it could be a problem to study the working capital management in a limited
period.
• Since the procedures and policies of the company do not allow disclosing of all
financial information the project has to be completed with the available data
collected with maximum effort.
• Some aspects of financial information were not available because of the
confidentiality of VSP.
 MILE STONES OF VSP

S.NO DATE MILE STONE

1. 17-04-1970 Prime minister of India announced in the

parliament to construct a new steel
plant at vishakhapatnam.
2. June 1970 Site selection committee appointed.

3. 30-11-1970 Committee’s Report approved for site.

4. 20-01-1971 Foundation stone Laid by Prime Minister.

5. 27-02-1971 Consultant appointed feasibility reports

submitted in 1972 and other
investigations carried out.
6. 07-04-1974 First block of land taken for VSP.

7. 15-10-1977 Detailed project report submitted by

consultant.
8. 24-05-1979 Public investment board accords
approval for 3.4 Mt steel project.
9. 12-06-1979 Inter governmental agreement signed
between India and Erstwhile USSR at
Moscow for the co-operation in the
construction of VSP.
10. 19-10-1979 Government approved setting up of VSP
soviet side carries out the revision of
detailed project report.
11. Jan 1980 Site leveling work started.

12. 30-11-1980 M.N.Dastard & co., principal consultant

submits the comprehensive revised
detailed project report.
13. 06-01-1981 Expert committee submits
recommendations for approval of
comprehensive revised detailed project
report with certain modifications.
14. 05-02-1981 Contract signed with erstwhile soviet
union for preparation of working
drawings for coke ovens, blast furnace
and sinter plant.
15. 23-02-1981 Comprehensive revised detailed project
report along with expert committee
recommendations approved.
16. 10-07-1981 Protocol signed with erstwhile soviet
union for supply of equipments and
specialists.
17. 23-01-1982 Blast furnace foundation ( 1st mass
TO concerning in the project laid).

26-02-1982
18. 01-02-1982 Zero date of the construction of the
project.
19. 18-02-1982 Rashtriya Ispat Nigam Limited (RINL)
formed
20. 29-01-1987 Commissioning of structural shop. With
this commissioning of various auxiliary
units commenced.
21. 06-09-1989 Coke oven battery No.1 started pushing
of coke. With this the commissioning of
metallurgical units started.
22. 14-11-1989 Sinter plant commissioned.

23. 28-03-1990 “Godavari the 1st Blast Furnace

commissioned.
24. 03-05-1990 Prime Minister dedicated “ Godavari” to
the nation.
25. 06-09-1990 The first converter and the continuous
casting machine of the steel melt shop
starts production.
26. 28-08-1990 Billet production in the light and
medium merchant mill started.
27. 21-11-1990 Wire Rod Mill ( WRM ) commissioned.

28. 04-03-1991 Second converter commissioned.

29. 30-06-1991 Yeleru Water supply scheme made

ready for supply of water to VSP
30. 28-10-1991 Trial production commences in the bar
mill of Light Medium Merchant Mill.
31. 31-10-1991 Coke oven battery No.2 commissioned.

32. 27-12-1991 Sinter machine-2 commissioned.

33. 20-03-1992 Medium Merchant and Structural Mill

commissioned.
34. 21-03-1992 “Krishna” Blast Furnace-2
 commissioned.

35. July 1992 Coke oven battery No-3 commissioned.

36. July 1992 Converter No-3 of steel melt shop

commissioned this makes the
completion of commissioning of all units
of the three million tones plant.
37. August 1992 Dedication of the plant to the nation by
the prime minister P.V. NARASIMHA
RAO.

MISSION
To attain 16 million ton liquid steel capacity through technological up
gradation, operational efficiency and expansion to produce steel at
international standards of cost and quality and to meet the aspirations
of the stakeholders.

VISION

 To be a continuously growing world-class company

 Harnesses the growth potential and sustain profitable growth
 Deliver high quality and cost competitive products and be the first
choice of customers
 Create an inspiring work environment to unleash the creative energy
of people
 Achieve excellence in enterprise management
 Be a respected corporate citizen, ensure clean and green
environment and develop vibrant communities around us

OBJECTIVES
 Expand plant capacity to 6.3 Mt by 2008-09 with the mission to
expand further in subsequent phases as per the corporate plan.
 Sustain gross margin to turnover ratio > 25%
 Be amongst top five lowest cost liquid steel producers in the world
by 2009-10
 Achieve higher levels of customer satisfaction than competitors
 Instill right attitude amongst employees and facilitate them to
excel in their professional personal social life
 Be recognized as an excellent business organization by 2008-09
 Be proactive in conserving environment, maintaining high levels of
safety and addressing social concerns

CORE VALUES

 Commitment
 Customer satisfaction
 Continuous improvement
 Concern for environment
 Creativity & Innovation

POLICIES IN VSP

QUALITY POLICY:
 Visakhapatnam steel plant is committed to meet the needs
and expectations of their customers and other interested parties. To
accomplish this, they will

 Supply quality goods and services to customers delight

 Achieve quality of the products by following systematic
approach through planning, document procedures and timely
review of quality objectives
 Continuously improve the quality of all materials, processes
and products
 Maintain an enabling environment of all employees with their
involvement.

ENVIRONMENT POLICY:

Visakhapatnam steel plant, while carrying out its operations reaffirms

its commitment to preserve the environment to accomplish this, they
will

 Document, implement, maintain and continuously review the

environment management system
 Comply with all the relevant environmental legislations,
regulations and other requirements
 Ensure continual improvement in the environmental
performance and prevention of pollution by minimizing the
emissions and discharges
ENERGY POLICY:

Visakhapatnam Steel Plant is committed to optimally utilize various

forms of energy in a cost effective manner to effect conservation of
energy resources to accomplish this they will

 Monitor closely and control consumption of various forms of

energy through an effective energy management system.
 Adopt appropriate energy conservation technologies.
 Maximize the use of cheaper and easily available forms for
energy.

HR POLICY:

Visakhapatnam steel plant, believe that its employees are the most
important resources to realize the full potential of employees, the
company is committed to:

 Provide work environment that makes the employees committed

and motivated for maximizing productivity
 Establish systems for maintaining transparency fairness and
equality in dealing with employees
 Empower employees for enhancing commitment, responsibility
and accountability
  Encourage teamwork, creativity, innovativeness and high
achievement orientation
 Ensure functioning of effective communication channels with
employees

CUSTOMER POLICY:

 VSP will endeavour to adopt a customer-focused approach at

all times with transparency
 VSP will strive to meet more than the customer needs and
expectations pertaining to products quality and value for money
and satisfaction
 VSP greatly values its relationship with customers and would
make efforts at strengthening these relations for mutual benefit

IT POLICY:

 RINL/VSP is committed to leverage information technology as

the vital enabler in improving the customer-satisfaction,
organizational efficiency, productivity, decision-making,
 transparency and cost-effectiveness, and thus adding value to
the business of steel making. Towards this RINL/VSP shall
 Follow best practices in process automation & business
processes through IT by in house efforts/ outsourcing and
collaborative efforts with other organization/ expert groups/
institutions of higher learning etc. thus ensuring the quality of
product and services at least cost
 Follow scientific and structured methodology in the software
development processes with total user-involvement, and thus
delivering integrated and quality products to the satisfaction of
internal and external customers
 Install, maintain and upgrade suitable cost effective it
hardware, software and other IT infrastructure and ensure high
levels of data and information security
 Enrich skill-set and knowledge based of all related personnel at
regular intervals to make employees as knowledge-employees

WELFARE MEASURES IN VSP

Rashtriya Ispat Nigam Limited/ Visakhapatnam steel plant, considers

human resources as the most important of all the resources in the
company. Its development and welfare have therefore been given the
utmost emphasis in the overall policy of Human Resources
Management of the company.

The welfare measures that have been taken by VSP are

1. Statutory welfare measures

2. Non-statutory welfare measures

1. Statutory welfare measures:

 Canteen facilities
 Baby crèche
 First aid facilities
 Water coolers
 Leave facilities
 Maternity Leave
 Factories Act
 Gratuity facilities
 Workmen’s compensation
 Contract Labour welfare

2. Non-statutory welfare measures:

 Education facilities
 Scholarships
 Medical facilities
  Medical Reimbursement
 Housing Facility
 Work dress
 Vehicle advances to employees
 House building advance
 Motivational schemes
- Awards
- Jawahar Suggestion Rewards
- Gnana puraskar yojana(GPY)
- Icentive schemes
 Ltc\Lltc
 Leave encashment
 Facilities for recreation
- Community welfare centers (cwcs)
- Library
- Ukkunagaram club and steel club
- Parks
- Sports facilities

- Sports complex
- hostel grounds
- cultural and trekking activities
- co-operatives
- employees consumers co-operative stores
-

3. Social security measures:

 Employee family benefit scheme

 RINC employees superannuation benefit fund
 Family benefit scheme(death benefit fund)
 Group savings linked insurance scheme
 Group personal accident insurance scheme
 Contribution from incentive earnings
  Funeral expenses
 Traveling/ transport expenses
 Medic lain insurance policy for retired employees

Achievements and awards

The efforts of vsp have been recognized in various for a. some of the
major awards received by vsp are in the area of energy conservation,
environment protection,safety,quality, quality circles, rajsabha ,MOU,
sports related awards.
Year Award Purpose

2000 Merit certificate Energy efficiency

2001 National energy Energy efficiency

conservation award
(2nd)
2002 National energy Energy efficiency
st
conservation award(1 )

2003 National energy Energy efficiency

st
conservation award(1 )

2004 National energy Energy efficiency

st
conservation award(1 )

2005 National energy Energy efficiency

conservation award

2006 National energy Energy efficiency

conservation award(1st)
2004 ICWA national award Good performance,
for excellence in cost
mgmt.

2004 World quality Performance

commitment excellence, quality
international star management and
award quality achievement.

2004 Leadership and Excellence in SHE by

excellence award in CIT south zone.
SHE(safety health and
environment)

2004,20 National award for Excellence in water

05 excellence in water Mgmt.
Mgmt by CIT.

2005 Certificate of Excellence in energy

appreciation by conservation.
institution of
engineers, AP chapter
2005 Energy conservation by Best organization in
AP productivity council. energy conservation
initiatives.

2005 CIT-GBC national Excellence in energy

award management

2005 Business achievement Environmental

award for excellence. conservation and
pollution control
presented by
confederation of Asia
pacific chamber of
commerce and
industry.

2006 CIT leadership and

excellence award in
safety ,health and
environment-2005

2006 Safety innovation For contribution in

award innovating,
promoting and
 implementing the
best safety practices
presented by
institution of
engineers(INDIA)

2006 Golden peacock Encourage and

environment recognize effective
management award implementation of
(GPEMA) environment
management
systems and their
continuous
improvement.

2006 Organizational Efficient suggestion

excellence award. scheme operation
given by INSSAN.

2006 Strong commitment – Excellence in H.R

CII processes and
practices
H.R excellence award
2006
 2007 Commendation prize Overall excellence in
for significant all activities of the
achievement to company
excellence – CII

EXIMBANCE award for

business excellence
2006

MAJOR SOURCES OF RAW MATERIALS

RAW MATERIAL SOURCE

Iron ore lumps and fines Bailadilla , MP

BF lime stone Jaggayapeta, AP

SMS lime stone UAE

BF dolomite Madharam, AP

SMS dolomite Madharam, AP

Manganese ore Chipurupalli ,AP

Boiler coal Talcher , Orissa

Cooking coal Australia

Medium cooking coal (MCE) Gidi/ swang/ rajarappa/

kargali
 MAJOR UNITS

DEPARTMENT ANNUAL UNITS (3.0 MT STAGE)

CAPACITY
(‘000T)
Coke ovens 2,261 3 batteries of 67 ovens & 7mts
height.

Sinter plant 5,256

2 sinter machines of 312sq.mts
grate area each.

Blast furnace 3,400

2 furnaces of 3,200cu.mts
volume each.

Steel melt shop 3,000

3 ld converters each of
133cu.mts volume and six
strand bloom casters
Lmmm 710

4 stand finishing mill.

Wrm 850

2*10 stands finishing mill.

Mmsm 850

6 stand finishing mill.

 MAIN PRODUCTS OF VSP

STEEL PRODUTCS BY PRODUCTS

Angels Nut coke, granulated

slag.

Billets
Coke dust, lime
fines.
Channels

Coal tar, ammonium

Beams sulphate

Squares Anthrancene oil.

Flats Hp Naphthalene.

Rounds Benzene.

Re-bars Toluene.

Wire rods Zylene.

Wash oil.
PRODUCTION PERFOMANCE (000 TONNES)

YEAR HOT METAL LIQUID METAL SALEABLE STEEL

1998-99 2,510 2,225 2,193

1999- 2,943 2,656 2,382

2000

3,165 2,909 2,507

2000-01

3,485 3,083 2,757

2001-02

3,941 3,356 3,056

2002-03

4,055 3,508 3,169

2003-04

3,920 3,560 3,173

2004-05

4,153 3,603 3,237

2005-06

4,046 3,606 3,290

2006-07

3,913 3,322 3,074

2007-08
 COMMERCIAL PERFORMANCE

YEAR SALES DOMESTIC EXPORTS

TURNOVER SALES

2002-03 5,059 4,433 626

2003-04 6,174 5,406 768

2004-05 8,181 7,933 248

2005-06 8,469 8,026 443

2006-07 9,131 8,487 424

2007-08 10,433 9,878 555

FINANCIAL PERFORMANCE

YEAR GROSSMARGI CASH NET

N PROFIT PROFIT

1,049 915 521

2002-03

2,073 2,024 1,547

2003-04

3,271 3,260 2,008

2004-05

2,369 1,859 1,252

2005-06
2006-07 2,633 1,700 1,363

2007-08 3,515 3,483 1,943

INDUSTRIAL PROFILE

Steel is an alloy of iron usually containing less than 1% carbon is a

versatile material with multitude of useful properties used most
frequently in the automotive and construction industries. Steel can be
cast into bass strips, sheets, nails, spikes, wire, rods or pipes as
needed by the intended user. The consumption of steel is regarded as
the index of industrialization and the economic maturity any country
has attained.

The development of steel industry in

India should be viewed in conjunction with the type and system of
government that had been ruling country. The production of steel in
significant quantity started after 1900. The growth of steel industry can
be conveniently studied by dividing in the period into pre &post
independence era. The total installed capacity for in got steel
production in during pre independence era was 1.5 millions tones/ year
, which has risen to about 8 million tones of ingot by the seventies.
This is the result of the bold steps taken by the government to develop
this sector.

THE GROWTH IN CHRONOLOGICAL ORDER IS AS FOLLOWS:

1830: Josiah Marshall health constructed the first manufacturing plant

at pot in madras presidency.

1874: James Erskin founded the Bengal iron works

1899: Jamshedji tata initiated the scheme for an integrated steel plant.

1906: Formation of TISCO.

1911: Tata iron & steel company started production.

1916: Tisco was founded.

1944: Formation of Mysore iron.

1951-56: First five year plan.

No new steel plant came up the Hindustan steel

ltd(HSL) was born on 19th January, 1954 with the decision of setting up
three steel plants each with one million tone input steel per year at
Rourkela, Bhilai and Durgapur, tisco stated its expansion programming.

1956-61: A bold decision was taken up to increase the ingot steel

output India to 6 million tones per year and production at Rourkela,
Bhilai, and Durgapur steel plants started.

1961-66: (Third five year plan) During the third five year plan the three
steel plants under HCL, TISCO and HSCO were expanded as shown.

1966-69 –RECESSION PERIOD:

STEEL PLANT ORGINAL EXPANDED

YEAR YEAR

Rourkela 1.0 1.8

Bhilai 1.1 2.5

Durgapur 1.0 1.6

Tisco 1.0 2.0

 Hsco 0.5 1.0

s The entire expansion programmes was actively executed during the

period.

1969-74: Fourth five year plan Salem steel plant started.

Licenses were given for setting up of many mini steel plants

and rerolling mills Govt of India accepted setting up two more steel
plants in south: One each at Visakhapatnam (A.P) and Hospet
(Karnataka) SAIL was formed during the period of 24th Jan 1973. The
total installed capacity from 6 integrated plants was 106mt.

• In 1979 annual plan, the erstwhile Soviet Union agreed to help in

setting up the VSP.
• In 980-85 fifth year plan, work on VSP was started with a big bang
and top priority was accorded to start the plant; scheme for
modernization of Bhilali, Rourkela, Durgapur and Tisco steel
plant’s were initiated.
• In 1985-91 seventh five year plan, expansion work of Bhilali and
Bokaro steel plant’s completed; progress on VSP picked up and
the rationalized concept has been introduced to commission the
plant with 3mt liquid steel capacity by 1990; VSP started its
production modernization of other steel plant’s is also duly
envisaged.
• In 1997-02 nineth five year plan; steel industry register’s a growth
of 9.9%, VSP has high regime targets and achieved the best of
them
 . OUTLOOK

The steel companies in India are looking up amidst a

tough the global competition when the market is crisis-crossed with a
variety of tariff and non-tariff barriers. The dexterity with which the
Indian exporters diversified their markets, modified the composition of
their export basket to suit the changing global demands and affected
reduced production costs by adopting the state-of-the-art technologies
provides ample testimony to the maturity of this industry. From a
highly protected inward looking enterprise of the pre-liberalization
years, it has turned into a modern and globally integrated industry in
an astonishingly short span of time. The economic reforms have
brought with its immense opportunities for market-led growth of this
industry, once a symbol of state control.
 On the supply side, deregulation meant access to
domestic private capital and low-cost overseas funds, advanced
technology and cheap inputs. On the demand side, the new policy
regime meant opportunities to sell steel in an expanding domestic
market and, most importantly, in the large international marts.

The Indian steel industry is at an important juncture

today. The global strengthening of the market, the potential growth in
domestic steel consumption and the global shortage of critical raw
materials like iron ore and scrap have raised issues like the need to
further boost in the production capacities of the plants by
modernization, creation of a strong base of raw materials and industry
specific development of the infrastructure.

The government has been fostering a harmonious

growth of the industry on the principles of competitiveness and
economic efficiency. It has also paid the highest attention to help the
industry in over coming structural rigidities within the sector, remove
scarcities of essential inputs, develop infrastructure and remove the
market distorting forces commonly experienced by the developing
countries in the course of industrialization. The industry is being
protected from unfair competition from domestic and overseas
sources.
MAJOR STEEL INDUSTRIES IN INDIA:

1. Bharat refectories ltd.

2. Hindustan steel works construction ltd.
3. Jindal steel and power ltd
4. Kundremukh iron ore company ltd.
5. Manganese ore (INDIA) ltd
6. Metal scrap trade corporation ltd
7. Metallurgical and engineering consultants India ltd
8. National mineral development corporation (NMDC)
9. Rashtriya Ispat nigam ltd
10. Sponge iron India ltd
11. Steel authority of India ltd
12. Tata iron steel
The global industry has witnessed several
revolutionary changes during the last century. The changes have
been in realms of both technology and business strategy. The
ultimate object of all these changes is to remain competitive and
open global market.

The Indian steel industry is growing very rigorously

with the major producers like SAIL, RINL, TISCO, JVL and many
others. Our steel industry has amply demonstrated its ability of
adopt to the changing scenario and to survive in the global market
that is becoming increasingly competitive. This has been possible to
a large extent due to the adoption of innovation operating practices
and modern technologies.

Industrial development in India has reached a high degree of

self-reliance and the steel industry occupies a primary place in the
strategy for future development .At present the production of steel
 industry country is 34 Mt. the public sector steel industry has been
restructured to meet challenges and a separate fund has been
established for modernization and future development of the
industry. It is now being proposed that Indian steel industry should
gear up to achieve a production level of about 100 Mt. by the year
2000.

GLOBAL SCENARIO

As per IISI

 In march 2005 world crude steel output was 928 mt when

compared to march-2004 (872 mt) . the change in the
percentage was 65%.

 China remained the world largest crude steel producer in

2005 also (275 mt) followed by Japan (96mt) and
USA(81Mt) India occupied 8th position (42 mt).

 USA remained the largest importer of semi finished

products in 2002 followed by Russia and Ukraine

 Other significant recent developments in the global steel

scenario have been :
 Under the auspicious of the OECD(organization for economic
co-operation and development ) the negotiations among the
major steel producing countries for a subsidy agreement
(SSA) held in 2003 with the objective to agree on a complete
negotiating test for the SSA by the middle of 2004 .It also set
the subsides for the steel industry of a ceiling of 0.5% of the
value of production to be used exclusively for

Research and development.

 The global economy witnessed a gradual recovery from

late 2003 on wards. China has become one of the major factors
currently during the world economy.

 As a result these economic developments IISI has

projected an increase by 6.2% or 5.3 Mt in 2004 in the
global consumption of finished steel products .IISI has split
the growth into two separate areas china and the rest of
the world (ROW) steel consumption in china has been
estimated to increase by 13.1% or 31 Mt in 2004.

 USA has repeated the safe guard measures on import of

steel as a result of ruling by a WTO dispute resolution
panel, which held these measures to be illegal under the
WTO regime.

MARKET SCENARIO
 The year 2004-05 was a remarkable one for the steel
industry with the world crude steel production crossing the one billion
mark for the first time in the history of the steel industry. The world
GDP growth about 4% lends supports to the expectations the steel
market is all set for strong revival after prolonged period of depression.
The Indian economy also become robust with annual growth rates of 7-
8% this will provide a major boost to the steel industry. With the
nations focus on infrastructure development coupled with growth in
the manufacturing sector, the Indian steel industry all set for north
ward movement. The draft national steel policy envisages production
of 60mt by 2012 and 110mt by 2020, the annual growth rate of 6-7%.
All this should therefore augur well for the Indian steel industry.

PRICING AND DISTRIBUTION

 Price regulation of iron and steel was abolished on 16-01-1992.

 Distribution controls on iron and steel removed except 5 priority
sectors, viz. Defense, railway small scale industries
corporations, exporters of engineering goods and north eastern
region.
 Allocation to priority sectors is made by ministry of steel.
 Government has no control over prices of iron and steel.
 Open market prices are generally on rise.
 Price increases of late have taken place mostly in long products
than flat products.
Chapter 1
INTRODUCTION
Chapter 2
INDUSTRIAL PROFILE
Chapter 3
COMPANY PROFILE
Chapter 4
CONCEPTUAL FRAME WORK
Chapter 5
DATA ANALYSIS & INTERPRETATION

WORKING CAPITAL MANAGEMENT

INTRODUCTION:
Working capital management is concerned with the problems that arise in
attempting to manage the current assets, the current liabilities and the inter relation ship
that exists between them .The term current assets refer to those assets which in the
ordinary course of business can be, or will be, converted into cash with in one year
without undergoing a diminution in value and with out disrupting the operations of firm.
The major current assets are cash, marketable securities, accounts receivable and
inventory. Current liabilities are those liabilities which are intended, at there inception, to
be paid in the ordinary course of business, with in a year, out of the current assets or
earning of the concern. The basic current liabilities are account payable, bills payable;
bank over draft, and outstanding expenses, the goal of working capital management is to
manage the firm’s current assets and liabilities in such way that a satisfactory level of
working capital is maintained.

MEANING OF WORKING CAPITAL:

Capital required for a business can be classified under two main categories viz.,

1. Fixed capital and

2. Working capital

Every business needs funds for two purposes for its establishment and to carry out
its day operations. Long-term funds are required to create production facilities trough
purchases of fixed assets such as plant and machinery, land, building, furniture etc.,
Investments in these assets represent that part of firm’s capital which is blocked on a
permanent or fixed basis and is called fixed capital. Funds are also needed for short-term
purposes for the purchased for the purchase of raw material, payment of wages and other
day –to-day expenses etc.., these funds are known as working capital.

Definition:
 In the words of shubin “working capital is the amount of funds necessary to
cover the operating the enterprise”.

 According to Gene Stenberg “Circulating capital means current assets of a

company that are changed in the ordinary course of business from one form
 to another as for example, from cash to inventories, inventories to
receivables , into cash ”.

CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital

1. Gross working capital

2. Net working capital

THE GROSS WORKING CAPITAL concept of working capital refers to a firm’s

investment in current assets. This is also known as ‘current capital concept’ or
‘circulating capital concept’. The gross working capital is represented by the sum total of
all current assets of the enterprise. It is also known as circulating in the ordinary course of
business form one form to another as for example, from cash to inventories to receivable
to cash. This concept focuses attention on two aspects of current assets management,
viz..,

a) Optimum investment in current assets,

b) Financing current assets.

THE NET WORKING CAPITAL concept is an accounting concept, which refers to the
arithmetic difference between current assets and current liabilities of a business concern.
It is defined as “the difference between the book value of the current assets and current
liabilities”. The net working capital indicates.

(a) The liquidity position of the firm, and (b) suggests the extent to which working needs
maybe financed by permanent sources of funds. An alternative definition of networking
capital is that portion of firm’s current assets financed with long term funds.

These two concepts of working capital are not mutually exclusive rather have equal
significance from the management point of view and represent two important two
important facets of the working capital management.

The individual composite items of working capital are:

Current assets comprise items that would get converted into cash in short term, with in a
year, through the business operations. Current assets include,

1. Inventories: including stocks of raw material and components, work- in- progress,
finished goods and factory supplies, packing and shipment materials, office
supplies etc.,

2. Loans and advances and other Balances: Include Sundry Debtors, Bills receivable
and others including loans and advances, prepaid expenses etc.,

3. Marketable securities: Include Sundry debtors, Bills receivable and others

including loans and advances, prepaid expenses etc.,

4. Cash and Bank Balances:

CONSTITUENTS OF CURRENT ASSETS ARE:

1) Cash in hand and bank balances

2) Bills receivable

3) Sundry debtors(less provision for bad debts)

4) Short term loans and advances

5) inventories of stock as:

a. Raw materials

b. Work-in-progress

c. Stores and spares

d. Finished goods

6) Temporary investments of surplus funds

7) Prepaid expenses

8) Accrued income

In narrow sense the term working capital refers to the net working capital.Net
working capital is the excess of currents assets over current liabilities(or)
Gross working capital= Current assets total

Net working capital=Current assets-Current liabilities

Net working capital may be positive or Negative. When the current assets exceed the
current liabilities the working capital is positive and the negative working capital results
when the current liabilities are more than the current assets. Current liabilities are those
liabilities which are intended to be paid in the ordinary course of business with in a short
period of normally one accounting year out of the current assets or the income of the
business.

Current Liabilities are those, which are expected to fall due or nature of payment
in short period of one year, and they represent short-term sources of funds they include

1. Short-term borrowings: include bank borrowings other than those against own
debentures and other mortgages.

2. Trade creditors and other liabilities Sundry creditors, outstanding expenses and
advances received.

Provisions for taxation, dividends and other current provisions

CONSTITUENTS OF CURRENT LIABLITIES:

1. Bills payable

2. Sundry creditors (or) Accounts payable

3. Accrued or outstanding expenses

4. Short-term loans, advances and deposits

5. Dividends payable

6. Bank overdrafts

7. Provision for taxation, If it does not amount to appropriation of profits

THE NEED FOR WORKING CAPITAL:

 A firm has to make profit to maintain its image in the capital market the
investors will also be looking forward to the continuous growth of profitability
gradual increase in profit will result in capital growth of the firm. To earn substantial
profit, sales volume has to be increased.

It is observed that sale of goods will not immediately be converted in to cash.

When the sale transactions are more credit in nature to have uninterrupted business
operations the amount will be looked up in the current assets like accounts
receivables, stock, etc., This actually happens due to the cash cycle by the time the
cash is converted back to the cash.

The firm needs extra funds and hence the need for working capital. If this is not
provided the business operations will be effected to a greater extent and hence this
past of finance has to be managed well.

THE WORKING CAPITAL NEED FOR THE FOLLOWING PURPOSES:

1. The purchase of raw materials, components and spares

2. To pay wages and salaries.

3. To incur day-to-day expenses and overhead cost such as fuel, power and office
expenses, etc.,

4. To meet the selling costs as packing, advertising etc,.

5. To provide credit to the customers.

6. To maintain the inventories of raw material, work-in-progress, stores and spares

and finished stock.

IMPORTANCE OF WORKING CAPITAL:

Working capital is the life blood and nerve center of a business, just as
circulation of blood is essential in the human body for maintaining life, working
capital is very essential to maintain the smooth running of a business. No business can
run successfully without an adequate amount of working capital.

The main advantages of maintaining adequate amount of working capital are as

follows:
 1. Solvency of the business.

2. Goodwill.

3. Easy loans.

4. Cash discounts

5. Regular supply of raw material.

6. Regular payment of salaries, wages and other day-to-day commitments.

7. Exploitation of favorable market conditions.

8. Ability to face crisis.

9. Quick and regular return on investments

10. high morale

CLASSIFICATION OF WORKING CAPITAL:

Working capital may be classified in two ways

a) On the basis of concept

b) On the basis of time

a) On the basis of concept working capital is classified as gross working

Capital and net working capital. This classification is important from the
point of view of the financial manager.
 b) On the basis of time working capital may be classified as:

1) Permanent working capital

2) Temporary or variable working capital

1) Permanent working capital:

Permanent working capital is the minimum amount which is

required to ensure effective utilization of fixed facilities and for maintaining the
circulation of current assets. There is a minimum level of current assets which is
continuously required by the enterprise to carry out its normal business operations. For
example, every firm has to maintain a minimum level of raw materials, work - in
-process, finished goods and cash balance. This minimum level of current assets is called
permanent or fixed working capital.

2) Temporary or variable working capital:

Temporary working capital is the amount of working capital which is

required to meet the seasonal demands and some special exigencies. Variable working
capital can be further classified has seasonal working capital and special working capital.
Most of the enterprises provide the additional working capital to meet the seasonal and
special needs. The capital required to meet the seasonal needs of the enterprise is called
seasonal working capital. Special working capital is that part of working capital which is
required to meet special exigencies such as launching of extensive marketing campaigns
for conducting research, etc.
FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS:
The working capital requirements of concern depend upon a large number of
factors such as nature and size of business, the character of their operations,
and the length of production cycles. The rate of stock turnover and the state
of economic situation, it is not possible to rank them because all such factors
are different importance and the influence of individual factors changes for a
firm over time. The following are important factors generally influencing the
working capital requirements.
  Nature and character of business

 Size of business/scale of operations

 Production policy

 Manufacturing process/length of production cycle

 Seasonal variations

 Working capital cycle

 Credit policy

 Rate of stock turnover

 Business cycles

 Rate of growth of business

 Earning capacity and dividend

 Price level changer

 Other factors

NATURE OR CHARACTER OF BUSINESS:

The working capital requirements of a firm basically depend upon the nature of
its business. Public utility undertakings like electricity, water supply and railways need
very limited working capital because they offer cash sales only and supply services, not
products, and as such no funds are tied up is inventories and receivables.

SIZEOF BUSINESS/SCALE OF OPERATIONS:

 The working capital requirements of a concern are directly influenced by the size of
its business which may be measured in terms of scale of operations. Greater the size of a
business unit, generally larger will be the requirements of working capital.

PRODUCTION POLICY:

In certain industries the demand is subject to wide fluctuations due to seasonal

variations. The requirements of working capital, is such cases depend upon the
production policy.

MANUFACTURING PROCESS/ LENGTH OF PRODUCTION CYCLE:

In manufacturing business, the requirements of working capital increase in direct

proportion to length of manufacturing process. Longer the process period of manufacture,
larger is the amount of working capital required. The longer the manufacturing time, the
raw materials and other supplies have to be carried for longer period.

SEASONAL VARIATIONS:

In certain industries raw material is not available through out the year. They
have to buy raw materials in bulk during the season to ensure blocked in the form of
material inventories during such season, which gives rise to more working capital
requirements, generally during he busy season, a firm requires larger working capital than
in the slack season.

WORKING CAPITAL CYCLE:

In manufacturing concern, the working capital cycle starts with the purchase of raw
materials and ends with the realization of cash from the scale of finished products. This
cycle involves purchase of raw materials and stores its conversation into stocks of
finishing goods through work-in-progress.

RATE OF STOCK TURN OVER:

There is a high degree of inverse co-relationship between the quantum of working

capital and the velocity or speed with which the sales are affected. A firm having high
rate of sock turn over will need lower amount of working capital as compared to a firm
having a low rate of turn over.

CREDIT POLICY:
 The credit policy of a concern in its dealing with debtors and creditors
influence considerably the requirements of working capital. A concern that purchases its
requirements on credit and sells its products/services on cash requires lesser amount of
working capital.

BUSINESS CYCLES:

Business cycle refers to alternate expansion and contraction in general business activity.
In the period of boom i.e. when the business is prosperous, there is a need for larger
amount of working capital due to increase in sales, raise in prices, optimistic expansion of
business etc.

RATE OF GROWTH BUSINESS:

The working capital requirements of a concern increase with the growth and
expansion of its business activities. Although it is difficult to determine the relation ship
between the growth in the volume of business and the growth in the working capital of
business.

OTHER FACTORS:

Certain other factors such as operating efficiency, management ability, irregularities

of supply, import policy, asset structure, importance of labour, banking facilities, etc also
influence the requirements of working capital.

MANAGEMENT OF WORKING CAPITAL:

It refers to the excess of current assets over current liabilities. Management of
working capital there fore, is concerned with the problems that arrive in attempting to
manage the current assets, the current liabilities and the inter-relationship that exists
between them. In other words it refers to all aspects of administration of both current
assets and current liabilities.

The basic goal of working capital management is to manage the current assets
and current liabilities of a firm in such a way satisfactory level of working capital is
maintain, i.e. ., it is neither inadequate nor excessive.

Capital management is three dimensional in nature:

 i. Dimension I is concerned with the formulation of policies with regard to
profitability, risk and liquidity.

ii. Dimensions II is concerned with the decision about the composition and level of
current assets.

iii. Dimension III is concerned with the decision about the composition and level of
current liabilities.

PRINCIPLES OF WORKING CAPITAL MANAGEMENT:

 The following are the general principles of sound working capital
management policy and they are as fallows:

1. principle of risk variation

2. principle of cost of capital

3. principle of equity position

4. principle of maturity of payment

1. Principle of risk variation:

Risk here refers to the inability of a firm to meet its obligations as and when
they become due for payment. Larger investment in current assets with less dependence
on short term borrowings increases liquidity reduces risk and there by decreases the
opportunity for gain or loss. On the other hand less investment in current assets with
greater dependence on short term borrowings increases risk, liquidity and increases
profitability .In other words, there is a definite direct relationship between the degree of
risk and profitability.

2. Principle of cost of capital:

The various sources of raising working capital finance have different cost of
capital and the degree of risk involved. Generally, higher the risk lower is the cost and
lower the risk higher is the cost. A sound working capital management should always try
to achieve a proper balance between these two.

3. Principle of equity position:

The principle is concerned with planning the total investment in current assets.
According to this principle, the amount of working capital invested in each component
should be adequately justified by a firm’s equity position. Every rupee invested in the
current assets should contribute to the net worth of the firm. The level of current assets
may be measured with the help of two ratios (I) current assets as a percentage of total
assets and (II) current assets as a percentage of total sales while deciding about the
composition of current assets, the financial manager may consider the relevant industrial
averages.

4. Principle of maturity of payment:

This principle is concerned with planning the sources of finance for working
capital. According to this principle, a firm should make every effort to relate maturities of
payment to its flow of internally generated funds. Maturity pattern of various current
obligations is an important factor in risk assumptions and risk assessments. Generally
shorter the maturity schedule of current liabilities in relation to expected cash in flows the
greater the in ability to meet its obligations in time.

SOURCES OF WORKING CAPITAL:

THE WORKING CAPITAL FINANCING MIX:
 1. The Hedging or Matching Approach:

The term ‘hedging’ usually refers to two off-selling transactions of a

simultaneous but opposite nature which counter balance the effect of each other,
with reference to financing mix, the term hedging refers to a process of matching
maturities of debt with the maturities of financial needs.

2. The Conservative Approach

This approach suggests that the entire estimated investments in current

should be financed form long-term sources and the short-term sources should be
used only for emergency requirements.

3. The Aggressive Approach:

The aggressive approach suggests that the entire estimated requirements of

current asset should be financed form short-term sources and even a part of fixed assets
investments be financed form short-term sources. This approach makes the finance-mix
more risky, less costly and more profitable.
NEW TRENDS IN FINANCING WORKING CAPITAL BY BANKS:
Banks in India have been providing finance to industry and trade on the basis of
security. To ensure its equitable distribution in the right channels bank credit has been a
subject matter of regulation and control by the government. Since Nov 1965, a Credit
Authorization scheme has been in operation as part of the Reserve Bank of India’s credit
policy.

To regulate and control bank finance, the Reserve Bank of India has been issuing
directives and guidelines to the banks form time to time on the recommendations
of certain specially constituted committees entrusted with the task of examining
various aspects of bank finance to industry.

1. Dehejia committee

2. Tendon committee

3. Chore committee

4. Marathe committee

5. Chakravarty committee

6. Kannam committee

RATIO ANALYSIS
 INTRODUCTION:-
The ratio analysis is one of the most powerful tools of financial analysis.
It is the process of establishing and interpreting various ratios (quantitative
relationship between figures and groups of figures). It is with the help of ratios that
the financial statements can be analyzed more clearly and decisions made from
such analysis.

MEANING OF RATIO:
A ratio is a simple arithmetical expression of the relationship of one
number to another. It may be defined as the indicated quotient of one numbers”.
According to Kohler, a ratio is the relation, of the amount, a to another b,
expressed as the ratio of a to b; a: b (a is to b); or as a simple fraction, integer,
decimal, fraction or percentage. In simple language ratio is one number expressed
in terms of another and can be worked out by the dividing one number into the
other.

NATURE OF RATIO ANALYSIS:

The following are the four stepd involved in the ratio analysis:

1. Selection of relevant data from the financial statements depending upon the
objective of the analysis.

2. Calculation of appropriate ratios from the above data.

3. Comparison of the calculated ratios with the ratios of the same firm in the past,
or the ratios developed from projected financial statements or the ratios of the
some other firms or the comparison with ratios of the industry to which the firm
belongs.

LIMITATIONS OF RATIO ANALYSIS:

 The ratio analysis is one of the most powerful tools of financial
management. Though ratios are simple to calculate and easy to understand, they
suffer from some serious limitations.

LIMITATIONS OF RATIO ANALYSIS

1. Limited use of a single ratio

2. Lack of adequate standards

3. Inherent limitations of Accounting

4. Change of Accounting procedure

5. Window dressing

6. Personal bias.
7. Uncomparable

8. Absolute figure distortive

9. Price level changes

10. Ratios no substitutes

I. Limited use of a single ratio: A single ratio, usually, does not convey
much of sense. To make a better interpretation a number of ratios
have to be calculated which is likely to confuse the analyst than help
him in making any meaningful conclusion.

II. Lack of Adequate Standards: There are no well accepted standards

or rules of thumb for all ratios which can be accepted as norms. It
renders interpretation of the ratios difficult.

III. Inherent Limitations of Accounting: Like financial statements, ratios

also suffer from the inherent weakness of account ion records such
 as their historical nature. Ratios of the past are not necessarily true
indicators of the future.

IV. Change Accounting procedure: Change in accounting procedure by a

firm often makes ration analysis misleading, e.g., a change in the
valuation of methods of inventories, from FIFO to LIFO increases
the cost of sales and reduces considerably the value of closing stocks
which makes stock turnover ratio can be lucrative and an
unfavorable gross profit ratio..

V. Window Dressing: Financial statements can easily be window

dressed to present a better picture of its financial and profitability
position to outsiders. Hence, one has to be very careful in making a
may be very difficult for an outsider to know about the window
dressing made by a firm.

VI. Personal Bias: Ratio are only means of financial analysis and not an
end in itself. Ratios have to be interpreted and different people may
interpret the same ratio in difficult ways.

VII. Incomparable: Not only industries differ in their nature but also the
firms of the similar business widely differ in their sixe and account
ion procedures, etc. It makes comparison of ratios difficult and
misleading. Moreover, comparisons are made difficult due to
differences in definitions of various financial terms used in the ratio
analysis.

VIII. Absolute figure Distortive: Ratios devoid of absolute figures may

prove distortive as ratio analysis is primarily a quantitative analysis
and not a qualitative analysis.

IX. Price Level Changes: While making ratio analysis, no consideration

is made to the changes in price levels and this makes the
interpretation of ratios invalid.

X. Ratios no Substitutes: Ratios analysis is merely a tool of financial

statements Hence ratios become useless if separated from the
statements from which they are computed.
 CLASSIFICATION OF RATIOS:
Classification According to Tests

1. Liquidity Ratios

2. Leverage Ratios

3. Activity Ratios

4. Profitability Ratios

LIQUIDITY RATIOS:
1. Current ratio

2. Quick ratio

3. Absolute liquid ratio

4. Inventory to working capital ratio

5. Stock to current assets ratio

6. Cash and bank balances to working capital ratio

7. Receivable to current assets ratio

8. Cash and bank balances to current assets ratio.

TURNOVER RATIOS:
1. Capital turnover ratio

2. Working capital turnover ratio

STATEMENT OR SCHEDULE OF CHANGES IN WORKING

CAPITAL:
 Working capital means the excess of current assets over current liabilities.
Statement of changes in working capital is prepared to show the working capital
between the two balance sheet dates. This statement is prepared with the help of current
assets and current liabilities derived from the two balance sheets.

As working capital=Current assets-Current Liabilities.

i. An increase in current assets increases working capital.

ii. A decreasing current assets decreases working capital

iii. An increase in current liabilities decreasing working capital

iv. A decreasing current liabilities increases working capital.

A typical form of statement or schedule of changes in working

capital is as follows.

STATEMENT OR SCHEDULE OF CHANGES IN WORKING

CAPITAL:
 Previous Current Effect on Working
year year capital
Particulars
Increase Decrease
A. CURRENT ASSETS:
Inventory
Cash & Bank balance
Sundry debtors
Loans & Advances
Other current

TOTAL CURRENT ASSETS

B. CURRENT LIABILITIES:
Sundry Creditors
Advances from customers
Other advances
Earnest money, security &
other deposits
Interest accrued but not due
Other liabilities
Provisions
TOTAL CURRENT LIABILITES

Net Working Capital(A-B)

WHAT IS LETTER OF CREDIT AND BANK GUARANTEE?

 A letter of credit is a document typically issued by a bank or financial institution,
which authorizes the recipient of the letter (the “customer” of the bank) to draw amounts
of money up to specified total, consistent with any terms and conditions set forth in a
letter. This usually occurs where the bank’s customer seeks to assure a seller (the
“beneficiary”) that it will receive payment for any goods it sells to the customer.

In simple terms, a letter of credit could be said to document a bank

customer’s line of credit, and any terms associated with its use of that line of that credit.
Letters of credit are most commonly used in association with long-distance and
international commercial transactions.

Which one better letter of credit or bank guarantees and when will we
receive our amount from them.

A letter of credit means you have found a creditor that is willing to loan
you a certain amount. You don’t receive that amount in cash to do what ever you please
with, but it will be a loan tied into some type of collateral ( usually you only here this
term with mortgages).

A bank guarantee and a letter of credit are similar in many ways but they
are two different things. The main difference between the two credit security instruments
is the position of the bank relative to the buyer and seller of a good, service or basket of
goods or services in the event of the buyer’s default of payment. These financial
instruments are often used in trade financing when suppliers, or vendors, are purchasing
and selling goods to and from overseas customers with whom they don’t have established
business relationships.

A bank guarantee is a guarantee made by a bank on behalf of a

customer (usually an established corporate customer) should it fail to deliver the
payment, essentially making the bank a co-singer for one of its customer’s. A bank
guarantee is more risky for the merchant and less risky for the bank.

A letter from a bank guaranteeing that a buyer’s payment to a seller will be

received on time and for the correct amount. In the event that the buyer is unable to make
payment on the purchase, the bank will be required to cover the full or remaining amount of
the purchase.
 WORKIG CAPITAL LIMITS (UNDER MULTIPLE BANKING ) 2007-08

Fund Based Non Fund Based (Rs.in

crs)
CC WCDL TOTAL EPC TOTAL LC BG TOTAL TOTAL
S.NO Name
of the (a) (b) (c=a+b) (d) (e=c+d) (f) (g) (h=f+g) (i=e+h)
Bank
1 UCO 5.00 20.00 25.00 15.00 40.00 35.00 5.00 40.00 80.00
bank
2 Indian 0.00 0.00 0.00 0.00 0.00 100.0 0.00 100.00 100.00
bank 0
3 SBH 50.00 0.00 50.00 0.00 50.00 200.0 30.0 230.00 280.00
0 0
4 Canara 48.00 72.00 120.00 15.00 135.00 300.0 15.0 315.00 450.00
bank 0 0
5 Bank of 33.85 0.00 33.85 20.00 53.85 200.0 1.00 201.00 254.85
Baroda 0

6 Indian 100.0 0.00 100.00 0.00 100.00 300.0 50.0 350.00 450.00
Overseas 0 0 0
Bank
7 Andhra 14.00 21.00 35.00 11.50 46.50 45.00 3.00 48.00 94.50
bank
8 SBI 225.0 0.00 225.00 0.00 225.00 500.0 50.0 550.00 775.00
0 0 0
9 Allahabad 25.00 0.00 25.00 15.00 40.00 90.00 5.00 95.00 135.00
bank
10 HSBC 0.00 0.00 0.00 0.00 0.00 50.00 0.00 50.00 50.00

11 IDBI 0.00 0.00 0.00 0.00 0.00 50.00 0.00 50.00 50.00
WCDL: WORKING CAPITAL DEMAND; CC : CASH CREDIT

EPC: EXPORT PACKING CREDIT; LC: LETTER OF CREDIT

BG: BANK GUARANTEE.

 WORKING CAPITAL STATEMENT OF RINL 2007-08

Particulars FINANCIAL YEAR 2007-08 FINANCIAL YEAR 2006-07

AMOUNT RS (CRORES) AMOUNT RS (CRORES)

A) CURRENT ASSETS
Inventories 1761.15 1203.24
sundry debtors 93.41 216.8
cash bank balance 7699.11 7194.68
Loans advances 1958.49 1518.9
Other current assets 292.43 314.48
TOTAL CURRENT ASSETS 11804.59 10448.10
B) CURRENT LIABILITIES
sundry creditors 501.31 365.83
advance from customers 136.97 119.91
Other advances 1.57 2.02
earnest money, security and other
deposits 99.32 82.54
Interest accrued but not due 4.89 18.41
other liabilities 866.09 422.82
Provisions 1581.47 1092.77
TOTAL CURRENT LIABILITIES 3191.62 2104.30

NET WORKING CAPITAL(A-B) 8612.97 8343.80

INTERPRETATION:
 From the above table it shows that there is an increase is net working capital
during the year 2007-08 by rs 269.17 crores in comparison to the previous year
2006-07. During the year 2007-08 it is 8612.97 crores, where as it was rs 8343.8
crores only for the year 2006-07.

 The total assets and liabilities during the year 2007-08are rs 11804.59 crores and
rs 3191.62 crores and during the year 2006-07 are rs 10448.10 crores and rs
2104.30 crores respectively.

 The net increase in current assets during the year 2007-08 is 1356.49 crores in
comparison to the previous year 2006-07.

 The net increase is current liabilities during the year 2007-08 is rs 1087.32
crores in comparison to the previous year 2006-07.

 During the year 2007-08, the overall performance of the company is

satisfactory.
 WORKING CAPITAL STATEMENT OF RINL 2006-07

Particulars FINANCIAL YEAR 2006-07 FINANCIAL YEAR 2005-06

AMOUNT RS (CRORES) AMOUNT RS (CRORES)

A) CURRENT ASSETS
Inventories 1203.24 1218.35
sundry debtors 216.80 166.27
cash bank balance 7194.68 5621.70
Loans advances 1518.9 1061.32
Other current assets 314.48 184.36
TOTAL CURRENT ASSETS 10448.10 8252.00
B) CURRENT LIABILITIES
sundry creditors 365.83 275.04
advance from customers 119.91 120.19
Other advances 2.02 1.60
earnest money, security and other
deposits 82.54 68.89
Interest accrued but not due 18.41 8.43
other liabilities 422.82 397.34
Provisions 1092.77 716.37
TOTAL CURRENT LIABILITIES 2104.30 1587.86

NET WORKING CAPITAL(A-B) 8343.80 6664.14

INTERPRETATION:
 From the above table it shows that there is an increase in net working capital
during the year 2006-07 by rs 1593.94 crores in comparison to the previous tear
2005-06. During the year 2006-07 it is rs 8343.8 crores, where as it was rs 6749.86
crores only for the year 2005-06.

 The total assets and liabilities during the year 2006-07 are rs 10448.10 and 21.4.30
crores and during the year2005-06 are rs 8252.00 and 1502.14 crores respectively.

 The net increase in current assets during the year 2006-07 is 2196.10 crores in
comparison to the previous year that is 2005-06.

 The net increase in current liabilities during the year 2006-07 is rs 602.16 crores in
comparison to the previous year that is 2005-06.

 During the year 2006-07 the overall performance of the company is satisfactory.
 WORKING CAPITAL STATEMENT OF RINL 2005-06

Particulars FINANCIAL YEAR 2005-06 FINANCIAL YEAR 2004-05

AMOUNT RS (CRORES) AMOUNT RS (CRORES)

A) CURRENT ASSETS
Inventories 1261.45 1257.53
sundry debtors 165.65 49.30
cash bank balance 5621.70 3932.61
Loans advances 1063.84 710.12
Other current assets 184.36 100.18
TOTAL CURRENT ASSETS 8252.00 6049.74
B) CURRENT LIABILITIES
sundry creditors 275.04 660.81
advance from customers 120.19 102.90
Other advances 1.60 4.64
earnest money, security and other
deposits 68.89 51.20
Interest accrued but not due 8.43 2.39
other liabilities 397.34 332.94
Provisions 716.37 269.27
TOTAL CURRENT LIABILITIES 1587.86 1424.14

NET WORKING CAPITAL(A-B) 6664.14 4623.34

INTERPRETATION:
 From the above table it shows that there is an increase in net working capital
during the year 2005-06 by rs 1596.13 crores in comparison to the previous year
2004-05. During the year 2005-06 it is rs 6664.14 crores, where as it was rs
5068.01 crores only for the year 2004-05.

 The total assets and liabilities during the year 2005-06 are rs 8252.00 and 1587.86
crores and during the year 2004-05 are rs 6049.74 crores and 981.73 crores
respectively.

 The net increase in current assets during the year 2005-06 is rs 2202.26 crores in
comparison to the previous year that is 2004-05.

 The net increase in current liabilities during the year 2005-06 is rs 606.13 crores in
comparison to the previous year that is 2004-05.

 During the year 2005-06 the over all performance of the company is satisfactory.
 WORKING CAPITAL STATEMENT OF RINL 2004-05

Particulars FINANCIAL YEAR 2004-05 FINANCIAL YEAR 2003-04

AMOUNT RS (CRORES) AMOUNT RS (CRORES)

A) CURRENT ASSETS
Inventories 1255.30 706.34
sundry debtors 49.30 85.61
cash bank balance 3932.60 1359.71
Loans advances 710.12 550.70
Other current assets 100.16 24.3
TOTAL CURRENT ASSETS 6047.48 2726.66
B) CURRENT LIABILITIES
sundry creditors 660.81 470.76
advance from customers 102.90 210.96
Other advances 4.63 0.75
earnest money, security and other
deposits 51.20 57.22
Interest accrued but not due 2.39 1.14
other liabilities 332.94 337.99
Provisions 269.27 156.51
TOTAL CURRENT LIABILITIES 1424.14 1235.33

NET WORKING CAPITAL(A-B) 4623.34 1491.33

INTERPRETATION:
  From the above table it shows that there is an increase in net working capital
during the year 2004-05 by rs 3132.01 crores in comparison to the previous year
20003-04.During the year 2004-05 it is rs 4623.34 crores, where as it was rs
1491.33 crores only for the year 2004-05.

 The total assets and liabilities during the year 2004-05 are rs 6047.48 crores and
1424.14 crores and during the year 2003-04 are rs 2726.66 crores and 1235.33
crores respectively.

 The net increase in current assets during the year 2004-05 is rs 3320.82 crores in
comparison to the previous year that is 2003-04.

 The net increase in current liabilities during the year 2004-05 is rs 188.81 crores in
comparison to the previous year that is 2003-04.

 During the year 2004-05 the overall performance of the company is satisfactory.

CURRENT RATIO:-
 CURRENT RATIO = CURRENT ASSETS/ CURRENT LIABILITIES

Particulars 2003-04 2004-05 2005-06 2006-07 2007-08

CURRENT 2726.66 6047.48 8252.00 10448.10 11804.59

ASSETS

CURRENT 1235.33 1424.14 1587.86 2104.30 3191.62

LIABILITIES

CURRENT
RATIO
2.20 4.25 5.20 4.97 3.70

CURRENT RATIO
 c u rre n t ra tio

4
C U R R E N T R A TIO
a m o u n3t

0
1 2 3 4 5 6
y e a rs

WORKING CAPITAL TURN OVER RATIO:-

 WORKING CAPITAL TURN OVER RATIO=NETSALES/WORKING CAPITAL

Particulars 2003-04 2004-05 2005-06 2006-07 2007-08

NET SALES 5462.90 7359.84 7314.15 7932.66 9088.37

WORKING 1491.33 4623.34 6664.14 8343.80 8612.97

CAPITAL

WORKING 3.66 1.59 1.09 0.95 1.05

CAPITAL TURN
OVER RATIO
 WORKING CAPITAL TURN OVER RATIO

w o rk in g c a p ita l tu rn o v e r ra tio

3.5

3
2.5
amount

2
1.5

1
0.5

0
1 2 3 4 5 6 7 8 9
ye a rs
 GROSS WORKING CAPITAL

YEAR
GROSS WORKING
CAPITAL (in crs)

2003-04 2,726.66

2004-05 6,047.48

2005-06 8,252.00

2006-07 10,448.10

2007-08 11,804.59

NET WORKING CAPITAL

YEAR
NET WORKING
CAPITAL (IN
CRS)
 2003-04 1,491.33

2004-05 4,623.34

2005-06 6,664.14

2006-07 8,343.80

2007-08 8,612.97

10000
8000 Series1
Series2
6000
Series3
4000
Series4
2000 Series5
0 Series6
0 5 10

CONCLUSIONS AND SUGESSTIONS:

• During the period of study it is observed that the amount of working
capital has been continuously increasing year by year due to the
continuous increase in the value of inventories.
• It is found that the reason for the continuous increase of inventory is
due to the decrease in the inventory turn over ratio.

• It is also heard that the reason why the stock is lying more in quantity
in the list of current assets because of the high prices for the steel in
the market.

• Even after at the request of the customers the prices are not at all being
cheated by the mgt which resulted in the poor customer relationships
which resulted in the decrease of turn over.

• The company is able to maintain sufficient working capital in every

year during the period of study i.e. from 2003-04 to 2007-08

• The company has been maintaining the ideal current ratio during the
year 2003-04 but during the year 2004-05 and 2005-06 it has
maintained its current ratio more than the ideal one which represents
that the company has blocked up the capital in the current assets than
the require one.

• During the year 2007-08 the company has followed the policy of
maintaining an ideal current ratio

• During the five years of i.e., from 2003-04 to 2007-08 the gross
working capital has been steadily increasing year by year.

• It is observed that the cash and bank balances constitute for more
percentage in the total current assets every year.

• From the director’s report presented in the 26th annual general meeting
it has come to know that the company has sufficient resources to
finance its expansion project.

• As per the international iron and steel institute (IISI) report, the total
production quantity represents the highest level of crude steel output in
history and it is the 5th consecutive year that the world steel production
grew by more than 7%.
• During the year 2007-08 India reached the 5th rank among the top steel
producing countries by producing 53 million tonnes.

• After analyzing the 26th annual report i.e., for the year 2007-08 it has
been found that the company was recertified for ISO 14001:2004
which is valid till 2010.

• During the period of study it is also concluded that the company has
been implementing certain things like the use of Hindi language in
carrying out official work in the company in order to prompt the
national integrity.

• With the help of past records of the company it is observed that the
levels of income have been increasing tremendously during the decade
i.e., the income for the year 1998-99 was Rs 2958 crores where as it is
Rs 11337 crores for the current year.

• It is recommended to put a check upon the prices of the steel ( if

possible ) , as there is an economic recession during the current year.

• Instead of blocking most of its funds in the current assets it is

advisable for the company to reduce the value of current assets to
some extent and to invest it in some invest mental activities.

• The company has to put a regular check upon it inventory level to

avoid the locking of the capital in the inventories.

• How ever, the overall performance of the company during the period
of study is much satisfactory.
 BIBLOGRAPHY

Books referred:
Essentials of financial management I.M.Pandey

Financial management Prasana Chandra

Financial management R.K.Sharma, sheshi k.Gupta

Annual reports of Rastriya Ispat Nigam Limited

Website :- www.vizagsteel.com
Search engine :- Google search

CONCLUSIONS AND SUGESSTIONS:

• During the period of study it is

observed that the company has maintained the constant same level of share
capital i.e.; the company has not gone for any further issue of share capital
during the five years.
• The company has been maintaing
the good amount of liquidity to meet its current obligations.

• It is observed that the company

has been investing major part of there investment in current assets.

• During the study of this project

the company has sufficient resources to finance its expansion project.

• During the period of study the

provisions are increased year by year so the company is having ability to face
any risk in future.

• From the director’s report

th
presented in the 26 annual general meeting it has come to know that the
company has sufficient resources to finance its expansion project.

• As per the international iron and

steel institute (IISI) report, the total production quantity represents the highest
level of crude steel output in history and it is the 5th consecutive year that the
world steel production grew by more than 7%.

• During the year 2007-08 India reached the 5th rank among the top steel
producing countries by producing 53 million tonnes.

• After analyzing the 26th annual

report i.e., for the year 2007-08 it has been found that the company was
recertified for ISO 14001:2004 which is valid till 2010.

• During the period of study it is

also concluded that the company has been implementing certain things like the
use of Hindi language in carrying out official work in the company in order to
prompt the national integrity.

• With the help of past records of the company it is observed that the levels of
income have been increasing tremendously during the decade i.e., the income
for the year 1998-99 was Rs 2958 crores where as it is Rs 11337 crores for
the current year.
 • It is recommended to put a check upon the prices of the steel ( if possible ) ,
as there is an economic recession during the current year.

• Instead of blocking most of its funds in the current assets it is advisable for
the company to reduce the value of current assets to some extent and to
invest it in some invest mental activities.

• The company has to put a regular check upon it inventory level to avoid the
locking of the capital in the inventories.

• How ever, the overall performance of the company during the period of
study is much satisfactory.

CONCLUSIONS AND SUGESSTIONS:

• The liquidity ratios i.e. Current
ratio, quick ratio and cash ratios are higher than the ideal ratios. Hence the
company is able to pay its short-term obligations. Instead of blocking most of
its funds in the current assets it is advisable for the company to reduce the
value of current assets to some extent and to invest it in some invest mental
activities.

• The debt equity ratio is low. It indicates that the company has not been able to
use the outsider’s funds to magnify their earnings. Hence the company has to
increase its debt content in its capital structure so as to increase its earning per
share.

• The increase in the interest coverage ratio shows that the firm has improved its
ability to a greater extent in handling fixed charge liabilities.

• The proprietary ratio and solvency ratios are satisfactory.

• The increase in inventory and debtors turn over ratios shows the efficiency of
the firm in managing the inventories and debtors. But the company has to
increase its credit sales so as to improve its further sales and profits.

• The increase in the gross profit is due to the increase in sales. The company
may put some more special efforts to further consolidate its position by
concentrating on more market share.

• The reason for the company to have less net profit is due to the increase in its
expenditure and operating expenses. The company must have to increase its
net profit by reducing its operating expenses.

• During the period of study, it is observed that, the return on capital employed
is decreasing year by year, which is not a good sign of performance or it
implies that, the company is unable to utilize the available capital effectively.
• From the director’s report presented in the 26th annual general meeting
it has come to know that the company has sufficient resources to
finance its expansion project.

• As per the international iron and steel institute (IISI) report, the total
production quantity represents the highest level of crude steel output in
history and it is the 5th consecutive year that the world steel production
CERTIFIED MAILSubject:During the year 2007-08 India reached the
5th rank among the top steel producing countries by producing 53
million tonnes.

• After analyzing the 26th annual report i.e., for the year 2007-08 it has
been found that the company was recertified for ISO 14001:2004
which is valid till 2010.

• During the period of study it is also concluded that the company has
been implementing certain things like the use of Hindi language in
carrying out official work in the company in order to prompt the
national integrity.

• With the help of past records of the company it is observed that the
levels of income have been increasing tremendously during the decade
i.e., the income for the year 1998-99 was Rs 2958 crores where as it is
Rs 11337 crores for the current year.

• It is recommended to put a check upon the prices of the steel (if

possible), as there is an economic recession during the current year.

• The company has to put a regular check upon it inventory level to

avoid the locking of the capital in the inventories.

• How ever, the overall performance of the company during the period
of study is much satisfactory.