You are on page 1of 83

A Summer Internship Report on Working Capital

Management

EXECUTIVE SUMMARY…

The on the job training is an integral part of MBA course which


gives the student a practical knowledge about the functioning
of an organization. The main objective of the training is to
provide a platform to learn and acquire different business skills
from the professionals. It teaches the students to adapt
themselves to various challenges in the work front, which helps
to develop professionalism within them. The sole objective of
this project was to analyze the working capital management of
Rourkela steel Plant (RSP) for four years from 2005-06 to 2008-
09. Working capital involves deciding upon the amount and
composition of current asset and the manner in which to
finance them. Determining the appropriate levels of working
capital involves fundamental decisions with regard to the firm's
liquidity and trade off between risk and profitability. Greater the
amount of working capital level maintained, the lesser is the
risk of running out of cash, although profitability will be less, in
case of lower level working capital, the profitability will be
greater but the risk of running out of capital to meet the day-to-
day requirement will be more.
This two and half months of training gave me valuable
information about the Rourkela Steel Plant, its performance,
liquidity position, sales, funds availability, working capital
requirement, etc. The area of study is as follows:

1. Analyzing the working capital of RSP.


2. Measuring the operating cycle.
3. Ratio analysis.

Page |1
A Summer Internship Report on Working Capital
Management

Study OBJECTIVES

Each and every firm has got a specified source of funds. The
objectives of the study comes out to be enhancing one's
knowledge by analyzing how a firm like RSP with limited
amount of funds has been progressing by a better fund
management.

The objective of my project is as follows:-

 To learn the functioning of the organization and skills,


roles and responsibilities, of the financial manager in an
organization.

 To know the day to day finance of RSP.

 To know the efficiency of financial operations of RSP.

 To know the trends of the working capital over the last


four years.

 To analyze the elements of the current asset and current


liabilities and to identify those elements which are responsible
for the changes in the working capital?

 6.To assess the significance of the working capital by


selecting a few parameters such as Current Ratio, Quick Ratio,
Working Capital Ratio.

Page |2
A Summer Internship Report on Working Capital
Management

 To familiarize with the various financial statistics such as


sales, profit, production and manpower resource of a large
scale-manufacturing unit like RSP for the last four years.

PROJECT DESIGN AND METHODOLOGY

Sources of information

Mainly the study was based on two types of data.

1. Primary data
2. Secondary data

1. Primary data :
Primary data are those data collected from individual official
guides view from organizations these data are collected
through personnel interview observation of records, ledger, file,
etc, collection of those data is time consuming but these are
most important and reliable.

2. Secondary data:
Secondary data are those data which are already gathered
and available. There may be internal source within plant;
externally that source may include book, periodicals, published
report, data service, annual reports.
For collections of secondary data following are considered:-

• Books on subject
• Published reports relevant to the subject
• Commercial data
• Files
• Published Records of the plant

Page |3
A Summer Internship Report on Working Capital
Management

 Period of the study:


In the summer training project I have analysed the
management of working capital of Rourkela steel plant (RSP)
Rourkela for the past four years from 2004-05 to 2007-08.

 Area of the study:


In the summer training project I have prepared the report
entitled
Management of working capital in Rourkela steel plant. The
area of the
Study is as follows:

1. Analysis of operating cycle


2. Measuring the working capital
3. Ratio analysis

Sample design
In this study, the samples of four financial years 2004-05 to
2007-08 are taken from in Rourkela steel plant, Rourkela. in this
study I am using secondary data for collecting the valuable
information. The sources of secondary data for the study are
the balance sheet and their related schedules of the plant four
financial years 2004-05 to 2007-08 of Rourkela. Globally, the
steel production is close to 28 million tone and growing at the
rate of 5-6 % every year. The main demand creators for Steel
Industry are Automobile industry, Construction Industry,
Infrastructure Industry, Oil and Gas Industry, and Container
Industry. New innovations are also taking place in Steel Industry
for cost minimization and at the same time production
maximization. Some of the cutting edge technologies that are
being implemented in this industry are thin-slab casting,
making of steel through the use of electric furnace, vacuum
degassing, etc.

The Steel Industry has enough potential to grow at a much


accelerated pace in the coming future due to the continuity of
the developmental projects around the world. This industry is at
present working near its productive capacity which needs to be

Page |4
A Summer Internship Report on Working Capital
Management

increased with increasing demand. India being one among the


fastest growing economies of the world has been considered as
one of the potential global steel hub internationally. Over the
years, particularly after the adoption of the liberalization
policies all over the world, the World steel industry is growing
very fastkela steel plant, Rourkela

INTRODUCTION TO STEEL INDUSTRY

Steel, plays a vital role in the development of any modern


economy. The per capita consumption of steel is generally
accepted as a yardstick to measure the level of socio-
economic development and living standards of the people.
As such, no developing country can afford to ignore the steel
industry. There have been almost revolutionary changes in
the global steel scene with fierce competitive pressures on
performance, productivity, price reduction and customer
satisfaction. National boundaries have melted to encompass
an ever increasing world market. Trade in steel products has
been on the upswing with the production facilities of both
the developed and the developing countries complementing
each other in the making of steel of different grades and
specialty for the world market.

GLOBAL STEEL INDUSTRY SCENARIO

Page |5
A Summer Internship Report on Working Capital
Management

Steel Industry is a booming industry in the whole world. Steel Industry is


becoming more and more competitive with every passing day. The
increasing demand for it was mainly generated by the development
project that has been going on along the world, especially the
infrastructural works and real estate projects that has been on the boom
around the developing countries.
During the period 1960s to late 1980s, the steel market used to be
dominated by OECD (Organization for Economic Cooperation and
Development) countries. Steel Industry was till recently dominated by the
United Sates of America but this scenario is changing with a rapid
pace with the Indian steel companies on an acquisition spree. But
with the fast
Emergence of developing countries like china, India and South Korea
in this sector has led to slipping market share of OECD countries.
The balance of trade line is also tilting towards these countries.
It has been observed that steel industry has grown tremendously in
the last one and a half decade with a strong financial condition. The
increasing need of steel by the developing countries for its
infrastructural projects has pushed the companies in this industry
near their operative capacity

SCENARIO OF INDIAN STEEL INDUSTRY

INTRODUCTION:- Steel Industry in India is on an upswing


because of the strong global and domestic demand. India's rapid
economic growth and soaring demand by sectors like
infrastructure, real estate and automobiles, at home and abroad,
has put Indian steel industry on the global map. According to the
latest report by International Iron and Steel Institute (MSI), India is the
seventh largest steel producer in the world. The Indian steel industry
is organized in three categories i.e., main producers, other major
producers and the secondary producers. The main producers and
other major producers have integrated steel making facility with
plant capacities over 0.5 mT and utilize iron ore and coal/gas for
production of steel. The main producers are Tata Steel, SAIL, and

Page |6
A Summer Internship Report on Working Capital
Management

RINL, while the other major producers are ESSAR, ISPAT and JVSL.

 PRODUCTION:- Steel production grew at 1.2 percent in the


January-march quarter of 2008-09 over the same period last year.
The fourth quarter saw most of the large steel companies such as
SAIL, Tata Steel, Essar and JSW operating at full capacity.
The national steel policy has a target for taking steel production up
to 110 MT by 2019-20. The ministry of steel has projected India's
steel capacity to touch 124.06 MT by 2011-12. In, based on the
status of Memoranda Of Understanding (MOUs) signed by the
private producers with the various state government, India's steel
capacity is likely to be 293 MT by 2020.

 CONSUMPTION:-lndia is the 5th largest consumer of steel in


the world. It consumes about 1.5 MT of stainless steel a year with
around 70 percent accounting for kitchenware. However, its uses
in railway coaches, wagon, airport, hotel and retail stores is
growing immensely. Demand for steel in India is likely to grow at
around 12 percent against the' global average of 5-6 percent. Steel
consumption grew at 3.8 percent in the January-March quarter of
2008-09 over the same period last year.

A credit Suisse Group study states that India steel consumption will
continue to grow by 16 percent annually till by 2012, fuelled by
demand for construction projects worth US s 1 Trillion

 EXPORT:- Out of India's annual iron-ore production of


more than 200
MT, about 5 to 12.6 MT in February 2009 from 10.8 MT in the
same month a year ago, owing to moderate revival in demand
from Chinese steel producer.

 INVESTMENTS:- A host of steel companies have lined up


major investment proposals. Furthermore, with an expanding
consumer market, the Indian steel industry is likely to receive
domestic and foreign investments.

1. According to Investment Commission of India, investments


of over US$ 30 billion is in the pipeline over the next 5
years.
2. Japan's Sumitomo Metal Industry, is planning to build a
blast furnace steel plant in India with mid- tier producer
Bhushan steel investing as much as US $ 3 billion.

Page |7
A Summer Internship Report on Working Capital
Management

3. Arcelor- Mittal, the largest steel maker of the world, is


planning to set up a captive port near Paradip in Orissa.
The port will be used to serve to mega integrated steel
plants of the company proposed in Orissa and Jharkhand.

 GOVERNMENT INITIATIVES:- Subsequently the recent


fall in international prices of commodities and to protect Indian
producer, the Indian government has announced some
changes in the custom duty rates, which were effective from
November 2008. Iron and steel products like pig iron,
spiegeleisen, semi-finished products, flat products and long
products are now subject to a basic custom duty of 5 per cent
ad valorem.

 CONCLUSION:. The outlook for Indian steel industry is


very bright. India's lower wages and favourable energy prices
will continue to promise substantial cost advantages compared
to production facilities in (Western) Europe or the US. It is also
expected that steel industry will undergo a process of
consolidation since industry players are engage in an
unfettered rush for scale. This is evident from the recent
acquisition of Corus by Tata. The deployment of modern
production systems is also enabling Indian steel companies to
INTRODUCTION TO SAIL:-
improve the quality of their steel.

Vision statement:

"To be a respected world class corporation and the leader in


Indian steel business in quality, productivity, profitability
and customer satisfaction."

Steel Authority of India Limited (SAIL) is India's largest steel


producing company. With a turnover of Rs. 40, 000 crore, the
top five highest profit earning corporate of the country. It is a

Page |8
A Summer Internship Report on Working Capital
Management

fully integrated iron and steel maker, producing both basic and
special steels for domestic construction, engineering, power,
railway, automotive and defense industries and for sale in
export markets. SAIL manufactures and sells a broad range of
steel products, including hot and cold rolled sheets and coils,
galvanized sheets, electrical sheets, structural’s, railway
products, plates, bars and rods, stainless steel and other alloy
steels. SAIL produces iron and steel at five integrated plants
and three special steel plants, located principally in the eastern
and central regions of India and situated close to domestic
sources of raw materials, including the Company's iron ore,
limestone and dolomite mines. The company has the distinction
of being India's largest producer of iron ore and of having the
country's second largest mines network. This gives SAIL a
competitive edge in terms of captive availability of iron ore,
lime.

OWNERSHIP AND OWNERSHIP AND MANAGEMENT:-


The Government of India owns about 86% of SAIL's equity and
retains voting control of the Company. However, SAIL, by virtue
of its 'Navratna' status, enjoys significant operational and
financial autonomy. Major Units of SAIL

1. Integrated steel plants


• Bhilai steel plant (BSP) in Chhattisgarh
• Durgapur steel plant (DSP) in West Bengal
Rourkela steel plant(RSP) in Orissa
• Bokaro steel plant(BSL) in Jharkhand

• IISCO steel plant in West Bengal


2. Special steel plants
• Alloys steel plants (ASP) in West Bengal
• Salem steel plant (SSP) in Tamilnadu
• Visvesvarya Iron and Steel Plant (VISL) in
Karnataka
3. Subsidiaries
 Maharashtra Elektrosmelt limited (MEL) in
Maharashtra
 Bhilai Oxygen Limited (BOL) in New Delhi
 SAIL Consultancy Division in New Delhi
 Research and Development Centre for Iron and

Page |9
A Summer Internship Report on Working Capital
Management

Steel in Ranchi
 Management and Training Institute in Ranchi
 SAIL Safety Organization
 Environment Management Division in Kolkata
 Growth Division in Kolkata
 Central power Training institute in Rourkela

 Center Coal Supply Orgainisation in Jharkhand


4. Joint Ventures
• Bokaro Power Supply Company Pvt Limited
• Bhilai Electric Supply Company Pvt Limited
• UEC SAIL Information Technology Limited
Metaljunction.com private Limited
• SAIL Bansal Service Center Pvt Ltd
• Bengal Dolomite Limited

PRODUCTION:

• As part of the plan SAIL will increase hot metal


production from its plants to a level of about 20 million
tones per annum (MTPA) by 2012 against the current
level of 13MT.in view of emerging market requirement,
SAIL ahs also planned to raise its output of finished
steel to 16.6 MTPA by 2011-12 from the current level of
8.6 MT, and reduce generation of semi-finished steel
from 20% of saleble steel to 40%.This will enable
inclusion of more value-added products in the
company's product basket. The envisaged growth in
volumes are planned to be achieved by-
• Realization of full potential of existing assets
• De-bottlenecking
• Linked facilities for value addition

• Capacity enhancement in growth segments

MANAGEMENT OF THE SAIL:-


• Steel Authority of India Limited is managed by an efficient
and experienced board of directors aided by the
chairman.

P a g e | 10
A Summer Internship Report on Working Capital
Management

• Chairman of SAIL: shri S.K. Roongta


• MD of Rourkela Steel Plant: Shri B.N. Singh
• MD of Bokaro Steel Plant: Shri V.K. Srivastava.
• MD of IISCO Steel Plant: Shri Nilotpal Roy.
• Other board of directors of SAIL are:-
• Shri Mohammad Yusuf Khan,
• Shri G. Ojha, G. Elias, Dr. Velu Annamalai, Dr.S.C Jain, Shri
P. K.
• Sengupta, Shri Arun Kumar Rath.

SOCIAL CONTRIBUTION OF STEEL AUTHORITY OF


INDIA LIMITED:-

• Steel Authority of India Limited is involved in a number of


social activities and has taken up the job of the overall
management and restoration of 5 monuments within
the Lodhi Gardens, located at Delhi as a part of its
social responsibility. The company strives to improve
the condition of women in India and has therefore,
created certain samities within the steel manufacturing
units. These units are involved in:
1.Community Welfare Activities
2. Manufacturing products for general use in plants

. Providing vocational training to women


4. Romelt SAIL (India) Ltd
4. Assistance during natural calamities.

Steel Authority of India Limited has also arranged for All


awareness programs, anti-leprosy camps and a host of
other social welfare programs tone, and dolomite which
are

OWNERSHIP AND MANAGEMENT :-


The Government of India owns about 86% of SAIL's equity and
retains voting control of the Company. However, SAIL, by virtue
of its 'Navratna' status, enjoys significant operational and

P a g e | 11
A Summer Internship Report on Working Capital
Management

financial autonomy. Major Units of SAIL

1. Integrated steel plants


• Bhilai steel plant (BSP) in Chhattisgarh
• Durgapur steel plant (DSP) in West Bengal
Rourkela steel plant(RSP) in Orissa
• Bokaro steel plant(BSL) in Jharkhand
• IISCO steel plant in West Bengal
2. Special steel plants
• Alloys steel plants (ASP) in West Bengal
• Salem steel plant (SSP) in Tamilnadu
• Visvesvarya Iron and Steel Plant (VISL) in
Karnataka
3. Subsidiaries
 Maharashtra Elektrosmelt limited (MEL) in
Maharashtra
 Bhilai Oxygen Limited (BOL) in New Delhi
 SAIL Consultancy Division in New Delhi
 Research and Development Centre for Iron and
Steel in Ranchi
 Management and Training Institute in Ranchi
 SAIL Safety Organization
 Environment Management Division in Kolkata
 Growth Division in Kolkata
 Central power Training institute in Rourkela

 Center Coal Supply Orgainisation in Jharkhand


4. Joint Ventures
• Bokaro Power Supply Company Pvt Limited
• Bhilai Electric Supply Company Pvt Limited
• UEC SAIL Information Technology
Limited Metaljunction.com private
Limited
• SAIL Bansal Service Center Pvt Ltd
Bengal Dolomite Limited

SAIL IN FUTURE
As the largest steel producer in the country, Steel Authority of

P a g e | 12
A Summer Internship Report on Working Capital
Management

India limited (SAIL) has always believed in structured planning


for achieving organization growth. This has also contributed
significantly to national interests, given the steel sector's strong
backward and forward linkages. Changes in business
environment call for periodical review of long term plans. In the
backdrop of the upheavals faced by the global steel business in
the recent past, the general perception that the current phase
of buoyancy in the market will last for a longer time- span, and
market growth projections of around 13%, SAIL felt it necessary
a long term perspective plan for itself, superceding the last
such plan drawn up in 1992.'corporate plan- 2012', which has
been drawn up as a consequence, provides a blueprint for the
company's growth in the coming years in tandem with a
growing market. By 2012, the consumption of steel in india is
expected to reach around 55 to 60 million tones (MT), nearly
double the current level. Given its available infrastructure and
skill base, SAIL has the comparative advantage to supply
additional volumes at the most competitive cost to the nation.
Besides, the centre for policy research, in its November 2002
report dealing with perspectives up to 2025, indicates that the
construction, cold-reducing and oil &gas transportation
segments are poised for major growth in India. TMT Bars &Rods,
structural, HR/CR Coils, plates and pipes have been identified as
the key growth products for the domestic steel industry. For
SAIL which is an established and significant player in these
products segments, the scenario holds a huge potential for
growth. Corporate Plan 2012 envisages enhancement in SAIL's
domestic market share from the current level of around 50% (it
is estimated that in 2003-04 steel consumption in the country
crossed 100MT) to around 47% (of the projected 100-150 MT)
through a mix of measures, including stepped- up production,
further intensification of market- orientation, and improved and
multiple managerial interventions to optimize resource u SAIL
has estimated that the measures to be taken to achieve the
targeted levels of growth and sustain higher levels of cost and
quality competitiveness will require investment in the region of
rs 25000 crore by 2011-12. The immediate priority schemes, to
be taken/ completed by 2006-07, have been estimated to be
around RS4300 crore. The capital expenditure envisaged will be
financed mainly through internal accruals, and will be
supplemented by market borrowing if the need arises. Care will
be taken to ensure that the company's debt-equity ratio attains.

Corporate Plan, 2012 (CP12) was formulated in 2004 for 4

P a g e | 13
A Summer Internship Report on Working Capital
Management

integrated steel plants for increase in Hot Metal production to 20 MT


by 2012. After merger of in IISCO February 2006, the Hot Metal
production Plan was revised to 22.5 Mt by 2012. Expansion of
Special Steel Plants was also included. Besides capacity
enhancement, the plan also addresses the need of SAIL Plants
towards eliminating technological obsolescence, energy savings,
enriching product mix, pollution control, developing mines &
collieries to meet higher requirement of key raw materials, introduce
customer centric processes and have matching infrastructure
facilities in the Plant to support higher production volumes.
Investment to the tune of Rs 34,982 crore was envisaged under the
Corporate Plan. It was envisaged to take up the Projects in
segregated manner based on the Techno-economic viability of each
project.

ROURKELA STEEL
PLANT

The Govt, of India under the ablest leadership of the then Prime
Minister Pt. Jawaharlal Nehru, decided to set up large Steel
Plants by the Govt, itself after the general election of 1952.
Rourkela and its adjacent areas are rich in iron ores, manganese,
dolomite and limestone's, the basic materials for production of
iron and steel. Considering Rourkela to be best place for a steel
plant, the survey work was completed in the year 1954.

The infrastructure work of the plant was accomplished in


between 1955 and 1960. Almost thirty-two villages were

P a g e | 14
A Summer Internship Report on Working Capital
Management

alienated and the people of the villages were resettled. The


Republic of Germany extended technical knows how for the
construction of the steel plant and the plant was considered a
joint venture of the Govts. Of Indian and Germany. The initial
production limit of one million tones steel per annum was raised
to 1.8 million tones in the subsequent years. The internationally
reputed firms like the Krrups, Dimag, G.H.H. Sag, Scholomen,
Cemens and Voist Eipine etc. Supplied different machines and
machinery parts to the plant at the beginning stage. The
Rourkela Steel Plant took the part of leadership in the process of
steel production under L.D. techniques. It could also established
itself as one of the premier industries of the world under the
system of basic oxygen converter.

The extension work of the plant was over by the year 1968. A
circular welding pipe plant and special plate plant were set up in
the decade of seventies for production of different ready-made
materials. To avoid scarcity of power supply the plant set up a
power plant by itself with a capacity of 120 M.W. The power
plant is able to cater the requirement of power supply from the
year 1986.

The modernization of Rourkela steel plant was begun in the


month of August 1988 with a view to producing qualitative
materials and establishing its importance in the world market.
The process of modernization entailed an expenditure outlay of
rupees 4500 cores. Some nine main packages including some
ancillary packages were executed at the first phase. This phase
revamped the process of supply of raw materials, new oxygen
plant, improved techniques in blast furnaces, selling of dolomite
plant, Cast house slag glandular plant, supply of raw materials
two number of Sintering plant and coal handling plants etc.

Similarly with the implementation of some sophisticated


systems in the second phase of modernization Rourkela Steel
Plant could get the status squo of a modern industrial unit in the
world.

The materials being produced from the Steel Plant are steel in
gots, iron sheets, ultra thin plates, electric steel plates, cold
rolled coils, hot rolled coils, tin plates and different kinds of pipes
etc. The byproducts of the plant are fertilizer "Sona", bitumen
and benjol etc.

P a g e | 15
A Summer Internship Report on Working Capital
Management

MISSION STATEMENT OF RSP:-


"The future of our steel plant lies in our hands. It is our individual
and collective responsibility to rebuild our plant into a profitable,
harmonious and vibrant organization. We will do whatever things
are necessary which are good for our plant. We shall never do
anything that hurts our plant".

OBJECTIVE OF THE RSP:-


"Achieving total safety, perfect quality, optimum cost and
maximum productivity in a harmonious environment."

THE SAMSKAR OF RSP:-


"We have to create and sustain a peaceful work environment
where every employee can contribute to the plant in assigned
area of work with full freedom and dignity and without fear".
THE SANKALPA STATEMENT OF RSP:-
"We the employees of Rourkela Steel Plant have full faith in our
unlimited potential and we resolve to sustain our samskar and
commit ourselves to achieving total safety, perfect quality,
optimum cost and maximum productivity. It is our Sankaipa to
spread Samridhi in our steel plant, Steel Township and in the
region." SPECIAL FEATURE OF RSP:-
1. 1st public sector integrated plant to be set up in the country.
2 .Exclusively produces flat products.
3. Finest plant in India to adopt L.D process of steel making.
4. It has got an electrical sheet mill capable of capable of
producing both Dynamo and Transformer grade electric
sheet.
5. It has a special plate plant where special alloy steel plates
are shaped to different shapes as per requirement in the

P a g e | 16
A Summer Internship Report on Working Capital
Management

defence sector.
6.RSP has the distinction of being the unique steel plant in
india with an integrated Fertilizer Complex.
7. It has two captive power plant(CPP) with a generation
capacity of around 120 mw.

OVERVIEW OF ROURKELA STEEL PLANT

Rourkela city, Orissa state, central India, at the confluence of


the Koel and Sankh rivers. The city is built around a large iron
and steel plant. Others products are heavy machinery,
fertilizers, and chemicals. Rourkela Steel Plant is located in the
northwestern tip of Orissa and at the heart of a rich mineral
belt. Being situated on the Howrah-Mumbai mainline, Rourkela
is very well connected with most of the important cities of India.
Rourkela also has an Airstrip maintained by Rourkela Steel
Plant. The nearby airports are:-
1. Ranchi(173km)
2. Bhubaneswar (378 km)
3. Kolkata(413KM).
4. Mumbai (1555 km)
5. New Delhi (1706
km) 7. Chennai (1440
km)

The steel plant is well connected with rail and road. The nearest
railway station is Rourkela railway station of the S.E railways

RAW MATERIAL AND ITS SOURCES:-

P a g e | 17
A Summer Internship Report on Working Capital
Management

RAW MATERIAL SOURCES


Iron ore------------------------Captive mines of Barsua, Kalta,
Kiribur,
Meghtaburu, Bolani etc.
Limestone---------------------Jaisalmer.
Dolomite----------------------Biramitrapur, Katini
Manganese---------------------Barjamada, Koira
Ferro-----------------------------Maharashtra Electro Mill LTD.
Coal-----------------------------Indigenous source-BCCL/CCL,
Australia,
Canada, USA

PRODUCT USES:-Steel as a basic building block will determine


growth over several other sectors. Every attention thus needs
to be given to steeping up capacity for steel. There is an urgent
need to balance the interest of the producers and the
consumers of steel.On flat products widely used by a variety of
consumers industries, the increase has been by around 60%
from around Rs 14000 to over rs 22000 per tones. On certain
special steels used by automobile component manufacturers
the increased from around rs 15600 per tones to around
rs23000 per tones during November- aug2003. With the
pressure of completing construction within the stipulated time,
on grounds of penalties for delays this segment depends on the
market for its daily requirement and hence, seems to suffer the
most.Hr coils are used in number of engineering application.
These coils are used in tube making &cold rolling of low carbon
DD&EDD quality HR coils are also used like telephone poles and
also used in railway coaches and auto poly components. SW

P a g e | 18
A Summer Internship Report on Working Capital
Management

Pipes are also used in transportation of crude oil, natural gas.


Cold rolled coils/ sheets are the primary products of rsp and
used making steels furniture , refrigerator bodies, automobiles
bodies, railway coaches, etc. galvanized sheets are used in
roofing paneling, industrial sheeting, air conditioning ducts and
in structural constructions. Electrolytic tin plates available in
equal and differential coating range from 5.6 gm/m square
coating weight and variety suitable for manufacture of
beautifully printed and plan containers for packing all kinds of
products.
PRODUCT MIX:-
PRODUCT TONNES/ANNUM
PLATE MILL PLATES 2,99,000
HR PLATES 92,500
HR COILS 3,98,000
ERW PIPES 75,000
SW PIPES 55,000
CR SHEETS AND COILS 4,33,000
GALVANIZED SHEETS(GP 1,60,000
&GC)
ELECTROLYTIC TIN PLATES 85,000
SILICON STEEL PLATES 73,500
TOTAL SALEABLE STEEL 16,71,000

P a g e | 19
A Summer Internship Report on Working Capital
Management

PRODUCTS AND THEIR APPLICATIONS:-

Products Applications
HR Coils LPG Cylinders, automobile, railway

Plates wagon chassis and all types of high


Pressure vessels, ship building and

Chequered Plates engineering structures


Flooring & staircases in the industrial

CR Sheets & Coils sectors and railway platforms etc.


Steel furniture, white goods like
refrigerators, washing machines,
automobile bodies, railway , drums,
barrels, deep drawing and extra deep
drawing etc.

P a g e | 20
A Summer Internship Report on Working Capital
Management

Galvanised Sheets Roofing, paneling, industrial sheeting,


air conditioner ducting and structural

Electrolytic Tin Containers for packaging of various


Plates
products including edible oils,
vegetables and confectionary items.
Silicon Steel sheets Small generators, stators for high
& Coils
efficiency rotating equipment and

Spiral Weld pipes relays etc.


High pressure transportation of crude
oil, natural gas and slurry
transportation, water supply, sewage
disposals, grain silos, civil
engineering pilings etc.
ERW Pipes High pressure transportation of oil and
water, sewage disposal, tube wells
etc.

DIFFERENT TYPES OF PRODUCT

Hot Rolled Coils, Sheets and Skelp

Hot rolled coils, sheets and skelp (narrow


coil), are the largest product category of
the company in terms of both sales volume
and revenue. Hot rolled coils are primarily
used for making pipes and have many
direct industrial and manufacturing applications, including the
construction of tanks, railway cars, bicycle frames, ships,

P a g e | 21
A Summer Internship Report on Working Capital
Management

engineering and military equipment and automobile and truck


wheels, frames and body parts. Hot rolled coils are also used as
feedstock for cold rolling mills where they undergo further
processing. Hot rolled coils are also delivered to the company's
own cold rolling mills and silicon sheet mill and pipe plant in a
wide range of widths and thicknesses as the feedstock for higher
value-added steel products. The company is the largest
producer of hot rolled coils, sheets and skelp in India.

Semi-Finished Products
The company produces semifinished
products, including blooms, billets and
slabs, which are converted into
finished products in the company's
processing plant and, to a lesser
extent, sold to rerollers for conversion
to finished products.

Plates

Steel plates are used mainly for the manufacture of bridges,


steel structures, ships, large diameter pipes, storage tanks,
boilers, railway wagons and pressure vessels. The company
also produces weatherproof steel plates for the construction of
railcars. The company is
currently the largest producer of
steel
plates in India with a domestic
market share of more than 80
per
cent for these products. The
company is the only producer of
wide and heavy plate products in
India.

Cold Rolled Products

Cold rolling of hot rolled products produces a superior surface


finish, improves the physical properties of the steel, such as

P a g e | 22
A Summer Internship Report on Working Capital
Management

tensile strength, and reduces its thickness to precise gauges. As


a result, cold rolled products generally command higher prices
than hot rolled products. The products of the cold rolling mill
include cold rolled sheets and coils, which are used primarily for
precision tubes, containers, bicycles, furniture and for use by the
automobile industry to produce car body panels. Cold rolled
products are also used for further processing, including for
colour coating, galvanizing and tinning. The company also
produces further processed cold rolled products, including
galvanized sheets and tin plates.

MAJOR UNITS OF RSP:-

1. Ore Bedding and Blending plant


2.Coke oven
3.Sintering plants
4.Blast furnace
5. Steel melting shop
6.Plate mills
7. Hot strip mills
8. Electrolytic tinning line
9. Galvanizing lines
10.Silicon steel mills
11. Pipe plants
12. Traffic & Raw material
13. Environment Management
14. Computerization
15.HRD centre
16. CPTI
IMPORTANT DEPARTMENTS OF RSP:-
 Purchase (general purchase, spares, refractories, import,
and ispat
general hospital).
 Marketing (central marketing organization for main
product, marketing

department for disposal of old assets).

 Finance and accounting


 Central accounts.
 Costing and budget.(operation)
 Finance (operation)

P a g e | 23
A Summer Internship Report on Working Capital
Management

 Cash
 Sales tax and excise
 Pay section
 Claims and frights
 Stock verification
 Works modernization and expansion

 Personnel (motivating employees, rationalization


man power)

 Human resource (for induction training, competence


enhancement,
foreign & external training)
 LAW (responsible for protecting the policies of the
company)
 Town engineering (looks after the maintenance of 18
sectors in the
industrial township)
 Sports (conduct various sports activities in the state
and district level)
 TQM department (to establish companywide total
quality movement)
 Public relation department (RSTV, ISPAT press,
Documentation
centre)
 CISF (for safeguarding the total 33.89 sq km covered
by 23km long
perimeter long wall)
 Project department (working as project purchase,
project finance,
project execute)

P a g e | 24
A Summer Internship Report on Working Capital
Management

GOAL SETTING:-
The major reforms and interventions at Rourkela Steel Plant are
aimed at
enhancing the motivation of the employees and addressing all
HRD issues that generally hamper performance and progress.
The ten priorities, spelled out in the mission are :-
 Employee motivation and employee pride.
 Leadership practice
 Environment relations and organizational image.
 Plant maintenance and equipment health.
 Small investment schemes for maintaining current
operations.
 Sustained operation and consistent production.
 Strengthening secondary streams of cash generation.
 Operational and purchase cost reduction.
 Sustaining the benefits of operation Vijay the turnaround
project of RSP.
 Enhancing Gross Margin and Net sales realization

VALUE

 Meeting commitments made to external and internal


customers
 Fostering learning, creativity and speed of response.
 Loyalty and pride in the company. *
 Respect for dignity and potential of individual.
 Team playing
 Zeal to excel

P a g e | 25
A Summer Internship Report on Working Capital
Management

 Integrity and fairness in all

GOVERNMENT POLICIES:-
SAIL has been one of the navartnas of the PSU. So the
government has been keen towards the growth in this sector.
The government is revising its policies from time to time to help
revive the steel industry in India. We can site the government
initiative to increase the consumption of steel in the
construction sector in India. The housing construction that
constitutes about 3-5% of GDP in developed countries, in India
it is just about 1%. In order to produce it the government has
announced several schemes such as Valmiki Ambedkar Awas
Yojna, Indira Awas Yojana, Birla Awas Yojana, through NGOs and
self - help groups, etc. apart from it the development of national
highway development programme will also increase the
demand of steel.The iron and steel sector has received various
incentives to promote exports in the current EXIM policy (2002-
2007). First the quantitative restrictions on exports have been
removed except in the case of a few sensitive items. Second
the setting up of overseas banking units in special Economic
Zones has been permitted. Third the duty matters.
GOVERNMENT POLICIES:-
SAIL has been one of the navartnas of the PSU. So the
government has been keen towards the growth in this sector.
The government is revising its policies from time to time to help
revive the steel industry in India. We can site the government
initiative to increase the consumption of steel in the
construction sector in India. The housing construction that
constitutes about 3-5% of GDP in developed countries, in India

P a g e | 26
A Summer Internship Report on Working Capital
Management

it is just about 1%. In order to produce it the government has


announced several schemes such as Valmiki Ambedkar Awas
Yojna, Indira Awas Yojana, Birla Awas Yojana, through NGOs and
self - help groups, etc. apart from it the development of national
highway development programme will also increase the
demand of steel.
The iron and steel sector has received various incentives to
promote
exports in the current EXIM policy (2002-2007). First the
quantitative
restrictions on exports have been removed except in the case
of a few
sensitive items. Second the setting up of overseas banking
units in special
Economic Zones has been permitted. Third the duty
suspended in March 04, it had proved to be quite beneficial in
helping exporters increase their overseas market. The most
important move has been the abolition of duty Exemption
Entitlement scheme in order to reduce the transaction time.
The.other promotional measures relates to the tariff structure.
The tariffs saw a sharp reduction (25% to 50%) in the
liberalization era, opening up
the domestic sector to international competition. To safeguard
the interest of the domestic producers, the government tried to
enhance domestic production by reducing the import of raw
materials to as low as 5% (non-coking coal, met coke, nickel )
and even nil ( cooking coal). Also the advance licensing scheme
has been introduced which allows duty free import of raw
material for exports. A steel exporters forum has also been set
up to meet the need of producers and exporters and to resolve
issues problems and bottlenecks related to exports.

VARIOUS ACHIEVEMENTS OF RSP:-

P a g e | 27
A Summer Internship Report on Working Capital
Management

 RSP bagged the CII-Exim Bank award for business


excellence in 2008. RSP created history by surpassing the
annual rated capacity in hot etal(2MT), crude steel(1.9
MT), total saleable steel(1.67 MT) for three consecutive
years.
 Rourkela steel plant was awarded second prize in the
integrated steel plant category on 14th November 2007 by
Indian Institute of Metals.

 Govt, of India conferred the steel plant with the


certificate of merit for energy conservation in 2007

 Golden Peacock Innovation award for excellence in


environment management

 The prestigious Greentech environment excellence Gold


award for fourth consecutive year by Greentch
foundation.

 It was the first steel plant in Asia and third in the world
to have introduced LD steel making technology when it was
I it's nascent state of development.

 Rourkela Steel Plant bagged two awards under the


natural safety awards 2005 instituted by Union Ministry of
Labor and Employment.

 Five quality circle teams of RSP created a new record


by bagging the excellent award at the 20th National
Convention of Quality Circles 2006 organized by the Quality
circle Forum of India at IIT Kanpur.

MODERNIZATION OF ROURKELA STEEL PLANT:-


In order to overcome technological obsolescence and to continue
to remain competitive in the market place, even internationally,
RSP went in for modernization, which was conceived in the year
1988.

Phase-I of modernization, which emphasized on improving the

P a g e | 28
A Summer Internship Report on Working Capital
Management

quality of raw materials consisted of a new Oxygen Plant,


upgradation schemes for Blast Furnaces, Dolomite Brick
Plant, Cast House Slag Granulation Plant at Blast Furnace-4,
Raw Material Handling system, Coal Handling Plant (in Coke
Ovens) and Power Distribution system, was completed in the
year 1994.

Phase-ll consisted of a new Sinter Plant, Basic Oxygen


Furnace and Slab Casting Shop in Steel Melting Shop-ll,
modification of Plate Mill & Hot Strip Mill and installation of
Slab Casting Shop in SMS-I, Except for Hot Strip Mill, which
was completed in the year 1999, all the other areas were
completed in the year 1997.

SOCIAL RESPONSIBILITY:-
Caring, sharing and spreading smiles—

Rourkela Steel Plant has imbibed a credo to make quality steel


and spread
lasting smiles amongst the people living in
its neighborhood. Going beyond the realms
of philanthropy or charity, RSP has adopted a
strategy of ushering in sustainable
development in its peripheral villages. From
education to women's empowerment,
providing health care facilities to improving
infrastructure, promoting advanced
techniques of agriculture to skill enhancement, land and water
management to livestock development - the multi-faceted
approach of RSP aims at touching and shaping every aspect of
life and
living of its community neighbors.

Taking a unique step forward, the Steel Plant has set up the
Institute for Periphery Development that is functioning as the
nerve centre of all the activities taken up under periphery
development. Villagers from nearby areas are being trained in
various income generation activities in this Institute. Adoption of
18 villages as Model Steel Villages is another significant stride
taken up by Rourkela Steel Plant to create sustainable models
of economic development. The objective of Rourkela Steel
Plant, which is 'Spreading Samridhi', finds its true expression in
the myriad activities taken up by the Steel Plant for the people
living in its periphery.

P a g e | 29
A Summer Internship Report on Working Capital
Management

ENHANCING THE QUALITY OF LIFE:


Rourkela steel plant is playing a responsible as well as a
responsive role to spread prosperity in the peripheral villages.
An institute for Peripheral Development (IPD), has been set up
which is now functioning as the nerve centre of RSP's efforts.
The plant has also signed a Memorandum of Understanding
(MoU) with BAIF, pune on 4th august 2005 to enhance
livelihood opportunities. A long- term sustained initiative has
been undertaken to educate, empower and create a favorable
environment for the local population to lead an independent
and respectable life.

PARTNERS IN PROGRESS
Rourkela steel plant has always treated the small scale
industries (SSI) as its partners in progress. An exclusive wing-
peripheral industries and vendor Development (PIVD) has been
set up in RSP under its Materials Management Department for
catering to the development needs of local SSI units.
THE PICTUREQUE STEEL TOWNSHIP With the sincere efforts
being made to beautify the steel township and upgrade the
facilities today the steel city of Rourkela can be considered
as one of the modern industrial townships. A number of
aesthetically designed and artistically crafted monuments have
been grace of the sylvan surroundings significantly, but have
also showcased the innovation usage of steel for creating
objects of art. The Indira Gandhi Park of RSP is another effort
made by the plant to showcase nature in all its glory and
grandeur, right at centre of the steel city.
RONMECREATING A HEALTHY ENVINT
Rourkela Steel plant 's concern for a healthy environment is
symbolized by its medical and Health Services. Ispat General
Hospital (IGHI), a 685 bed hospital run by RSP for its
employees is a premier medical centre in the eastern region.
A wide network of medical services provides adequate health
care to the employees. In IGH the doctors to bed ratio is
1:4.8 and the occupancy is 87%.

P a g e | 30
A Summer Internship Report on Working Capital
Management

MAKING ROURKELA A SPORTS HUB


RSP strongly believes that one of the most fruitful
investments that can be made in the present generation in
the field of sports. The Biju Patnaik Hockey stadium is the
only full-fledged hockey stadium in the region to be equipped
with synthetic turf. The sports department of Rourkela steel
plant has conducted several national, regional, steel plant,
district and even school level tournaments to impart a fresh
impetus to the sports activities and hone the budding talents.
AN HIV/AIDS POLICY HAS BEEN PREPARED AND HAS BEEN
APPROVED BY THE BOARD OF DIRECTORS OF SAIL Rourkela
steel plant provides ample opportunities to its employees and
their children for nurturing their creative talents in the field of
art • and culture. The company maintains and manages an
auditorium of 650 seating capacity, in the centre of the city,
where various socio-cultural activities are organized. RSP
activity supports the various socio-cultural organization which
operate in the township, by providing various facilities. SAIL has
been continuously trying to maintain its social concerns towards
the people. SAIL has undertaken various projects, and always
contributed towards various calamities and other disastrous
that affected the nation. SAIL is committed to provide a healthy
environment in and around its steel plant. Over 2 lakhs trees
have been planted in 2004-2005. Greentech foundation, New
Delhi, gives gold award in metal sector for outstanding
achievement in environment management for 2003-2004 to
RSP. SAIL has set up various education institutes to provide
compulsory education to children. It also contributed heftily
towards the tsunami relief fund programmes etc.

P a g e | 31
A Summer Internship Report on Working Capital
Management

FINANCIAL OVERVIEW OF ROURKELA STEEL PLANT

 SALES OF RSP FROM YEAR 2005-06 TO 2008-09 ARE AS


FOLLOWS:-
YEAR 2005-06 2006-07 2007-08 2008-09

SALES 4586.65 6335.90 7321.66 7623.16

INTERPRETATION:-

P a g e | 32
A Summer Internship Report on Working Capital
Management

• Sales of RSP shows gradual rise in every year.


• Sales has by increased 2642.5 crores in 2007-08
compared to 2004-- 05.
• Thus , from 4679.16 crores, it has reached 7321.66 crores
in 2007-
08.
• Increase in sales indicate a strong position of the
company.

NET PROFIT OF ROURKELA STEEL PLANT FROM YEAR


2005-06 TO 2008-09.ARE AS FOLLOWS:-

YEAR 2005-06 2006-07 2007-08 2008-09

NET 496.51 1336.40 1401.13 1018.62


PROFIT

P a g e | 33
A Summer Internship Report on Working Capital
Management

INTERPRETATION:-

YEAR 2005-06 2006-07 2007-08 2008-09

PRODUCTION 1615839 1942144 207735 1988570


OF SALEABLE
STEEL
• Profitability of RSP was 496.51 in 2005-06,then there was
a rise and the profitability increased to 1336.40 crores in
2006-07,there was a increase in sales.
• This increase was manily due to the increase in sales in
that year.
• In the year 2007-08 there was a increase in profitability
due to again increase in sales.But in 2008-09 there was a
downfall in profitability which was manily due to decrease
in sales in that year.
• Thus the profit of RSP has increased over three years n in
last year it was decreased due to manily deceased in
sales.

 PRODUCTION OF SALEABLE STEEL FROM YEAR2005-


06 TO 2008-09 ARE AS FOLLOWS:-

P a g e | 34
A Summer Internship Report on Working Capital
Management

INTERPRETATION:
• Production has shown gradual increase over
two years but it downfall in 2008-09.
• Production of saleable steel was 1615839
tonnes in 2005-06 and it decreased to 1988570
tonnes in 2008-09
• This indicates that demand for saleable steel
has decreased.

 MANPOWER RESOURCE OF RSP FROM YEAR 2005-06 TO


2008-09 ARE AS FOLLOWS:-
YEAR 2005-06 2006-07 2007-08 2008-09
YEARYEAR
Executive(incl MT) 1689 1634 1649 2280
Func. executives 607 576 530 510
Jr. Officer(JO) 0 0 0 0
Total executives 2296 2210 2179 2790
Non-executives 20001 19470 18926 17780
Total 22297 21680 21105 20570
Trainees(Excl. MTs) 0 0 0 0

P a g e | 35
A Summer Internship Report on Working Capital
Management

Grand Total 22297 21680 21105 20570

Note:- manpower fig. are taken from relevant files of


the plant
INTERPRETATION:-

• Manpower resource of RSP shows a gradual decrease over the four


years.
• In 2005-06, it was 22297 which has decreased over the four years to
reach 20570.

The above analysis shows that although manpower resource has decreased over the
four years ,there is increase in production since 2005-06.Thus it is conluded that
there is improvement of machinery and advancement in technology in Rourkela
Steel Plant.

WORKING CAPITAL MANAGEMENT

INTRODUCATION

Working capital refers to the quantum of capital resource a


business requires for day-to-day operations, or, more
specifically, for financing the conversion of raw materials into
finished goods, which the company ultimately sells in the
market for payment. Among the most important items of
working capital are levels of inventory, accounts receivable, and
accounts payable. Analysts look at these items for signs of a
company's efficiency and financial strength. The better a
company manages its working capital, the less the company
needs to borrow. Even companies with cash surpluses need to
manage working capital to ensure that those surpluses are
invested in ways that will generate suitable returns for
investors.

P a g e | 36
A Summer Internship Report on Working Capital
Management

Working capital is vital to a business. They have to have funds


available to pay their day to day bills, wages and so on. It is
very important to a company to manage its working capital
carefully. This is particularly true where there is a substantial
time lag between making the product and receiving the money
for it. In this situation the company has paid out all the costs
associated with making the product (labour, raw materials and
so on) but not yet got any money for it. They must therefore
ensure they have enough cash to do this.

THEORETICAL ASPECT OF WORKING CAPITAL

One of the most important areas in the day to-day


management of firms is the management of working capital.
Working capital management is a significant fact of financial
management. Its importance stems from two reasons:
 Investment in current assets represents a substantial
portion of total investment.
 Investment current assets and the level of current
liabilities have to be geared quickly to changes in sales. To
be sure, fixed assets investment and long term financing
are also responsive to variation in sales. However, this
relationship is not as close and direct as it is in the case of
working capital components.

CONCEPT OF WORKING CAPITAL

There are two concepts of


working capital:

• Gross working capital

• Net working capital

GROSS WORKING CAPITAL


The gross working capital refers to the firm's investment in
current assets.
Current assets are the assets which can be converted into cash
within an Accounting year. The term Gross Working Capital
means the total current
assets.

P a g e | 37
A Summer Internship Report on Working Capital
Management

Gross Working Capital = Total Current


Assets
The total Current assets are:-

 Cash in hand
 Cash at Bank
 Marketable securities
 Short term investments
 Bills receivable
 Sundry Debtors
 Inventories
 Work in process

NET WORKING CAPITAL

Net working capital refers to the difference between current


assets and current liabilities.Net working capital is the excess of
current assets over current liabilities. The net working capital
may be positive or negative. A positive net working capital will
arise when current assets exceed current liabilities. A negative
net working capital occurs when current liabilities are in excess
of current assets. Net working capital=current assets - current
liabilities
Net working capital is a qualitative concept. 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. Current assets should be sufficiently in excess of
current liabilities to constitute a margin or buffer for maturing
obligations within the ordinary operating cycle of a business. In
order to protect their interest, short- term creditors always like
a company to maintain current assets at a higher level than
current liabilities. It is a conventional rule to maintain the level
of current assets twice the level of current liabilities. A weak
liquidity position poses a threat to the solvency of the company
and makes it unsafe and unsound. A negative working capital
means a negative liquidity and may prove to be harmful for the
company reputation. Excessive liquidity is also bad because it
requires servicing which puts burden on the company's
profitability. It may be due to mismanagement of current
assets.

CURRENT LIABILITIES
Current liabilities are those claims of outsiders, which are

P a g e | 38
A Summer Internship Report on Working Capital
Management

expected to mature for payments within an accounting year


and include creditors (account payable), bill payable, and
outstanding expenses.

The total current liabilities are:-


 Sundry creditors
 Outstanding
 Bills Payable
 Short term
 Income tax
 payable
Dividends payable
 Bank overdraft
 Prepaid expenses
THE GOAL OF WORKING CAPITAL MANAGEMENT

The goal of working capital management is to manage the


firm's current assets and current liabilities in such a way that a
satisfactory level of working capital is maintained. This 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. The current assets should be large
enough to cover its current liabilities in order to ensure a
reasonable margin of safety. Each of the current assets must be
managed efficiently in order to maintain the liquidity of the firm
while not keeping to high a level of any one of them. Each of
the short-term sources of financing must be continuously
managed to ensure that they are obtained and used in the best
possible way. The interaction between current assets and
current liabilities is, therefore, the main theme of the theory of
working capital management.

FOCUS ON MANAGEMENT OF CURRENT ASSETS

The gross working capital concept focuses attention on two


aspects of current management:
 Q How to optimize investment in current assets?
 Q How should current assets be financed?

P a g e | 39
A Summer Internship Report on Working Capital
Management

The consideration of the level of investment in current assets


should avoid two-danger point - excessive or inadequate
investment in current assets. Investment in current assets
should be just adequate to the needs of the business firm.
Excessive investment in current assets should be avoided
because it impairs the firm's profitability, as idle investment
earns nothing. On the other hand inadequate amount of
working capital can threaten solvency of the firm because of its
inability to meet its current obligations. The management
should be prompt to initiate an action and correct imbalances.
Another aspect of the gross working capital point to the need of
arranging funds of finance current assets. Whenever a need for
working capital funds arise due to increasing level of business
activity or for other reason, financing arrangement should be
made quickly. Similarly if suddenly, some surplus funds arise
they should not be allowed to remain idle, but should be
invested in short-term securities. Thus the financial manager
should have knowledge of the sources of working capital funds
as well as investment avenues where idle funds may be
temporarily invested.

THE NEED AND OBJECT OF WORKING CAPITAL

Every business needs some working capital. The need for


working capital arises due to the time gap between production
and realization of cash from sales. The working capital is
needed for the following purpose:-

 For the purchase of raw materials components and spares.


 To pay wages and salaries
 To incur day- to - day expenses and overheads such as fuel, power
and office expenses etc.
 To meet the selling costs as packing, advertising etc.
 To provide credit facilities to the consumers,
 To maintain the inventories of raw material, work - in
-progress, stores and spares and finished stock.

FINANCING POLICIES FOR WORKING CAPITAL MANAGEMENT:-

A large number of factors , each having a different importance,

P a g e | 40
A Summer Internship Report on Working Capital
Management

influence working capital needs of firms. The importance of


factors also changes for a firm over time. Therefore an analysis
of relevant factors should be made in order to determine total
investment in working capital. The following is the description
of factors which generally influence the working capital
requirements of firms.

 Nature of business
Trading and financial firms have a small investment in
fixed assets, but require a large sum of money to be in
working capital. Some manufacturing businesses, such as
tobacco and construction firms, also have to invest
substantially in working capital and a nominal amount in
fixed The working capital requirements of a firm are
basically influence by the nature of its business, assets. In
contrast public utilities may have limited need for working
capital and have to invest abundantly in fixed assets.

 Seasonality of operations
Firms which have marked seasonality in their operation
usually have - highly fluctuating working capital
requirement. The sale of ceiling fans reaches a peak
during the summer months and drops sharply during the
winter period. The working capital need of such a firm is
likely to increase considerably in summer month and
decrease significantly during the winter period. On the
other hand a firm manufacturing a * product like lamps
which have fairly even sales round the year tends to have
stable working capital needs.

 Production policy
firm marked by pronounced seasonal fluctuation in its
sales may pursue a production policy which may reduce
the sharp variation in working capital requirements.
 Market conditions:-
The degree of competition prevailing in the market place
has an important bearing on working capital needs. When
competition is keen , a larger inventory of finished goods is
required to promptly serve customers who may not be
inclined to wait because other manufacturer are ready to
meet their needs. Further generous credit terms may have
to be offered to attract customers in a highly competitive
market. Thus working capital need tend to be high
because of greater investment in finished goods inventory

P a g e | 41
A Summer Internship Report on Working Capital
Management

and account receivables.


 Conditions of supply
The inventory of raw materials spares and stores depend
on the conditions of supply. If the supply is prompt and
adequate, the firm can manage with small inventory.
However, if the supply is unpredictable and scant, then the
firm in to ensure continuation of production, would have to
acquire stocks as and when they are available and carry
inventory on an average. A similar policy may have to be
followed when the raw material is available only
seasonally and production operations are carried out
round the year.

FINANCING POLICIES FOR WORKING CAPITAL MANAGEMENT:-

A firm can adopt different financing policies for its current


assets. Three types of financing may be distinguished.
• Long term financing: - The sources of long term
financing include ordinary share capital, preference share
capital,debentures, long- term borrowings from financial
institutions and resources and surplus.
• Short term financing: - The short term financing is
obtained for a period less than one year. It is arranged in
advance from banks and other suppliers of short term
finance in the money market. Short term finances include
working capital funds from banks, public deposit deposits,
commercial paper, factoring of receivable etc.
• Spontaneous financing: - Spontaneous financing refers to
the automatic sources of short term funds arising in
the normal course of business. Trade credit and
outstanding expenses are examples of spontaneous
financing. There is no explicit cost of spontaneous
financing. A firm is expected to utilize their sources of
finance to the fullest extent. The real choice of
financing current assets, once the spontaneous
sources of financing have been fully utilized, is
between the long term and short term sources of
finances. Depending on the mix of short and long term

P a g e | 42
A Summer Internship Report on Working Capital
Management

financing.
• Financing of working capital
After determining the level of working capital, a firm has to
decide how it is to be financed. The need for financing
arises mainly became the investment in working
capital/current assets, that is, raw materials, work-in-
process, finished goods and receivables typically
fluctuations during the year.
• Trade credit:
Trade credit refers to the credit extended by the supplier
of goods and services in the normal course of
transaction/business/sale of the firm. According to trade
practices cash is not paid immediately for purchases but
after an agreed period of time. Thus, deferral payment of
trade credit represents a source of finance for credit
purchase.
• Bank Credit:
Bank credit is the primary institutional source of working
capital finance in India. In fact, it represents the most
important source for financing of current assets.
• Forms of Credit: Working capital finance is
provided by banks in five ways :

 Cash credit/overdraft
 Loans
 purchase/discount bills
 letter of credit
 working capital loans

1. Cash credit/overdrafts:

Under cash credit/overdraft form of arrangement of bank


finance,the bank predetermined borrowing/credit limit. The
borrower can draw/borrow up to the stipulated credit/overdraft
limit. The interest is determined on the basis of the running

P a g e | 43
A Summer Internship Report on Working Capital
Management

balance/ amount actually utilized by the borrower and not on


the sanctioned limit. However, a minimum charge may be
payable on the unutilized balance irrespective of the level of
borrowing for availing of the facility.

2. Loans:
Under this arrangement, the entire amount of borrowing is
credited to the current account of the borrower or released in
cash. The borrower has to pay interest on the total amount. The
loans are repayable or demand or in periodic installments. They
can also be renewed from time to time.

3. Bills purchased / discounted:


The modes operandi of bill finance as a source of working
capital financing is that a bill arises out of a trade sale-purchase
transaction on credit. The seller of goods draws the bill on the
purchaser of goods, payable on demand or after a usance
period not exceeding 90 days. On acceptance of the bill by the
purchaser the seller offers it to the bank for discount/purchase.
On discounting the bill, the bank releases the funds to the
seller. The bill is presented by the bank to the purchaser /
acceptor of the bill on due date for payment.
4. Term loans for working capital:-
Under this arrangement, banks advance loans for 3-7 years
repayable in yearly or half-yearly installments.
5. Letter of Credit:-
Under this method the purchaser of goods on credit strains a
letter of credit from a bank. The bank undertakes the
responsibility to make payment to the supplier in case the
buyer fails to meet his obligation.

 ANALYSIS OF THE ELEMENTS OF CURRENTS ASSETS OF RSP

P a g e | 44
A Summer Internship Report on Working Capital
Management

FROM YEAR 2005-06 TO 2008-09:-


CASH AND BANK BALANCE:-

(Rs in crores)

YEAR 2005-06 2006-07 2007-08 2008-09

CASH & BANK 17.22 18.79 20.66 22.44


BALANCE

GRAPHICAL REPRESENTATION OF CASH AND BANK BALANCE

INTERPRETATION:-
• Cash is the most important liquid asset of the business.
Any firm
should keep sufficient liquid asset for day to day operation.
• There has been continuous increase in the cash and bank
balance of
RSP for 3 consecutive years i.e from 2006-07 to 2008-
09.
• The increasing trend has been over 9% in all the 3
years when
compared to the previous years.
• In 2006-07, it has increased to 18.79 crores i.e an increase
of 9.12%
compared to 2005-06 whereas in 2007-08, it has increased

P a g e | 45
A Summer Internship Report on Working Capital
Management

to 20.66
crores i.e an increase of 9.95% and in 2008-09 .there is
8.61% increase compared to 2007-08.
• From the above analysis it can be inferred that the
liquidity position of
RSP is very strong.

 INVENTORIES:-

(Rs in crores)

YEAR 2005-06 2006-07 2007-08 2008-09

INVENTORIE 718.11 877.56 870.13 1228.56


S

GRAPHICAL REPRESENTATION OF INVENTORIES

Note: - inventories are the total of raw materials, stores and


spares, finished/semi-finished products taken from schedules of
the balance sheet.
INTERPRETATION:-

P a g e | 46
A Summer Internship Report on Working Capital
Management

• Inventories of RSP include raw materials, stores and


spares and
finished and semi-finished products.
• Being a manufacturing company, inventories constitute
the maximum
aportion of current assets of RSP.
• As can be seen from the bar chart, the inventories
have increased for 1st years i.e in 2006-07 and in
2007-08 there is negligible fall of 0.8% and in 2008-
09 again there is increase in inventories.
• In 2006-07, the inventories have increased by 22%
compared to the previous year.
• Inventories, when compared with sales figure shows that
productivity and efficiency of the company has improved
as sales have gone up subsequently.

 SUNDRY DEBTORS:-

(Rs in crores)
YEAR 2005-06 2006-07 2007-08 2008-09

SUNDRY DEBTORS 14.6 12.96 11.66 13.32

GRAPHICAL REPRESENTATION OF SUNDRY CREDITORS

P a g e | 47
A Summer Internship Report on Working Capital
Management

Note: sundry debtors fig. are taken from balance sheet of


RSP.

INTERPRETATION:-
• Sundry debtors have shown a downfall in 2006-07
compared to 2005-06 i.e from 14.6 crores to 12.96 crores.
Thus it can be inferred that credit sales of RSP has
decreased.
• However for the next years, sundry debtors have shown a
downfall i.e from 12.96 crores it has decreased to 11.66
crores and in next it has increased to 13.32crores.
• Thus,there is a downfall in 2 consecutive year and it has
increased in last year i.e 2008-09.which indicates increase
in defective products of RSP,which normally calls for credit
sales

• Thus, downfall in sundry debtors is a good.

 LOANS AND ADVANCES

(Rs in crores)
YEAR 2005-06 2006-07 2007-08 2008-09

LOANS AND ADVANCES 212.72 230.94 243.15 00

GRAPHICAL REPRESENTATION OF LOANS AND ADVANCES

P a g e | 48
A Summer Internship Report on Working Capital
Management

Note: loans & advances fig. are taken from balance sheet.
INTERPRETATION:-
• Loans and advances play a major role in current asset of RSP after
inventories.
• It has shown a gradual rise from 2005-06 to 2007-08 and
becomes zero in 2008-09

 OTHER CURRENT ASSETS


Rs in crores)
YEAR 2005-06 2006-07 2007-08 2008-09

OTHER CURRENT 2.47 1.83 1.58 1.41


ASSETS
GRAPHICAL REPRESENTATION OF OTHER CURRENT ASSETS

P a g e | 49
A Summer Internship Report on Working Capital
Management

Note:- other current asset fig. are taken from balance


sheet of RSP.
INTERPRETATION:-
• In case of RSP, there is continuous downfall of other current
assets over the four years.
• However, accrued interest an important component of other
current assets plays an important role in the operation of RSP.
• It shows the claim of RSP against its customers and outside
parties. If it shows lower percentage then it can be said that the
company has got a conservative collection policies. And if it shows a
higher percentage, then it can be inferred that the company is unable
to collect money from outside parties and it adversely affects the
operation of the company.
• Thus, it can be inferred that RSP has got a good collection policy
which increases the profitability of RSP.

TREND ANALYSIS OF CURRENT ASSETS

The financial statements may be analyzed by computing trends of


series of information. This method determines the direction upwards or
downwards and involves the computation of the percentage relationship
that each statement item bears to the same item in base year. The
information for a number of years is taken up and one year, generally
the first year, is taken as a base year. The analyst is able to see the
trend of figures, whether upward or downward.

PROCEDURE FOR CALCULATING TRENDS:-


 One year is taken as a base year. Generally, the first or the last is
taken as a base year.
 The figure of base year is taken as 100.
 Trend percentages are calculated in relation to base year. If a
figure in other year is less than the figure in base year the trend
percentage will be less than 100 and it will be more than 100 if
figure is more than base year figure. Each year's figure is divided
by the base year's figure.

TREND ANALYSIS OF CURRENT ASSETS OF RSP FROM YEAR 2005-06


TO 2008-09
TREND PERCENTAGE (BASE YEAR 2005-06=100)

P a g e | 50
A Summer Internship Report on Working Capital
Management

YEAR AMOUNT(Rs in crores) TREND PERCENTAGE


2005-06 965.12 100
2006-07 1142.08 118
2007-08 1147.18 119
2008-09 1522.97 158
GRAPHICAL REPESENTATION OF TREND % OF CURRENT ASSETS

INTERPRETATION:-
• The current assets have continuously increased in all the year from
2005-06 to 2008-09.
• The increase in current assets is more in 2008-09 compared to
other
years.
• All the elements of the current asset have increased in 2008-
09
except other current assets.
• This increase has been mainly due to the huge rise in inventory in
2008-09 specially finished and semi-finished products.

ANALYSIS OF ELEMENTS OF THE CURRENT LIABILITIES OF RSP FROM


YEAR 2005-06 TO 2008-09:-

SUNDRY CREDITORS:-
(Rs in crores)

P a g e | 51
A Summer Internship Report on Working Capital
Management

YEAR 2005-06 2006-07 2007-08 2008-09

SUNDRY CREDITORS 233.04 292.23 307.94 265.77

GRAPHICAL REPRESENTATION OF SUNDRY CREDITORS:-

Note: sundry creditors fig. are taken from balance sheet of RSP.

INTERPRETATION:-
• Sundry creditors have shown a increase in two consecutive year.
• However, for the next two years, there is rise in sundry creditors
but in last year i.e 2008-09 there is a downfall, which is a bad
sign as inventories are not financed by these creditors.
• Thus, it can be inferred that the creditworthiness of the RSP has
decreased.

SECURITY AND OTHER DEPOSIT


(Rs in crores)
YEAR 2005-06 2006-07 2007-08 2008-09

SECURITY AND 27.08 32.72 33.25 43.77


OTHER DEPOSIT

P a g e | 52
A Summer Internship Report on Working Capital
Management

GRAPHICAL REPRESENTATION OF PROVISIONS

INTERPRETATION:-
• Security and other deposits are obligatory deposits of outside
parties, which are necessary for the company to keep as
guarantee.

• In 2005-06, it was 27.08 crores, then it increased to


32.72crores in 2006-07.

• Then it has shown an upward trend for the next 2 years. It


ensures the credibility of the company towards fulfillment of
obligations.

PROVISIONS
(Rs in crores)
YEAR 2005-06 2006-07 2007-08 2008-09

PROVISION 49.57 80.06 327.09 300

GRAPHICAL REPRESENTATION OF PROVISIONS

P a g e | 53
A Summer Internship Report on Working Capital
Management

INTERPRETATION:-
• Provisions are deferred payments due to employees etc. either
to be paid at the time of final decision or terminal point as the
case may be.

• Provision has shown a huge increase in 2007-08 compared to


the previous years because of the pending wage revision
payments.

OTHER CURRENT LIABILITIES:


(Rs in crores)

P a g e | 54
A Summer Internship Report on Working Capital
Management

YEAR 2005-06 2006-07 2007-08 2008-09

OTHER C.L 160.77 159.58 198.59 176.71

GRAPHICAL REPRESENTATION OF OTHER LIABILITIES


Note:other current liabilities fig. are taken from balance sheet.

INTERPRETATION:-
• Other current liabilities show a fluctuating trend. It was 160.77 crores
in 2005-06 then it decreased to 159.58 crores in 2006-07. In the next
year it increased and then it has again decreased in 2008-09.

• These are the liabilities of unusual nature which may occur one time as
the case may be.

• Aim of RSP should be to reduce the other current liabilities to


maintain the optimum working capital level.

TREND ANALYSIS OF CURRENT LIABILITIES OF RSP from


YEAR 2005-06 TO 2008-09.
* TREND PERCENTAGE(BASE YEAR 2005-06=100)
YEA AMOUNT(Rs.crores) TREND
R
200 06 470.46 PERCENTAGE
100
200 07 564.59 120
200 08 866.87 184
7-08
200 09 866.44 184

P a g e | 55
A Summer Internship Report on Working Capital
Management

GRAPHICAL REPRESENTATION OF TREND ANALYSIS OF CURRENT LIABILITIES OF


RSP

Note:- each year figure is divided by the base year's figure

INTERPRETATION:-
• The current liabilities show an upward trend from year 2004-05 to
2007-08. This is because sundry creditors has increased which
means creditworthiness of the company has increased.
• In 2005-06, the increase in current liabilities has mainly due to rise in
other current liabilities which has increased by 26.24%.
• The rise in current liabilities is more in the year 2007-08 compared to
other years because there is mammoth rise in provision in that year.

NET WORKING CAPITAL OF ROURKELA STEEL PLANT FROM YEAR 2005-


06 TO 2008-09 ARE AS FOLLOWS:-

(Rs in Crores)
PARTICULARS 2005-06 2006-07 2007-08 2008-09
A.CURRENT ASSETS:
CASH AND 17.22 18.79 20.66 22.44
BANK

P a g e | 56
A Summer Internship Report on Working Capital
Management

RAW MATERIALS 122.61 174.56 173.31 225.47


STORES AND SPARES 202.08 278.67 300.64 491.16
FINISHED/SEMI- 393.42 424.33 396.18 184.08
FINISHED PRODUCTS
SUNDRY DEBTORS 14.60 12.96 11.66 13.32
LOANS AND ADVANCES 212.72 230. 94 243.15 00
OTHER CURRENT 2.47 1.83 1.58 1.41
ASSETS
TOTAL(A) 965.12 1142.08 1147.18 937.88
B.CURRENT
LIABILITIES:
SUNDRY CREDITORS 233.04 292.23 307.94 265.77
SECURITY AND 27.08 32.72 33.25 36.73
OTHER DEPOSITS
OTHER LIABILITIES 160.77 158.95 198.59 176.71
PROVISIONS 49.57 80.06 327.08 300
TOTAL(B) 470.46 564.59 866.87 779.21
WORKING 494.66 577.49 280.31 158.67
CAPITAL(A-B) AS PER
RSP'S BOOKS
ADD-.NET CURRENT 404.53 552.34 740.53 780.35
ASSETS RELATING TO
RSP IN CMO'S BOOKS

NET WORKING 899.19 1129.83 1020.84 939.02


CAPITAL

SCHEDULE OF CHANGES IN THE WORKING CAPITAL


The schedule of changes is supplementary to fund flow statement s. It
indicates the direction in which working capital has moved and its
quantum.
SCHEDULE OF CHANGES IN THE WORKING CAPITAL f2004-05 -2005-

P a g e | 57
A Summer Internship Report on Working Capital
Management

061:-
PARTICULARS 2005- 2006-07 INCREA DECREA
SE IN SE IN
06 W.C W.C
A.CURRENT ASSETS
CASH AND BANK 17.22 18.79 1.57
BALANCES
RAW MATERIALS 122.61 174.56 51.95
STORES AND SPARES 202.08 278.67 76.59
FINISHED AND SEMI 393.42 424.33 30.91
FINISHED PRODUCTS
SUNDRY DEBTORS 14.60 12.96 1.64
LOANS AND ADVANCES 212.72 230.94 18.22
OTHER CURRENT ASSETS 2.47 1.83 0.64
TOTAL CURRENT ASSETS 965.12 1142.08
(A)
B.CURRENT LIABILITIES
SUNDRY CREDITORS 233.04 292.23 59.19
SECURITY AND OTHER 27.08 32.72 5.64
DEPOSITS
OTHER CURRENT 160.77 159.58 1.19
LIABILITIES
PROVISIONS 49.57 80.06 30.49
TOTAL CURRENT 470.46 564.59
LIABILITIES(B)
WORKING CAPITAL (A)-(B) 494.66 577.49
ADD:NET CURRENT 404.53 552.34 147.81
ASSET RELATING TO
RSP IN CMO'S BOOKS
TOTAL WORKING 899.19 1129.83
CAPITAL
INCREASE IN W.C 230.64 230.64
NET TOTAL 1129.8 1129.83 328.24 328.24
3

PARTICULARSS 2007-08 2008-09 INCREASE IN W.CDECREASE IN W.C


A.CURRENT ASSETS

CASH N BANK BALANCE 20.66 22.44 1.78


RAW MATERIAL 173.31 225.47 52.16
STORES N SPARES 300.64 491.16 190.52
FINISHED N SEMI FINISHED396.18 627.09 230.91
GOODS
SUNDRY DEBTORS 11.66 13.32 1.66
LOANS N ADVANCES 243.15 00 243.15

P a g e | 58
A Summer Internship Report on Working Capital
Management

OTHER CURRENT ASSETS 1.58 1.41 1.97


TOTAL CURRENT ASSETS 1147.18 1380.89
B.CURRENT LIABILITIES
SUNDRY CREDITORS 307.94 265.77 42.17
SECURITY N OTHER 33.25 43.77 10.52
DEPOSITS
OTHER CURRENT 198.59 36.73 161.86
LIABILITIES
PROVISION 327.09 941.54 614.45
TOTAL CURRENT 866.87 1274.68 169.77
LIABILITIES
WORKING CAPILTAL(A-B0 280.31 106.21
ADD;NET CURRENT 740.53 1381.67 641.14
ASSETS RELATING TO RSP
IN CMO’S BOOK
TOTAL W.C 1020.84 886.56
INC IN W.C 134.28 134.28
NET TOTAL 1020.84 1020.84 1228.26 1228.26

INTERPRETATION:-

Working capital has increased by 287.4 crores in 2005-06 compared to the


previous year to reach a figure of 899.19 crores.
• On careful analysis it is found that there is 32.7% increase in
current asset compared to previous year. This increase is mainly due
to the sharp increase in inventories i.e finished/ semi-finished
products which has increased by 86%.

• Cash and bank balances, sundry debtors and loan and


advances have also increased in 2005-06.

• The current liabilities have also shown a negligible increase of


4.25%.This is mainly due to the rise in other current liabilities which
includes accured interest.

Compare sales and working capital, we will find that although


• Working capital has increased, sales has decreased in 2005-06,
which says that there has not been proper utilization of resources in that
particular year.

P a g e | 59
A Summer Internship Report on Working Capital
Management

• Decrease in sales has lead to the accumulation of inventory i.e stock


of finished products have increased sharply.
• Net current assets according to CMO's books have also shown an
increase of 20%.
Thus, as a total effect the working capital has increased to 899.19 crore.

TREND ANALYSIS OF OVERALL NET WORKING CAPITAL


FROM YEAR 2005-06 TO 2008-09 ARE AS FOLLOWS:-

TREND PERCENTAGE(BASE YEAR 2005-06=100)


YEAR AMOUNT(Rs in crores) TREND PERCENTAGE
2005-06 899.19 100
2006-07 1129.83 125
2007-08 1020.84 113
2008-09 1228.83 136
Note :- each year's figure is divided by the base year's figure

P a g e | 60
A Summer Internship Report on Working Capital
Management

INTERPRETATION:-
• Net working capital shows an upward trend in 2005-06 and 2006-07.
However, there is a sudden downfall in 2007-08 i.e from 1129.83 crores,
it has reached to 1020.84 crores.
• This downfall is mainly due to increase in the items of the current
liabilities ie provision. Although working capital has decreased in 2007-
08, there is increase in sales as well as profit in the same year.
• Thus, it can be inferred that there has been proper utilization of raw
material.

Thus it is concluded that RSP is achieving profit. There is continuous increase


in cash and bank balance which states that the liquidity position of the
company is strong. RSP is also able to avail more credit i.e confidence of the
creditors on the company has increased. Thus RSP has sufficient liquidity to
pay the day to day expenses.
THE FOLLOWING TABLE SHOWS THE ACTUAL WORKING CAPITAL
AS PER RSP'S BOOKS AND BUDGETED WORKING CAPITAL:-

YEAR 2005-06 2006-07 2007-08 2008-09


Actual working capital as 494.66 577.49 280.31
per RSP's books 158.67
Budgeted working capital 200.36 690.48 581.56 181.42
Actual production 1615839 1942144 2067735 1988570
Budgeted Production 1758000 1920000 2065000 2250000

The above graph shows the difference between actual working


capital as per RSP's books and budgeted working capital.

Introduction:

In 2004-05, increase in budgeted production has lead to the


increase in budgeted working capital; Depletion of stock has
taken place in the actual working capital of 2006-07. In 2007-08,
more provision has been kept in budgeted working capital.

P a g e | 61
A Summer Internship Report on Working Capital
Management

OPERATING CYCLE

Operating cycle is the time duration required to convert sales


after the conversion of resources into inventories, into cash.
The operating cycle of a manufacturing company involve
three phases:-

Q Acquisition of resources such as raw material,


labour, power and fuel etc.
Q Manufacture of the product which includes
conversion of raw material into work - in - progress
into finished goods.

Sale of the product either for cash or on credit. Credit sales


account receivable for collection.
These phases affect cash flows which most of the time are
neither synchronized nor certain. They are not synchronized
because cash outflows usually occur before cash inflows.
Cash inflows are not certain because sales and collection
which give rise to cash inflows are difficult to forecast
accurately. Cash outflows, on the other hand are relatively
certain. The firm is therefore, required to invest in current
assets for a smooth, uninterrupted functioning. It needs to
maintain liquidity to purchase raw materials and pay
expenses such as wages and salaries, other manufacturing,
administrative and selling expenses and taxes as there is
hardly a matching between cash inflows and outflows. Stock
of raw material and work - in - process are kept to ensure
smooth production and to guard against non-availability of
raw material and other components. The firm holds stock of
finished goods to meet the demand of customers on
continuous basis and sudden demand from some customers.
Debtors are created because goods are sold on credit for
marketing and competitive reasons. Thus a firm makes
adequate investment in inventories and debtors for smooth,
uninterrupted production and sale.

P a g e | 62
A Summer Internship Report on Working Capital
Management

OPERATING CYCLE METHOD


This method is more dynamic and refers to working capital in
realistic way. Recently this method has gained importance
because of more rational approach based on operating cycle
of a firm. According to this approach the requirement of
working capital depends upon the operating cycle of the
business. The operating cycles begins with the acquisition of
raw materials and end with the collection of receivables. It
may be broadly classified in to the following four stages:-

1) Raw material and storage stage


2) Work in process
3) Finished goods inventory stage
4) Receivable collection stage

 GROSS OPERATING CYCLE (GOC)


The total of inventory conversion period and debtor's
conversion period is
referred to as gross operating cycle (GOC). A firm's gross
operating cycle
(GOC) can be determined as inventory conversion period
(ICP) plus debtor
conversion period (DCP)
GOC=ICP+DCP
 INVENTORY CONVERSION PERIOD (ICP)
The inventory conversion period is the total time needed for
producing and selling the products. Typically, it includes (a)
raw material conversion period (RAMCP) (b) work- in-
processing conversion period (WIPCP), and (c) finished goods
conversion period (FGCP) . The inventory conversion (ICP) is
the sum of raw material conversion period (RMCP), work-in-
process conversion period (WIPCP), and finished goods
conversion period (FGCP). ICP = RMCP + WIPCP + FGCP
 RAW MATERIAL CONVERSION PERIOD (RMCP)
The raw material conversion period (RMCP) is the average
time period taken to convert material in to work-in-process.
Raw material conversion period can be calculated as follows:-

Raw material conversion period (RMCP)=

P a g e | 63
A Summer Internship Report on Working Capital
Management

Average stock of raw materials


Consumption of raw material per day

 WORK- IN- PROCESS CONVERSION PERIOD


(WIPCP)
Work-in-process conversion period (WIPCP) is the average
time taken to complete the semi-finished or work-in-process.
Work-in -process conversion period can be calculated as
follows:-
Work- in-process conversion period(WIPCP)=
Average work in process inventory
Cost of production per day

 FINISHED GOODS CONVERSION PERIOD


Finished goods conversion period (FGCP) is the average time
taken to sell the finished goods. Finished goods conversion
period can be calculated as follows:-
Finished goods conversion period (FGCP)=
Average finished goods inventory
Cost of goods sold per day

 Debtor's conversion period (DCP) is the average


time taken to convert debtors into cash. The Debtor's
conversion period is the time required to collect the
outstanding amount from the customers. Debtor's
conversion is calculated as follows:-

Debtor's conversion period (DCP) =


Average debtors
Credit sales per day
NET OPERATING CYCLE (NOP)
The, difference between gross operating cycle and payable
deferral period is net operating cycle (NOC).
Net operating cycle (NOC) = gross operating cycle (GOC) -
creditors
Deferral period (CDP)

• CREDITOR'S DEFERRAL PERIOD (CDP)


Creditor's deferral period (CDP) is the average time taken by

P a g e | 64
A Summer Internship Report on Working Capital
Management

the firms in paying its suppliers (creditors).Creditor's deferral


period is calculated as:-

Creditor’s deferral period=


Average creditors
Credit purchases per day

CALCULATION OF RAW MATERIAL CONVERSION PERIOD OF


ROURKELA STEEL PLANT
DEFINITION:-
Raw materials conversion period
The raw material conversion period (RMCP) is the average
time period taken to convert material in to work-in-process.
Raw material conversion period can be calculated as follows:-
FORMULA:-
Raw material conversion period (RMCP) =
Average stock of raw material
Raw material consumed per day

RAW MATERIAL CONVERSION PERIOD OF ROURKELA


STEEL PLANT FROM YEAR 2005-06 TO 2008-09 ARE
AS FOLLOWS:-
YEAR 2005- 2006- 2007- 2008-09
06 07 08
A. OPENING STOCK OF 122.32 122.61 174.56 173.31
RAW MATERIAL
B. CLOSING STOCK OF 122.61 174.56 173.31 225.47
RAW MATERIAL
C. AVERAGE =(A+B)/2 122.46 148.58 173.93 199.39
D.RAW MATERIAL 1680.59 2144.68 2311.8 3122.46
CONSUMED 1
E.RAW MATERIAL 4.67 5.96 6.42 8.67
CONSUMED PER DAY
F.RAW MATERIAL 26 25 27 23
CONVERSION PERIOD
=(C/E)
Note: raw material consumed fig. are taken from profit & loss

P a g e | 65
A Summer Internship Report on Working Capital
Management

account of RSP.

INTERPRETATION:-
• The raw material conversion period of RSP is consistent
over the last four years.
• In 2005-06, the raw material conversion period was 26
days i.e the
average time taken to convert raw material into work in
progress was 26days.
• In the next year, the raw material conversion period has
decreased to 25 days.
• However, in 2007-08 it has increased to 27days. And in
2008-09, it has decreased to 23 days.
• This has happened because both average stock of raw
increased but the increase in raw material conversion period
is much less than the increase in stock of raw material.

CALCULATION OF WORK-IN-PROCESS CONVERSION PERIOD


(WIPCP) OF ROURKELA STEEL PLANT
DEFINITION:-
WORK- IN- PROCESS CONVERSION PERIOD (WIPCP)
Work-in-process conversion period (WIPCP) is the average time
taken to
complete the semi-finished or work-in-process. Work-in
-process
conversion period can be calculated as follows:-
FORMULA:-
Work- in-process conversion period(WIPCP)=
Average work in process inventory

Cost of production per day

WORK- IN- PROCESS CONVERSION PERIOD OF ROURKELA


STEEL PLANT FROM YEAR 2005-06 TO 2008-09 ARE AS
FOLLOWS:-
YEAR 2005- 2006- 2007- 2008-09
A. OPENING WORK IN 06
211.56 07
393.42 08
424.33 396.18
PROCESS

P a g e | 66
A Summer Internship Report on Working Capital
Management

B. CLOSING WORK IN 393.42 424.33 396.18 184.08


PROCESS
C. AVERAGE=(A+B)/2 302.49 408.87 410.25 290.13
D. COST OF PRODUCTION 3153.62 4084.96 4677.56 5072.02
E.COST OF PRODUCTION 8.76 11.35 13 13.96
PER DAY =(D/360)
E. WORK IN PROCESS 34 36 31 21
CONVERSION PERIOD
IN DAYS=(C/E)
Note:- data of cost of production has been taken from relevant

files of RSP.

INTERPRETATION:-
• Work in progress conversion period is the average time
taken to
complete semi-finished work in progress.
• Work in progress conversion period has increased for next
years i.e in
2006-07, it increased to reach 36 days. The upward trend
doesn’t continued in 2007-08 and the work in progress
conversion period in 2007-08 reached to 31days.
• Again in the next year, it decreased to reach 21 days.

 FINISHED GOODS CONVERSION PERIOD OF


ROURKELA STEEL PLANT

Finished goods conversion period (FGCP) =


Finished goods conversion period (FGCP) is the average time
taken to sell
the finished goods. Finished goods conversion period can be
calculated as
follows:-
Finished goods conversion period (FGCP) =

Average stock of finished goods inventory

Cost of sales per day

FINISHED GOODS CONVERSION PERIOD OF ROURKELA


STEEL PLANT FROM YEAR 2005-06 TO 2008-09 ARE
AS FOLLOWS:-

P a g e | 67
A Summer Internship Report on Working Capital
Management

YEAR 2005- 2006- 2007-08 2008-09


A. OPENING STOCK OF 06 07
211.56 393.42 424.33 396.18
FINISHED GOODS
B. CLOSING STOCK OF 393.42 424.33 396.18 443.01
FINISHED GOODS
C. AVERAGE=(A+B)/2 302.49 408.87 410.25 419.59
D. COST OF SALES 3190.31 4118.84 4716.37 5025.19
E.COST OF SALES PER 8.86 11.44 13.10 13.95
DAY=(D/360)
A. FINISHED GOODS 34 36 31 30
CONVERSION PERIOD=(C/E)
Note :- cost of sales is the total of cost of production and
CMO'S figure from the expenditure column of profit and
loss a/c

INTERPRETATION:-
• The finished goods conversion period is the average
time taken to sell finished products.
• In 2005-06, the average time taken to sell finished
products was 34 days. In 2006-07, it increased to reach
37 days and in 2007-08, it further decreased to reach
31 days.
• However, in 2008-09, the time taken to sell finished
products decreased to 31 days.

DEBTORS TURNOVER CONVERSATION PERIOD OF


ROURKELA STEEL PLANT FROM THE YEAR 2005-06 TO
2008-09:-
YEAR 2005- 2006- 2007-08 2008-09
A. OPENING DEBTORS 12.44 14.60 12.96 11.66
B.CLOSING DEBTORS 14.60 12.96 11.66 13.32
C.AVERAGE=(A+B)/2 13.52 13.78 12.31 12.49
D.CREDIT SALES 917.33 1267.1 1464.33 1524.63
E.CREDIT SALES PER 2.54 3.52 4.07 4.18
F.DEBTORS 5 4 3 3
CONVERSION
PERIOD=(C/E)
F.DEBTORS 5 4 3 3
CONVERSION
PERIOD=(C/E)Note:- credit sales is 20% of total sales taken from
profit & loss account

INTERPRETATION:-

P a g e | 68
A Summer Internship Report on Working Capital
Management

• Debtor conversion period is the average time taken to


convert debtors into cash.

• In 2005-06, the debtors conversion period was 5 days i.e


the average time taken to convert debtors into cash was 5
days. It decreased to 4 days in 2006-07 and again it
decreased
in 2007-
08 to 3
days.
• It
further
decreased
to 3 days
in 2008-
09.

 CALCULAT
I ON OF
CREDITORS DEFERRAL PERIOD OF ROURKELAVSTEEL PLANT
DEFINITION:
Creditor deferral period (CDP) =Creditors deferral period
(CDP) is the average time taken by the firms in paying
its suppliers (creditors).creditors deferral period is
calculated as
FORMULA :-

Creditor deferral period (CDP) =

Average Creditor
Credit purchase per day

CREDITORS DEFERRAL PERIOD OF ROURKELA STEEL


PLANT FROM YEAR 2005-06 TO 2008-09 ARE AS
FOLLOWS:-

YEAR 2005- 2006- 2007-08 2008-09


A.OPENING CREDITORS 238.89 233.04 293.23 307.94
B.CLOSING CREDITORS 233.04 293.23 307.94 265.77
C.AVERAGE=(A+B)/2 235.04 262.63 300.94 286.85

P a g e | 69
A Summer Internship Report on Working Capital
Management

D.CREDIT PURCHASE 1344.47 1715.7 1849.44 2497.97


E.CREDIT PURCHASE 3.73 4.76 5.14 6.94
PER DAY=(D/360)
F.CREDITORS 63 55 58 41
DEFERRAL
PERIOD=(C/E)
Note: credit purchase is 80% of raw material consumed taken
from profit & loss account.

INTERPRETATION:-
• Creditor's deferral period is the average time taken by RSP
in paying its creditors.
• The creditor's deferral period of RSP was 63 days in 2005-
06. In 2006-07,it shows a huge downfall to reach 55 days
and it increased to 58days.
• However, in the next year, the creditor's deferral period
shows a huge decrease and the average time taken by RSP
in paying its creditors is 41 days.

 ANALYSIS OF OPERATING CYCLE OF ROURKELA STEEL PLANT


FROM
YEAR 2005-06 TO 2008-09:-
YEAR 2005-06 2006- 2007- 2008-
07 08 09

A. RAW MATERIAL 26 25 27 23
CONVERSION PERIOD

P a g e | 70
A Summer Internship Report on Working Capital
Management

B. WORK IN 34 36 31 21
PROCESS
CONVERSION
PERIOD
C. FINISHED GOODS 34 36 31 30
CONVERSION PERIOD

D. INVENTORY 94 97 89 74
CONVERSION
PERIOD=(A+B+C)
E. DEBTORS CONVERSION 5 4 3 3
PERIOD

F. GROSS 99 100 92 77
OPERATING
CYCLE=(D+E)
G.CREDITORS 63 55 58 41
DEFERRAL PERIOD

H.NET OPERATING 36 45 34 36
CYCLE=(F-G)

INTERPRETATION:-
• Net operating cycle is the net time interval between cash
collection from sale of the product and cash payments for
resources acquired by the firm.
• The speed with which operating cycle completes one cycle
determines the requirement of the working capital.
• If working capital increases, it means there is further need
for negotiated working capital.
• Here, in case of RSP, the net working capital in 2005-06
was 36 days.
• However in the next year it jumped to 45 days. This has
happened
because there was increase in all the components of the
inventory
conversion period i.e raw material conversion period, work in
process conversion period and finished goods conversion period
have increased in 2006-07. Also creditor’s deferral period has
shown a sharp fall.

P a g e | 71
A Summer Internship Report on Working Capital
Management

• In 2007-08, there is decrease in the net operating cycle as


the creditors deferral period has shown further increased to
reach 58 days. Therefore, the duration of the net operating
cycle in 2006-07 is 34 days.
• * In 2007-08, the net operating cycle has decreased to 36
days. This has happened because of reduction in inventory
conversion period.
• Therefore it is unfavorable for Rourkela Steel Plant as rise
in duration of net operating cycle need more working capital.
• The total period of operating cycle is between 1-2 months
which resembles a better position of the company.

RATIO ANALYSIS OF ROURKELA STEEL PLANT FROM


YEAR 2004-05 TO 2007-08

A ratio is a simple arithmetical expression of the relationship of


one number to another. It may be defined as the indicated
quotient of two mathematical expressions.
Ratio analysis is a technique of analysis and interpretation of
financial statements.lt is the process of establishing and
interpreting the various ratios for helping in making certain
decisions.lt is a means of better understanding of financial
strength and weakness of a firm. There are a number of ratios
which can be calculated from the information given in the
financial statement, but the analyst has to select the
appropriate data and calculate only a few appropriate ratios
from the same keeping in mind the objective of analysis. The
ratio may be used as a symptom like blood pressure. The pulse
rate or the body temperature and their interpretation depend
upon the caliber and competency of the analysts. The following
four steps involved in the ratio analysis:

 Selection of relevant data from the financial statement


depending upon the objective of the analysis.
 Calculation of appropriate ratios from the above data.
 Comparisons of the calculated ratios with the ratio of the
same firm in the past, or the ratios developed from
projected financial statements or the ratios of some other
firms or the comparison with the ratios of the industry to
which the firm belongs.
 Interpretation of the ratio.

LIMITATIONS:

P a g e | 72
A Summer Internship Report on Working Capital
Management

 There are no well-accepted standards or rules of thumb for


all the
ratios, which can be accepted as norms.
 Change in accounting procedure by a firm often makes
ratio analysis misleading.
 Different people may interpret the same ratio in different
ways.
 The ratio of other organization in the same industry may
not be
readily available.
 The ratio only highlights the strong or problem areas They
do not
provide any solution to rectify the problem .
 Ratio analysis often gives leading indication of the effect of
changes
in the price levels is not taken into account.
The technique of ratio analysis can be employed for
measuring short term liquidity or working capital of a firm. The
following ratios may be calculated for this purpose.

CURRENT RATIO:-

DEFINITION:-Current ratio may be defined as the relationship


between current assets and current liabilities. Current ratio is a
measure of general liquidity of a short term financial position or
liquidity of a firm. Current ratio is a measure of the firm's short-
term liquidity.lt is calculated by dividing the total of current
assets by total of the current liabilities.

FORMULA:- The current ratio is calculated by dividing the total


current assets by current liabilities.
Current Assets
Current Ratio = ----------------------
Current liabilities

THE CURRENT RATIOS OF ROURKELA STEEL PLANT FROM YEAR


2005-06 TO 2008-09 ARE AS FOLLOWS:-

P a g e | 73
A Summer Internship Report on Working Capital
Management

YEAR 2005-06 2006-07 2007-08 2008-09


CURRENT ASSETS 1369.65 1694.42 1887.71 1522.97
CURRENT LIABILITIES 470.46 564.59 866.87 866.44
CURRENT RATIO 2.91 3 2.18 1.75
=CURRENT ASSET/
CURRENT LIABILITIES

ACID TEST RATIO:-

DEFINITION:-Acid-test ratio also known as quick ratio,


establishes a relationship between quick, or liquid assets and
current liabilities. An assets is liquid if it can be converted
into cash immediately or reasonably soon without a loss of
value. Cash is the most liquid asset. Other assets that are
considered relatively liquid and include in quick assets are
debtors and bill receivables and other current assets.
Inventories are considered to be less liquid. Inventories
normally require some time for realizing into cash. The term
acid test refers to the ability of a firm to pay its short term
obligation as and when they become due.

FORMULA:- The acid test ratio can be calculated by dividing


the total of quick assets by total current liability.

Current assets -
inventories
Acid test ratio =
-----------------------------------------------------------
Current liabilities

P a g e | 74
A Summer Internship Report on Working Capital
Management

ACID TEST RATIOS OF ROURKELA STEEL PLANT FROM YEAR


2004-05 TO 2007-08 ARE AS FOLLOWS:-
YEAR 2005-06 2006-07 2007-08 2008-09

CURRENT 651.54 816.86 1017.58 1228.5


ASSETS
-INVENTORIES
CURRENT LIABILITIES 470.46 564.59 866.87 866.44

ACID TEST RATIO 1.38 1.45 1.17 1.41


(CURRENT ASSETS-
INVENTORIES)/CURRENT
LIABILITIES

INTERPRETATION:-

• Acid test ratio is a more rigorous test of liquidity than the


current ratio. It is used as a complementary ratio to the
current ratio.
• As a rule of
thumb, or a
convention,
quick ratio of
1:1 is
considered
satisfactory. It
is generally
thought that if
quick assets
are equal to
the current liabilities then the concern may be able to
meet its short term obligation.
• In case of RSP, the acid test ratio in 2005-06 was 1.38, then
in 2006-07, it increased to 1.45, then in the next year, it
decreased 1.17. However in 2008-09, it increased to 1.41.
• The acid test ratio has been more than the standard ratio in
all the years. Thus it can be said that RSP is able to pay off its
current obligations immediately.

P a g e | 75
A Summer Internship Report on Working Capital
Management

WORKING CAPITAL TURNOVER RATIO:-

DEFINITION:-A firm may like to relate net working capital to


sales. Working capital turnover ratio is calculated by dividing
sales by net working capital.

FORMULA:-
Cost of
sales
Working capital turnover ratio = ------------
Net working capital

• WORKING CAPITAL TURNOVER RATIO OF


ROURKELA STEEL PLANT FROM YEAR 2004-05 TO
2007-08 ARE AS FOLLOWS:-

YEARS 2005-06 2006-07 2007-08 2008-09

COST OF SALES 3190.31 4118.84 4716.37 5025.19

NET 900.09 1129.83 1020.84 1130.08


WORKING
CAPITAL CAPITAL 3.54
WORKING 3.64 4.62 4.44
TURNOVER
RATIO=COST OF
SALES/NET
WORKING

P a g e | 76
A Summer Internship Report on Working Capital
Management

INTERPRETATION:-

• Working capital turnover ratio indicates the velocity


of the utilization of net working capital. This ratio tries to
highlight how effectively working capital is being used in
terms of the turnover it can help to generate.
• The ratio was 4.31 in 2004-05, then 2005-06 ,it
decreased to 3.54.then for the next 2 years, the ratios
have increased which indicates working capital has been
efficiently utilized.

INVENTORY TURNOVER RATIO

DEFINITION:-inventory turnover indicates the efficiency of the


firm in producing and selling its products. It is calculated by
dividing cost of goods sold by average inventory. Inventory
turnover ratio also known as stock velocity is normally
calculated as sales / average inventory or cost of goods sold /
average inventory. The average inventory is the average of
opening and closing balance of inventory. It would indicate
whether inventory has been efficiently used or not. Inventory
turnover ratio measures the velocity of conversion of stock into
sale.

FORMULA:-
Cost of goods
sold
Inventory turnover ratio= ------------------------
Average inventory

P a g e | 77
A Summer Internship Report on Working Capital
Management

INVENTORY TURNOVER RATIO OF ROURKELA STEEL PLANT


FROM YEAR 2004-05 TO 2007-08 ARE AS FOLLOWS:-
YEAR 2005-06 2006-07 2007-08 2008-09
OPENING 500.44 718.11 877.56 870
INVENTORY
CLOSING 718.11 877.56 870.13 1228.56
INVENTORY
AVERAGE 609.27 797.83 873.84 1049.28
COST OF 3190.31 4118.84 4716.37 5025.19
GOODS SOLD
INVENTORY 5.24 5.16 5.4 4.78
TURNOVER
RATIO-COST OF
GOODS
SOLD/AVERAGE

P a g e | 78
A Summer Internship Report on Working Capital
Management

INTERPRETATION:-
• The inventory turnover ratio measures the velocity of
conversion of stock into sales.

•Inventory turnover ratio was 5.24 in 2005-06, then it


shows a downfall for next year’s after which it has
increased to reach 5.4.
• A high inventory ratio indicates efficient inventory
management. A low inventory turnover ratio implies
excessive inventory level than warranted by production
and sales activities, or a slowing- moving or obsolete
inventory.
• Thus, it can be inferred that RSP has managed its
inventory efficiently.

LIMITATIONS OF THE STUDy

 RSP is a large organization with many departments.


Since this study is restricted to 2 months, it is not possible
to collect data from every department.
 This study is restricted to the application of working
capital management only.
 Data is collected mainly from annual report and
published report only.

P a g e | 79
A Summer Internship Report on Working Capital
Management

RECOMMENDATION

 There is huge demand for steel products all over the world.
SAIL and RSP being major producer of steel products should
enhance its production capacity.
 Marketing organization should scientifically organize its
marketing network so that synchronization takes between
production and sales.
 Cost of production of RSP is going on increasing day by day.
Though high rate of raw material is major reason, huge
manpower cost is also contributing to the cost of
production. In this scenario, reduction of manpower is
essential.

FINDINGS OF THE STUDY


After studying the working capital management of RSP,
following are the major findings of the study:-
 RSP is a huge manufacturing organization so its
working capital requirement is also more.
Therefore Rourkela steel plant maintains huge
amount of working capital to pay day to day
business expenses.
 Raw material is the major component of
working capital of RSP.
 RSP requires huge amount of raw material to
manufacture huge amount of finished products
especially steel. These raw materials include

P a g e | 80
A Summer Internship Report on Working Capital
Management

iron ore, imported coal, dolomite, Ferro


manganese, limestone. These raw materials
come to RSP in long goods train. The limestone
often comes from omen and other gulf
countries. So the cost of raw material is also
very huge.
 Import of raw materials is done by central
marketing organization (CMO). CMO is India's
largest marketing set up. It also markets
carbon steel produced by five integrated steel
plant.
 Provision has shown a huge rise in 2007-08.
This is due to the pending wage revision of the
RSP. Wage revision of all the PSUs are pending
as they need the approval of the government.
 Net operating cycle of RSP has always
remained between 1-2 months which indicates
good financial position of the company.
 Current ratio and acid test ratio of RSP is
either equal or more than the standard norm
which indicate that RSP has sufficient liquid to
meet day to day expenses.

CONCLUSION

Working capital refers to the fund required by an organization


for day-today operations, or, more specifically, for financing the
conversion of raw materials into finished goods, which the
company sells for payment. In normal practice firms mobilize
working capital through short term loan from banks. Therefore,

P a g e | 81
A Summer Internship Report on Working Capital
Management

the better a company manages its working capital, the less it


needs to borrow. Even companies with cash surpluses, need to
manage working capital at an optimum level to ensure that
those surpluses are invested in ways that will generate suitable
returns for investors.

Rourkela Steel Plant is a profitable organization. Its working


capital decreased in 2007-08 and profitability and sales of the
company has shown a rise. Hence, it has made proper
utilization of its resources. It comes under NAVARTNA PSU. It
not only provides maximum benefits to its owners but also to
the society at large.

Since this is a Public sector unit the decision making process is


quite slow, because of Govt, interference .But every year profit
is increasing rapidly as well as the production capacity.

BIBLIOGRAPHY
Data Sources:
 Annual reports of RSP from year 2005-06, 2006-07,
2007-08, 2008-09
 Published report relevant to the
subject.

P a g e | 82
A Summer Internship Report on Working Capital
Management

 Commercial data
 Files
 Published record of the plant

Books & Articles:


 I.M Pandey :financial management Management
accounting: Sharma & Gupta

Websites:
• www.worldsteeldynamics.com
• www.globalsteelconsultants.com
• www.sail.co.in
• www.steelworld.com

P a g e | 83

You might also like