STATEMENT OF WORKING CAPITAL AT RSP

(Rs. In Lakhs)

PARTICULAR A.CURRENT ASSETS:Cash and bank balances Raw materials Stores and spares Finished and semi-finished products Sundry debtors Loans & advances Other current assets/Interest receivable/accrued

31-3-07

31-03-08

31-03-09

31-3-10

31-3-11

2066 17331 30064 39618

2244 22547 37600 62709

2400 21015 32704 47950

2577 25658 30278 80325

1166 24315 158

1332 25724 141

3231 26733 126

1592 37112 106

TOTAL C.A. B.CURRENT LIABILITIES AND PROVISIONS:Sundry creditors Security & other deposits Others current liabilities Provisions(Excl. Leave encashment, Gratuity, Medical benefits) Advances from customers/others 44024 3325 18305 93967 60228 4377 17671 138372 124734 5604 20054 107030 111265 6445 22955 106116

1554

4335

1325

924

TOTAL C.L. NET WORKING CAPITAL (AB)

NOTES:

Items of capital account have been excluded.

Current liabilities also exclude provision for gratuity, leave encashment, retirement benefits.

Fig-1 Current assets and current liabilities

Year

2004-05 2005-06

2006-07

2007-08

2008-09

2009-10

Total C.A Total C.L

72710 45126

96512 47046

114208 114718 56459 86687

152297 119440

193349 119613

Statement change in working capital

(2004-2005 to 2005-2006) Rs. In Lakhs Particular 2004-2005 Rs. 2005-2006 Rs. Current Assets: Cash and bank balance Raw Material Stores and Spares Finished products Sundry Debtors Loan & Advance Other Current Assets 1575 12232 16656 21156 1244 19593 254 1722 12261 20208 39342 1460 21272 247 147 29 3552 18186 216 1679 7 Effect on Working capital Increase Decrease Rs. Rs.

Total Current Assets

72710

96512

Current Liabilities:

Sundry Creditor Security deposits Other Liabilities Provision Total Current Liabilities

23889 3450 12735 5052 45126

23304 2708 16077 4957 47046

585 742 3342 95

Working Capital

27584

49466

(C.A-C.L) 21882 Net Increase In Working Capital 21882

49466

49466

25231

25231

Interpretation: 1. The liquidity position has not brought a significant change as the there is only 147 lakhs increase in cash position. 2. The overall inventory level has improved but much improvement is been noticed in the case of finished goods as it is nearly doubled. 3. Better credit policy lead to increase in debtors level. 4. Good credit standing position of the firm shows increase in loan amount. 5. Sundry creditors and security position has fallen. 6. Other liability have increased to 26.24% * WORKING CAPITAL HAS SHOWN AN INCREASE WHICH SHOWS A GOOD SOLVENCY POSITION.

Statement change in working capital

(2005-2006 to 2006-2007) Rs. In Lakhs Effect on Working capital Increase Decrease Rs. Rs.

Particular

2005-2006 Rs.

2006-2007 Rs.

Current Assets: Cash and bank balance Raw Material Stores and Spares Finished products Sundry Debtors Loan & Advance Other Current Assets 1722 12261 20208 39342 1460 21272 247 1879 17456 27867 42433 1296 23094 183 1822 64 157 5195 7659 3091 164

Total Current Assets

96512

114208

Current Liabilities:

Sundry Creditor Security deposits Other Liabilities Provision Total Current Liabilities

23304 2708 16077 4957 47046

29223 3272 15958 8006 56459 119

5919 564

3049

Working Capital (C.A-C.L)

Net Increase In Working Capital 49466 57749 8283

8283

57749

57749

18043

18043

Interpretation: 1. A little increase in the cash position is seen like the previous year. 2. Raw materials, stores and spares and finished goods level have increased. 3. Other liabilities have shown an increase of about 8.56% 4. Sundry creditors have increased due to increase in raw materials and stores and spare even which shows that the purchase has been more or less on credit. 5. Provisions has also increased nearly 61.51% * WORKING CAPITAL HAS BROUGHT A SMALL RISE.

Statement change in working capital

(2006-2007 to 2007-2008) Rs. In Lakhs Particular 2006-2007 Rs. Current Assets: Cash and bank balance Raw Material Stores and Spares Finished products Sundry Debtors Loan & Advance Other Current Assets 1879 17456 27867 42433 1296 23094 183 2066 17331 30064 39618 1166 24315 158 1221 25 2197 2815 130 187 125 2007-2008 Rs. Effect on Working capital Increase Decrease Rs. Rs.

Total Current Assets

114208

114718

Current Liabilities:

Sundry Creditor Security deposits Other Liabilities Provision Total Current Liabilities

29223 3272 15958 8006 56459

30794 3325 19859 32709 86687

1571 53 3901 24703

Working Capital (C.A-C.L)

Net Decrease In Working Capital 57749 28031 29718

29718

57749

57749

33323

33323

Interpretation: 1. There is a gradual rise been observed in the level of cash of about 187 lakh. 2. The closing stock of raw material and finished goods of this year is low compared to last year reveals that this year there is decrease in purchase level of raw materials and healthy sales lead decrease in the level of finished goods. 3. As the sales level has increased the company to promote sales employed better cash discounts and trade discounts which lead to rise in the level of debtors. 4. Loans and advances and other current assets have increased to level of 5.28% and 13.67% respectively. 5. Creditors level rise shows that creditor are offering lucrative offers which is been utilized by the company. 6. Provisions have shown a remarkable rise also the security deposits. THE RISE IN THE CURRENT LIABILITY AMOUNT WAS HIGHER THAN THE RISE IN CURRENT ASSETS LEVEL, WHICH LEADS TO FALL IN WORKING CAPITAL

Statement change in working capital

(2007-2008 to 2008-2009) Rs. In Lakhs Effect on Working capital Increase Decrease Rs. Rs.

Particular

2007-2008 Rs.

2008-2009 Rs.

Current Assets: Cash and bank balance Raw Material Stores and Spares Finished products Sundry Debtors Loan & Advance Other Current Assets 2066 17331 30064 39618 1166 24315 158 2244 22547 37600 62709 1332 25724 141 178 5216 7536 23091 166 1409 17

Total Current Assets

114718

152297

Current Liabilities:

Sundry Creditor Security deposits Other Liabilities Provision Total Current Liabilities

30794 3325 19859 32709 86687

33684 4377 22006 59373 119440

2890 1052 2147 26664

Working Capital (C.A-C.L)

28031

32857

Net increase In Working Capital

4826

4826

32857

32857

37596

37596

Interpretation:1. There is a little increase seen in the cash position like the previous year. 2. The closing stock of raw material and finished goods in this year has increased as compared to last year. 3. Loans and advances and Sundry debtor have increased to level of 5.7% and 14.2% respectively. 4. Sundry creditors have increased due to increase in raw materials which compare that the purchase has been more or less on credit. 5. Provisions have shown a remarkable rise also the security deposits. 6. The major contribution towards increase in working capital is due to rise in stock of finished goods.RSP should work on marketing of primary products to clear off the stocks. THE RISE IN THE CURRENT ASSETS WAS HIGHER THAN THE RISE IN CURRENT LIABILITY LEVEL, WHICH LEADS TO RISE IN WORKING CAPITAL

10

Statement change in working capital

(2008-2009 to 2009-2010) Rs. In Lakhs Effect on Working capital Increase Decrease Rs. Rs.

Particular

2008-2009 Rs.

2009-2010 Rs.

Current Assets: Cash and bank balance Raw Material Stores and Spares Finished products Sundry Debtors Loan & Advance Other Current Assets 2244 22547 37600 62709 1332 25724 141 2200 30612 31000 101552 1918 26067 0 38843 586 343 141 8065 6600 44

Total Current Assets

152297

193349

Current Liabilities:

Sundry Creditor Security deposits Other Liabilities Provision Total Current Liabilities

33684 4377 22006 59373 119440

36184 8812 20671 53946 119613 1335 5427

2500 4435

Working Capital (C.A-C.L)

32857

73736

11

Net increase In Working Capital

40879

40879

73736

73736

54599

54599

Interpretation:1. Cash balance for the present year is expected to fall . 2. Loans and advances and Sundry debtor have increased to level of 1.3% and 43.9% respectively .Rise in debtors shows that company is expecting a rise in sales. 3. Sundry creditors have increased due to increase in raw materials which shows that the purchase has been more or less on credit. 4. Provisions have shown a remarkable rise also the security deposits. 5. Other liabilities and provision is expected to decrease which will amount to increase in working capital. THE RISE IN THE CURRENT ASSETS WAS HIGHER THAN THE RISE IN CURRENT LIABILITY LEVEL, WHICH LEADS TO INCREASE IN WORKING CAPITAL

COMPARATIVE FINANCIAL RATIOS: ( Rs. In crores) PARTICULARS AS ON 31.3.05 AS ON 31.3.06 AS ON 31.3.07 AS ON 31.3.08 AS ON 31.3.09 AS ON 31.3.10 (BGT)

12

Sales to Gross Block (%)

78.03

73.50

101.18

113.27

115.22

88.82

Net sales Realisation to Gross sales (%) 86.97

82.68

84.54

84.73

87.37

90.88

Stock of Semi/finished Products to 4.47 Turnover (%) 0.54 Stock of Semi/Finished products in number of months sales

8.49

6.64

5.36

8.10

14.55

1.03

0.08

0.65

0.99

1.75

Net profit to Gross Block (%)

17.23

7.88

21.14

21.49

15.05

5.11

Net profit to Turnover (%)

22.08

10.72

20.90

18.98

13.06

5.75

Net profit to Capital Employed (%)

29.76

13.37

37.58

44.27

32.04

9.23

Current Assets to Current Liabilities 1.54 (excl.prov.) 0.45 Quick Assets to Current Liabilities 0.09 Working Capital to Cost of Sales 0.09 Working Capital to Net Block 0.06 Working Capital to Turnover 0.13 Labour cost to turnover 64.89 Cost of Sales to Turnover (%) 0.12 Inventories Production (Opn.) to value of 73.52

1.93

2.05

1.71

1.76

1.15

0.47

0.45

0.39

0.32

.34

0.15

0.14

0.06

0.06

.12

0.15

0.19

0.10

0.12

.20

0.11

0.09

0.04

0.04

.11

0.13

0.12

0.15

0.16

.16

71.97

63.64

65.75

74.20

85.12

0.18

0.16

0.14

0.13

.26

86.86

75.18

76.78

84.13

93.66

13

Cost

of

Production

to

Value

of 0.26

0.32

0.20

0.16

0.17

.27

Production (%) 42.03 Sundry Debtors to Turnover (%) 31.57 Gross profit to Capital Employed (%) 1.15 Gross Profit to Turnover (%) 0.88 0.98 0.90 0.87 1.13 19.80 26.17 24.38 18.48 12.89 24.45 46.63 56.40 44.63 20.67

Stock of Raw Materials in terms of No. 6.68 of months, consumption

6.54

8.12

7.47

9.19

8.29

Stock of stores & spares in terms of no. 6.89 of months, consumption

11.80

10.43

8.16

10.92

17.10

Stock

of

Finished

/Semi

finished

products to cost of sales (%)

NOTES: 1. Quick assets represent total current assets excluding inventories and sundry debtor. 2. Provisions have been excluded from current liabilities for calculation of quick ratio. 3. Cost of sales means net sales realization less net profit plus net loss 4. Cost of production is net expenses less CMO, HO share, freight, excise duty other revenue and stock accretion/secretion.

14

LIMITATIONS OF WORKING CAPITAL

Every business concern should have adequate working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate nor shortage of working capital. However, out of the two, it is the inadequacy of working capital which is more dangerous from the point of view of the firm. Disadvantages of Redundant or Excessive Working Capital

Excessive Working Capital means idle funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments.

It may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft, waste and losses.

It implies excessive debtors and defective credit policy which may cause higher incidence of bad debts.

It may result into overall inefficiency in the organization. When there is excessive working capital, relations with banks and other financial institutions may not be maintained.

Due to low rate of return on investments, the value of shares may also fall. It gives rise to speculative transactions.

Disadvantages of Inadequate Working Capital

A concern having inadequate working capital cannot pay its short-term liabilities in time. Thus it will lose its reputation and shall not be able to get good credit facilities.

It cannot buy its requirements in bulk and cannot avail of discounts, etc. It becomes difficult for the firm to exploit favorable market conditions. The firm cannot pay day-to-day expenses of its operations, which increases costs and reduces the profits of the business.

It becomes impossible to utilize efficiently the fixed assets due to non-availability of liquid funds.

The rate of return on investments also falls with the shortage of working capital.

15

RECOMMENDATION & SUGGESTIONS

The recommendation and suggestions for effective management of working capital at RSP are given below:

RSP should set planning standards for stock days, debtor & creditor days.

Install an understanding amongst the staff that working capital management produces profit.

Inventory management is a great concern for RSP especially stores and spares. The purchases manager must take certain steps for proper procurement of inventories.

Keep stock levels as low as possible, consistent without not running out of stocks and not ordering stock in uneconomically small quantities. Just-in-stock management is fine, as long as it is JIT and never fails to deliver on time.

Short-term credit period availed must be reduced and sundry creditors should be paid faster.

Proper planning of production should be made and communicated to all the concerned departments so as to determine the exact need of materials and prevent unnecessary blockage of useless materials.

Reassess all significant customers periodically. Stop supplying existing customers who are poor payers. After all RSP is for quality of business rather than quantity of business.

Plant should be given freedom in deciding the credit policies, cash discount or credit rating.

16

CONCLUSION
RSP has not only addressed itself to the countrys need for self sufficiency in Steel, but has also given the country, the technology edge in producing strategic material. Besides being the leader in the domestic primary steel market excluding the semi-finished products, RSP has also earned a good name in the domestic market in manufacture of crude steel . With its consistent track record in capacity utilization, technology absorption, quality assurance export performance, servicing of loans, internal source generation and posting of profits, RSP has chartered a course of confidence among its stake holders. RSP is a well known public sector unit in the Steel sector in India. It shows how a well managed company achieves the mission of the company and gives much more profit. Just as circulation of blood is essential in human body for maintaining life like that working capital is also an important aspect and can be a main contributor to a companys profit if managed efficiently.

17

BIBLIOGRAPHY

1.

Audited Annual Reports of RSP for the year , 2004, 2005, 2006 and 2007, 2008,2009.

2. BOOKS: a) Financial Management I.M.Pandey b) Management Accounting R.K.Sharma & S.K.Gupta c) Financial Management P.C.Chandra d) Working Capital Management V.K.Bhalla

3. WEBSITES:

a) www.google.com b) www.sail.co.in

18

120000 100000 80000 Rs in Lakhs 60000 40000 20000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Year

Total C.A Total C.L

Statement change in working capital

Net W.C

60000 50000 40000 Rs. in Lakhs 30000 20000 10000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Year Net W.C

19

Working Capital Turnover Ratio

25 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 Ratio

20