A STUDY ON WORKING CAPITAL MANAGEMENT With reference to RASHTRIYA ISPAT NIGAM LIMITED !

ISAKHAPATNAM PRO"ECT REPORT A Re#ort S$%&itte' in P(rti() *$)fi))&ent of the Re+$ire&ent, for the De-ree of

MASTER OF BUSINESS ADMINISTRATION

Under the guidance of

Smt. K. Sridevi, M.B.A., ( Faculty in management studies )

S$%&itte' %.

B.Bhuvaneswari
Reg .no:208 !"00002

ADITYA INSTITUTE OF P.G. STUDIES

SURAMPALEM, E.G. DISTRICT, A.P. 2008-2010

ADITYA INSTITUTE OF P.G. STUDIES (Approve !" AICTE, A##$%&'e 'o A.U( SURAMPALEM-)**+*, E.G.DIST(AP(

CERTIFICATE

This is to certify that the project work

entitled A STUDY ON WORKING

A!ITA" #ANAGA#$NT IN RAS%TRIYA IS!AT NIGA# "I#IT$D& 'ISAK%A!ATNA#( is a bonafide work done by #iss)*)*+u,anes-a.i& Reg)N/)01234511110 during the period 011260151 in partial fulfillment of the requirements for the award of degree of #AST$R OF *USIN$SS AD#INISTRATION( in Aditya institute /7 8)g) c/llege affliated to And+.a uni,e.sity)

Project guide: Smt.K.Sridevi M.B.A,

Head of the Department: Mr.J.Nagendra umar M.B.A,

DECLARATION
I here by declare that this project report entitled A STUDY ON WORKING A!ITA" -).)t/ AS% #ANAG$#$NT IN RIN", 'ISAK%A!ATNA# ( has been prepared by me during the year 2009 in the month of May and June is the partial fulfillment of the requirement for the award of degree of MASTER OF -USINESS ADMINISTRATION . I also declare that this project is a result of my own effort and that it has not been submitted to any other university for the award of any degree or diploma.

Place: Date:

*)*%U'AN$SWARI)

A KNOW"$DG$#$NT

would like to express

my sincere gratitude and thanks

to

Mr...NAGENDRA /UMAR ,!ead of the Department Department of "usiness studies for his constructive cooperation and valuable guidance through out the course and also during the project work. I am grateful to my project counselor S0'./.SRIDE1I, M-A #ecturer Department of business studies for her valuable guidance and suggestions to complete this project report successfully. I am grateful to Mr.S.RAMPRASAD (D" 0&2&3er F 4 A(,RINL 1ISA/5APATNAM for giving me an opportunity to work on this project. I express my thanks to our parents and friends who helped and supported to us to a great extent to complete this project and last but not least we thankful to all mighty.

*)*%U'AN$SWARI)

TA-LE OF CONTENTS
%A!T$R 6I9

INTRODUCTION O-.ECTI1E OF T5E STUDY NEED FOR T5E STUDY MET5ODOLOGY LIMITATIONS OF T5E STUDY

%A!T$R 6II9

INDUSTRIAL PROFILE

%A!T$R6III9

COMPANY PROFILE OF RINL T5EORITICAL FRAME 6OR/ IN 6OR/ING CAPITAL MANAGEMENT

%A!T$R6I'9

%A!T$R 6'9

ANALYSIS AND INTERPRETATION

%A!T$R6'I9

FINDINGS SUGGESTIONS CONCLUSION -I-ILOGRAP5Y

$!%P&'( )I

INTRODUCTION

*teel comprises one of the most important inputs in all sectors of economy. 'conomy of any country depends on the strong base of the iron and steel industry. *teel is versatile material with multitude of useful properties making it indispensable for furthering and achieving continuing growth of the economy)be it construction manufacturing infrastructure or

consumables. &he level of steel consumption has long been regarded as an index of industriali+ation and economic maturity attained by country. ,eeping in view the important of steel the integrated steel plants with foreign collaborations were set up in the public sector in the post) independence era. $apital is essential for setting up and smooth running of any business. Investments made on fixed assets will yield excess each cash inflows apart from the pay back amount and is spread over a longer period of time. !ence the cash inflows -or. benefits associated are not immediate but are expected in the future .$ash inflows / outflows occur on a continuous basis in case of current assets .$redit forms an essential feature in the business -credit given to customers 0 credit from liabilities suppliers..*ince there is some time log from the mine of sales / sales reali+ation current assets / current which together constitute the net working capital supports the business in its normal of operations. &his called an efficient management of working capital. &he policies procedures and measures taken for managing capital again further importance in an organi+ation like (I1# where the working capital requirements runs in crores or rupees .%ny mismanagement on the part of the authority will not just cause loss but may even effect business operations .It is in this context working capital has gained importance.

&he growth of any organi+ation depends on the overall performance such as production marketing human resource and financial performance of the organi+ation. &he financial performance of the any organi+ation reflects the strength weakness opportunities and threads of the organi+ation with respect to profits earned investments sales reali+ation turnover return on investment net worth of capital. 'fficient management of financial resources and deliberate analysis financial results are pre requisite for success of an enterprise. In that working capital management is one of the major and important areas of financial management. 'very organi+ation working capital is for day)to)day business transitions. 2anaging of working capital implies managing of current assets of the company like cash inventory accounts receivable loans and advances bank balances and current liabilities like sundry creditor3s interest payments andprovision.

O-.ECTI1E OF T5E STUDY

&o study the general procedure of the management in (I1# 4I*%,!%P%&1%2.

&o analy+e and apply operating cycle concept of working capital management in (I1# 4I*%,!%P%&%1%2.

o o o o

&o know how working capital is being financed. &o study the liquidity solvency / capacity position of (I1# &o give suggestions if any for better working capital management in (I1#. &o analy+e the financial performance of the company with reference to it3s working capital components.

NEED FOR T5E STUDY

(I1# is a multi)product steel)manufacturing unit with varying cycle time for each product. &he capital required by each department in a large organi+ation like (I1# depends on the product target for that. Particular year invites the need for an effective working capital management. 2onitoring the duration of the operation cycle is an important aspect of working capital management and control for an 'ffective management. (I1# is now on its turn round path and needs to cut cost and increase its revenue its revenue therefore it must have to keep close check on the day to day expenses and to get a maximum utili+ation out of it. *ome prominent issues should always be taken into account like: &he duration of raw material stage depends on the regularity of supply transactions time degree of perish ability price ability price fluctuations and economic of bulk purchases. &he duration of the work in progress stage depends of #ength of the manufacturing cycle consistency in capacity utili+ation Different stages and efficient coordination of various inputs. &he duration at debtors3 stage depends on the credit period 5ranted discount offered for prompt payments and efficiency and rigor of collection efforts. &hus a detailed study regarding the working capital management in (I1# is to be done to consider the effectiveness of working capital management identify the shortcoming in management and to suggest for improvement in working capital management.

MET5ODOLOGY OF T5E STUDY

2ethodology is a systemic procedure of collecting information in order to analy+e and verify a phenomenon. &he collection of information will be done by two principles of sources vi+. 6. Primary data 7. *econdary data

!.ima.y data9
It is the information collected directly without any references. In this *tudy it is to gathered through interviews with concerned officers and staff 'ither individually or collectively. *ome of the information were verified and *upplemented through personal observation.&he data collection includes : ) $onducting personal interviews with the

concerned officers of finance department of (I1#.

Sec/nda.y data9 &he *econdary data was collected from already published sources such as
pamphlets of annual reports returns and internal records .&he data collection includes: $ollection of required data from annual records of (I1# . (eference from textbooks and journals relating to financial management.

LIMITATIONS OF STUDY

%s (I1# 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 duration of 7 months.

%nd analysis of sub topics is limited to some extensions.

*ince the procedures and policies of the company do not allow disclosing of all financial information the project has to be completed with great effort to get an insight into 8orking $apital 2anagement in (I1#.

C5APTER-II

STEEL INDUSTRY
*teel is a versatile constantly developing material that underpins all manufacturing activity. If a product is not made from steel then it is certainly made using steel at some point in the manufacturing process.

O1ER1IE6 OF IRON AND STEEL INDUSTRY 5ISTORICAL PERSPECTI1E

&he finished steel production in India has grown from a mere 6.6 million tonnes in 69:6 to 79.70 million tonnes in 7;;;)7;;6. During the first two decades of planned economic development i.e. 69:;)<; and 69<;)0; the average annual growth rate of steel production exceeded =>. !owever this growth rate could not be maintained in the following decades. During 690;)=; the growth rate in steel production came down to :.0> per annum and picked up marginally to <.?> per annum during 69=;)9; which increased to <.<:> per annum during 699;)7;;;. &hough India started steel production in 6966 steel exports from India began only in 69<?. 'xports in the first five years were mainly due to recession in the domestic iron and steel market. @nce domestic demand revived exports declined. India once again started exporting steel only in 690: touching a figure of 6 million tones of pig iron export and 6.? million tonnes of steel export in 690<)00. &hereafter exports again declined to pick up only in 6996)97 when the main producers exported A.=0 lakhs tonnes which rose to 7.09 million tonnes in 699:)9<. &he steel exports in 6999)7;;; were 7.A< million tonnes and in 7;;;);6 it was 7.:0 million tonnes. &he growth in the steel sector in the earlier decades since Independence was mainly in the public

sector units set up during this period. &he situation has changed dramatically in the decade 699;) 7;;; with most of the growth originating in the private sector. &he share of public sector and private sector in the production of steel during 699;)96 was ?<> and :?> respectively while during 7;;;);6 the same was A7> and <=> respectively. &his change was brought about by deregulation and decontrol of the Indian iron and steel sector in 6996. % number of policy measures have been taken since 6996 for the growth and development of the Indian iron / steel sector. *ome of the important steps are (emoval of iron / steel industry from the list of industries reserved for the public sector and also exemption from the provisions of compulsory licensing under the Industries -Development / (egulation. %ct 69:6 deregulation of price and distribution of iron / steel inclusion of iron and steel industry in the list of high priority industries for automatic approval for foreign equity investments up to 0?> lowering of import duty on capital goods and raw materials etc.

I0por' &2 E7por' o# Iro2 &2 S'ee$

India was importing about 6; to 6: lakes tones of steel annually. Due to a rise in domestic demand the import of saleable steel in 699<)90 reached a level of 6.=; million tones. &he incidence of import was mainly in hot rolled coils cold rolled coils and semis. Import of carbon steel during 7;;;);6 was about 6.?6 million tones which was about 67> less than the import in 6999)7;;;. &he total imports of carbon steel during six years up to 7;;6);7 are given in enclosed chart. &he Industry has been able to maintain its net exporter status from the last two years in the trading of finished steel. In fact exports of non)flat products recorded a growth rate of :.0> over

7;;;);6. &he quantity of carbon steel exported from the year 699<)90 is as given in enclosed chart. 'arlier exports consisted mainly of plates structural bars and rods whereas now additional items like semis hot rolled coils cold rolled coils co lour coated sheets 5PB5$ sheets and pig iron are also being exported. In future it is expected that the quantum of exports of more value added items would further increase.

#$ASUR$S ON I#!ORTS
@f the 5overnment notification to A major ports C $alcutta 2umbai and $hennai to monitor the flow of foreign steel into the country. &he customs duty on second and defective !( $oils has been raised to the bound rate of ?; per cent. %nti dumping duty has been levied on import of !( coils from (ussia and Dkraine. Iron / *teel are freely importable as per the 'xam Policy. India has been annually importing around 6.: 2illion &ones of steel. Imports have largely dropped partly an indication of greater self)sufficiency and partly the ability to control inflow of seconds and defectives. &o check unbridled imports of cheapBseconds / defective steel several measures have been put in place likeE &he 5overnment has fixed floor prices for seven items of finished steel vi+. !( coils !( sheets $( coils &inplates. &he other notable measure in this regard is that imports of certain types of steel have been subject to mandatory compliance of quality standards as specified by the "ureau of Indian *tandards -"I*.. %dherence to "I* norms imply supplying information like name and address of the importer generic or common name of the commodity net quantity in terms of standard units of weights and measures month and year of packaging and maximum retail sale price. 2oreover

all manufacturersBexporters of the listed products shall be required to register themselves with the "I*. Further protection in this regard has been the issuance

MEASURES FOR E8PORT OF IRON 4 STEEL

Iron / *teel are freely exportable and India is a net exporter of steel. %dvance #icensing *cheme allows duty free import of raw materials for exports. Duty 'xemption Pass "ook *cheme also facilitates exports. Indian steel exports have been subject to anti)dumpingBanti) subsidy duties actions by the stronger economies over the last few years. &hese include: %nti dumping duty on cutCtoCsi+e plate exports from "liley *teel Plant of *%I# with a total duty of 07.?= per cent and an anti subsidy component of 6?.=7 percent. India however has been exempted from the safeguard duties under *ection 7;6 of the D* &rade #aws on almost all steel products except carbon flanges. &his is on account of the country3s status as a developing nation. 'D has also taken %DB$4D actions on import of !( coils. !owever a *uspension %greement with exporters like *%I# allows the company to sell at a price not lower than the agreed one. &he 'D has also imposed safeguard duties for IndiaE such measures apply on electrical steel sheets and stainless steel wire rods. $anada has covered pipes hot rolled cold rolled and galvani+ed products in the %DB$4D actions. $hina has recently imposed a safeguard duty on the import of steel which ranges from 0)7<>. &he country)wise details are yet to be worked out. &he rising trend in Indian steel exports that was being witnessed in the last couple of years was halted due to these anti dumping actions initiated by the advanced developed nations of the world which led to the loss of major markets for the Indian steel exporters. Despite the initial setbacks Indian exports have recovered ) largely

due to the ability to find out alternative export markets where selling steel has been profitable. *teel 'xporters3 Forum has been recently set up to boost steel exports. %n %nti dumping Directorate has been set up under the 2inistry of $ommerce / Industry with adequate power to fight trade actions while remaining within the 8&@ framework.

D9'%e: 4 Lev%e: o2 Iro2 4 S'ee$

ust/m Duties
Peak rate of $ustom Duty has been reduced sharply during last : years. In the Dnion "udget 7;;7);A it has been further reduced to A;>. &his has forced domestic industry to become internationally competitive. $ustom Duty on seconds and defectives has been raised to the bound rate of ?;>. $ustom Duty has been reduced on a wide range of inputs which would bring down the cost of production for the domestic steel industry. $ustom Duty on 2et $oke has been reduced to :> for integrated steel plants using blast furnace pig iron units and steel plants using $ortex technology.

$:cise Duty
'xcise Duty on iron / steel has not been reduced in successive budgets. %t present excise duty on all iron and steel products is 6<> ad valor called $ent !igh excise duty has made domestic industry unviable. #evies on Iron / *teel *DF) -*teel Development Fund.

&his was a levy started for funding moderni+ation expansion and development of steel sector. &he Fund inter)alia supports:

$apital expenditure for moderni+ation replacement of Integrated *teel Plants.

rehabilitation

diversification

renewal /

(esearch / Development (ebates to **I $orporations 'xpenditure on '(D of GP$ Fund was abolished on 76.?.9?. $abinet decided that $orpus could be recycled for

loans to 2ain producers. Interest on loans to 2ain Producers be set aside for promotion of (/D. %n 'mpowered $ommittee has been recently set up to guide the (/D effort in this sector.

Oppor'92%'%e: #or 3ro;'< o# Iro2 &2 S'ee$= T<e Ne; I2 9:'r%&$ Po$%>" Re3%0e
&he 1ew Industrial policy has opened up the iron and steel sector for private investment by a. (emoving it from the list of industries reserved for public sector and b. 'xempting it from compulsory licensing. Imports of foreign technology as well as foreign direct investment are freely permitted up to certain limits under an automatic route. 2inistry of *teel plays the role of facilitator providing broad directions and assistance to new and existing steel plants in the liberali+ed scenario.

T5E GRO6T5 PROFILE AFTER LI-ERALISATION

&he liberali+ation of industrial policy and other initiatives taken by the 5overnment have given a definite impetus for entry participation and growth of the private sector in the steel industry. 8hile the existing units are being moderni+edBexpanded a large number of newB5reenfield steel plants have also come up in different parts of the country based on modern cost effective state of)the)art technologies. Increasing role of private sector in total production can be seen from the fact that its share has increased from :6.?> in 6996)97 to approximately <0> in 699=)99. &his trend is likely to continue. %t present total -crude. steel making capacity is over A? million tones and India the =th largest producer of steel in the world has to its credit the capability to produce a variety of grades and that too of international quality standards. %s per the ratings of the prestigious H8orld *teel DynamicsH Indian !( Products are classified in the &ier II category quality products C a major reason behind their acceptance in the world market. 'D Gapan have qualified for the top slot while countries like *outh ,orea D*% share the same class as India. In pig iron also the growth has been substantial. Prior to 6996 there was only one unit in the secondary sector. Post liberali+ation the %egis have sanctioned 76 new projects with a total capacity of approx A.9 million tones. @f these 6< units have already been commissioned. &he production of pig iron has also increased from 6.< million tones in 6996)97 to A.9? million tones in 7;;6);7. &he share of PrivateBsecondary sector has increased over time and is currently around 0?> of total production. $onsidering the facts of current low levels of per)capita consumption in India the huge potential for its increase and the estimated 5DP growth the steel industry is likely to have substantial growth in the medium to long term perspective.

GLO-AL SCENARIO
&he steel industry in the world which was characteri+ed as a sunset industry two decades ago is experiencing a vast change in scenario. &he fast developing $hinese steel industry has far outstripped the world steel giants. Dnited *tates (ussia and Gapan which were leading steel producers are no more in a position to claim that position. $hina producing less than a million tones of steel prior to revolution in 69?9 has now become the largest steel producer in the world. During 7;;: the global steel production stood at 66A7 million tones showing a rise of < per cent over the last year. &he countries in *outh %merica $I* -former *oviet Dnion. 'urope and 1orth %merica have actually shown negative growth. &he %sian continent for the first time produced more crude steel than the rest of the world combined. 2ajor shift has taken place because during 7;;: with $hina producing A?9 million tones of steel accounting for A7 per cent of the world steel production. During 7;;: $hinese steel production increased by <9 million tones i.e. by 7: per cent. $hinese steel output was more than three times that of Gapan and four times of D*% during 7;;:. Per capita consumption of steel in the world was estimated to be 60; kg during the year 7;;:. !owever in India it stood at only A: kg during the same year. Indian steel production was A= million tones which accounted for only A.? per cent of the world steel output. In view of the fact that Indian population is 6< per cent of the global population the production of steel is much lower in India. %lthough India is the second largest populated country in the world it ranks eighth in steel production. *teel %uthority of India #td -*%I#. is ranking 60th among the world3s largest steel producing companies.

8ith stiff competition in the global market the formation of giant companies to reduce cost and add to profitability has become the regular feature in the industry. 2erger and acquisitions have become the order of the day. &he recent attempt of the 2etal *teel to acquire %reole a #uxemburg based 'uropean company if succeeds will make 2etal *teel produce over 66; million tones of steel per year i.e. about 6; per cent of the global steel output.

6ORLD -AN/ AD1ICE =

&hough India has objective conditions to become one of the major steel producers in the world it continues to lag behind. Despite the fact that India has huge reserves of good quality iron ore and sufficient quantity of manganese dolomite and coal it is not producing higher quantity of steel. India produces more than 6;; million tones of iron ore of which only one third is utili+ed indigenously while two thirds is exported at a throw away price. In 69=; the 8orld "ank in its report advised the government of India not to go for any 5reenfield public sector steel plant. Inspire of Indira 5andhi laying the foundation stone for public sector steel plant at Daitari and 4ijay nagger in 690A the government of India made no investments. @n the one hand adequate additional investments were not made by the government in *%I# and on the other hand the government scrapped the industrial policy resolution of 69:< which provided development of core sector of economy only in public sector. &he government permitted private sector steel plants. %s a result of this decision 'ssar 2ittal Gindals &ata groups have taken steps to start more steel plants in the private sector. (ecently the government of @rissa even went to the extent of allowing *outh ,orean company P@*$@ to

take control over the iron ore resources of the state and export it for their requirement to *outh ,orea. %ll this in the name of investing in its steel plant in @rissa. &he market share of public sector *%I# has now come down to around A? per cent which is likely to decline further if the government of India3s policy of strengthening private sector continues. Disinvestments of *%I# have resulted in 6?.6= per cent equity of *%I# going in to the hands of private sector companies as well as domestic financial institutions. Further disinvestments have been stopped for the time being only due to the pressure of the #eft parties on the DP% government against disinvestments in 1avaratna P*Ds. %fter the acceptance of the policy of financial globali+ation and 8&@ conditional ties by the government of India the import duty on steel has been brought down gradually up to : per cent. Further the excise duty on Indian steel was increased which made imported steel cheaper and domestic steel costlier in India. &his has put the steel industry in great difficulties and *%I# which was making profits earlier had to incur losses to the tune of (s 60;; core in a year. &he private sector companies like 'ssar 2ittal and Gindal could manage to survive only due to extremely low rate of wages paid to the workers majority of whom were under contractors.

C5APTER-III

COMPANY PROFILE OF RINL

Int./ducti/n 9
*teel occupies the foremost place among the materials in use today and pervades all walks of life. %ll the key discoveries of the human genesis for instance steam engine railway means of communication automobile aero plane and computers are in one way or other fastened together with steel and with its sagacious and multifarious application . *teel is a versatile material with multitude of useful properties making its indispensable for furthering and achieving continual growth of the economy be it construction manufacturing infrastructure or consumables. &he level of steel consumption has long been regarded as an index of industriali+ation and economic maturity attained by a country. %t the time of independence India had only three integrated *teel Plants)Iron I *teel $ompany at "urnpur &ata Iron %nd *teel $ompany at Gamshedpur Iron I *teel $ompany in the erstwhile princely state of my sore. ,eeping in view the importance of steel the following integrated steel plants with foreign collaborations were set up in the public sector in the post)independence era.

INTEGRATED STEEL PLANTS IN INDIA.

NA#$ OF ST$$" !"ANT
Durgapur *teel Plant "hilai *teel Plant "okaro *teel Plant (ourkela *teel Plant

O""A*ORATION
"ritish 'rstwhile D**( 'rstwhile D**( 5ermany

*ac;g./und /7 RIN" ltd9

&o meet the growing domestic needs of steel 5overnment of India decided to set up an integrated steel plant at 4ishakapatnam. %n agreement was signed with erstwhile D**( in 6909 for cooperation in setting up A.? 2& integrated steel plant at 4ishakapatnam. &he foundation stone for the plant was laid by the then prime 2inister on 7;th Ganuary 6906.&he project was estimated to cost (s. A=90.77 $ores based on prices as on ? th quarter of 69=6. !owever on completion of construction and commissioning of the whole plant in 6997 the cost escalated to around =:;; $ores. 4isakhapatnam *teel Plant is one of the most modern steel plants in the country. &he plant was dedicated to the nation on 6st %ugust 6997 by the then Prime 2inister *ri P.4. 1arasimha (ao. 2& of saleable steel. 1ew technology large scale computeri+ation and automation etc are incorporated in the plant. &he plant has a capacity of producing A.; 2& of liquid steel and 7.<:<

T%$ !RO<$ T !ROFI"$ OF = #T STAG$S

= #T STAG$ D$S RI!TION
I0p$e0e2'%23 &3e2>" D&'e o# :&2>'%o2 !" GOI ?ero &'e Ge:'&'%o2 per%o A2'%>%p&'e &'e o# >o00%::%o2%23 C&p%'&$ Co:' (RS. Core:( -&:e &'e FE Co0po2e2' (RS. Core:( Co:' E:>&$&'%o2 (RS. Core:( C&p&>%'" (MT $%@9% :'ee$ per &2290(

ORIGINA" SAN TION

*%I# 69);<)09 1ot specified < years 1ot specified 77:<.;; 6 qtr 09 :;;.7; K A.?;

FIRST R$'ISION
(I1# A;);0)=7 ;6);7)=7 < years Dec =0 A=90.7= ? qtr =6 <09.:9 6<?6.7= A.?;

S$ OND R$'ISION
(I1# 7?);<)=7 ;6);7)=7 = J years Gune 9; <=?9.0; ? qtr =0 676?.=< 79:7.?7 A.;;

T%IRD R$'ISION
(I1# 67);0)=7 ;6);7)=7 6; J years Guly 97 =:9A.79 Gan 9? 6:76.:: 60?A.:9 A.;;

1SP TEC5NOLOGY=

o o o o o o o o o

0 2eter tall $oke oven batteries with coke dry quenching "iggest "last furnaces in the country "ell less top charging system in "last furnace 6;;> slag granulation at the "F cast house. *uppressed combustion C #D gas recovery system. 6;;> continuous casting of liquid steel. L&empcoreM and L*telmorM cooling process in #222 / 8(2. 'xtensive waste heat recovery systems. $omprehensive pollution control measures.

#a>/. s/u.ce /7 Ra- #ate.ials9

R&; M&'er%&$
Iron ore lumps and fines "F lime stone *2* lime stone "F Dolomite *2* Dolomite 2anganese @re "oiler coal $oking coal $oke "ailadilla 2P

Are& or $o>&'%o2

Gagayyapeta %P Gaisalmer (ajasthan Dubai 2adharam %P $hipurupalli %P &alcher @rissa %ustralia $hina

Wate. Su88ly
@perational water requirement of A< 25D is being met from the Neleru *upply scheme.

!/-e. su88ly
@perational power requirement of 6=; to 7;; 28 is being met through $aptive Power Plant. &he capacity of the Power plant is 7=<.: 28. 4*P is exporting <; 28 power to %P&(%1*$@.

M&Aor U2%':=

Dep&r'0e2'
$oke ovens

A229&$ >&p &>%'" (000B:(

77<6

U2%': (*.0 MT :'&3e(

A "atteries each of <0 ovens and 0 2eter height

*inter Plant

:7:<

7 *inter machines of 76A m7 grate area each

"last furnace

A?;;

7 Furnaces of A7;; mA volume each

*teel melt shop

A;;;

A #D converters each of 6:; mA volume and strand bloom casters

#222 8(2 22*2

06; =:; =<;

Four strand finishing mill 7O6; strand finishing mill < strand finishing mill

M&%2 pro 9>': o# 1SP S'ee$ Pro 9>':

%ngles "illets $hannels "eams *quares Flats (ound (ebars 8ire rods 5ranulate slag #ime fines $oal tar %nthracite acid !P 1aphthalene "en+ene &oluene Pylene 8ash oil %mmonium sulphate

-" pro 9>':

FUTURE PLANS=
'ISION9 &o be continuously growing world)class company 8e shall

!arness our growth potential and sustain profitable growth. Deliver high quality and cost competitive products and be the first choice of customers $reate an inspiring work environment to unleash the creative energy of people. %chieve excellence in enterprise management. "e a respected corporate citi+en ensure clean and green environment and develop vibrant communities around us.

#ISSION9
&o attain 6< million tonne -2t. liquid steel capacity through technological up)gradation operational efficiency and expansionE to produce steel at International *tandards of $ost and QualityE and to meet the aspirations of the *takeholders

O*<$ TI'$S9
6. 'xpand plant capacity to <.A 2t by 7;6;)66 with the mission to expand further in subsequent phases as per the $orporate Plan. 7. "e amongst top five lowest cost liquid steel producers in the world by 7;;9)6; A. %chieve higher levels of customer satisfaction than competitors. ?. :. <. 4ibrant 8ork culture in the organi+ation. "e recogni+ed as an excellent business organi+ation. "e proactive in conserving environment maintaining high levels of safety and addressing social concerns.

CORE 1ALUES =
4alue foresight is crucial in today3s competitive businesses climate 4*P values

$ommitment $ustomer satisfaction $ontinuous improvement $oncern for environment $reativity and innovation

Salient Featu.es

$onversion of (s. 66=? cores 5overnment of India loans into 'quity $apital. $onversion of (s. 66=: cores 5overnment of India loans into 0> non)cumulative preference shares redeemable at the end of 6; years. $onversion of (s. 096 cores interest due on 5overnment of India loans into interest free loans for a period of 0 years. $onversion of 5@I loans receivable in 6997)9A into 0> non)cumulative preference shares redeemable at the end of 6; years from the date of allotment -(s. ?69 cores released after A6st Guly 6997.. $onversion of 5@I loans receivable in 699A)9? into Preference *hares to be decided after review. 8aiver of penal interest that becomes due up to Guly 6997 -(s. 6?9.?; cores..

5overnment of India ensures funds -(*. 6:;0 cores. in the plan period for the project.

F%2&2>%&$ &2 p<":%>&$ per#or0&2>e

F%2&2>%&$ per#or0&2>e =
&he financial performance of the organi+ation against the set targets right from 699;)96 to 7;;7);A is placed at %nnexure. From this table it can be seen that the $ompany was gaining considerable gross margin which reflects the satisfactory performance of the plant for all the years except during the year 699=)99 and 6999)7;;; when there was a major set back to $oke ovens. Further it had also secured reasonable cash profits barring those two years and initial period up to 6997)9?. &he $ompany had again gained its momentum during 7;;;);6 when it made a cash profit of (s. 6:A cores and turned around during the year 7;;7);A making a 1et Profit of around (s.

:7;crores for the first time. During the last few years the $ompany had taken a number of steps like major capital repairs to coke ovens "F capital repairs austerity measures to cut down the cost restrictions on capital expenditure etc. It may need a special mention that a special drive took place to cut down the interest cost on term loans and working capital arrangements.

P<":%>&$ per#or0&2>e
&he details of physical performance as against the targets set right from 699;)96 to 7;;7) ;A are placed at annexure. From the table it can be seen that the targets set were reasonably met by the organi+ation up to 6999)7;;; and far exceeded the targets from the year 7;;;);6 onwards.

Pre:e2' per#or0&2>e
&he $ompany turned around during the year 7;;7);A making for first time 1et Profit of (s. :7; cores achieving 5ross salesBturnover of (s. :;:9 $ores. &he financial year 7;;7);A is a happy note in 4*P3s diary because of its remarkable performance in all fronts. @n the production front the $ompany far exceeded the targets set. &he performance of the $ompany for the year 7;;7);A is placed at %nnexure. &aking advantage of falling interest rates dynamism prevailing in the financial market strong economic factors with reference to country3s strengthened foreign currency reserves appreciation of rupee with reference to D*D in the later part of the year the $ompany has taken several initiatives to reduce the debt burden.

&aking advantage of falling interest rates dynamism prevailing in the financial market strong economic factors with reference to country3s strengthened foreign currency reserves appreciation of rupee with reference to D*D in the later part of the year the $ompany has taken several initiatives to reduce the debt burden.

Per#or0&2>e o# 1SP=
-;;;3s. *aleable steel
Near !ot metal #iquid steel

6999)7;;; 7;;;)7;;6 7;;6)7;;7 7;;7)7;;A 7;;A)7;;? 7;;?)7;;: 7;;:)7;;< 7;;<)7;;0

79?A A6<: A?=: A9?6 ?;:: A97; ?6:A ?;?<

7<:< 79;9 A;=A AA:< A:;= A:<; A<;A A<;<

7A=7 7:;0 70:0 A;:< A6<9 A60A A7A0 A79;

>o00er>%&$ Per#or0&2>e =
!s" #roces$

"e&r
6999 7;;; 7;;6 7;;7 7;;A 7;;? 7;;: 7;;< 7;;0

S&$e: '9r2over
;;A;A0 ;6A?A< ;7?;=6 ;A:;:9 ;?<6<9 ;:=6=6 ;<=?<9 ;0967< ;====6

Do0e:'%> :&$e:
7<00 A677 A06; ??AA :?;; 09AA =;7< =0;7 0?67

E7por':
79: A77 A06 <7< 0<9 7?= ??A ?7: 6?<9

&aking advantage of falling interest rates dynamism prevailing in the financial market strong economic factors with reference to country3s strengthened foreign currency reserves appreciation of rupee with reference to D*D in the later part of the year the $ompany has taken several initiatives to reduce the debt burden.

FINANCIAL PERFORMANCE

-;;;3s.

"e&r
6999)7;;; 7;;;)7;;6 7;;6)7;;7 7;;7)7;;A 7;;A)7;;? 7;;?)7;;: 7;;:)7;;< 7;;<)7;;0 7;;0)7;;=

Gro:: 0&r3%2
7:7 :;? <9; 6;?9 7;0A A706 7A=A 7<A7 A;;6

C&:< pro#%'
)6A; 6:A ?;; 96: 7;7? A7<; 7A:: 7:=? 7900

Ne' pro#%'
):<7 )796 )0: :76 6:?0 7;;= 67:6 7777 7<=<

SALES PERFORMANCE=

ITEM

2007-08 TARGET

ACTUAL FILFILMEN 2006-07 GRO T WTH /23 ;130 304 0<4 /15 9/<2 678 /54 67814

DOMESTIC Pig Iron /01 *teel EXPORT Pig Iron *teel 9:5/

;:: /:9

;22 5;

/;14 5:4

/22 /;/

5:4 678 <04

TOTAL Pig Iron *teel

901 9/5<

</; ;0</

/:<4 094

9<2 9;55

/04 678 /:4

VALUE D@2'*&I$ 0/:<=/1 'RP@(&* <31=21 021;=35 TOTAL

0131=92 /:04 22<=3; //54 /:<99=:3 /:04

13;5=;2 /94 <;<=9; 9/4 0/2:=23 /<4

b) POLLUTION >o2'ro$ &2 E2v%ro20e2'&$ pro'e>'%o2

5enerally integrated steel plant is seen as a major contributor to environmental pollution as it discharges a large volume of waste products. 'laborate measures have been adapted to combat air and water pollution in 4*P. In order to be eco friendly 4*P has planted more than A

million trees over an area of A: squares ,ms. and incorporated various technologies at a cost of (s. ?<; crores towards pollution control measures=

>( AC5IE1EMENT AND A6ARDS

A;&r 1ational %ward for e) 5overnance Prime 2inisterSs &rophy $ommendation pri+e for strong 'xim "ank %ward *trong $ommitment ) $II !( 'xcellence %ward 7;;< 1ational 'nergy $onservation %ward

P9rpo:e 'xemplary usage of I$& by Public *ector Dndertakings "est integrated steel plant @verall 'xcellence in all activities of the company for "usiness 'xcellence 7;;< 'xcellence in !( processes and practices 7;;< 7;;< 7;;:)7;;< 7;;< 7;;0);=

Ye&r

6st ) 7;;< E7nd C 7;;:E 'nergy efficiency -First pri+e 6st ) 7;;?E6st ) 7;;AE6st C for A consecutive years and 7;;7E also a special award for 7nd ) 7;;6 achieving this.. &his is the 0th award in a row @rgani+ational 'xcellence %ward "usiness %chievement %ward 'fficient suggestion scheme operation given by I1**%1 'nvironmental $onservation 7;;: 7;;;E7;;<E7;;?

for 'xcellence

/ Pollution $ontrol presented by $onfederation of %sia Pacific $hamber of $ommerce / Industry

$II )5"$ 1ational %ward

'xcellence in 'nergy management

7;;:

'nergy $onservation %ward by %P Productivity $ouncil $ertificate of %ppreciation by Institution of 'ngineers %P chapter 1ational %ward for 'xcellence in 8ater 2anagement by $II #eadership / 'xcellence %ward in *!' -*afety !ealth / 'nvironment. $%$$I "usiness %chievement %ward

"est organi+ation in 'nergy conservation initiatives 'xcellence in energy conservation

7;;:

'xcellence in water management

'xcellence in *!' by $II *outh Pone

For environmental conservation / pollution control by FI$$I

8orld Quality $ommitment International *tar %ward

Performance excellence quality management / quality achievement given by

"usiness Initiative Directions Paris in the 5old category. 5ood performance in I$8% 1ational %ward costmngt

"est 'nterprise %ward

For surpassing 2@D &argets awarded by *$@P'

(olling shield for H'nvironmental ProtectionH

&o recogni+e efforts in environmental protection by Directorate of field publicity 2inistry of Information / "roadcasting

Prime 2inisterSs &rophy Indira Priyadarshini 4rikshmitra %ward

"est integrated steel plant For massive afforestation efforts. 5iven by 2inistry of 'nvironment / Forests

"est !( Practices

5iven by Indian *ociety for &raining / Development -I*&D.

'nvironment 'xcellence %ward "est 'nterprise %ward 8IP* %ward for "est &urnaround

for 'nergy conservation by 5reentech Foundation Delhi 5iven by *$@P' 5iven by *$@P'

"est 2anagement %ward

for outstanding contribution in management of industrial relations labour welfare and productivity given by 5ovt. of %P

*hield for H"est efforts in (ain water !arvestingH *%I# $hairmanSs *ilver plaque Paryavaran Parirakshak %ward

%P Pollution $ontrol "oard

for no fatal accidents -for regular employees category. in recognition of itSs success in prevention of industrial pollution and preservation of ecological balance

d) *OARD OF DIR$ TORS9

&he information relating to the board of directors is comprised is in the below table.

*OARD OF DIR$ TORS

NA#$

$!%I(2%1)$D2 2%1%5I15 DI('$&@( DI('$&@(-@P'(%&I15 %1D IB$ P(@G'$&* DI('$&@(-P'(*@11'#. DI('$&@(-$@22'($I%#. DI('$&@(-FI1%1$'. %* %1D F% 2I1 @F *&''# %1D DI('$&@( DI('$&@( DI('$&@( DI('$&@( $@2P%1N *'$('&%(N

*(I P., "I*!1@I *(I P.,. I*(% *(I N. 2%1@!%( *(I $.5. P%&I# *(I ,.*.*!%1,%( *(I ".*.2''1% *(I (.*.*.#.1."!%*,%(DDD D(. 4.,."!%##% D(. G%5%&P%# *(I P.2@!%1 (%@

MILESTONES OF RINL

S) N/
6

Date
60);?)690;

#ilest/ne
Prime 2inister of India %nnounces in parliament to construct a new steel plant at 4isakhapatnam

7 A ? :

Gune 690; A;)66)690; 7;);6)6906 70);7)6906

*ite selection committee appointed $ommittees report approved for site Foundation stone laid by Prime 2inister $onsultant appointed feasibility (eports submitted in 6907 and other Investigation carried out

<

;0);?)690?

First block of land taken over for 4isakhapatnam *teel Plant

0 = 9

6:)6;)6900 7?);:)6909 67);<)6909

Detailed Project (eport submitted by consultant Public Investment "oard accords approval for A.? 2& steel projects. Inter 5overnment %greement signed "etween India and erstwhile D**( at 2@*@@8 for the co)operation in &he construction at 4iskhapatnam *teel Plant

6;

69)6;)6909

5overnment approved setting up of 4iskhapatnam *teel Plant. *oviet side $arried)out the revision of Detailed Project (eport

66 67

Gan 69=; A;)66)69=;

*ite leveling work started 2.1. Dastur / $ompany Principal $onsultant submits the comprehensive (evised detailed project report with certain modifications.

6A

;<);6)69=6

'xpert committee submits (ecommend items for approval of comprehensive (evised detailed project report with certain modifications

6?

;:);7)69=6

$ontract signed with 'rstwhile *oviet Dnion for preparation of working drawings for coke ovens blast furnace and sinter Plant

6:

7A);7)69=6

$omprehensive revised detailed project report along with expert committee recommendations approved

6<

6;);0)69=6

Protocall signed with 'rstwhile *oviet Dnion for supply of equipments and specialists

60 6=

7A);6)69=7 ;6);7)69=7

"last Furnace foundation laid Pero date of the construction of the project

69 7;

6=);7)69=7 76);6)69=0

(ashtriya Ispat 1igarn #imited -(I1#. $ommissioning of *tructural *hop with &his commissioning of

various auxiliary Dnits commenced. 76 ;<);9)69=9 $oke oven battery 1o. 6 starts pushing of coke. 8ith this the commissioning of 2etallurgical units started. 77 7A 7? 7: 6?)66)69=9 7=);A)699; ;A);:)699; ;<);9)699; *inter plant -mchine)6. $ommissioned L 5@D%4%(I M the First "last Furnace $ommissioned Prime 2inister dedicates L 5@D%4%(I M to the 1ation &he first converter and the first $ontinuous $asting machine of the steel melt shop started production. 7< 70 7= 79 7=);9)699; 76)66)699; ;?);A)6996 A;);<)6996 "illet production in the light and 2edium 2erchant mill started 8ire (od 2ill commissioned &he second converter commissioned 'luru water supply scheme made ready for *upply of water to 4isakha steel Plant A; A6 A7 AA A? A: A< 7=)6;)6996 A6)6;)6996 70)67)6996 7;);A)6997 76);A)6997 Guly 6997 Guly 6997 &rial production commenced in the "ar $oke @ven "attery 1o.7 commissioned *inter machine 7 commissioned 2edium 2erchant and *tructural 2ill $ommissioned. L ,(I*!1% M "last furnace 7 commissioned $oke @ven "attery 1o. A $onverter 1o. A of *teel 2elt shop commissioned. &his marks the completion of commissioning of all the units of the A 2illion tones plant A0 A= %ugust 6997 7;;6);7 Dedication of the plant to the nation by &he Prime 2inister *urpassed rated capacity

A9 ?; ?6 ?7 ?A ??

7;;7);A 7;;A);? 7;;?);: 7;;:);< 7;;<);0 7;;<);0

%chieved &urnaround / (ecived P23s &rophy "ecame a Debt free $ompany %chieved maximum 1et Profit after tax 8iped out accumulated net losses $onferred 2ine (atna *tatus 'xpansion of Plant $apacity to <.A 2& started

1SP ;%$$ 3e' NA1ARATNA :'&'9: !e:% e: &>@9%:%'%o2 o# -%r Gro9p.

4I*%,!%P%&1%2: &he (ashtriya Ispat 1igam #imited -(I1#. C the corporate entity of 4isakhapatnam *teel Plant is all set to have double bonan+a C acquisition of "ird 5roup of $ompanies and conferring of navaratna status. &he proposals made by the 4*P management have received favorable response from the 2inistry of *teel. &he proposal to acquire "ird 5roup was mooted for backward integration in raw materials and improving synergies of the companies under consideration. In its 6;;)day agenda the ministry has identified (I1# as a strategic partner for acquiring controlling stake in the "ird 5roup of $ompanies. L&he organi+ational structure proposed is for @rissa 2ineral Development $orporation -@2D$. "isra *tone #ime #td and 'astern Investments #td to be subsidiaries of (I1# which would be the holding company M official sources said on 8ednesday.

@2D$ has control over 66; million tones of iron ore reserves with an annual turnover of (s.< ;;; crores. &here is also a proposal to take over 1eonatal Ispat 1igam #td which has one million tonne steel production unit in @rissa. (I1# is paying dearly towards its production cost as it is forced to shell down a heavy amount on sourcing iron ore and coking coal.

$lite clu?9(I1# will join the elite club of navaratna companies soon after missing the
recognition by a whisker when the status was conferred on 1ational 2ineral Development $orporation and !industan %eronautics #td on Gune 7: 7;;0.

/;e O,en *atte.y @ I'

$oke oven "attery C I4 -$@" C ?. is considered as an additional facility for meeting expansion requirements along with coal handling and by product facility Phase C 6 of $@" C ? is to be commissioned by sep C 7;;=. &he phase C 7 of $@" C ? is to make it an independent unit at a cost of (s. 69=.77 cores

S8ecial !u.8/se 'e+icle9

For securing coking and boiler coal assets from overseas a special purpose vehicle called I1&'(1%&I@1%# $@%# 4'1&D('* #&D was formed with (I1# steel %uthority of India limited -*%I#. coal India #imited -$I#. 1ational 2ineral Development $orporation #imited -12D$. and 2B* 1ational &hermal Power $orporation #td -1&P$.

$m8l/yeeAs de7iles

 &he man power strength of the company at 6< ?6< on A6);A);= During the year no. of (ecruitment of employees ) 7:9 4acancies filled through promotion T 0?0 %s on A6);A);= the no. of displaced persons on the roils of 4*P were :?70.

C5APTER-I1

6OR/ING CAPITAL MANAGEMENT

D$FINITION9
In the words subbing L8orking $apital is the amount of funds necessary to cover the cost of operating the enterprise.M %ccording to 5ene *tenberg L$irculating 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 receivables into cash. 'very business needs investment to procure fixed assets which remain in use for a longer period. 2oney invested in these assets is called S#ong term funds SorS fixed capitalS. "usiness also needs funds for short term purposes to finance current operations. Investments in short term assets like cash inventories debtors etc. are called S*hort term fundsS or S8orking capitalS. 8orking capital can be categori+ed as funds needed for carrying out day)to)day operations of the business smoothly.

&he management of the working capital is equally important as the management of long)term financial investment. every running business needs working capital. 'ven a business which is fully equipped with all types of fixed assets required is bound to collapse without -6. adequate supply of raw materials for processingE -7. cash to pay for wages power and other costsE -A. creating a stock of finished goods to feed the market demand regularly and -?. the ability to grant credit to its customers. %ll these require working capital. 8orking capital is thus like the life blood of a business. &he business will not be able to carry on day)to)day activities without the availability of adequate working capital. 8orking capital cycle involves conversions and rotation of various components of the working capital. Initially Scash is converted into raw materials. *ubsequently with the usage of fixed assets resulting in value additions the raw materials get converted into work in process and then into finished goods. 8hen sold on credit the finished goods assume the form of debtors who give the business cash on due date. &hus3 cash3 assumes its original form again at end of one such working capital cycle but in the course it passes through various oter forms of current assets too. &his is how various components of current assets keep on changing their forms due to value addition. %s a result they rotate and business operations continue. &hus the working capital cycle involves rotation of various constituents of the working capital. 8orking capital is the firm3s holdings of current assets such as cash receivables inventory / marketable securities. 'very firm requires working capital for its day to day transactions such as purchasing raw material for meeting salaries wages rents rates advertising etc.

S%32%#%>&2>e o# ;orC%23 >&p%'&$=

&he world in which real firms function is not perfect it is characteri+ed by the firm3s considerable uncertainty regarding the demand market price quality / availability of its own products and those suppliers. 8hile the firm has many strategies available to address these circumstances strategies that utili+e investment or financing with working capital accounts often offer a substantial advantage over the other techniques. &he importance of working capital management is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities like)

%rranging short term financing. 1egotiating favorable credit terms. $ontrolling the movement of cash. %dministering accounts receivables. 2onitoring investment in receivables. Decision concerning the above areas plays a vital role in maximi+ing the overall value

of the firm. @nce decisions concerning these areas are reached the level of working capital is also determined in active decision sense but falls out as residual from the decision just made.&he management of working capital plays an important role in maintaining the financial health during the normal course of business. &his critical role can be enunciated by examining the flow of resources through the firm. "y far the major flow is the working capital cycle. &his is the loop -previous page. which starts at the cash and the marketable securities account goes through the current account as direct labor and materials which are purchased and use to produce inventory which in turn is sold and generates accounts receivables which are finally collected to replenish cash. &he major point to notice about this cycle is that the turnover

or velocity of resources through this is very high related to the other inflows and outflows of the cash account..

MANAGEMENT OF 6OR/ING CAPITAL CYCLE

8hile managing the working capital two characteristics of current assets should be kept in mind like -6. short life span and -7. swift transformation into other form of current asset. 'ach component of current asset has comparatively very short life span. Investment remains in a particular form of current asset for a short period. &he life span of current assets depends upon the time required in the activities of procurementE production sales and collection and degree of synchroni+ation among them. % very short life span of current assets results into swift transformation into other form of current assets for a running business. &hese characteristics have certain implications. Decision regarding management of the working capital has to be taken frequently and on a repeat basis.

&he various components of working capital are closely related and mismanagement of any one component adversely affects the other components too.

&he difference between the present value and the book value of profit is not significant. &he working capital has the following components which are in several forms of current assets:

*tock of cash *tock of raw material.

CLASSIFICATION OF 6OR/ING CAPITAL=

8orking capital can be classified into two ways. -a.. @n the basis of concept -b.. @n the basis of time.

On t+e ?asis /7 c/nce8t9 working capital is classified as gross working capital and net
working capital. @n the basis of time it may be classified as permanent working capital and temporary working capital.

Gro:: ;orC%23 >&p%'&$=

5ross 8orking $apital refers to the firm3s investment in current assets. $urrent assets are the assets which can be converted into cash within an @perating $ycle time or within an accounting year i.e. within 67 months. &his includes cash short term securities debtor3s bills receivable and inventory. &his 5ross 8orking $apital concept is also called L'conomist $onceptM. &he gross working capital concept focuses attention on two aspects of current assets management. a. @ptimum investment in current assets and

b. Financing of current assets &he consideration of the level of investment in current assets should avoid two danger points) excessive and inadequate investments in current arranging funds to finance current assets. 8henever a need for working capital funds arises due to the increasing level of business activity or for any other reason arrangement should be made quickly.

Net -/.;ing ca8ital9

1et working capital refers to the difference between current assets and current liabilities.1et working capital can be positive or negative. % positive net working capital will arise when current assets exceeds current liabilities. It indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. 1et working capital concept also covers the question of judicious mix of long term and short term funds for financing current assets. &he level of 18$ has a bearing on the $ompany3s Profitability as well as the risk in the sense that it affects the ability or otherwise of the firm to meet its obligations as and when they become due. &herefore a trade off between profitability and risk is an important element in evaluation of the level of 18$. In general the higher the 18$ the lower is the risk and profitability and vice versa. %et &orking #apital ' #urrent assets ( #urrent liabilities

!e.manent -/.;ing ca8ital9

Permanent working capital is the amount invested in all current assets which is required at all times to carry out minimum level of business activities. It grows with the si+e of the si+e of

the business. It is permanently needed for the business and therefore be financed out of long term funds.

'a.ia?le -/.;ing ca8ital9

4ariable working capital is the excessive amount over permanent working capital. &his keeps on fluctuating from time on the business activities. It is further divided into -a.*easonal working capital -b.*pecial working capital *easonal working capital is required to meet the seasonal demands of busy periods occurring at stated intervals. 8here as special working capital is required to meet extraordinary needs for contingencies.

A88./ac+es 7/. 7inancing -/.;ing ca8ital9

&here are two sources of financing working capital requirements:

-6.. #ong term sources such as share capital debentures public deposits loans from financial institutions and -7.. *hort term sources such as commercial banks indigenous bankers trade credits installment credit advances accounts receivables and so on. &here are three basic approaches for determining an appropriate working capital financing mix.

!edging approach $onservative approach

%ggressive approach

%edging a88./ac+9
&he firm can adopt a financial plan which matches the expected life of assets with the expected life of the source of funds raised to finance assets. &he firm follows matching approach. It suggests that the permanent working capital requirements should be financed with funds from long term sources while temporary working capital requirements should be financed with funds from short term funds

/nse.,ati,e a88./ac+9
&his approach suggests that the entire estimated investments in current assets should be financed from long term sources and the short term sources should be used only for emergency requirements. &he distinct features of this approach are:

#iquidity is severally greater (isk is minimi+ed &he cost of financing is relatively more as interest has to be paid even on seasonal requirements for the entire period.

Agg.essi,e a88./ac+9

&he aggressive approach suggests that the entire estimated requirements of current asset should be financed from short term sources and even a part of fixed asset investments be financed from short term sources. &his approach makes the finance mix more risky less costly and more profitable.

Working Capital Management Goal:

&he goal of working capital management is to manage the firms3 $urrent %ssets and $urrent #iabilities in such a way that a satisfactory level of working capital is maintained. &his is so because if the firm cannot maintain a satisfactory level of working capital it is likely to become insolvent and may even be forced into bankruptcy. *ometimes a $ompany may have tremendous potential for profitability in the long run but may languish due to inadequate liquidity. &he basic goal of working capital management is to manage each of the funds current assets and current liabilities in such a way that an acceptable level of net working capital is always maintained in the business. &here are number of methods to determine the working capital needs. &hey are

"y determining the amount of current assets and current liabilities $ash forecasting methods "alance sheet method Profit / loss adjustment method 8orking capital as a percentage of sales 8orking capital as a percentage of fixed assets

Advantages o ade!"ate #orking $apital:

8orking capital is the life blood and center of a business. 8orking capital is very essential to maintain the smooth running of a business. 1o business can run successfully without an adequate amount of working capital. *ome of the advantages of working capital management are as follows.

So$ve2>" o# '<e !9:%2e:::

%dequate working capital enables helps in maintaining solvency of the business by providing the uninterrupted flow of production.

G//d-ill:
*ufficient working capital enables a business concern to make prompt payments and hence help in creating and maintaining goodwill.

$asy l/ans9
% concern having adequate working capital high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms.

as+ disc/unts9

%dequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs

Regula. su88ly /7 .a- mate.ials9

*ufficient working capital ensures regular supply of raw materials and continuous production.

Regula. 8ayments9
&here are regular payment of salaries ages and other day to day commitments. $ompany which has sample working can make regular payment of salaries ages and other day to day commitments which raises the moral of its employees efficiency and enhances production and profits.

%ig+ m/.al9
%dequacy of working capital creates an environment of security confidence high moral and creates overall efficiency in a business.

DETERMINANTS OF 6OR/ING CAPITAL=

&he need for working capital is not always the same it varies from year to year or even month to month depending upon a number of factors. &here is no set of rules or formulate to

determine the working capital needs of the firm. 'ach factor has its own importance and the importance of the factors changes for a firm over a time. In order to determine the proper amount of working capital of a concern the following factors should be considered carefully.

Natu.e /7 t+e ?usiness9

&he amount of working capital is basically related to the nature and volume of the business concern where the cost of the raw materials to be used in the manufacturing of a product is very large in proportion to its total cost of manufacturing the requirements of working capital will be very large.

SiBe /7 t+e ?usiness unit9

&he si+e of the business unit has an important impact on its working capital needs. *i+e may be measured in terms of operations" ) firm with large scale of operation will need more working capital then a small firm"

Seas/nal ,a.iati/n9
*easonal industries require more working capital to stock the raw materials during the season. In peak season

Time c/nsumed in manu7actu.ing9

&he average time taken in the process of manufacturing is also an important factor in the process of manufacturing is also an important factor in determining the amount of working capital .&he longer the period of manufacturing the larger the inventory required.

Tu.n /,e. /7 ci.culating ca8ital9

(apidly of turnover determines the amount of working capital .&he faster the sales the larger the turnover hence less working capital.

Oper&'%o2:=
&he requirement of working capital fluctuates for seasonal business. &he working capital needs of such business may increase considerably during the busy season and decrease during the slack season. Ice creams and cold drinks have a great demand during summers while in winter the sales are negligible.

M&rCe' >o2 %'%o2=

If there ids high competition in the chosen product category then one shall need to offer sops

M&29#&>'9r%23DPro 9>'%o2 po$%>"=

'ach enterprise 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 others may follow the principle of demand based production in which production is based on the demand

during that particular phase of time. %ccordingly the working capital requirements vary for both of them.

O8e.ati/ns9
&he requirement of working capital fluctuates for seasonal business. &he working capital needs of such business may increase considerably during the busy season and decrease during the slack season. Ice creams and cold drinks have a great demand during summers while in winter the sales are negligible.

#a.;et c/nditi/n9
If there ids high competition in the chosen product category then one shall need to offer sops like credit immediate delivery of goods etc. for which the working capital requirement will be high. @therwise if there is no competition or less competition in the market then the working capital requirements will be low.

A,aila?ility /7 .a- mate.ial9

If raw material is readily available then one need not maintain a large stock of the same thereby reducing the working capital investment in raw material stock. @n the other hand if raw material is not readily available then a large amount of working capital is required.

*usiness cycle 7luctuati/ns9

8orking capital required more in boom period and less in depression period.

Te.ms /7 8u.c+ase and sale9

&erms of purchase and sales affect the amount of working capital. &he practice of cash purchases with credit sales requires more working capital.

O8e.ati/ns9
&he requirement of working capital fluctuates for seasonal business. &he working capital needs of such business may increase considerably during the busy season and decrease during the slack season. Ice creams and cold drinks have a great demand during summers while in winter the sales are negligible.

M&rCe' >o2 %'%o2=

If there ids high competition in the chosen product category then one shall need to offer sops like credit immediate delivery of goods etc. for which the working capital requirement will be high. @therwise if there is no competition or less competition in the market then the working capital requirements will be low

Inventory turnover:
8ith a better inventory control a form is able to reduce its working capital requirements .If the inventory turnover is high the working capital requirements will be low.

G./-t+ and e:8ansi/n9

5rowing concerns requires more working capital than the forms that are static. It is logical to expect larger amount of working capital in a growing concern to meant its growing needs of funds.

CONSEEUENCES OF UNDER ASSESSMENT OF 6OR/ING CAPITAL9

5rowth may be stunted. It may become difficult for the enterprise to undertake profitable projects due to non)availability of working capital

Implementation of operating plans may become difficult and consequently the profit goals may not be achieved.

$ash crisis may emerge due to paucity of working funds. @ptimum capacity utili+ation of fixed assets may not be achieved due to non)availability of the working capital.

&he business may fail to honor its commitment in time thereby adversely affecting its credibility. &his situation may lead to business closure.

&he business may be compelled to buy raw materials on credit and sell finished goods on cash. In the process it may end up with increasing cost of purchases and reducing selling prices by offering discounts. "oth these situations would affect profitability adversely.

1on)availability of stock due to non)availability of funds may result in production stoppage.

8hile under assessment of working capital has disastrous implications on business over assessment of working capital also has its own dangers.

CONSEEUENCES OF O1ER ASSESSMENT OF 6OR/ING CAPITAL=

@ver assessment of working capital causes more consequences. 'xcess of working capital may result in unnecessary accumulation of inventories. It may lead to offer too liberal credit terms to buyers and very poor recovery system and $ash management. It may make management complacent leading to its inefficiency. @ver investment in working capital makes capital less productive and may reduce return on invest

CAS5 MANAGEMENT
C&:< 0&2&3e0e2'=
$ash is one of the current assets of working capital. % business concern should always keep sufficient cash for meeting its obligations. &he term cash with reference to cash management is used in two senses. In a narrow sense it is used broadly to cover currency and generally accepted equivalence of cash such as cheques drafts and demand deposits in banks. &he broader view of cash also includes near cash assets such as marketable securities and time deposits in banks. &he main character of these in that they can be readily sold and converted into cash. 2otives for holding cash: ,eynes has identified five motives for cash holding those are: &ransaction 2otive: % firm needs cash for making transactions in the day to day operations. &he cash is needed to make purchased pay expenses taxes and dividend etc. &he cash needs arise due to the fact that there is no complete synchroni+ation between cash receipts exceeds cash payments or 4ice)4ersa. &he transaction needs of cash can be anticipated because the expected payments in near future can be estimated. Precautionary 2otive: % firm is required to keep cash for meeting various contingencies. &hough cash inflows are anticipated but their may be variations in these estimates.

 *peculative 2otive: &he speculative motive relates to holding of cash for investing in profitable opportunities and when they arise. *uch opportunities do not come in a regular manner. &hese opportunities cannot be scientifically predicted but only conjectures can be made about their occurrence. For example the prices of shares and securities may be low at a time with expectations that these will go up shortly.

O!Ae>'%ve: o# C&:< M&2&3e0e2'=

$ash management has assumed importance because it is the most significant of all the current assets. It is required to meet business obligations and unproductive when not use. $ash management deals with the following: $ash inflows and out flows. $ash flows with in the firm. $ash balances held by the firm at a point of time. $ash management needs strategies to deals with various facts of cash. Following are some of its facts. $ash Planning: $ash planning is a technique to plan and control the use cash. % projected cash flow statement may be prepared based on the present business conditions and anticipated future actives. &he

cash inflows from various sources may be anticipated and cash out flows will determine the possible uses of cash. $ash forecasts and "udgeting: &he cash budget is the most important device for the control of receipts and payment of cash. % cash budget is an estimate of cash receipts and disbursements during a future period of time it is an analysis of flow of cash in a business over a future short or long period of time. $ash budget is prepared with the help of cash forecasting of both inflow and outflows. &hese cash forecast may be two types. a. b. &( *hort) term forecasting #ong) term forecasting

S<or'- 'er0 #ore>&:'%23 =

&he short)term forecasts can be made with the help of cash flow projections. It covers a period of less than or equal to a year. &wo techniques are followed in this short term forecasting of cash those are: (eceipts and disbursements method %djusted net income

!(

Lo23 'er0 Fore>&:'%23= &he long)term cash forecasts are also essentials for proper cash planning this

estimates may be for three four five or more years. #ong)term forecasts indicate company3s future financial needs for working capital projects etcE (eceipts and disbursements method %djusted net income

C5APTER-1

6OR/ING CAPITAL MANAGEMENT IN RINL

L8orking capital 2anagement is the concept of how effectively holding the current assets and current liabilities of an organi+ationM. (I1# is the steel manufacturing industry. In (I1# production of steel is done in 7? hours continuously. It follows the most effective and perfect methods for holding the working capital. (I1# working capital management seems to be best in the industry with better utili+ation of available resources. &hey are taking advantages of cheap working capital credit and investing their funds at a very good rate of returns. 2anagement efforts over the few years have been to inculcate cash consciousness through constant emphasis on working capital manly inventory and book debtors. In all these it is to be kept in mind that (I1# is a multi product undertaking where management decisions affectingworkingcapitalistakenatthetopmanageriallevel.

D%T%RMINANTS O& WOR'ING CA(ITA) IN RIN)*+

It is understood that working capital is the vital component for future growth of the firm. Financial manager has to maintain adequate level of working capital. &here are several factors influence the determinants of working capital. It is necessary to know those factors which identifying the optimum si+e of working capital. In (I1# working capital is generally deter mind by these factors.&hey are: 2arket $overage 2anufacturing $ycle

%dvances 5rowth of the firm *easonal fluctuations 5lobal 2arket boom 'xpansion $hances $redit Policy

&he 2anagement of working capital in (I1# encompasses the following problems:) 6. &o decide upon the optimal level of investment in various current assets. 7. &o decide upon the optimal mix of short)term funds high relation to long term capital. A. &o locate the appropriate means of short)term financing.

So9r>e: o# ;orC%23 >&p%'&$ #92 :=(I1# raise its working capital from a consortium of U66 "ankers3. &he following are the 66 banks where funds for working capital raised. 6. *tate bank of India 7. *tate bank of !yderabad A. "ank of "aroda ?. $anara bank :. D$@ bank <. %ndhra bank 0. %llahabad bank

=. Indian overseas bank 9. !*"$ bank #td 6;. ID"I bank #td 66. I1DI%1 "%1, In (I1# working capital requirement is assessed by

Fixing the target production for the year Preparation of "udget -in (upees.

8orking capital requirement are prepared taking into account

Previous two years actual Projected for the next two years

Pro>e 9re #or pro>9re0e2' o# #92 :=

(I1# applies a $redit 2onitoring %nd %ppraisal -$2%. (eport -a Forty pages document. consists of historical data about the company and profit and loss account balance sheet current assets current liabilities working capital assessment fund flows etc. *tate "ank of India subscribes the maximum working capital limit -up to extent of A=>. of the entire working capital assessed. &he other banks of the under the multiple banking arrangement above provide the rest of working capital limits.

L%0%':=

(I1# is having fund based limits of <6A.=: crores and non fund based limits up to 7;79 crores in 7;;<);0year. &ypes of working capital sources:

5) Fund ?ased limits 96

Dnder this source (I1# can obtain working capital finance by bank borrowing in the form of cash credit of export packing credit.

0) N/n67und ?ased limits :)

form of a. #etter of credit b. "ank guarantee

(I1# receives non)fund based working capital in the

6orC%23 >&p%'&$ o# RINL %2 v&r%o9: "e&r:

in crores$

C9rre2' A::e':
*n+entories 3undry debtors #ash 4 5ank 6ther current assets 7oans 4 )d+ances T/tal )"(A)

0114613

011361C

011C61D

011D612

011261E

,2--"., 09"20

,2,/"0,/-"/-

,20."20 2,/"2

,1/,",9."0,

.2,-"22 ,9,"21

.9.2"/, ,00",2

-/2,"10 ,20"./

1,90"/2 .,0"02

1/99",, 292"0.

//20",1 2-2"9,

1,0",2

,0/."20

,-,2"90

,9-2"09

,-/9"/9

/001"-2

22-2"00

,0002",0

,,200"-9

,,2-9".2

C9rre2' L%&!%$%'%e: 7iabilities 8ro+ision To'&$ C.L (-( ,,-0"22 2/9"21 ,020",/ 21,"09 1,/".1 ,-21"2/ ,0,,"-. ,092"11 2,00".0 0/,0",,-2,"01 .,9,"/2 2-/0"19 ,/20"-. 0,2,".2

Ne' 6orC%23 C&p%'&$ (A-(

0/2."./

///0",0

2.0."20

2/,2"91

1/12"00

I2'erpre'&'%o2=
&here is a significant increase in net working capital from 7;;?)7;;= but it decreased in the year 7;;9 which amounts to 0<0=.;; crores. &here noticeable decrease in net working capital is due to decrease in cash / bank balances .&he decrease in cash is <<7?.60 crores.% negative growth is observed in loan / advances and other current assets. &he net effect of the above changes has brought about the decreased working capital.

GRO6T5 OF 6OR/ING CAPITAL -from7;;:)7;;9.

S'&'e0e2' o# ><&23e: %2 ;orC%23 >&p%'&$ #or '<e "e&r 200+-200) in crores$

P&r'%>9$&r: 200+ 0&r><
C9rre2' A::e': *n+entories 3undry debtors #ash 4 5ank 0;<.A? =:.<7 6A:9.06 67::.A6 ?9.A A9A7.<6 7:07.9 :?=.90 A<.A7

200) M&r><

I2>re&:e

De>re&:e

6ther current assets 7oans 4 )d+ances T/tal )"(A)

7?.A6

6;;.6;

0:.=<

::;.96

06;.67

6:9.77

2,2F.8G

F0+,.)2

C9rre2' L%&!%$%'%e: 7iabilities 8ro+ision To'&$ C.L (-( Ne' 6orC%23 C&p%'&$ (A--( Ne' I2>re&:e %2 6orC%23 C&p%'&$ To'&$ +F2*.*F +F2*.*F **)F.G) **)F.G) A6A6.=7 A6A6.=7 6;0=.=? 6:<.:6 12*).*) 6?96.:? 66:?.== 7<9.70 1+2+.1F ?<7A.A< 0<.;: 667.0<

I2'erpre'&'%o2=
&here is a significant increase in net working capital which amounts to A6A6.=7 crores. &here noticeable increase in net working capital is due to increase in cash / bank balances .&he increase in cash is 7:07.9; crores.% positive growth is observed in loan / advances and other current assets. &he increase is offset by the increase in total current assets. &he net effect of the above changes has brought about the increased working capital.

Gr&p<%>&$ Repre:e2'&'%o2=
2000(200-$

7;;:

7;;?

S'&'e0e2' o# ><&23e: %2 ;orC%23 >&p%'&$ #or '<e "e&r 200)-200F in crores$

200) P&r'%>9$&r: 0&r>< C9rre2' A::e': 0&r>< 200F I2>re&:e De>re&:e

*n+entories 3undry debtors #ash 4 5ank 6ther current assets 7oans 4 )d+ances T/tal )"(A)

67:0.:A ?9.A A9A7.<6 6;;.6=

676<.?: 6<:.<: :<76.0 6=?.A< 66<.A: 6<=9.;9 =?.6=

?6.;=

06;.67

6;<A.=?

A:A.07

F0+G.,+

82)2

C9rre2' L%&!%$%'%e: 7iabilities 8ro+ision To'&$ C.L (-( Ne' 6orC%23 C&p%'&$ (A--( Ne' I2>re&:e %2 6orC%23 C&p%'&$ To'&$ FFF+.1+ FFF+.1+ 22+*.*+ 22+*.*+ 6:9<.6A 6:9<.6A 067.?< 7<9.70 G81.,* :;<=.;6 =06.?9 06<.A0 1)8,.8F <<<?.6? 6:9.;A ??0.6

I2'erpre'&'%o2=
&here is a significant increase in net working capital which amounts to 6:9<.6A crores. &here noticeable increase in net working capital is due to increase in cash / bank balances.&he increase in cash is6<=9.;9 crores.% positive growth is observed in loan / advances and other

current assets. &he increase is offset by the increase in total current assets. &he net effect of the above changes has brought about the increased working capital.

Gr&p<%>&$ Repre:e2'&'%o2=
200-(200/$

7;;<

7;;:

S'&'e0e2' o# ><&23e: %2 ;orC%23 >&p%'&$ #or '<e "e&r 200F-200, in crores$

200F P&r'%>9$&r: 0&r>< C9rre2' A::e': *n+entories 3undry debtors #ash 4 5ank 6ther current assets 7oans 4 )d+ances T/tal )"(A) 82)2 6;<6.A7 676=.A: 6<<.70 :<76.0 6=?.A<

200, I2>re&:e M&r>< De>re&:e

67;A.7? 76<.= 069?.<= A6?.?= :;.:A 6:07.9= 6A;.67

6:.66

6:6=.9

?:0.:=

10++8.1

C9rre2' L%&!%$%'%e: 7iabilities 8ro+ision To'&$ C.L (-( Ne' 6orC%23 C&p%'&$ (A--( Ne' I2>re&:e %2 6orC%23 C&p%'&$ To'&$ 8*+*.8 8*+*.8 2211.21 2211.21 6:9A.9? 6:9A.9? 0=:.00 06<.A0 1)02.1+ <0?9.=< 6;66.:A 6;97.00 210+.* =A?A.= 77:.0< A0<.?

I2'erpre'&'%o2=

&here is a significant increase in net working capital which amounts to 6:9A.9? crores. &here noticeable increase in net working capital is due to increase in cash / bank balances.&he increase in cash is6:07.9= crores.% positive growth is observed in loan / advances and other current assets. &he increase is offset by the increase in total current assets. &he net effect of the above changes has brought about the increased working capital.

Gr&p<%>&$ Repre:e2'&'%o2=
200/(2001$

7;;0

7;;<

S'&'e0e2' o# ><&23e: %2 ;orC%23 >&p%'&$ #or '<e "e&r

200,-2008 in crores$
200, P&r'%>9$&r: 0&r>< C9rre2' A::e': *n+entories 3undry debtors #ash 4 5ank 6ther current assets 7oans 4 )d+ances T/tal )"(A) 10++8.1 1180+.)G 6:6=.9 69:=.?9 ?A9.:9 67;A.7? 76<.= 069?.<= A6?.?= 60<6.6: 9A.?6 0<99.66 797.?A :;?.?A 77.;: ::0.96 67A.A9 M&r>< 2008 I2>re&:e De>re&:e

C9rre2' L%&!%$%'%e: 7iabilities 8ro+ision To'&$ C.L (-( Ne' 6orC%23 C&p%'&$ (A--( Ne' I2>re&:e %2 6orC%23 C&p%'&$ To'&$ 8F12.G, 8F12.G, 1)01.G* 1)01.G* 7<9.60 7<9.60 6;66.:A 6;97.00 210+.* =A?A.= 6<6;.6: 6:=6.?0 *1*1.F2 =<67.90 :9=.<7 ?==.0

I2'erpre'&'%o2=
&here is a significant increase in net working capital which amounts to 7<9.60 crores. &here noticeable increase in net working capital is due to increase in cash / bank balances .&he increase in cash is :;?.?A crores. % positive growth is observed in loan / advances and other current assets. &he increase is offset by the increase in total current assets. &he net effect of the above changes has brought about the increased working capital.

Gr&p<%>&$ Repre:e2'&'%o2=
2001(2002$

7;;=

7;;0

S'&'e0e2' o# ><&23e: %2 ;orC%23 >&p%'&$ #or '<e "e&r 2008-200G in crores$

P&r'%>9$&r: 2008 M&r><
C9rre2' A::e': *n+entories 3undry debtors #ash 4 5ank 6ther current assets 7oans 4 )d+ances T/tal )A(A) 1180+.)G 118)G.*2 69:=.?9 6:<9.<9 A==.= 60<6.6: 9A.?6 0<99.66 797.?A A76:.7= 696.70 <<7?.60 7:=.96 6?:?.6A 90.=< 6;0?.9? AA.:7

200G M&r><

I2>re&:e

De>re&:e

C9rre2' L%&!%$%'%e: 7iabilities 8ro+ision To'&$ C.L (-( Ne' 6orC%23 C&p%'&$ (A--( Ne' I2>re&:e %2 9A?.90 9A?.90 6<6;.6: 6:=6.?0 *1G1.F2 =<67.90 7:<;.09 6<7;.:A +181.*2 0<0=.;; 9:;.<? A9.;<

6orC%23 C&p%'&$ To'&$ 8F12.G, 8F12.G, 1))1.GG 2+8F.GF

I2'erpre'&'%o2=
&here is a significant decrease in net working capital which amounts to 9A?.90 crores. &here noticeable decrease in net working capital is due to decrease in cash / bank balances .&he decrease in cash is 6;0?.9? crores. % negative growth is observed in loan / advances and other current assets. &he net effect of the above changes has brought about the decreased working capital.

Gr&p<%>&$ Repre:e2'&'%o2=
2002(2009$

7;;=

7;;9

Gro:: 6orC%23 C&p%'&$

Ye&r
200+-200) 200)-200F 200F-200, 200,-2008 2008-200G

Gro:: 6orC%23 C&p%'&$ -in crores.

<;?0.:7 =7:7.;; 6;??=.6; 66=;?.:9 66=:9.A7

I2'erpre'&'%o2=
&here is a significant increase in 5ross working capital which amounts to 66=:9.A7 crores in the year 7;;9. "ut there is noticeable decrease in net working capital is due to decrease in cash / bank balances .

GROSS 6OR/ING CAPITAL IN 1ARIOUS YEARS

NET 6OR/ING CAPITAL=

Ye&r
200+-200) 200)-200F 200F-200, 200,-2008 2008-200G

Ne' 6orC%23 C&p%'&$ -in crores.

?<7A.A< <<<?.6? =A?A.=; =<67.90 0<0=.;;

I2'erpre'&'%o2=
&here is a significant decrease in 1et working capital which amounts to 0<0=.;; crores in the year 7;;9. which lead to a noticeable decrease in net working capital is due to decrease in cash / bank balances .

Ne' 6orC%23 C&p%'&$ %2 v&r%o9: "e&r:=

CURRENT RATIO=

$urrent ratioTcurrent assetsBcurrent liabilities Ye&r C9rre2' A::e': C9rre2' L%&!%$%'%e: C9rre2' R&'%o

200+-200) 200)-200F 200F-200, 200,-2008 2008-200G

<;?0.:7 =7:7.;; 6;??=.6; 66=;?.:9 66=:9.A7

6?7?.6< 6:=0.=< 76;?.A; A696.<7 ?6=6.A7

?.7 :.7 :.; A.<9 7.=A

I2'erpre'&'%o2=
&here is a significant decrease in current ratio which amounts to 7.=A> in the year 7;;9.due to increase in liabilities which lead to a noticeable decrease in net working capital is due to decrease in cash / bank balances .

Ne' 6orC%23 C&p%'&$ R&'%o=

Ne' ;orC%23 C&p%'&$ R&'%o H Ne' 6orC%23 C&p%'&$ D Ne' A::e': Ye&r Ne'6orC%23 Ne' A::e': R&'%o

C&p%'&$ 200) 200F 200, 2008 200G ?<7A.A< <<<?.6? =A?A.=; =<67.90 0<0=.;; =:?9.9; 6;:66.;; 67=A:.=; 6:70<.:6 60<9;.:A ;.:? ;.<A ;.<: ;.:< ;.?A

I2'erpre'&'%o2=
&here is a significant decrease in 1et working capital ratio which amounts to ;.?A> in the year 7;;9. which lead to a noticeable decrease in net working capital is due to decrease in cash / bank balances .

C5APTER-1I

FINDINGS=

&he total sales of (I1# are showing a positive trend despite cut down in steel prices across the globe. &he rise in sales is 6?> in terms of net sales 7;;=)7;;9 compared to 7;;0)7;;= and => during 7;;0)7;;= compared to 7;;<)7;;0.

&he gross margin of (I1# has increased from (s 7777 crores in 7;;0)7;;= to (s799: crores in 7;;=);9 -an increase of A?.0=>..

&he gross working capital is increasing from 7;;?);: to 7;;=);9. In 7;;=);9 gross working capital is 66=:9.A7 crores. It is the highest amount among the past twenty years.

&he net working capital is also increasing from 7;;: to 7;;;=."ut it decreased in 7;;9 In 7;;9 net working capital is 0<0=.;; croresE it is the all time lowest amount.

$ashB bank balance is increasing from 7;;?);: to 7;;0);=. "ut it decreased in 7;;9 .In 7;;9 . cashBbank balance is <<7?.60 crores.

$urrent (atio is highest in7;;< after that there is a decreasing trend in the year 7;;<) ;9 %nd it has worst ratio in the year 7;;9.

. &he net working capital ratio is highest in the year 7;;0. %nd it has worst ratio in the year 7;;9.

. Inventory 2anagement reveals the most of the stock is in the form of raw materials / finished goods.

&he below table shows the changes in working capital from 7;;?);: to 7;;=);9.

*n #rores$

Ye&r
7;;?)7;;: 7;;:)7;;< 7;;<)7;;0 7;;0)7;;= 7;;=)7;;9

C<&23e: %2 6orC%23 >&p%'&$

A6A6.=7 6:9<.6A 6:9A.9? 7<9.60

Purchase the raw materials / sell the goods are maximum on cash. $redit transactions are very little amount.

SUGGESTIONS=

4*P is a multi product manufacturer unit with varying cycle time for each product. &he capital required for each manufacturing unit of 4*P depends on the individual3s product cycle of each item. &he department wise capital whose capital requirement coupled with their production target invites / effective working capital management. In finance working capital is synonymous with current assetsE 4*P is a multi product large organi+ation with huge capital turnover where the working capital requirement depends on the level of operation / the level of operation cycle. 2onitoring / duration of the operating cycle is an important aspect of current assets management / control. &he company has already accumulated funds excess of (s. <?;; $rore / can look forward to bigger investment in building up capacities compared to the proposed <.A million tons.
o

&he company is getting all its funds i.e. day +ero -;. when the rates are comparedE the company is investing surplus funds at =)=.:> / paying at A):> to get the funds on +ero -;.. &he spread should be maintained during the time of expansion also.

Dnlikely any other steel company 4*P is not having its own sources of raw material i.e. coal mine. &hese are very basic needs as the company always depends on its suppliers for its raw materials. !ad the company utili+ed its 7)A> half > of its working capital limit for acquisition of mines purchasing of mines etc. It could have been a favorable situation

CONCLUSION=

&hough the working capital is increasing year by year and the ideal cash is also increasing. *o the company has to exercise a lot of proper control and proper system of working capital management to manage such cash and inventory in a profitable way. For this purpose the company may consider the above suggestions for effective management of working capital. % proper working capital management system definitely helps to achieve the objectives of the company and for its continuous improvement.

-I-LOGRAP5Y

Financial management Financial management Financial management 8orking capital 2anagement Financial 2anagement Financial 2anagement

*" M" pandey 8rasanna #handra My 9han *"M" pandey !"9" 3harma 4 3"9" :upta !"8" !ustagi

%nnual (eports @f 4isakhapatnam *teel Plant 5eneral %rticles %nd 2aga+ines @f 4isakhapatnam *teel Plant

8ebsite: www.vi+agsteel.com www.indianinfoline.com www.jpcsteelonline.com www.cii.com. "@@,*: *urvey of Indian industry)the !indu %ewspapers; <eccan #hronicle, The =indu.