Working Capital Mngt

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 TO

26-02-1982

Blast furnace foundation ( 1st mass concerning in the project laid).

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 measures2. 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 conservation award (2nd)

Energy efficiency

2002 National energy conservation award(1st)

Energy efficiency


Energy efficiency


Energy efficiency

2005 National energy conservation award

Energy efficiency


Energy efficiency

2004 ICWA national award Good performance, for excellence in cost mgmt.

2004 World quality commitment international star award

Performance excellence, quality management and quality achievement.

2004 Leadership and excellence award in SHE(safety health and environment)

Excellence in SHE by CIT south zone.

2004,2005 National award for excellence in water Mgmt by CIT.

Excellence in water Mgmt.

2005 Certificate of appreciation by institution of engineers, AP

Excellence in energy conservation.

chapter

2005 Energy conservation by AP productivity council.

Best organization in energy conservation initiatives.

2005 CIT-GBC national award Excellence in energy management

2005 Business achievement award for excellence.

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

2006 Golden peacock environment management award (GPEMA)

Encourage and recognize effective implementation of environment management systems and their continuous improvement.

2006 Organizational excellence award.

Efficient suggestion scheme operation given by INSSAN.

2006 Strong commitment – CII Excellence in H.R processes and practices

H.R excellence award 2006

2007 Commendation prize for significant achievement to excellence – CII

EXIMBANCE award for business excellence 2006

Overall excellence in all activities of the company

MAJOR SOURCES OF RAW MATERIALS

RAW MATERIAL SOURCE

Iron ore lumps and fines

BF lime stone

SMS lime stone

BF dolomite

SMS dolomite

Manganese ore

Boiler coal

Cooking coal

Medium cooking coal (MCE)

Bailadilla , MP

Jaggayapeta, AP

UAE

Madharam, AP

Madharam, AP

Chipurupalli ,AP

Talcher , Orissa

Australia

Gidi/ swang/ rajarappa/ kargali

MAJOR UNITS

DEPARTMENT ANNUAL CAPACITY

(‘000T)

UNITS (3.0 MT STAGE)

Coke ovens

Sinter plant

Blast furnace

Steel melt shop

Lmmm

Wrm

Mmsm

2,261

5,256

3,400

3,000

710

850

850

3 batteries of 67 ovens & 7mts height.

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

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

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

4 stand finishing mill.

2*10 stands finishing mill.

6 stand finishing mill.

MAIN PRODUCTS OF VSP

STEEL PRODUTCS BY PRODUCTS

Angels

Billets

Channels

Beams

Nut coke, granulated slag.

Coke dust, lime fines.

Coal tar, ammonium sulphate

Anthrancene oil.

Squares

Flats

Rounds

Re-bars

Wire rods

Hp Naphthalene.

Benzene.

Toluene.

Zylene.

Wash oil.

PRODUCTION PERFOMANCE (000 TONNES)

YEAR HOT METAL LIQUID METAL SALEABLE STEEL

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2,510

2,943

3,165

3,485

3,941

4,055

3,920

4,153

4,046

2,225

2,656

2,909

3,083

3,356

3,508

3,560

3,603

3,606

2,193

2,382

2,507

2,757

3,056

3,169

3,173

3,237

3,290

2007-08 3,913 3,322 3,074

COMMERCIAL PERFORMANCE

YEAR SALES TURNOVER

DOMESTIC SALES

EXPORTS

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

5,059

6,174

8,181

8,469

9,131

10,433

4,433

5,406

7,933

8,026

8,487

9,878

626

768

248

443

424

555

FINANCIAL PERFORMANCE

YEAR GROSSMARGIN CASH PROFIT NET PROFIT

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

1,049

2,073

3,271

2,369

2,633

3,515

915

2,024

3,260

1,859

1,700

3,483

521

1,547

2,008

1,252

1,363

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 YEAR EXPANDED YEAR

Rourkela

Bhilai

1.0

1.1

1.8

2.5

Durgapur

Tisco

Hsco

1.0

1.0

0.5

1.6

2.0

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 ltd4. Kundremukh iron ore company ltd.5. Manganese ore (INDIA) ltd6. Metal scrap trade corporation ltd7. Metallurgical and engineering consultants India ltd8. National mineral development corporation (NMDC)9. Rashtriya Ispat nigam ltd10.Sponge iron India ltd11.Steel authority of India ltd12. 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:

Particulars

Previous year

Current year

Effect on Working capital

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

S.NO Name of the Bank

Fund Based Non Fund Based (Rs.in crs)

CC WCDL TOTAL EPC TOTAL LC BG TOTAL TOTAL

(a) (b) (c=a+b) (d) (e=c+d) (f) (g) (h=f+g) (i=e+h)

1 UCO bank

5.00 20.00 25.00 15.00 40.00 35.00 5.00 40.00 80.00

2 Indian bank

0.00 0.00 0.00 0.00 0.00 100.00 0.00 100.00 100.00

3 SBH 50.00 0.00 50.00 0.00 50.00 200.00 30.00 230.00 280.00

4 Canara bank

48.00 72.00 120.00 15.00 135.00 300.00 15.00 315.00 450.00

5 Bank of Baroda

33.85 0.00 33.85 20.00 53.85 200.00 1.00 201.00 254.85

6 Indian Overseas Bank

100.00 0.00 100.00 0.00 100.00 300.00 50.00 350.00 450.00

7 Andhra bank

14.00 21.00 35.00 11.50 46.50 45.00 3.00 48.00 94.50

8 SBI 225.00 0.00 225.00 0.00 225.00 500.00 50.00 550.00 775.00

9 Allahabad bank

25.00 0.00 25.00 15.00 40.00 90.00 5.00 95.00 135.00

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.



A) CURRENT ASSETS














Provisions 1092.77 716.37




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.



A) CURRENT ASSETS


















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.


During the year 2005-06 the over all performance of the company is satisfactory.



A) CURRENT ASSETS


















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.


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 ASSETS

2726.66 6047.48 8252.00 10448.10 11804.59

CURRENT LIABILITIES

1235.33 1424.14 1587.86 2104.30 3191.62

CURRENT RATIO

2.20 4.25 5.20 4.97 3.70

CURRENT RATIO

0

1

2

3

4

5

6

amount

1 2 3 4 5 6

years

current ratio

CURRENT RATIO

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 CAPITAL

1491.33 4623.34 6664.14 8343.80 8612.97

WORKING CAPITAL TURN OVER RATIO

3.66 1.59 1.09 0.95 1.05

WORKING CAPITAL TURN OVER RATIO

working capital turn over ratio

0

0.5

1

1.5

2

2.5

3

3.5

4

1 2 3 4 5 6 7 8 9

years

amou

nt

GROSS WORKING CAPITAL

YEARGROSS WORKING

CAPITAL (in crs)

2003-04

2004-05

2005-06

2006-07

2007-08

2,726.66

6,047.48

8,252.00

10,448.10

11,804.59

02000400060008000

100001200014000

1 2 3 4 5 6 7

Series6

Series5

Series4

Series3

Series2

Series1

NET WORKING CAPITAL

YEARNET WORKING

CAPITAL (IN CRS)

2003-04

2004-05

2005-06

2006-07

2007-08

1,491.33

4,623.34

6,664.14

8,343.80

8,612.97

0

2000

4000

6000

8000

10000

0 5 10

Series1

Series2

Series3

Series4

Series5

Series6

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

http://www.vizagsteel.com/


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.


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.


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.


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 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.


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.


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.


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.



Working Capital Mngt

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