Project Report

CHAPTER I INTRODUCTION
WORKING CAPITAL MANAGEMENT INTRODUCTION:

Working Capital is the key difference between the long term financial management and short term financial management in terms of the timing of cash. Long term finance involves the cash flow over the extended period of time i.e. 5 to 15 years, while short term financial decisions involve cash flow within a year or within operating cycle. Working capital management is a short term financial management. Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities & the inter relationship that exists between them. The current assets refer to those assets which can be easily converted into cash in ordinary course of business, without disrupting the operations of the firm.
Composition of working capital

Major Current Assets 1) Cash 2) Accounts Receivables 3) Inventory 4) Marketable Securities Major Current Liabilities 1) Bank Overdraft 2) Outstanding Expenses 3) Accounts Payable 4) Bills Payable
G.H.Raisoni College of Engg and Management, Pune
The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the satisfactory level of working capital is maintained. If the firm can not maintain the satisfactory level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To maintain the margin of safety current asset should be large enough to cover its current assets. Main theme of the theory of working capital management is interaction between the current assets & current liabilities.
WHAT IS WORKING CAPITAL?

Working capital refers to the investment by the company in short terms assets such as cash, marketable securities. Net current assets or net working capital refers to the current assets less current liabilities. Symbolically, it means,
Net Current Assets = Current Assets -Current Liabilities DEFINITIONS OF WORKING CAPITAL:
The following are the most important definitions of Working capital:
1)
Working capital is the difference between the inflow and outflow of funds. Working capital represents the total of all current assets. In other words it
In other words it is the net cash inflow.

2)
is the Gross working capital, it is also known as Circulating capital or Current capital for current assets are rotating in their nature.
3)
Working capital is defined as the excess of current assets over current
liabilities and provisions. In other words it is the Net Current Assets or Net Working Capital.
IMPORTANCE OF WORKING CAPITAL

Working capital may be regarded as the lifeblood of the business. Without insufficient working capital, any business organization cannot run smoothly or successfully. In the business the Working capital is comparable to the blood of the human body. Therefore the study of working capital is of major importance to the internal and external analysis because of its close relationship with the current day to day operations of a business. The inadequacy or mismanagement of working capital is the leading cause of business failures. To meet the current requirements of a business enterprise such as the purchases of services, raw materials etc. working capital is essential. It is also pointed out that working capital is nothing but one segment of the capital structure of a business. In short, the cash and credit in the business, is comparable to the blood in the human body like finance s life and strength i.e. profit of solvency to the business enterprise. Financial management is called upon to maintain always the right cash balance so that flow of fund is maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance between liquidity and profitability. Therefore the management of working capital is essential in each and every activity.
CONCEPT OF WORKING CAPITAL:

There are 2 concepts: Gross Working Capital Net Working Capital
Gross working capital: It is referred as total current assets. Focuses on, Optimum investment in current assets: Excessive investments impair firm s profitability, as idle investment earns nothing. Inadequate working capital can threaten solvency of the firm because of its
inability to meet its current obligations. Therefore there should be adequate investment in current assets. Financing of current assets: Whenever the need for working capital funds arises, agreement should be made quickly. If surplus funds are available they should be invested in short term securities. Net working capital: - (NWC) defined by 2 ways, Difference between current assets and current liabilities Net working capital is that portion of current assets which is financed with
long term funds. NET WORKING CAPITAL = CURRENT ASSETS CURRENTLIABILITIES If the working capital is efficiently managed then liquidity and profitability both will improve. They are not components of working capital but outcome of working capital. Working capital is basically related with the question of profitability versus liquidity & related aspects of risk.
Implications of Net Working Capital:

Net working capital is necessary because the cash outflows and inflows do not coincide. In general the cash outflows resulting from payments of current liability are relatively predictable. The cash inflows are however difficult to predict. More predictable the cash inflows are the less NWC will be required. But where the cash inflows are uncertain, it will be necessary to maintain current assets at level adequate to cover current liabilities that are there must be NWC. For evaluating NWC position, an important consideration is trade off between probability and risk. The term profitability is measured by profits after expenses. The term risk is defined as the profitability that a firm will become technically insolvent so
that it will not be able to meet its obligations when they become due for payment. The risk of becoming technically insolvent is measured by NWC. If the firm wants to increase profitability, the risk will definitely increase. If firm wants to reduce the risk, the profitability will decrease.
OPERATING CYCLE OR CIRCULATING CASH FORMAT:

Working Capital refers to that part of firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in current assets keep revolving fast and being constantly converted into cash and these cash flows out again in exchange for other current assets. Hence it is also known as revolving or circulating capital. The circular flow concept of working capital is based upon this operating or working capital cycle of a firm. The cycle starts with the purchase of raw material and other resources and ends with the realization of cash from the sales of finished goods. It involves purchase of raw material and stores, its conversion into stocks of finished goods through work in progress with progressive increment of labor and service cost, conversion of finished stocks into sales, debtors and receivables and ultimately realization of cash and this cycle continuous again from cash to purchase of raw materials and so on. The speed/ time of duration required to complete one cycle determines the requirements of working capital longer the period of cycle, larger is the requirement of working capital.
Receivable conversion period (RCP) (RMSCP) Cash Received from Debtors and paid suppliers Of Raw material
Raw material storage conversion period
Sales of finished Goods
Raw materials introduced into process
Finished Goods Produced Finished goods conversion process Period (FGCP) Work Conversion Period (WIPCP) in
The gross operating cycle of a firm is equal to the length of the inventories and receivables conversion periods. Thus,
Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP

Where, RMCP = Raw Material Conversion Period WIPCP = Work in- Process Conversion Period FGCP = Finished Goods Conversion Period RCP = Receivables Conversion Period
However, a firm may acquire some resources on credit and thus defer payments for certain period. In that case, net operating cycle period can be calculated as below:
Net Operating Cycle Period = Gross Operating Cycle Period Payable Deferral period
Further, following formula can be used to determine the conversion periods.
Raw Material Conversion Period =
Average Stock of Raw Material Raw Material Consumption per day
Work in process Conversion Period = Average Stock of Work-in-Progress Total Cost of Production per day
Finished Goods Conversion Period = Average Stock of Finished Goods Total Cost of Goods Sold per day
Receivables Conversion Period =
Average Accounts Receivables Net Credit Sales per day
Payable Deferral Period =
Average Payable Net Credit Purchase per day
CLASSIFICATION OR KIND OF WORKING CAPITAL:

\Working capital may be classified in two ways: On the basis of concept On the basis of time
Om the basis of concept, working capital is classified as gross working capital and net working capital. The classification is important from the point of view of the financial manager. On the basis of time, working capital may be classified as: Permanent or Fixed working capital Temporary or Variable working capital.
1. PERMANENT OR FIXED WORKING CAPITAL: Permanent or fixed 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 always a minimum level of current assets which is continuously required by the enterprises to carry out its normal business operations. 2. TEMPRORAY OR VARIABLE WORKING CAPITAL: Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variables working capital can be further classified as second working capital and special working capital.
The capital required to meet the seasonal needs of the enterprises is called the seasonal working capital. Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business
IMPORATNCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL:

Working capital is the life blood and nerve centre of a business. Just a circulation of a 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: Solvency of the Business Goodwill Easy Loans Cash discounts Regular supply of Raw Materials Regular payments of salaries, wages & other day to day commitments. Exploitation of favorable market conditions Ability of crisis Quick and regular return on investments High morals
THE NEED OR OBJECTS OF WORKING CAPITAL:

The need for working capital cannot be emphasized. Every business needs some amount of working capital. The need of working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle
involved in the sales and realization of cash. There are time gaps in purchase of raw materials and production, production and sales, And sales, and realization of cash, thus, working capital is needed for the following purposes:
For the purchase of raw materials , components and spaces To pay wages and salaries To incur day to day expenses and overhead costs such as fuel, power and To meet the selling costs as packing, advertising etc. To provide credit facilities to the customers. To maintain the inventories of raw materials, work in- progress, stores
office expenses etc.
and spares and finished stock.
FACTORS DETERMING THE WORKING CAPITAL REQUIRMENT:

The working capital requirements of a concern depend upon a large number of factors such as nature and size of the business, the characteristics of their operations, the length of production cycle, the rate of stock turnover and the state of economic situation. However the following are the important factors generally influencing the working capital requirements.
NATURE OR CHARACTERSTICS OF A BUSINESS:
The nature and the working capital requirement of enterprises are interlinked. While a manufacturing industry has a long cycle of operation of the working capital, the same would be short in an enterprises involve in providing services. The amount required also varies as per the nature, an enterprises involved in production would required more working capital then a service sector enterprise.
MANAFACTURE PRODUCTION POLICY:
Each enterprises in the manufacturing sector has its own production policy, some follow the policy of uniform production even if the demand varies from time to time and other may follow the principles of demand based production in which production is based on the demand during the particular phase of time. Accordingly the working capital requirements vary for both of them.
OPERATIONS:
The requirement of working capital fluctuates for seasonal business. The working capital needs of such business may increase considerably during the busy season and decrease during the
MARKET CONDITION:
If there is a high competition in the chosen project category then one shall need to offer sops like credit, immediate delivery of goods etc for which the working capital requirement will be high. Otherwise if there is no competition or less competition in the market then the working capital requirements will be low.
AVABILITY OF RAW MATERIAL:
If raw material is readily available then one need not maintain a large stock of the same thereby reducing the working capital investment in the raw material stock. On other hand if raw material is not readily available then a large inventory stocks need to be maintained, there by calling for substantial investment in the same.
GROWTH AND EXAPNSION:
Growth and Expansions in the volume of business result in enhancement of the working capital requirements. As business growth and expands it needs a larger amount of the working capital. Normally the needs for increased working capital funds processed growth in business activities.
PRICE LEVEL CHANGES :
Generally raising price level requires a higher investment in the working capital. With increasing prices, the same levels of current assets needs enhanced investments.
MANAFACTURING CYCLE:
The manufacturing cycle starts with the purchase of raw material and is completed with the production of finished goods. If the manufacturing cycle involves a longer period the need for working capital would be more. At time business needs to estimate the requirement of working capital in advance for proper control and management. The factors discussed above influence the quantum of working capital in the business. The assessment of the working capital requirement is made keeping this factor in view. Each constituents of the working capital retains it form for a certain period and that holding period is determined by the factors discussed above. So for correct assessment of the working capital requirement the duration at various stages of the working capital cycle is estimated. Thereafter proper value is assigned to the respective current assets, depending on its level of completion. The basis for assigning value to each component is given below: COMPONENTS OF WORKING CAPITAL Stock of Raw Material Stock of Work -in- Process Stock of finished Goods Debtors Cash BASIS OF VALUATION Purchase of Raw Material At cost of Market value which is lower Cost of Production Cost of Sales or Sales Value Working Expenses
Each constituent of the working capital is valued on the basis of valuation Enumerated above for the holding period estimated. The total of all such valuation becomes the total estimated working capital requirement.
The assessment of the working capital should be accurate even in the case of small and micro enterprises where business operation is not very large. We know that working capital has a very close relationship with day-to-day operations of a business. Negligence in proper assessment of the working capital, therefore, can affect the day-today operations severely. It may lead to cash crisis and ultimately to liquidation. An inaccurate assessment of the working capital may cause either under-assessment or overassessment of the working capital and both of them are dangerous.
PRINCIPLES OF WORKING CAPITAL MANAGEMENT POLICY: The following are the general principles of a sound working capital management policy:
PRINCIPLES OF WORKING CAPITAL MANAGEMNT POLICY
PRINCIPLE S OF RISK
PRINCIPLES OF COST OF
PRINCIPLES OF EQUITY
PRINCIPLES OF MATURITY OF
1.
PRINCIPLE OF RISK VARAITAION (CURRENT ASSETS POLICY): 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, increase liquidity, reduces risk and thereby decreases the opportunity for gain or loss. On the other hand less investments in current assets with greater dependence on short term borrowings, reduces liquidity and increase profitability. In other words there is a definite inverse relationship between the degree of risk and profitability. In other words, there is a definite inverse relationship between the risk and profitability. A conservative management prefers to minimize risk by maintaining a higher level of current assets or working capital while a liberal management assumes greater risk by reducing working capital. However, the goal of management should be to establish a suitable trade off between profitability and risk.
2. PRINCIPLES OF COST OF CAPITAL:
The various source of raising
working capital finance have different cost of capital and the degree of risk involved. Generally, higher and risk however 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 investments in current assets. According to this principle, the amount of working capital invested in each component should be adequately justified by a firms equity position. Every rupee invested in 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: 1. Current assets as a percentage of total assets and 2. 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. PRINCIPLES OF MATURITY OF PAYMENT: The principle is concerned
with planning the source of finance for working capital. According to the principles, 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 inflows, the greater the inability to meet its obligations in time.
CONSEQUENCES OF UNDER ASSESMENT OF WORKING CAPITAL: Growth may be stunted. It may become difficult for the enterprises to Implementations of operating plans may brome difficult and consequently Cash crisis may emerge due to paucity of working funds. Optimum capacity utilization of fixed assets may not be achieved due to
undertake profitable projects due to non availability of working capital. the profit goals may not be achieved.
non availability of the working capital.
The business may fail to honor its commitment in time thereby adversely affecting its creditability. This situation may lead to business closure. The business may be compelled to by raw materials on credit and sell finished goods on cash. In the process it may end up with increasing cost of purchase and reducing selling price by offering discounts. Both the situation would affect profitable adversely. Now availability of stocks due to non availability of funds may result in production stoppage. While underassessment of working capital has disastrous implications on business overassesments of working capital also has its own dangerous.
CONSEQUENCES OF OUR OWN ASSESMNET OF WORKING CAPITAL:
Excess of working capital may result in UN necessary accumulation of inventories.
It may lead to offer too liberal credit terms to buyers and very poor recovery system & cash management. It may make management complacent leading to its inefficiency. Over investment in working capital makes capital less productive and may
reduce return on investment. Working Capital is very essential for success of business & therefore needs efficient management and control. Each of the components of working capital needs proper management to optimize profit.
INVENTORY MANAGEMNT:
Inventory includes all type of stocks. For effective working capital management, inventory needs to be managed effectively. The level of inventory should be such that the
total cost of ordering and holding inventory is the least. Simultaneously stock out costs should be minimized. Business therefore should fix the minimum safety stock level reorder level of ordering quantity so that the inventory costs is reduced and outs management become efficient.
RECEIVABLE MANAGEMENT: Given a choice, every business would prefer selling its produce on cash basis. However, due to factors like trade policies , prevailing market conditions etc. Business are compelled to sells their goods on credit. In certain circumstances a business may deliberately extend credit as a strategy of increasing sales. Extending credit means creating current assets in the form of debtors or account receivables. Investment in the type of current assets needs proper and effective management as, it gives rise to costs such as: Cost of carrying receivables Cost of bad debts losses
Thus the objective of any management policy pertaining to accounts receivables would be to ensure the benefits arising due to the receivables are more then the costs
incurred for the receivables and the gap between benefit and costs increased resulting in increase profits. An effective control of receivables Help a great deal in properly managing it. Each business should therefore try to find out coverage credit extends to its clients using the below given formula: Average Credit = Total amount of receivable (Extend in days) Average credit sale per day Each business should project expected sales and expected investments in receivable based on various factor, which influence the working capital requirement. From this it would be possible to find out the average credit days using the above given formula. A business should continuously try to monitor the credit days and see that the average. Credit offer to clients is not crossing the budgeted period otherwise the requirement of investment in the working capital would increase and as a result, activities may get squeezed. This may lead to cash crisis.
CASH BUDGET: Cash budget basically incorporates estimates of future inflow and outflows of cash cover a projected short period of time which may usually be a year, a half or a quarter year. Effective cash management is facilated if the cash budget is further broken down into months, weeks or even a daily basis. There are two components of cash budget are: 1. Cash inflows 2. Cash outflows The main source for theses flows are given here under: 1. Cash Sales 2. Cash received from debtors
3. Cash received from Loans, deposits etc. 4. Cash receipts other revenue income 5. Cash received from sale of investment or assets. CASH OUTFLOWS: 1. Cash Purchase 2. Cash payments to Creditors 3. Cash payment for other revenue expenditure 4. Cash payment for assets creation 5. Cash payments for withdrawals, taxes. 6. Repayments of Loan etc.
CHAPTER II COMPANY PROFILE
Viraj Profiles Ltd.

The Comp. was originally promoted by Shri Vinod Goel & Shri Pawan Kumar Jain, with the main object of setting up a mini-steel plant for producing special steel items. They were joined in 1991 by Shri Neeraj R. Kochhar & Shri Nitan Chhatwal, who had experience in trading of steel items. M/s. Viraj Alloys Limited [VAL] was incorporated as a Private Limited Company on the 10th July, 1990 with the Registrar of Companies, Maharashtra at Bombay, under the name & style of Viraj Alloys Private Limited for manufacture of Alloy Steel & Stainless Steel products at MIDC Industrial Area, Tarapur, and Maharashtra. The Comp. was converted into a Public Limited Comp. on the 1st December, 1992. The Comp. started implementation of its Steel Project in 1991 & went into commercial production of Mild Steel Ingots in February, 1992. Subsequently, between March, 1992 & December, 1992, the Company also set up facilities for manufacture of Stainless Steel by installing Argon Oxygen Decarburize [AOD] Converter & single electrode DC Ladle Refining Furnace [LRFs]. The Concast Machine is in an advanced stage of erection which will result in better quality & yield, resulting in higher realization & reduction in manufacturing cost. The Induction Furnace has a capacity of 27,000 M.T. The AOD convertor has a capacity of 25,500 M.T. The daily capacity of LRF is in excess of total requirement. The addition of Concast Machine shall not result in any addition to capacity.
Figure 1 Shri Neeraj R. Kochhar (Right) & Shri Nitan Chhatwal (Left)
At the start of the new millennium the directors of Viraj got together to decide on a strategy for the coming decade. For some one this is going to be future that India will be hub stainless steel long products but for Viraj Group it is reality. In order to does so Viraj Group implementing an investment programmer that will lift there melt capacity from 100,000 tones to no less than 250,000 tonnes per annum. It is not only tonnage though that matters to Viraj. They carry an extensive product portfolio that makes VIRAJ a true stainless steel supermarket player. Moreover, they are continuously looking for products that can compliment their portfolio. All in all Viraj want to be the largest producer of long products in the world with the most complete product portfolio. Initially more and more suppliers from outside the traditional stainless steel breeding grounds of Europe and the USA are making a significant impact on the stainless steel market. Take India for example. This country has rapidly become one of the major centers of stainless steel production. The Viraj Group, one of Indias leading producers of stainless steel long products, a young and ambitious company. Looking at where Viraj started only 13 years ago, the growth of the company has been remarkable. Back in 1992 when the company begun manufacturing it only produced flat rolled chrome steel products for the domestic market. However, the decision was soon made to move into stainless steels and in 1996 the first bright bars and flanges were produced. At the same time, Viraj moved away from the domestic market and the core of its business became exporting their products worldwide. Today, no less than 98 per cent of the companys sales are generated outside of India, a truly remarkable percentage for any company in business today. Viraj currently exports to some 80 countries with new countries being added regularly. The most important regions are Europe and North America with both a share of 15 to 20 per cent. This leaves no less than 60 to 70 per cent to be distributed to other geographical areas such as the Middle East, South East Asia, Australasia and South America to name just a few. Viraj try to distribute our products as widely as possible as this makes us less dependent on a limited number of markets and therefore less vulnerable. In connection to this they also have to take antidumping regulations into consideration, because they are a particularly cost efficient producer and their pricing has mistakenly been at risk to antidumping legislation in the past. So VIRAJ management formed their own department
dedicated to this issue which has meant we have been able to successfully consolidate their geographical markets. The next step is being implemented now with Virajs three step 200 million USD investment programmer. Phase I is been realized and a new wire rod mill is been installed which was commissioned in September 2005. This new mill marks Virajs entry into the wire rod market and has the capacity to produce rods with diameters of 5.5 to 34 mm. Together with the installation of the wire rod mill Viraj is expanding its melt capacity to 250,000 tonnes (per year) which will make the company number one in the world for long products. Following on from Phase I Viraj plans to add a slab caster. The slab caster will offer Viraj a unique flexibility for supplying a variety of products to the market and is also a response to the great demand. Finally, in phase III, Viraj is planning to further expand its melt capacity by 150000 tones per annum. This is a significant addition to its already impressive capacity. Few years before, Viraj add new products to our portfolio. For instance will be I-bar and fastener production and seamless pipe has also caught our eye as a possible range to which we should allocate resources. It can supply round bars from 2 to 16 inch. Other products supplied by Virajs Bright Bars Division include round, hexagonal and square bars, again in a particularly wide range of sizes. Viraj Forgings is at present the third largest manufacturer of stainless steel flanges in the world and also supplies pipe fittings, forged bars, butt-weld fittings to name just a few. VSL (Viraj Smelting Limited) Wires supplies stainless steel wires and ribbed bars. Sizes range from 0.07 to 12mm for wire, 10 to 20mm for ribbed wire and 0.07 to 0.7mm for fine wire. Finally, its Angle and Flats Division supplies flats and angles in an extensive size range. In case of Quality, Viraj management maintain quality standard as per customer requirement. Stringent quality testing gives ISO 9001:2000, AD Merkblatt 2000, PED (Pressure Equipment Directive) 97/23/EC and CSA B-51-97 quality certification
Recent acquisition
Recent acquisition of Flangenwerk Bebitz GmbH (German company) and Tubinox, Bucharest, Romania (stainless steel tubes and pipes) gives Viraj Group a global appearance.
Figure 2 Dhruv Kochhar (MD) (Bebitz Forging) Flangenwerk Bebitz GmbH is managed by Mr. Dhruv Kochhar. One of the reasons why we chose for Bebitz was the well-established image the company enjoys as a high quality producer of flanges. Moreover, Bebitz through the years had acquired a very impressive number of approvals from end user companies. It was this combination that made the company so attractive and so far I can only say it has been a very positive experience, Mr. Dhruv Kochhar.
Even though now and then language problems may crop up this is by far made up for by Bebitzs professional, dedicated and driven staff. Looking at the company itself it is the long-standing tradition and expertise that was gathered since its foundation in 1911 that puts it apart. Needless to say that experience and technical expertise are key to the company. Today the company produces around 20,000 tonnes of flanges of which approximately 20 per cent is made of stainless steels. These flanges mostly find their way to distributors in Germany, the rest of Europe and the USA. Bebitzs customers comprise of stockholders, master distributors and projects. At present Bebitz is looking in to further optimizing production according to Mr. Kochhar. Therefore Bebitz Germany has a subsidiary plant in India, Bebitz Works Private Limited, that will start at the end of June.
Combine this with VIRAJS performance in delivering goods on time, to the highest quality standards and at the most competitive prices and you will recognise why Virajs export turnover has doubled every year since 1995.
Mission
Virajians shall be innovative, entrepreneurial and empowered teams for continual growth and global bench marks. Virajians shall foster a culture of commitment. Trust and continual learning while remaining committed to the all stakeholders.
Vision
To be a world class professionally managed enterprise for value steel solutions committed to total customer satisfaction and enhancing values to society.
STRATEGIC GOALS
Create a culture of continuous learning and change. Achieve world class status in services and products Reach the position of the most cost competitive steel producer. Establish industry leadership.
Products and Segments of application

The products manufactured at Viraj are of a high quality and value which is a direct reflection of the organisations beliefs and values in operating the business as a global leader in steel production. Viraj produces Austenitic, Ferritic, Martensitic, Austenitic-Ferritic (Duplex) stainless steel grades while supplying special grade stainless steel of Precipitation hardening, Cold heading & Electrode quality. Virajs products have wide applications across diverse industries including Petrochemical Plants, Oil Pipelines, Ships, Structural design, High tensile springs &
cables, Boilers, Pressure vessels, Liquid storage terminals, Liquid cargo ships and Surgical instruments to name a few.
CLIENTS AND CUSTOMERS
Steel Melting Shop: - (SMS-I, SMS-II)
Viraj Forging Division:
Organizational Structure of Viraj Profiles Limited
AWARDS AND RECOGNITION
QUALITY POLICY
Consistent with the group purpose, Viraj Group shall constantly strive to improve the quality of life of the communities it serves through excellence in all facets of its activities. We are committed to create value for all our stakeholders by continually improving our systems and processes through innovation, involving all our employees. This policy shall for the basis of establishing and reviewing the Quality Objectives and shall be communicated across the organization. The policy will be reviewed with business direction and to comply with all the requirements of the Quality Management Standard.
Quality Statement:Viraj Profiles Ltd is committed to deliver the best quality products to its customer to their entire satisfaction by using modern technology with a motivated work force developed through training and team work.
Strategic challenge faces by VIRAJ PROFILES LIMITED

Operational: Operational challenges include some of the following i.e. increasing service level expectation of customers, commodity nature of steel, balancing the economies of scale in manufacturing and simultaneously servicing a fragmented domestic market, innovation as a substitute to investment. Human Resource:
Human Resource challenges are attracting and retaining talent, managing rising employee costs, empowering employees at lowest levels, developing employees for the future and improving the quality of life in the locations of operations. Business: Business challenges includes shareholders and promoters expectation of returns on par or better than equivalent opportunities, balancing needs of all stakeholders, upholding the ethical standards in current environment. Global: Consolidation in steel industry, emerging dominance of China, reducing trade barriers, driven by WTO, likely appreciation of rupee against dollar Societal: Lack of understanding of industry and business, law and order situation in the local areas and increasing expectations of the community in an underdeveloped state, witnessing the successful financial performance of the company
CHAPTER III RESEARCH METHODOLOGY
STATEMENT OF PROJECT
Evaluation, analysis & interpretation of working capital management of
United Engineering Services.
Suggesting ways to improve its working capital utilization.
OBJECTIVE OF RESEARCH
Estimation of working capital requirement Evaluation of working capital management Evaluation of Liquidity position & working capital utilization Analysis of relationship between working capital and profitability Analysis & sources of working capital Analyzing the level of current assets with relation to current liabilities.
COLLECTION OF DATA:
Data has been collected from various sources like: Annual reports of last three years Manual of concerned departments Consultants and personnel of United Engineering Services.
METHODS OF QUANTATIVE ANALYSIS

Calculation of net working capital requirements. Ratio analysis Operating cycle & cash cycle Cash flow analysis
Determining the Financing mix Statistical tools like graphical presentation
ASSUMPTIONS
Year is taken of 365 days All purchases have been taken as credit purchases and all sales have been taken as credit sales.
In the absence of relevant data the data from internet site is taken as the relevant
information.
CHAPTER IV DATA ANALYSIS

WORKING CAPITAL ESTIMATION
Current assets Loans & advances Currents assets i)Inventories stock in trade work in progress raw materials stores and spare parts Total Inventories ii) Debtors iii) Cash & Bank balances (subtracting FCCB issue unutilized money as it amounts to long term liability) iv)loans and advances Net current assets Current Liabilities i) Sundry Creditors ii)Creditors for capital expenditure iii)other liabilities iv) unclaimed dividend v) sundry deposits vi) advances from customers vii) interest accrued but not due on loan Net current liabilities
FY 06-07
FY 07-08
FY 08-09
223.94 2528.4 7224.96 1131.8 11109.1 5516.14 1027.1
662.87 4563.76 8145.37 1463.13 14835.13 7402.6 8042.12 -6910.46
1176.85 8714.56 9242.58 1810.73 20944.72 14211.12 5225.01 -5272.52 8647.1 43755.43 FY 08-09 3748.82 258.4 621.04 35.29 321.66 73.55 32.12 5090.88
3249.1 20901.44 FY 06-07 1476.37 1456.05 342.26 21.33 174.14 217.21 7.04 3694.404
7529.5 30898.89 FY 07-08 1589.57 365.64 645.34 31.66 229.23 362.59 20.05 3244.08
INVENTORIES
In the context of Viraj Profiles Ltd. Services the major increase in the present three financial years has been of the inventory.
INVENTORIES
25000 20000 stock in trade 15000 10000 5000 0 FY 06-07 FY 07-08 FY 08-09 work in progress raw materials stores and spare parts Total Inventories
Reasons: The pile up of inventory that is used in trial run, before hand to be used in
the checking the machinery & the newly installed production capacity.
The increased inventory to produce more goods so as to utilize the new
plant set up.
DEBTORS AND AVERAGE RECEIVABLES

The debtors are increasing heavily in the financial year 08-09 because of a sales boom that has accounted for huge accounts receivables increase.
DEBTORS AND AVERAGE RECEIVABLES

16000 14000 12000 10000 8000 6000 4000 2000 0 FY 06-07 FY 07-08 FY 08-09 Debtors
CASH AND BANK BALANCES

Cash and bank balance as per the balance sheet it is seen to be increasing but from the above chart it is seen to be decreasing. This discrepancy can be attributed to the
fact that balance sheet figures carry additional cash balance of unutilized FCCB issue proceeds which amount to long term liability as well. Thus the actual figures are distorted because the money from FCCB issue has to be returned and it is a kind of long term loan which the company has sought for expansion purpose. As a result to find the actual outlay of cash the unutilized money has been subtracted. Also we should take note of the fact that the FCCB money can only be used for expansion purpose and not as money for usual application of working capital.
CASH & BANK BALANCE
FY 08-09
5225.01
FY 07-08 1027.1
8042.12
Cash & Bank balances
FY 06-07 0
2000 4000 6000 8000 10000
LOANS AND ADVANCES

Loans & advances are increasing on the part of increased advances that are given to pile up inventory when the company went for the expansion mode
LOANS AND ADVANCES
FY 06-07 17% FY 08-09 44% FY 07-08 39% FY 06-07 FY 07-08 FY 08-09
CURRENT ASSETS
includes cash & those assets which can be easily converted into cash within a short period generally one year such as marketable securities , bills receivables, sundry
debtors, inventories, work in progress, prepaid expenses etc .The total current assets are the sum of below contingency i.e. Current Assets = Stock + Sundry Debtors + Advances + Cash and bank balances + other current assets
CURRENT ASSETS
loans and advances Cash & Bank balances Debtors FY 07-08 Total Inventories stores and spare parts raw materials FY 06-07 work in progress stock in trade 0 5000 10000 15000 20000 25000
FY 08-09
NET CURRENT ASSETS
FY 06-07 22% FY 08-09 46%
FY07-08 32%
Conclusions: The trend of the current assets in Viraj Profiles Ltd. Services throughout the period from 2006-09 are shown in the pie-chart .it is evident from the table that the current assets in Viraj Profiles Ltd. has increased except in year 2008-09.
CURRENT LAIBILITIES
These are those obligations which are payable within a short period of generally one year and includes outstanding expenses, bills payable, sundry creditors, accrued expenses, bank overdraft, short term advances, income tax payable.
TOTAL CURRENT LAIBILITIES

Sundry Creditors 4000 3500 3000 2500 2000 1500 1000 500 0 FY 06-07 FY07-08 FY 08-09 unclaimed dividend sundry deposits advances from customers interest accrued but not due on loan Creditors for capital expenditure other liabilities
NET CURRENT LAIBILITIES

6000 5000 4000 3000 2000 1000 0 FY 06-07 FY07-08 FY 08-09 Net current liabilities
Conclusion: The trend of Current Liabilities of Viraj Profiles Ltd. Services throughout the period from 2006-2009 are shown in the table. It is evident from the table that it shows
increasing trends in the year 2006 to 2009. It shows that the Viraj Profiles Ltd. Services has stability in trends of Current Liabilities.
CREDITORS AND CREDITORS OF CAPITAL EXPENDITURE Creditors of Viraj Profiles Ltd. Services limited are increasing from 70 Cr (FY 06-07) to 18 Cr (FY 07-08) to 12 Cr (FY 08-09). The main reason for the increase in can be attributed to the heavy purchase of the inventory for stocking it up for trial run & use before the expansion mode. Creditors for capital expenditure seem to be decreasing over the three years i.e. from 18 Cr (FY 07-08) to 12 Cr (FY 08-09) which is in sync with the fact that the expansion work that has been in process and all preparations for that are coming to an end. Z CREDITORS FOR CAPITAL EXPENDITURE
1600 1400 1200 1000 800 600 400 200 0
Creditors for capital expenditure
FY 06-07
FY07-08
FY 08-09
Particulars Current assets current liabilities quick assets quick liabilities Net turnover (sales) working capital average inventory (average of opening & closing stock of year) cost of goods sold = cost of sales total assets total annual expenses -(depreciation +debt expenses) average gross income PROFIT before interest and taxes Total interest Net Profit after tax (NPAT) capital employed (FA+CA-CL ) investment (FA+CA) Fixed assets
FY 06-07 29843.52 7611.44 12759.32 7611.44 45503 22232.08 8594.615 37398 87666 37313.16 97754.89 5998 747.8 4115 89529.68 97141.12 67297.6
FY 07-08 47163.72 6597.95 14530.46 6597.95 52527.1 40565.77
FY 08-09 61410.49 7459.4 20880.64 7459.4 81786.93 53951.09
14476.465 22666.83 47018.31 67855.4
124436.12 138465.6 27364.06 63633.37 8120.16 2653.75 3893.37 23898.65 51858 14612.92 5214.77 7383.56
106917.71 111772.7 113515.66 119232.1 66351.94 57821.59
LIQUIDITY RATIOS
CURRENT RATIO
Current ratio is defined as the relationship between current assets and current liabilities. It is a measure of general liquidity & is most widely used to make the analysis of short term financial position of a firm. Current ratio is the ratio of current assets to current liabilities. A relatively higher ratio is an indication that the firm is liquid and has the ability to pay its current obligations on time. On the other hand a low current ratio indicates that the Liquidity position of the firm is not good and shall not be able to pay its current liabilities in time. Current Ratio: The Current ratio is calculated by dividing current assets by current liabilities: Current ratio = Current Assets /Current Liabilities
FIANANCIAL YEAR FY 2006-2007 FY 2007-2008 FY2008-2009
CURRENT ASSETS 29843.52 47163.72 61410.49
CURRENT LAIBILITIES 7611.44 6597.95 7459.4
CURRENT RATIO 3.92 7.14 8.23
CURRENT RATIO
20% 43% FY 2006-2007 FY 2007-2008 FY2008-2009 37%
FIANANCIAL YEAR FY 2006-2007 FY 2007-2008 FY2008-2009
QUICK ASSETS QUICKLIABILITITE S 12759.32 14530.46 20880.64
CURRENT LAIBILITIES QUICK RATIO 7611.44 6597.95 7459.4 1.67 2.2 2.78
QUICK RATIO:
Quick ratio or liquid ratio is a more rigorous test of liquidity than the current ratio. The term liquidity refers to the ability of the firm to pay short term obligations as and when they become due. Quick ratio may be defined as ration of quick assets to quick liabilities. Liquid assets include all the current assets excluding inventories & prepaid expenses. Liquid liabilities mean all liabilities excluding bank overdraft. Inventories & prepaid expenses are not termed as liquid assets because they cannot be converted into cash immediately without a loss of value.
QUICK RATIO
25% 42% FY 2006-2007 FY 2007-2008 FY2008-2009 33%
CURRENT SCENERIO INTERPRETATION

While interpreting the figures of both the above ratios we should keep in mind the following one point Viraj Profiles Ltd. Services is a manufacturing concern. Since it is manufacturing concern the an excess of inventory as compared to other industry models such as the services sector is an integral fact. As a result it is bound to have higher current ratio and quick ratio as compared to other industries. The sharp rise of current ratio from 20% (FY 06-07) to 37% (FY 07-08) to 43 %( FY 08-09) Can be attributed to Higher pile up of inventory which was to be used up for trial run in producing new products from the new plant set up. Higher prepaid expenses related to advances given so as to pile up the inventory so that when the inventory is needed for trial run, its available. An increase in average receivables which was in sync with increased capacity of production and also increased sales. An important point to note here is that an excess of cash balance arising out of idle money coming out of FCCB issue expense has been deducted as correspondingly it accounts for long term liability (debentures) which have no effect on working capital management.
The quick ratio is a more important indicator of liquid position of Viraj Profiles Ltd. Services as it hardly varies from 25% (FY 07-08) to 33% (FY 08-09). Obviously the effect of inventories has been negated. EFFICIENCY RATIO From the perspective of working capital management we would be discussing three important ratios they are. Sales to working capital ratio Inventory turnover ratio Current assets turnover ratio.
SALES TO WORKING CAPITAL RATIO

This ratio is computed by dividing working capital by sales. This ratio helps to measure efficiency of the utilization of net working capital. It signifies that for an amount of sales. A relative amount of working capital is needed. If any increase in sales in contemplated, working capital should be adequate & thus this ratio helps management to maintain the adequate level of working capital Financial Year Sales to working capital ratio FY 06-07 2.046727 FY 07-08 1.294863 FY 08-09 1.51595
SALES TO WORKING CAPITAL RATIO

2.046727 2.5 2 1.5 1 0.5 0 FY 06-07 FY 07-08 FY08-09 1.29486264 1.515946
Sales to working capital ratio
CURRENT SCENERIO INTERPRETATION As seen from the above table the ratio has decreased from 2 (FY 06-07) to 1.29 in (FY 07-08) and then increased to 1.5 (FY 08-09). This ratio is again indicative of the
fact that the year in which the expansion took place the sales did not match up with the scale of expansion. Otherwise it would have remained intact and not decreased. The slight increase from 1.29 to 1.51 is indicative of the fact that the full impact of expansion is being slowly realized & sales are slowly increasing.
INVENTORY TURNOVER RATIO

This ration indicates the effectiveness and efficiency of inventory management. This ratio is calculated as cost of goods sold: average inventory shows how speedily the inventory is turned into accounts receivables through sales. The higher the inventory turnover ratio (also called stock velocity) the more the efficient inventory management. Financial Year inventory turnover ratio/ stock velocity FY 06-07 4.351329 FY 07-08 3.2479138 FY08-09 2.9936
INVENTORY TURNOVER RATIO
FY08-09
FY 07-08
inventory turnover ratio/ stock velocity
FY 06-07
CURRENT SCENERIO INTERPRETATION

The stock velocity is decreasing subsequently from 4.35 (FY 07-08) to 2.99 (FY 08-09) which shows inefficiency on the part of inventory management. Partly the reason for the fall can be attributed to stocking up of inventory for the trail run & using them in testing the expansion mode machinery.
CURRENT ASSETS TURNOVER RATIO

This ratio is indicated by sales upon current assets. This ratio indicates the efficiency with which the current assets turn into sales & higher current assets turnover ratio implies by & large a more efficient use of funds in current assets. Thus, a high turnover rate indicates reduced lock up of funds in current assets. An analysis of this ratio over a period reflects working capital management of the firm.
Financial Year current assets turnover ratio
FY 06-07 1.52472
FY 07-08 1.11371834
FY08-09 1.331807
CURRENT ASSETS TURNOVER RATIO

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 FY 06-07 FY 07-08 FY08-09 current assets turnover ratio 1.11371834 1.52472 1.331807
CURRENT SCENERIO INTERPRETATION The ratio is slightly decreasing from 1.52 (FY 06-07) to 1.11 (FY 07-08) & then increasing to 1.33 (FY 08-09) which shows that sales increase is not matched by the increase in current assets in the expansion phase of Viraj Profiles Ltd. Services . The reason can be well attributed to the piling up of trial stock and not full use of the expanded production capacity.
OPERATING RATIOS Working ratio Interest coverage ratios
WORKING RATIO
A ratio used to measure a company's ability to recover operating costs from annual revenue. This ratio is calculated by taking the company's total annual expenses (excluding depreciation and debt-related expenses) and dividing it by the annual gross income. A working ratio below 1 implies that the company is able to recover operating costs, whereas a ratio above 1 reflects the company's inability to do so. Financial Year working ratio FY 06-07 0.381701 FY 07-08 0.43002689 FY08-09 0.460848
WORKING RATIO
FY08-09
0.460848
FY 07-08
0.43002689 working ratio
FY 06-07
0.381701
0.1
0.2
0.3
0.4
0.5
CURRENT SCENERIO INTERPRETATION The ratio consistently has been below 1 which means company can very well take out its operating costs, though the margin of comfort is slightly decreasing because of the increase in expenses of the Viraj Profiles Ltd. Services.
CHAPTER V SUGGESTIONS AND FINDINGS
Suggestions
After the study of financial statement analysis in VIRAJ PROFILES LTD. following suggestion and recommendations are made based on the data analysis and interpretation of VIRAJ PROFILES LTD. Financial statements are most significant part of a company because financial statement analysis involves a comparison of a firms performance with that of other firms in the same line of business, which usually identified by the firms industry classification. The analysis is used to determine the firms financial position so as to identify its current strength and weakness and to suggest actions the firm might pursue to take advantage of the strengths and correct any weakness. Here is our recommendations about this company are as follows:
Company can cover its expenses like administrative by increasing its gross profit ratio. The net profit margins suggest that Viraj Profiles Ltd. net incomes were earned
for each taka of sales is lower than the industry average. So they should increase their net profit volume. The current ratio of Viraj Profiles Ltd. Getting reducing because their liability Company has excess investment in liquid asset than needed so they have to decrease their high investment in liquid asset. The ideal ratio is 1:1 that is the liquid asset to liquid liabilities. Company has high reserve and Surplus they can use it for repayment of loan to decrease interest burden which positive effect in Net Profit. is more than asset so they can decrease it by increasing current liability.
FINDINGS
Making available just adequate quantum of working capital. Some of the existing machinery is new with absolute equipments requiring modernization and rebuilding.
The company should administrate their credit on the basis of certain well recognized and established principle of credit administration.
The company should maintain an optimum level of cash in the business in order to maintain a proper liquidity in the business.
CHAPTER VI LIMITATIONS
There may be limitations to this study because the study duration (summer placement) is very short and its not possible to observe every aspect of working capital management practices. Availability of the financial data was very limited which is not disclosed due to the confidentiality of the data to be maintained by the company.
Busy schedule of the employees of the company as they had to cater to the need of the administrative work which meant full devotion of their time towards company.
For the purpose of data analysis figures of some heads are not exactly found
that time some assumption are needed to be consider.

The data is mostly secondary in nature. Data has been recalculated & regrouped wherever necessary.
In the absence of sufficient data in-depth study of cash receivables and inventory management was not possible.
CHAPTER VII
CONCLUSION
Working capital management is an important aspect of any business. Every business concern should have adequate working capital to run its business operation. Every concern should have neither redundant of excess working capital nor inadequate or shortage of working capital. Both excess as well as short working capital positions are bad for any business. The three elements of working capital management are cash management receivable management and inventory management. If a finance manager maintains these three elements of working capital management properly means the concern will get dramatic improvement in their sales volume and also in business. Working capital policies of a firm have a great effect on its profitability, liquidity and structured health of the organization. Every concern should adopt some new trade management strategies that will help in greater productivity, inventory optimization and also better working capital management. So, it is noted that working capital is a means to run business smoothly and profitability. Thus, the concept of working capital has its own important in a going concern. Good management of working capital is part of good finance management effective use of working capital will contribute to the operational efficiency of a department optimum use will help to generate maximum return.
CHAPTER VIII BIBLIGRAPHY
BOOKS
Pandey, I.M, Financial Management, vikas publishing house pvt. Rustogi , R.P, Fundamentals of Financial Management
ltd , 2001
REPORTS
Annual reports of Viraj Profiles Ltd. for year 2006 and 2007 and 2008.
INTERNET www.16anna.com www.virajprofiles.co.in

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CHAPTER I INTRODUCTION

WORKING CAPITAL MANAGEMENT INTRODUCTION:

Composition of working capital

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WHAT IS WORKING CAPITAL?

In other words it is the net cash inflow.

Working capital is defined as the excess of current assets over current

G.H.Raisoni College of Engg and Management, Pune

IMPORTANCE OF WORKING CAPITAL

CONCEPT OF WORKING CAPITAL:

Implications of Net Working Capital:

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OPERATING CYCLE OR CIRCULATING CASH FORMAT:

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Raw material storage conversion period

Sales of finished Goods

Raw materials introduced into process

Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP

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Raw Material Conversion Period =

Average Stock of Raw Material Raw Material Consumption per day

Receivables Conversion Period =

Average Accounts Receivables Net Credit Sales per day

Payable Deferral Period =

Average Payable Net Credit Purchase per day

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CLASSIFICATION OR KIND OF WORKING CAPITAL:

G.H.Raisoni College of Engg and Management, Pune

IMPORATNCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL:

THE NEED OR OBJECTS OF WORKING CAPITAL:

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office expenses etc.

and spares and finished stock.

FACTORS DETERMING THE WORKING CAPITAL REQUIRMENT:

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MANAFACTURE PRODUCTION POLICY:

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PRICE LEVEL CHANGES :

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G.H.Raisoni College of Engg and Management, Pune

The various source of raising

4. PRINCIPLES OF MATURITY OF PAYMENT: The principle is concerned

non availability of the working capital.

CONSEQUENCES OF OUR OWN ASSESMNET OF WORKING CAPITAL:

Excess of working capital may result in UN necessary accumulation of inventories.

G.H.Raisoni College of Engg and Management, Pune

G.H.Raisoni College of Engg and Management, Pune

CHAPTER II COMPANY PROFILE

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Viraj Profiles Ltd.

G.H.Raisoni College of Engg and Management, Pune

G.H.Raisoni College of Engg and Management, Pune

G.H.Raisoni College of Engg and Management, Pune

G.H.Raisoni College of Engg and Management, Pune

Products and Segments of application

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CLIENTS AND CUSTOMERS

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Steel Melting Shop: - (SMS-I, SMS-II)

Viraj Forging Division:

G.H.Raisoni College of Engg and Management, Pune

Organizational Structure of Viraj Profiles Limited

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