WORKING CAPITAL MANAGEMENT

RATIO ANALYSIS
With reference to M/S. RAIN CII CARBON (INDIA) LIMITED (Formerly M/S. RAIN CALCINING LIMITED) VISAKHAPATNAM
A project report submitted to Andhra University, in partial fulfillment for the award of the degree of &

MASTER OF BUSINESS ADMINISTRATION

M. SRINIVASA RAO
Enrollment No: 2055555023
Under the guidance of Professor R. Satya Raju Head of the Department Commerce and Management Studies Andhra University VISAKAHAPATNAM
Submitted by

ANDHRA UNIVERSITY
DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES VISAKHAPATNAM

CERTIFICATE
This is to certify that Mr. M. Srinivasa Rao Enrollment No.2055555023, a student of M.B.A., of ANDHRA UNIVERSITY, has prepared this project report entitled "WORKING CAPITAL MANAGEMENT & RATIO ANALYSIS" with reference to M/s. RAIN CII CARBON (INDIA) LIMITED (formerly Rain Calcining Limited), VISAKHAPATNAM. This report is submitted in partial fulfillment of the requirement for the award of "Master Of Business Administration" degree from ANDHRA UNIVERSITY,VISAKHAPATNAM. It is a record of bonafide work carried out by him under my guidance and supervision and his study has been quite impressive and good. I wish him all success in his future endeavours.

R. SATYA RAJU HEAD OF THE DEPARTMENT COMMERCE & MANAGEMENT STUDIES

Place: Visakhapatnam Date :

TO WHOM SO EVER IT MAY CONCERN

This is to certify that M. Srinivasa Rao, a student of M.B.A., of

ANDHRA UNIVERSITY, has successfully completed his Project Work on "WORKING CAPITAL MANAGEMENT & RATIO ANALYSIS "

at our factory for the period from 01.10.2007 to 25.03.2008 as a part of MBA studying from Andhra University , Visakhapatnam

Reddy Assistant General Manager (Personnel & HRD)

M.S. Krishna Mohan

Place: Visakhapatnam Date : 31.03.2008

DECLARATION

I do hereby declare that this project entitled "WORKING CAPITAL MANAGEMENT & Ratio Analysis with reference to M/s.RAIN (formerly RAIN CALCINING CII CARBON (INDIA) LIMITED

LIMITED, Visakhapatnam, has been written and submitted by me in the partial fulfillment for the award of "MASTER OF BUSINESS ADMINISTRATION" to ANDHRA UNIVERSITY. This work has not been previously submitted by anyone for award of any other degree or diploma in any other institute or university and purely of my own.

M. Srinivasa Rao
Enrollment Number:2055555023

Place: Visakhapatnam
Date:

31.03.2008

ACKNOWLEDGEMENT
This Project Report is an our come bearing the imprint of many persons who directly and indirectly encouraged and inspired in this completion. I would like to thank one and all. I would like to extend my profound sense of gratitude to Sri R. SATYA RAJU, Project Guide and Head of the Department Commerce & Management Studies of our University for giving his guidance and valuable suggestions in bringing our this Project. It is my privilege to thank all the Professors of Andhra University for their continuous support. I intend to provide my gratitude to Sri P. Madhava Rao, Manager Finance & Sri V.V.N. Murty, Assistant Manager Accounts for assisting me and providing information whenever necessary and helping me to complete the Project successfully. My special thanks to all my well wishers who hand cooperated with me while doing Project work and M.B.A. Programme successfully.

M.Srinivasa Rao Enrollement 2055555023 No.

CONTENTS
CHAPTE R NO.

DESCRIPTION
INTRODUCTION

II

AN OVERVIEW OBJECTIVE OF THE STUDY ( WORKING CAPITAL MANAGEMENT & RATIO ANALYSIS)

III

PROFILE OF THE ORGANISATION

ANALYSIS OF DATA IV WORKING CAPITAL MANAGEMENT & RATIO ANALYSIS

SUMMARY AND SUGGESTIONS

Chapter No.I INTRODUCTION

Working

capital

management is crucial for any firm, because

investment in current assets represents a substantial portion of total investment and investment in current assets and liabilities have to be geared quickly to the changes in sales. So a lot of financial managers time is devoted in current assets and current liabilities management.

Working capital management can be mainly divided into 4 parts. 1. 2. 3. 4. Operating cycle Receivables management Inventory management Cash management

The application of these four core areas of working capital management forms the crux of the project. In operating cycle, for the past three years, the net operating cycle is calculated. In receivables management the credit standards, credit period, and collection efforts in RAIN CII CARBON are studied, in inventory Management, and their re-order points are determined, In cash management the cash requirements for the coming financial year 2007-2008 are estimated and a cash budget of receipts and payments type is prepared.

Ratio Analysis :
Ratio Analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm, as well as its historical performance and current financial conditions, can be determined. Financial Ratio Analysis: Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment.

Financial ratios are calculated from one or more pieces of information from a company's financial statements. For example, the "gross margin" is the gross profit from operations divided by the total sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a useless piece of information. In context, however, a financial ratio can give a financial analyst an excellent picture of a company's situation and the trends that are developing. A ratio gains utility by comparison to other data and standards. Taking our example, a gross profit margin for a company of 25% is meaningless by itself. If we know that this company's competitors have profit margins of 10%, we know that it is more profitable than its industry peers which is quite favourable. If we also know that the historical trend is upwards, for example has been increasing steadily for the last few years, this would also be a favourable sign that management is implementing effective business policies and strategies.

Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and operations. An overview of some of the categories of ratios is given below.

Leverage Ratios which show the extent that debt is used in a company's capital structure.

Liquidity Ratios which give a picture of a company's short term financial situation or solvency.

Operational Ratios which use turnover measures to show how efficient a company is in its operations and use of assets.

Profitability Ratios which use margin analysis and show the return on sales and capital employed.

Solvency Ratios which give a picture of a company's ability to generate cash flow and pay it financial obligations.

It is imperative to note the importance of the proper context for ratio analysis. Like computer programming, financial ratio is governed by the GIGO law of "Garbage In...Garbage Out!" A cross industry comparison of the leverage of stable utility companies and cyclical mining companies would be worse than useless. Examining a cyclical company's profitability ratios over less than a full commodity or business cycle would fail to give an accurate long-term measure of profitability. Using historical data independent of fundamental changes in a company's situation or prospects would predict very little about future trends. For example, the historical ratios of a company that has undergone a merger or had a

substantive change in its technology or market position would tell very little about the prospects for this company.

Credit analysts, those interpreting the financial ratios from the prospects of a lender, focus on the "downside" risk since they gain none of the upside from an improvement in operations. They pay great attention to liquidity and leverage ratios to ascertain a company's financial risk. Equity analysts look more to the operational and profitability ratios, to determine the future profits that will accrue to the shareholder. Although financial ratio analysis is well-developed and the actual ratios are well-known, practicing financial analysts often develop their own measures for particular industries and even individual companies. Analysts will often differ drastically in their conclusions from the same ratio analysis.

As in all things financial, beauty is often in the eye of the beholder. It pays to do your own work!

Importance of Ratios: Ratio Analysis is concerned to be one of the important financial tools for appraisal to financial conditions, efficiency and profitability of business. following objects. Hence Ratio Analysis is useful from

1) Short term and long term planning. 2) Measurement and evaluation of financial performance. 3) Study of financial trends. 4) Decision making for investment and operations. 5) Diagnosis of financial ills. 6) Helps in communicating. 7) Helps in co-ordination. 8) Helps in financial forecasting and planning.

Advantages of Ratio Analysis:The following are the main advantages derived out of Ratio Analysis, which are obtained from the financial statements viz., Profit and Loss Account and Balance Sheet.

a) The analysis helps to grasp the relationship between various items in the financial statements. b) They are useful in pointing out the trends in important items and thus helps the management to forecast. c) With the help of ratios inter-firm comparisons are made to evolve future market strategies. d) The communication of what has happened between

accounting dates revealed effectively by ratios.

Limitations of Ratio Analysis:a) Limited use of Singe Ratio:A single ratio, usually, does

not convey much of sense. To make a better interpretation a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any meaningful conclusion b) Lack of Adequate Standards :standards or rules of thumb accepted as norms. difficult. c) Windows Dressing:Statements can easily be window There are no well-accepted for all ratios, which cab be

It renders interpretation of the ratios

dressed to present a better picture of its financial and profitability poison to outsiders. d) Personnel Bias:- Ratio are only means of financial analysis and not an end it itself. Ratios have to be interpreted and different people may interpret the same ratio in different ways.

Objective of the Study:-

The main objective of the study is analyzing the financial position of the Company. In the study, I had collected the date from the financial statements via, Balance Sheet and Profit and Loss Account and other related sources Department RCL. provided by the Finance

The following were the Objective of the study:-

To study the

Industry and identify the problems and prospects

and future requirements of RCL. To present in profile of the RCL where investigator carried out This part includes the utilities of Financial

his Project work. Analysis.

To review the optical frame work if financial analysis with special reference to different tools and techniques. To offer suitable suggestion on the basis of finding at the study.

CHAPTER III ORGANIZATIONAL PROFILE

Rain CII CARBON (INDIA) LIMITED (formerly Rain Calcining Limited) was incorporated as a public limited company under the companies Act, 1956 on November 8th, 1989 for implementing the project to manufacture Calcined Petroleum Coke (CPC) with Cogeneration facility of 49.5 MW power. The development of the project included carrying out a feasibility study for the project, identification of Raw material sources and markets for the product and tying up the sources or finance. The company has set up a 100% Export Oriented Unit for the manufacture of 500,000TPA of CPC with a power generation facility capable of generating an annual averaged of 49.5MW of surplus power from the flue gases evolved during processing, calcination and

combustion of green petroleum coke ( GPC), the surplus power from the co-generation facility will be sold to industrial consumers or transmission corporation of Andhra Pradesh (AP TRANSCO) under a power wheeling and purchase agreement between the company and APTRANSCO. The revenue generated from the sale of surplus power will make the companys cost of CPC production one of the lowest in the world.

The project was successfully tested and commissioned and commercial production commenced in July 1998.

Location: The project is strategically located in the Visakhapatnam port area, Kapparada Viallage, Naval Base (PO), Visakahapatnam - 530 0014 in

Andhra Pradesh. The company has been allotted 42.5 acres of land on a lease basis by Visakhapatnam Port Trust (VPT) for a period of 30 years from august 28, 1992. That has also allotted to the company an additional 40 acres of VPT land, free of cost, for the development of a green belt around the plant. The location in Visakhapatnam Port Area will facilitate the import of 700,000 to 8,00,000 dry tonnes of GPC and export of

500,000 tones of CPC per annum. Visakhapatnam Harbor is one of the well-equipped major ports in the country with good bulk cargo handling facilities. National Aluminum Company Limited (NALCO), Bharat Aluminum Compnay Limited (BALCO) which owns the biggest aluminum smelters in India, is the main consumers in India of CPC and is located 500 700 kms from Visakhapatnam.

Promoters:
The Company has been promoted by Mr. N. Jagan Mohan Reedy and Associates, Reliant Energy-Rain, inc. and APPLIED INDUSTRIAL

MATERIAL CORPORATION INC., Mr. Jagan Mohan Reedy (42 Years) has a Bachelors degree in Industrial Engineering from Purdue University, U.S.A. He received initial training in the cement industry, which utilizes technology similar to a Calcination plant and worked with companies and consultants experienced in the Calcining industry to develop the project. He conceived the project and obtained a grant of US $ 500,000 from the United States Trade and Development Agency (USTDA) for conducting the feasibility study for the project, which was conducted by Pace consultants inc. (Pace) U.S.A.

Reliant Energy-Rain, inc., Mauritius, is a Wholly owned subsidiary of Reliant Energy International, inc. (REI), based in Houston, Texas, USA. REI is an international energy services company with $ 11.5 billion in annual revenue and assets totaling, more than $ 19 billion., Reliant Energys Retail Group consists of three natural gas utilities and one electric utility, as well as a retail marketing group, which provides unregulated retail energy products and services. Reliant Energys Wholesale Group invests in power generation projects and provides wholesale trading and marketing services as well as natural gas supply, gathering, transportation and storage. Reliant Energy international is a

significant player in the international energy market with operations in Argentina, Brazil Colombia, EI Salvador, Mexico and India. RAIN CII has entered into a technical assistance agreement with REI in terms of which REI will provide technical ad managerial advice to RAIN CII with respect to the design, engineering, construction, operation and maintenance of power generation facility. Applied Industrial Materials Corporation (AIMCOR) a privately owned U.S company incorporated in Delaware, U.S.A. in 1986 is a major international supplier of Industrial Carbon Products, a manufacture and marketer of Ferro Alloys, and producer of products for Aluminum, chemical and consumer markets. The main business of AIMCORs Carbon Products Division is marketing and distributing GPC and CPC which involves buying from petroleum refineries on a long term basis and supplying to end users, including utilities and calciners. AIMCOR is the worlds largest marketer and distributor of petroleum coke. AIMCOR handles 35% of all exports of petroleum come from the U.S. With an extensive distribution network and marketing offices in North and South America, Europe and Japan, AIMCOR has established itself as a global supplier of CPC to Aluminum, titanium pigment and steel industries. It also owns a processing facility for specialized CPC in Mannheim, Germany.

AIMCOR has established customer relationships with the major Aluminum producers in Latin America, Western Europe, the Middle East and India. It is also a major supplier of CPC to Russia and other CIS countries. RCL has entered into an agreement with AIMCOR for the supply of GPC and marketing of CPC in the international and Indian markets. Under the agreement.

AIMCOR guarantees that RCL shall receive not less than a defined industry price for all quantities of CPC placed in the international market up to a maximum of 100,0000 tap.

Board of Directors:
The Company is managed by a Board Comprised of the following: Mr. Dipankar Basu Robber S. Hanna Mr. Gerard M. Sweeney Mr. T. L. Sankar Mr. G. Udayan Dravid Mr. N. Balakrishna Iyer Mr. N. Jagan Mohan Reedy Mr. Y. Santosh Kumar Reedy Chairman Director Director Director Director (Nominee of IDBI) Director (Nominee of SBI) Managing Director Executive Director

PROFILE OF RAIN CALCINING LIMITED Promoted by N Jagan Mohan Reddy and associates, and AIMCOR, RCL was incorporated in Nov.'89. RCL has Asia's largest facility for manufacture of 480,000 MTPA of Calcined Petroleum Coke (CPC), which is 3% of the world's total requirement, and generation of 53.5 MW of surplus Electricity for sale to various industries in Andhra Pradesh State. RCL, an ISO 9001 Company, uses state of the art technology and sophisticated control systems to ensure reliable and customized quality products. CPC, produced by calcining Green Petroleum Coke ( GPC ), is a critical raw material used in the manufacture of aluminum. It is also used in the manufacture of titanium dioxide and in steel produced by the Electric-Arc-Furnace ( EAF ) route. The plant is located at the Indian Port City of Visakhapatnam ( located halfway along India's eastern coast ). Visakhapatnam Port is one of the best-equipped major ports in the country with excellent bulk cargo handling facilities, enabling swift loading/unloading of cargos. The strategic location of the project gives RCL a distinctive logistical advantage due to its proximity to both vendors and customers.

RCL has entered into definitive revised agreements with Oxbow Carbon & Minerals, LLC, USA ( OXBOW ) for the marketing of calcined petroleum coke ( CPC ) and also for supply of raw material viz. green petroleum coke ( GPC ). CPC is basically a high purity carbon used primarily in electrolytic smelting of aluminum. For every ton of aluminum, approximately 400 Kgs. of CPC is required and there are no known substitutes for CPC. It is also used in titanium di-oxide, ferrous metals and applications in the graphite industry. RCL has a long-term contract with Oxbow Carbon and Minerals for marketing of CPC and for supply of Green Petroleum Coke ( GPC ). Under the Agreements, OXBOW will continue to act as the marketing representative of Rain Calcinings CPC in all countries of the world, except India, and source, procure and deliver GPC, from worldwide refineries to Rain Calcining's plant at Visakhapatnam. The combination of Rain Calcining's ability to deliver a reliable and custom tailored quality product and OXBOW marketing prowess enable the company to be one of the global leaders in the calcining industry. RCLs revenues and earnings are estimated to grow 28.5% and 187.2% CAGR over FY05-07. Also in FY 08, its revenue will increase by Rs 50 mn after implementation of the Kuwait Calciner Project.

Product and its Application:

Calcining of Green Petroleum

Coke(GPC) is used as a source of high purity carbon. Depending on certain physical and chemical properties, GPC can be upgraded by calcination. The raw material, GPC is a high molecular weight polymetric hydrocarbon which thermally decomposes on calcining to form carbon, light hydrocarbon gases and hydrogen. Calcining is the heat treating process of removing moisture and volatile matter in a reduction atmosphere thereby changing the crystal structure and increasing the bulk density and electrical conductivity of the coke. After calcination, the CPC is used as the main carbon source for anodes in aluminum smelting. Other uses of CPC are in the production of titanium di-oxide and steel using electric arc furnace ( EAF ) route.

CALCINED PETROLIUM COKE (CPC) INDUSTRY

Calcination Process at RCL: GPC is a high molecular weight polymetric hydrocarbon, which is decomposed by calcining process to form carbon, light hydrocarbon and hydrogen gases. Calcining is the heat-treating process of removing moisture and volatile matter in a reduction atmosphere, thereby changing the crystal structure and increasing the bulk density and electrical conductivity of coke. Calcined GPC is used as a source of high purity carbon, used as the main carbon source for anodes in aluminum smelting, in production of titanium di-oxide and steel using electric arc furnace manufacturing. GPC is calcined in a gas-fired rotary kiln to remove moisture, drive off volatile matter and increase the density of the coke structure, physical strength and electrical conductivity of the material. CPC is calcined GPC, which is hard, dense, low hydrogen content and possess good electrical conductivity. Apart from these properties, it has low metal and ash contents that make CPC the best material available for making carbon anodes.

Detailed process: Green Petroleum Coke (GPC) is stocked on 80,000 ton storage pad using a modern belt conveyor system and high capacity stacker/reclaimer. GPC is retrieved by the reclaimer and fed into the crushing and screening station. The coke is fed into the rotary kiln on a controlled weight basis in the required blend to achieve a wide variety of product qualities ( sulfur varying from 0.5% to 3.5%) as specified by aluminum smelter customers. The rotary coke calciner has the capacity to produce over 480,000 tons of CPC per annum. The calciner tube is equipped with rotating kilnmounted tertiary air blowers and refractory lifters, which improve production rates and CPC, vibrated bulk density. To remove the volatiles and moisture in GPC, the feedstock is heated to a temperature of 1300C in the kiln. After calcination, the CPC goes into a cooler where water is sprayed to cool the material. The CPC from rotary cooler is transferred to one of six CPC storage silos, where different qualities of CPCs are segregated. The storage silo outlets are specially designed to enable custom blending of desirable grades of CPC.

Uses of CPC: The primary use of calcined

petroleum coke ( CPC ) is in making carbon anodes for the aluminum industry. CPC is also used in making graphite electrodes for arc furnaces, titanium di-oxide ( used ultimately in the paints industry ), polycarbonate plastics, steel ( to increase carbon levels ), carbon refractory bricks for blast furnaces and material for cathodic protection of pipelines. End use of CPC by Industry: Aluminium Graphite Electrode TiO & Others Production - 70% - 10% - 20% - 10 Mn TPY

Global Producers and Consumers of CPC: In searching out uses for petroleum coke, it was found that certain industries required a material having the highest value of fixed carbon. The largest such market was for making carbon anodes for the aluminum industry, which were using calcined coal as the carbon source at that time. The use of calcined petroleum coke in making carbon anodes for the aluminum industry escalated the demand for calcined coke. Refiners, aluminum smelters, and other independent calciners began to build calcining plants to enter the anode grade calcined petroleum coke market in the 1950s. Today, the global CPC industry comprises of around 30 producers including refiners, smelters, independent calciners, graphite electrode manufacturers, and steel producers. The industry has establishment of calcining operations in Canada, Argentina, Brazil, United Kingdom, Germany, Norway, Spain, South Africa, the Middle East, India, Indonesia, Japan, China, and Russia. The total world CPC production is ~10 Million Metric Tons annually (MM TPA). The major producers are GLC, US ( 2.4 MM TPA ), CII Carbon,US ( 1.8 MM TPA ) and Conoco, US ( 0.8 MM TPA ).

Aluminum smelting uses ~7 Mn TPA; roughly 1 Mn TPA of calcined needle coke are used for graphite electrode manufacturing; and ~2 Mn TPA are used for other uses such as for making titanium dioxide, steel ( to increase carbon levels ), and carbon monoxide for polycarbonate plastics. Global Calcined Coke Demand : Ferrous Metals Titanium Dioxide Aluminum Others Key Producers of CPC: CII Carbon, US Zhenjiang, China GLC, US Conoco, US Rain Calcining, India Goa Carbon, India Others - 10% - 2% - 24% - 16% - 3% - 2% - 43% - 7% - 8% - 75% - 10%

Key Consumers of CPC: Alba Alcan BHP Hilton Kaiser Alu. Norsk Hydro Pechiney Alcoa Others Global Calcining Capacity: Asia Middle East/Africa Canada South America Europe United States RCL globally ranks 4th Current global production capacity at 11.8 MTPA Current global demand for CPC 10 MTPA - 15% - 7% - 4% - 6% - 14% - 54% - 6% - 20% - 14% -8% - 9% - 15% - 15% - 13%

Company revenue to grow from capacity expansion:

Rain calcining Limited has completed capacity expansion of its CPC plant from 3.0 lac ton to 4.8 lac ton and has started commercial production since May'05. This capacity expansion has come at very opportunity time when aluminium smelting capacity is on rise and also CPC prices have increased by 15% to $200. Rain Calcining has commenced the commercial production of the expanded calcination plant effective 23rd May 2005 and, accordingly, the capacity of the CPC plant has increased from 300,000 MTPA to 480,000 MTPA. The company has become one of the top five global calcining companies. Oxbow Carbon & Minerals, USA, which is the world's largest marketer and distributor of petroleum coke will continue to supply the raw material ( anode green petroleum coke ) and market the finished product (calcined petroleum coke). With this expansion, the annual sales revenue is expected to improve by about 38% in 2005-06 compared to the previous financial year.

Strong demand ahead for CPC: The demand for CPC between 2002 to 2004 increased about 2%, and from 2005 to 2008, the demand is expected to increase about 4% per annum. The increased demand is primarily related to the growth in aluminium production emanating from brownfield smelter expansions and capacity creeps. The aluminium smelter expansions are occurring mainly in Africa, Middle East, and Europe. It is also expected that some US Pacific Northwest smelters will restart, based on better power tariff rates from the electricity authorities. In addition, going into 2007-2010, there will be at least 2 greenfield aluminium smelters coming online in the middle east, resulting in increased demand for CPC. The above developments bode well for the calciners, as the increased demand for CPC means that calciners world wide will be running at near rated capacities and it is estimated that, in 2007 at least one additional calciner will be required to cater to the demand for CPC. Strong demand of CPC comes on the back of growth in aluminum consumption globally, fuelled by developing Countries. RCL has chalked out a programme to enhance its capacity for production, aimed at cashing in on several brownfield aluminum smelter expansions taking place across Africa, West Asia, Europe and India in the next couple of years.

Oxbow to market Rain Calcining's CPC: Rain Calcining has renewed its

association with Oxbow Carbon & Minerals, LLC, USA ( OXBOW ) by entering into definitive revised agreements for the marketing of calcined petroleum coke ( CPC ) and also for supply of raw material viz. green petroleum coke (GPC ). Under the Agreements, OXBOW will continue to act as the marketing representative of Rain Calcinings CPC in all countries of the world, except India, and source, procure and deliver GPC, from worldwide refineries to the Rain Calcining's plant at Visakhapatnam. OXBOW will market the expanded capacity of 480,000 MT of CPC. OXBOW will also supply the additional quantity of GPC required by the company consequent to the expansion. The above marketing and supply agreements will continue till December 31, 2007, unless terminated earlier by mutual agreement. The company's initial supply and marketing agreement was with Applied Industrial Materials Corporation ( AIMCOR ), USA. AIMCOR was acquired by OXBOW in December 2003. The combined entities have formed the largest marketer/distributor of petroleum coke in the world with volumes reaching approximately 12 million MT. OXBOW markets petroleum coke to customers throughout the US and more than 35 countries.

Investment in Kuwait calciner project: RCL has invested in a new green field calciner project in Kuwait in consortium with a group of leading Kuwait companies and the company's foreign collaborator, Oxbow Carbon & Minerals, LLC, USA. The construction rights for the Kuwait calciner have been awarded to this consortium through a bid process administered by Kuwait Petroleum Corporation ( KPC ). The design & project engineering work has commenced and the construction will begin in the first quarter of 2006. The company has 11.5% equity stake in the Kuwaiti company. It is contemplated that RCL along with Oxbow will have the exclusive operating and maintenance contract and CPC marketing contract. Company will get consulting fee of Rs 50 mn per annum from the project once it get completed i.e from FY 08. The cost of the expansion ( CPC Capacity ) cum modernization and investment in Kuwait is estimated at US$ 29 million and is funded by the three leading multilateral financial institutions, namely : International Finance Corporation (IFC), Washington, DC US $ 10 million. Nederlandse Financierings NV (FMO), Netherlands US $ 12 million. Nordic Investment Bank (NIB), Finalnd US$ 7 million.

Rising freight costs not a threat in future: RCL has been able to enter into new CPC sales contracts which are either on Free on Board ( FOB ) basis or on the back of Contract of Afrightment ( COA ), where the shipping freight is booked/ locked into in advance of the contract period. Therefore, the risk on account of fluctuation in freight cost will be to the account of the buyers under these new contracts, thereby reducing the risks of adverse movement of ocean freight rates on the company's profit margin. Outlook and Recommendation: On the back of strong demand from rising aluminium smelter's capacity, outlook for the CPC producers worldwide looks promising for next 2-3 yrs. RCL management expects that due to tight supply situation in 2007, prices of CPC will further go up by 10-15% in FY07. We estimate RCL to report PAT of Rs 498 mn in FY06 and Rs 988 mn in FY07. The capacity utilisation is estimated to stand at 104% in FY06 and 115% in FY07. Further, in FY08, it will benefit significantly from start of Kuwait Calciner Project.

Financials and Valuation: Based on the robust growth in the overall sector and higher realizations, we feel that RCL is well set to take advantage of the situation.

Strategic Location: RCL plant is located at the Indian port city of Vishakapatnam, which is one of the best-equipped major ports in the country with excellent bulk cargo handling facilities enabling easy loading/unloading of cargos. Due to its proximity to the port, RCL has a strategic logistical advantage from both, its customers and vendors.

Training : RCL staunchly subscribes to the theory that human resources are the foremost pillars for any entity to have sustained existence. It is training and upgrading the skills of its manpower to operate the facility with ease. In the first phase, RCL has sent a team of technical staff led by the key operation personnel to undergo training at the largest calcination plant in USA. This team is also visiting some of the major aluminium smelters abroad to have a deeper understanding of smelters operations and their requirements. In the second phase, RCL has sent a team of technical staff led by the key operation personnel to undergo training at American Shacks Boiler supplied plant at Alexandria, Cairo. In the IIIrd Phase, a team of technical staff undergo training at various process plants in India and Abroad also. Quality : A total Quality system is an integral part of every world-class facility and RCL is committed to this goal. A stage of the art laboratory was designed and implemented under the direction of A.J.Edmond Company and Kaiser Aluminium & Chemical Corporation, U.S.A using equipment from R + D Carbon, Switzerland.

One of the major componenets of the ISO Procedures is to guarantee a consistent product quality. At the RCL Calciner, custom designed samplers have bee placed at five key locations to monitor the quality of in-process GPC / CPC flows and the samples are test analyzed in the on-site laboratory. The laboratory analysis results from these samples are automatically fed into a database. This database will generate the statistical information for the Distributed Control System ( DCS ), which will implement statistical process control techniques, in conjunction with specifically designed algorithms to consistently meet the quality standards of each customer. The GPC to be used at the RCL facility is sourced from the most reputable anode quality coke producers in the world. Each coke has been tested by Kaiser Aluminiums Technical Research Centre for GPC / CPC quality and must pass a 22 point analysis ( including VBD, Air & Co2 reactivity) to qualify as a raw material for RCL.

Environment : RCL is doing more than its share in promoting a healthy environment. While the project will maintain the best of emission levels and environment friendly measures, thousands of saplings have been planted on 40 acres green belt land donated by the VPT which will help in creating a congenial atmosphere in the immediate neighborhood. About 25,000 saplings have already been planted and are being well taken care of. Another 5,000 saplings will be planted in the coming few months to create a serene surrounding. The last and the most important are the team of technical and administrative manpower who all have combined their efforts to make RCL a Global Calcining and Cogeneration Facility that the shareholders and the nation can be proud of.

Concept : Personnel Management is one of our most complex and challenging fields of endeavour. Not only most of the firms requirements for an effective work force be met, the modern personnel manager must be greatly concerned with the expectations of both employers and society in general society at large has proclaimed its human resources to have vital needs that more beyond a workforce status. The employee is simultaneously an instrument of business firm, a human being and a citizen of the society. In as much as the business system is a subsystem of organised society, the firm must be concerned with societal, the firm must be concerned with societal expectations. The business organisation draw its work force ( Human Resource ) from the society. Just as it strives to harness the physical resources for successful running of the firm, it should also strives for protection and enhancement of human resources and returning them back to the society, in as good a shape as possible. In keeping with this new role, the concept of Personnel Management has changed from Management Personnel to Management of HR. Strong Order Book: Majority of the CPC produced by RCL is earmarked for the aluminum smelters and due to the robust demand from the same, RCL has confirmed order book for the next two years.

Higher Realisations of CPC: The growth in aluminum demand, in turn leads to growth in consumption of CPC, which will enhance realisations of CPC. The present realisation of CPC stands at US$ 220 per MT, which is expected to rise to US$ 250-270 per MT in FY06E and further to US$ 285-295 in FY07E. Insulation from Commodity Cycle: CPC is one of the commodities, which remains insulated from commodity cycles as demand for CPC is directly related to the demand for aluminum, which rises with growth in infrastructure across the world.

Discontinuance of trading in CPC : Going ahead RCL would discontinue trading in calcined petroleum coke and other allied products for the Aluminium, steel and titanium dioxide industries, with no significant impact on sales revenues, as it contributes marginally to the total revenues. This will help RCL to concentrate on its core activities

PROCESS DESCRIPTION
Calcination Process:
Calcining is a high temperature process, which removes the moisture and volatile matter present in Green Petroleum Coke (Anode Grade Coke), increases the real density and converts coke to a more electricity conductive carbon. This is most often accomplished in a rotary kiln.

Power Generation:
The combustion of the flue gases and GPC particles for the calcination process takes place in the incinerator. The resulting flue gases are let into the Waste Heat Boiler (WHB) to generate steam. Steam is also generated in the Circulating Fluidized Bed Boiler (CFBB) through the combustion of GPC. The steam from the WHB and CFB is let into a steam header, and then flows into an extraction-condensing steam Turbine. The steam turbine generator nominal output is 54 MW with an 8% reserve margin and electricity will be generated at the steam turbine generator terminals at 11 KV and stepped up to 132 KV for supply to APTRANSCO grid.

CHAPTER II

AN OVERVIEW OBJECTIVE OF THE STUDY

The prime objective of the study is to apply the theoretical concepts to the practical situation to RAIN CII CARBION (INDIA) LIMITED (formerly RAIN CALCINING LIMITED). Preparation of detailed reports on actual

achievements correlating them with the theoretical conclusions. 1. Study of the operating cycle for the different products in the M/S RAIN CII CARBON (INDIA) LIMITED 2. Study of the Receivable management system of M/S RAIN CII CARBON (INDIA) LIMITED and applying the theoretical conclusions. 3. Study of the Inventory management system of M/S RAIN CII CARBON and applying the theoretical conclusions. 4. Study of the Cash management system of M/S RAIN CII CARBON and applying the theoretical conclusions.

Introduction:
Working capital management is a significant facet of Financial

Management. Its importance stems from two reasons: Investment in current assets represents a substantial part of total

investment.Investment in current assets and the level of current liabilities have to be geared quickly to changes in sallies.

Characteristics of Current Assets: In the management of working capital two characteristics of working capital must be born in mind a) short life span and b) swift transformation into other asset forms. CYCLE OF THE ORGANISATION FLOW: Wages and salaries and overheads Finished goods Work in process Raw material Cash Suppliers

Accounts receivable

Cash flows in a cycle into, around and out of a business. It is the businesss lifeblood and every managers primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesnt generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash, will help improve profits ands reduce risk. Bear in mind tat the cost of providing credit to customers and holding stokes can represent a substantial proportion of a firms total profits. There are two elements in the business cycle that absorb cash-inventory (stocks and work-in-progress) and Receivables (debtors owing you money). The main sources of cash are payables (your creditors) and Equity and Loans.

Each component of working capital (namely inventory, receivables and payables) has two dimensions TIME and MONEY. When it comes to Managing Working Capital TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect money due from debtors more quickly), or reduce the amount of money tied up (e.g reduce inventory levels relative to sales), the business will generate more cash or it will

need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or youll have additional free money available to support additional sales growth or investment. Similarly if you can negotiate improved terms with supplier e.g. get longer credit of an increased credit limit, you effectively create free finance to help fund future sales. IF YOU Collect receivables (debtors) faster Collect receivables (debtors) slower Get better credit (in terms of duration or amount) from suppliers Shift inventory (stocks) faster Move inventory (stocks) slower THEN YOU CAN You release cash from the cycle Your receivables soak up cash You increase your cash resources You free up cash You consume more cash

It can be tempting to pay cash, if available, for fixed assets e.g. Computers, plant, vehicles etc. if you do pay cash remember that this is no longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment loans, equity, leasing etc. Similarly, if you pay dividends of increase drawings, these are cash outflows and, like water flowing down a plughole, they remove liquidity from the business. The short span of working capital components and their swift

transformation from one form to another has certain implications. Decisions regarding working capital are repetitive and frequent. The difference between profit and present value is insignificant.

 The close interaction among working capital components implies that efficient management of one component cannot be undertaken without simultaneous consideration of other components. Factors influencing the wounding capital requirements Nature of business Seasonality of operation Production policy Market conditions Conditions of supply Technology and manufacturing policy Credit policy Operating cycle: Availability of credit

Operating Cycle

Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. Investment in current assets is realized during the firms operating cycle, which is usually less than one year. The operating cycle of a manufacturing company involves three phases:
Acquisitions of resources such as Raw Materials, Labour, Power and Fuel. Manufacturing of the product , which involves conversion of raw materials into Work In Process and then to Finished Goods. Sale of the Product either for cash or on credit. Credit sales create accounts receivables for collections. These three phases affect the cash flows, which most of the time are neither synchronized nor certain. They are not synchronized because cash outflows usually occur before

It may be divided into four stages, 1. 2. 3. 4. Raw materials and stores storage stage (R) Work in process stage (W) Finished goods inventory stage (F) Debtors collection stage (d)

The duration of operating cycle is equal to sum of each of these stages, less the credit period allowed by the suppliers of the firm (C) O = R+F+W+D-C

Calculation of Operating Cycle:

Data for Rain CII Carbon (India) Limited

(Rs. in Crores)
Year 1) Opening Stocks: Raw material and stores Work in progress Finished goods Book debts Trade creditors 2) Closing Stocks: Raw material and stores Work in progress Finished goods Book debts Trade creditors 3) Manufacturing expenses ( Consumption of Raw Materials & Stores and Spares & Repairs &maint.) 4) Depreciation 5) Excise duty 6) Selling Administrative & Financial Costs 7) Sales 68.73 0.02 15.97 22.12 81.67 124.54 0.02 23.38 20.62 134.42 124.54 0.02 23.38 20.62 134.42 135.82 0.02 29.91 13.44 133.72 135.82 0.02 29.91 13.44 133.72 138.70 0.04 17.42 33.94 160.39 138.70 0.04 17.42 33.94 160.39 191.17 0.06 33.19 24.89 113.67 200304 2004- 2005-06 05 200607
2007

(Dec 07) 191.17 0.06 33.19 24.89 113.67 122.79 0.06 49.41 61.67 121.82

225.30

288.54

431.46

543.69

429.94

19.64 13.42 20.76 322.83

19.47 10.52 24.26 353.73

25.96 15.28 42.23 570.93

27.84 24.06 39.98 695.55

20.70 23.67 29.14 505.87

* The Plant expanded Double the capacity i.e. from 3Lakh MTPA to 6Lakh MTPA w.e.f. June 2005.

* The Financial year only

2007 Values for the period of 9Months

(April 2007 to December 2007)

Operating cycle calculations for RCL (Rs. crores) Year Component 1). Raw material cycle ( R) 2).WIP Cycle (W) 3). Finished goods cycle ( F) 4). Debtors cycle (D) 5). Creditors cycle ( C ) 6).Operating cycle (O = R+W+F+D-C) 2003-04 277.76 0.02 23.38 20.62 134.42 187.36 200405 293.90 0.02 29.91 13.44 133.72 203.55 2005-06 425.94 0.04 17.42 33.94 160.39 316.95 200607 586.10 0.06 33.19 24.89 113.67 530.57
2007

In

354.58 0.06 49.41 61.67 121.82 343.90

(* for the year 2007 : 9months transactions only (April to Dec07) The operating cycles came down. The main reason for this is the increase in the creditors period. Cost of goods sold for RCL Year 1). Raw material cost 2). Manufacturing expenses 3). Selling Admin & Financial Exp 4). Sales 2003-04 2004-05 277.76 225.30 20.76 322.83 293.90 288.54 24.26 353.73 2005-06 425.94 431.46 42.23 570.93 200607 586.10 543.69 39.98 695.55
2007

354.58 429.94 29.14 505.87

RECEIVABLES MANAGEMENT
Business firms generally sell goods on credit, which is granted to facilitate sales. It is valuable to customers as it augments their resources. When goods are sold on credit finished goods get converted into receivables, receivables when released generate cash. Since receivables often

account for a significant portion of the total assets it behooves on a firm to manage its receivables well. The important dimensions of a firm credit policy are Credit standards Credit period Cash discount Collection effort These variables are related and have a bearing on the level of sales bad debt loss, discounts taken by customers and collection expenses.

Credit Standards:
The important question in the credit policy of the firm is what standard should be applied in accepting or rejecting an account for credit granting. At one end of the spectrum it may decide not to extend credit to any customer however strong his credit rating may be. At the other end it may decide to grant credit to all customers irrespective of their credit ratings. Between these two extreme positions lie several possibilities.

Liberal credit standards tend to push sales by attracting more customers. This is however accompanied by a higher incidence of bad debt loss, a larger investment in receivables and higher cost of collection. The effect of relaxing the credit standards on profit may be estimated by using the formula. P = S (1-V) K. l bn S Where P = change in profit S = increase in sales V = ratio of variable cost to sales K = Cost of Capital l = Increase in Receivables investments bn = bad debt loss ratio on new sales On the right hand side of the equation the first term measures the increase in gross profit. The second term measures the opportunity cost

of additional funds locked in receivables. increase in bad debts.

The third term represents

Credit Period:
The credit period refers to length of time customers are allowed to pay for their purchases. Lengthening of credit period pushes sales by inducing existing customers to purchase more and attract the additional customer. This is however by a large investment in receivables and higher incident of bad debt loss. Shortening of credit period would have opposite influences. Since the

effect of lengthening the credit period are similar to that of relaxing the credit standards they can estimate the effect on profit of change in credit period by using the same formula. P = S (1-V) K. l bn. S Where P = Change in profit S = Increase in sales V = Ratio of variable cost to sales K = Cost of capital l = Increase in receivables investments bn= Bad debt loss ratio on new sales I can be calculated by using the formula I =( ACPn ACPo ).So/ 360+V( ACPn ) S/360 ACP = average collection period On the RHS of the equation the first term represents the incremental investments in receivable associated with existing sales and the second

term represents the investment in receivables arising from incremental sales

Cash Discount:
The firms generally offer cash discount to induce customers to make prompt payments. The percentage discount and the period during which it is available are reflected in the credit terms. For example credit terms of 2/10 net 30 mean that a discount of 2% is offered if the payments is made on the 10th day other wise the full payment is due by the thirtieth day. Liberalizing the cash discount policy may mean that the discount percentage is increased and/or the discount period is lengthened. Such an action tends to enhance sales, reduce the average collection period and increase the cost of discount. The effect of such an action on the gross profit may be estimated using the formula P=S (1-V)-K. I- DIS P = Change in profit S = Increase in sales V = Ratio of variable cost to sales K = Cost of capital I = Increase in receivables investments DIS = Increase in discount cost

Collection Effort:
The collection program of the firm, aimed at timely collection of receivables may consist of the following:

Monitoring the state of receivables Dispatch of letters to customer whose due date is approaching Threat of legal action to overdue accounts Legal action against overdue accounts

A rigorous collection program tends to decrease sales, shorten the average collection period, reduce bad debt percentage and increase the collection expense. A tax collection program would have the reverse effects. The effect of decreasing the rigour of the collection program on profit may be estimated as follows: P = S (1-V)-K. I- BD P = Change in profit S = Increase in sales V = Ratio of variable cost to sales K = Cost of capital I= Increase in receivables investments BD = Increase in bad debt cost

Receivables Management In RCL

Calcinated petroleum coke (for the year 2005- 2006): Sales (in Crores) = Rs.12777.29 Sales (in Mt) = 223218.8 Capacity utilisation = 74.4% Anode green coke (inlakhs) = rs.10203.56 Dedusting oil (in lakhs) = rs.166.86 Fuel oil (in lakhs) = rs.860.78 Lime stone (in lakhs) = rs.11587.58 Total raw materials (in lakhs) = rs.11587.58 Average collection period (acp) = 30 days Cost of capital (k) = 18.1% Variable cost (V)= Total Raw Materials Sales =11587.58/12777.29 =0.91

Credit Standards: P=S (1-V)-K. I-bn. S I=(S/360) * ACP * V P= S (1-0.91)-0.181 * 0.91 * 30 * (S/360) =0.0763 * S

The bad debt losses of the company are nil. So from the above result it shows that as long as the sales keep increasing the company can extend its credit to all its customers. By doing so the profitability of the firm increases. If it decision to extend credit doesnt increase sales even then the profitability of the company wouldnt decrease. But the point to be born in mind here is that the bad debt losses shouldnt creep in with the increasing sales

Collection Period And Collection Effort:

The Collection period refers to the length of time customers are allowed to pay for their purchases. A rigorous collection program decreases the collection period. So both collection period and collection effort are inter related and can be determined using the same formula: P = S (1-V)-K. I-bn S I= ( ACPn -ACPo) [So/360]+V( ACPn )( S/360) P=S (1-0.91)-0.181[(12777.29/360)*(ACPn-30)+0.91*ACPn*(S/360) Maximum S can be 4395.04 lakhs. This figure is calculated assuming that due to increase in sales the firm can produce up to its full capacity. So substituting this S in the above equation we arrive at a conclusion that ACP can be extended from 30 to 70 days if there is maximum increase in sales. Relaxing the collection effort wouldnt affect the profitability of the firm. Any decrease in ACP from 70 at this instance would increase the profitability. The following table shows the increase in sales regarding the decrease in collection effort or increase in collection period. Increase in sales 895.97 1914.12 3081.203 4395.04 Acceptable acp <40 <50 <60 <70

INVENTORY MANAGEMENT
Inventories consist of Raw materials, work in process and finished goods. They represent a significant portion of total assets. Given substantial investment in inventories, the importance of inventory management cannot be over emphasized. Inventories are maintained to widen the latitude in planning and scheduling successive operations. Raw material inventory enables the firm to decouple its purchasing and production activities to some extent. It provides flexibility in purchasing and production. The firm can wait for an opportune buying moment without affecting its production schedule. Likewise the production schedule need not be influenced by immediate purchasing activity. In process inventory provides flexibility in production so that an efficient scheduling and high utilization of capacity maybe attained. Finished goods inventory enables a firm to decouple its production and marketing activities so that desirable results can be achieved on both the fronts. If adequate finished goods inventory is available the marketing department can meet the needs of customers promptly irrespective of the quantity and consumption of goods flowing out of the production line.

Economic Order Quantity (EOQ):

The two basic questions relating to inventory management are What should be the size of the order? At what level should the order be repeated?

To answer the first question EOQ is helpful. The EOQ model involves three types of costs viz. ordering cost, carrying cost, shortage cost.

Ordering cost:
Ordering cost relating to purchase items would include expenses on requisitioning, preparation of purchase order, expediting, transport, and receiving and placing in storage.

Carrying cost:
Carrying cost include expenses on interest on capital locked up in inventory, storage, insurance, obsolescence and taxes. Carrying costs are generally 25% of the value of inventory held.

Shortage cost:
Shortage cost arises when inventories are short of requirement for meeting the needs of production or the demand of customers. Inventory shortage may result in one or more of the following: less efficient and uneconomic production schedules, customer dissatisfaction and loss of sales.

Assumptions of EOQ Model:

1. The forecast usage /demand for a given period usually one year is known. 2. The usage is even through out the period. 3. Inventory orders can be replenished immediately. 4. There are two distinguished costs associated with inventories: cost of ordering and cost of carrying. 5. The cost/order is constant regardless of the size of the order. 6. The cost of carrying is fixed percentage of the average value of inventory.

EOQ Formula:
Q= 2FU/PC U= Annual usage/Demand Q= Quantity Ordered F= Cost per Order C= % Carrying Cost P= Price per unit. The above formula is a useful tool for inventory management. It tells us what should be the order size for purchase items and what should be the size of production run for manufacture items.

Order Point:
This tells us when to put up an order Reorder point =S(L)+FSR(L) S= Usage L= Lead time needed to obtain additional inventory when order is placed. F= stock out acceptance factor. The value F depends on the stock out percentage rate applicable to the firm.

Inventory Management In RCL

There are five important Raw Material is required in this process for manufacture of calcined petroleum coke with power generation plant (RCL). For these five Raw Materials economic order quantity and re Orded point are determined. The calculation are shown below: For The Year 2006-2007: Per unit price(P)

1. CPC Rs. / Mt = 7,518. 2. Anode green cock Rs. /Mt = 6,279 3. Dedusting oil Rs./Mt= 40,000 4. Fuel oil Rs./Mt =19,950 5. Burnt Lime Rs./Mt=2700

Cost per Order (F)

1. Anode green coke = Rs.6 Lakhs 2. De-dusting oil = Rs.345.6 3. Fuel oil = Rs. 0.46 Lakhs 4. Burnt Lime = Rs.0.838 Lakhs.

Lead to obtain additional inventory (L)

1. Anode green coke =30 days 2. De-dusting oil =15 days 3. Fuel oil =7-10 days 4. Burnt Lime=7-10 days Annual usage (U)

1. Anode green coke (in mt)=7,91,344 2. Dedusting oil (in mt)=707 3. Fuel oil (in mt)=9784 4. Burnt Lime (in Mt) = 19373

Economic Order Quantity:

Q=22FU/PC 1. Anode green coke: U=791344 F= Rs. 6 lakhs P= Rs. 6279 C=25% Q=2*791344*600000/(6279*0.25) =60000 Mt 2. Dedusting oil: U=707 F= Rs. 345.6 P= Rs.40000 C=25% Q=2*707*346.5/(40000*0.5) =20mt

3.

Fuel oil: U=9784 F= Rs.0.46lakhs P= Rs.19950 C=25% Q=2*9784*46000/(19950*0.25) =550mt

4.

Burnt Lime: U=19373 F= Rs.0.838lakhs P= Rs.2700 C=25% Q=2*1937*83800/(2700*0.25) =1000mt

Reorder Point:
Reorder point = S (L)+FSR (L) 1. Anode green coke: S = 2100 Mt/day L=30 days R= 20000 Mt F=1.5 Reorder Point = 2100*30+1.5868*20000*30 =60272 Mt mt 2. De-dusting oil: S = 2.158Mt/day L = 15 days R = 10 Mt F = 1.5 Reorder point = 2.158*15+1.52.158*10*15 = 41Mt

3.

Fuel oil: S = 23.213 Mt/day L = 5days R = 500 Mt F = 1.5 Reorder Point = 23.213*5+1.523.213*500*5 = 477 Mt

4.

Lime stone: S = 125 Mt/day L = 10 days R = 400 Mt F = 1.5 Reorder Point = 125*10+1.5125*400*10 = 2311Mt

Economic Order Quantity

Raw material GPC SGC De-dusting oil Fuel oil Annual usage U(Mt) 312506. 3 69141.6 776.8 7661 Order cost F(Rs) 60000 0 60000 0 345.6 46000 Price per Unit P(Rs) 3809.2 5 2311 21480 11236 % carrying cost C% 25 25 25 25 EOC Mt 19844.0 5 11983.6 8 9.99929 4 500.911 2 Adjuste d EOC Mt 20000 12000 10 500

Lime stone

41247

41893

864

25

3999.95 4

4000

Reorder Point
Raw material Usage per day S(Mt) 868 209.52 2.158 23.213 125 Lead time L(days) 30 30 15 5 10 Average quantity ordered R(Mt) 20000 22000 10 500 4000 Stock out acceptance factor F 1.5 1.5 1.5 1.5 1.5 Reorder point RP (Mt) 60271.56 23924.68 59.3575 477.414 4604.102

GPC SGC De-dusting oil Fuel oil Lime stone

CASH MANAGEMENT
Cash the most liquid asset is of vital importance to the daily operations of business firms. While the proportion of corporate assets held in the form of cash is very small it is efficient management is crucial to the solvency of the business because in a very important scene cash is a focal point of fund flows in business. The two primary reasons for a firm to hold cash are 1) 2) To meet the need of a day-to-day transactions and, To protect the firm against uncertainty characterizing its cash flows.

Cash budgeting or short term cash forecasting is the principal tool of cash management. Cash budgets routinely prepared by business farmers are helpful in 1. Estimating cash requirement 2. Planning short term financing 3. Scheduling payment is in connection with working capital expenditure projects 4. Planning purchases of materials. 5. Developing credit policies 6. Checking the accuracy of long term forecasting.

Firms use multiple short-term forecasts of varying length and details suited to meet varying needs. The commonly used designs for short term forecasting are 1. One ear a divided in to quarters or months. 2. One a quarter divided in to months 3. One month divided in to weeks. A firm hard pressed with liquidity crunch may even prepare weekly cash forecast divided into days. The principal method of short-term cash forecasting is the receipts and payments method.

Receipts and Payments Method:

The cash budget shown under this method shows the timing and a magnitude of expected cash receipts and payments over the forecast period. It includes all expected receipts and payments irrespective of how they are classified in accounting. Expressed as it is in numbers the cash budget often coveys a picture of precision. Hence a great deal of faith is usually put on it. A moments reflection however would reveal that the figure found in the cash budget merely

represent estimates of future cash flows. The actual cash flows are likely to deviate from the estimates provided in the cash budget. The extent of deviation depends mainly on how volatile are the cash flows of the business. Given the uncertainties characterizing business operations estimating the cash flows on the basis of a single set of assumptions often results inadequate prospective on the future. Hence it is advisable to prepare additional cash budgets based on different set of assumptions. The least that a firm could do is to look at cash forecasts under three possible scenarios. Such as analysis provides a better perspective on future cash flows and facilitate the formulation of contingency plans.

CONCLUSION & RECOMMENDATIONS Operating Cycle:

The operating cycle data of M/s Rain calcining Ltd is improved by increasing the creditor cycle from 72.5 days to 116.56 and to 142.04 days in the year 2000-2001 there by the operation cycle has been improved from 72.8 days to 30.75 days and to 8.52 in the year 2000-2001.It is a good improvement but one should able to check the costs associated with the increase of the credit cycle. It also seen from the data that the debtors cycle have increased from the 18.57 days to 23.85. This shows that more efforts to put on the debt collection now a small improvement of this cycle will improve the operation cycle. In turn will reduce the working capital requirement. Raw material cycle of the company is increasing to be checked and reduced to 90days. This also shows the capability of the company to get the credit.

Receivables management:

It seen from the records the company is not having any bad debit as on date. The company can extend credit to its customers as along as the sales are rising. It also shows that the credit period can be varied from 30 to 70 days this will not effect the Profitability of the company.

The credit cycle is maintained at less than 30 days even the sales were almost doubled period. This is very good condition. This shows that company is having good Market demand and the customers are of good category.

CHAPTER IV

ANALYSIS OF DATA
Statement of working capital
Fig. in Rs. in Crores Particulars Current Assets: Inventory Sundry debtors Cash & Bank Balances Other Current Assets Loans And Advances Total Current Liabilities Creditors for stores Accrued expenses Provisions and other Liabilities TOTAL Net Working Capital (CA CL) 132.53 0.45 1.43 134.41 70.27 130.57 2.84 0.31 145.67 153.46 2.43 1.75 12.29 15.72 116.44 0.00 5.38 147.93 20.62 27.10 0.00 9.03 204.68 165.83 13.44 74.73 0.10 11.82 156.17 33.94 34.39 0.06 12.30 224.41 24.89 24.93 .21 10.16 172.26 61.67 11.57 0.37 40.08 2003-04 2004-05 2005-062006-07 2007

265.92 236.86

284.60 285.95

133.72 160.39 170.93 121.82 132.20 76.47 109.67 164.13

* for the year 2007 contains 9months figures only from April07 to Dec07

Liquidity Ratios:Current Ratio:

Current Ratio = Current Assets/Current Liabilities It represents the ratio between the Current Assets & Current Liabilities
(Rs. in Crores)

2003-04 2004-05 2005-062006-07 Current assets Current liabilities Ratio 204.68 134.41 1.52 265.92 236.86 133.72 160.39 1.99 1.48 284.60 170.93 1.67

2007 285.95 121.82 2.35

As a conventional rule the current ratio of 2: 1 or more is considered satisfactory. The RCL has current ratio ranging from 1.48 to 2.35 It may be interpreted to be Insufficiently liquid. This represents the margin of safety for the creditors. The higher the current ratio the greater the margin of safety: the larger the amount of current assets in relation to current liabilities, the more the firms ability to meet its current obligations. The companies with less the ratio are also doing well thus we can say that this is the test of quantity not the quality. Thus too much reliance should not be placed on the current ratio, further investigation about the quality of the items of current assets is necessary.

Cash Ratio/Super Quick Ratio:

Cash Ratio = cash + Marketable securities / Current Liabilities
Rs. in Crores

Cash + Marketable securities Current liabilities Ratio

2003-04 2004-05 2005-062006-07 27.10 74.73 34.39 24.93 134.41 133.72 160.39 170.93 0.20 0.56 0.21 0.15

2007 11.57 121.82 0.10

The cash ratio of 0.10 to 0.21 (except in the year 2004-05, on that year the Company has expansion works for increasing the capacity 3Lakh

Tonnes to 5Lakh Tonnes ) is very small. Thus we can say that company is carrying little cash. If the company is having reserve borrowing power it need not worry about the lack of cash. If clear from our study that RCL is having more borrowing power. But the company needs to improve it cash availability position.

Acid Test /Quick Ratio:

Quick ratio = (Current Assets Inventories)/ Current Liabilities
(Rs. in Crores)

Current Assets Inventory Current liabilities Ratio

2003-04 2004-05 2005-062006-07 56.75 100.09 80.69 60.19 134.41 133.72 160.39 170.93 0.42 0.75 0.50 0.35

2007 113.69 121.82 0.93

The quick ratio of 1 : 1 is considered to be satisfactory current financial condition. Although quick ratio is is a more pertraing test of liquidity than the current ratio. The ratio of 0.35 to 0.93 is considering improve the

Ratio and the organization also improved the Ratio 1:1 (in the year 2007 the ratio is almost 1:1 (0.93)) is good.

Inventory Turnover Ratio:

Inventory Turnover Ratio = Sales /Inventory
Rs. in Crores

Sales Inventory Ratio (The year Dec07)

2003-04 2004-05 2005-062006-07 322.83 353.73 570.93 695.56 147.93 165.83 156.17 224.41 2.18 2.13 3.66 3.09 2007 contains 9months figures only

2007 505.87 172.26 2.94

April07 to

The efficiency in turning its inventories is continuously improving the yearly holding of inventory is high. The ratios need to be improved further if the ratio is around to be considered is good.

Leverage /Capital Structure Ratios:

The long term solvency of a firm can be examined by using Leverage or Capital Structure Ratios. It may be defined as financial ratios which throw light on the long term solvency of a firm reflected in its ability to assure the Long term creditors. 1) Periodic payment of Interest during the period of Loan. 2) Repayment of principal on maturity or in predetermined installments at due date

a) Debt Equity Ratio

= Long term Debt / Share holders Equity

b) Interest Coverage Ratio = EBIT / Interest (EBIT : Earning Before Interest and Taxes)

c) Dividend Coverage Ratios (EAT = Earning After Taxes)

= EAT /Preference dividend

(The company present Preference shares ---- Nil )

Debt Equity Ratios:

D/E Ratio = Long term Debt / Share holders Equity

The ratio claims relationship is shown by the debt equity ratios. This ratio reflects the relative claims of creditors and share holders against the assets of the firm. Alternatively, this ratio indicated the relative

proportion of debt and equity in financing the assets of firm Rs. in Crores Long term Debt Permanent Capital Ratio 2003-04 2004-05 2005-062006-07 156.67 286.07 246.58 209.04 165.65 177.66 207.12 262.02 0.95 1.61 1.19 0.80 2007 567.66 282.91 2.00

The Ratio 1: 2 is considered to be good now the organization has achieved the figure in the year 2007.

b) Interest Coverage Ratio

= EBIT / Interest

(EBIT : Earning Before Interest and Taxes

Rs. in Crores

Earning before Interest Taxes Interest Ratio

2003-04 2004-05 2005-062006-07 59.48 27.07 64.26 94.59 18.15 15.92 25.88 26.09 3.28 1.70 2.48 3.63

2007 93.50 35.47 2.64

The over all ability of a firm to service outside liabilities is truly reflected in the toltal cash flow coverage ratio: the higher the overage the better the ability.

Profitability Ratios:
These ratios are based on the premise that a firm should earn sufficient profit on each rupee of sales. If adequate profits are not earned on sales, here will be difficulty in meeting the operating expenses and no returns will be available to the owners. As observed already, these ratios consist of

1) Profit Margin Ratios: This measures the relationship between the profit and sales of a firm. Gross Profit Margin = Gross Profits / Sales x 100 Net Proft Margin Ratios

i) Operating Profit Ratio = Earnings before Interest and taxes / Sales ii) Net Proft Ratio Sales = Earnings after Interest and Taxes(EAT) /

2) Expenses Ratios: Assets to Expenses ratio Cost of Goods sold ratio = Costs of goods sold / net Sales Operating Expenses Ratio = Expenses Administrative Expenses + Selling

Net Sales Administrative expenses Ratio = Administrative Expenses Net Sales

Selling Expenses Ratio

= Selling expenses /Net Sales x 100

Operating Ratio

= Cost of goods sold + operating expenses x 100 Net Sales

Financial Expenses Ratio = Financial Expenses Net Sales

x 100

Sales Related

Ratios:

Gross profit Ratio sold)

= Gross profit ( Sales - Cost of Goods

Net Sales

Operating profit Ratio

= E B IT (Earning before Interest & taxes) Net Sales

Selling Expenses Ratio = Selling Expenses / Net sales

Related to total Investments: Ret urn on total assets = EAT + Interest Average total assets

Related to Equity Funds:

Earning per share

: Net Profit available to equity shareholders Number of Equity Shares Rs. in Crores 2003-04 33.59 12.948 2.59 2004-05 2005-06 12.00 41.27 12.948 12.948 0.93 3.19 2006-07 70.04 12.948 5.41

Net Profit (crores) Number of Equity shares (crores) Earning per share

BIBLIOGRAPHY

Data Financial Reports Calcining Ltd

Sources Annual Reports of Rain

For the financial year 2003 -04 For the financial year 2004 -05 For the financial year 2005 -06 For the financial year 2006 -07 For the calendar year 2007 References: Sri Pandey I.M. Sri Khan & Jain Financial Management Financial Management Theory and Problems of

Management Account Edition Sri Chandra Prasanna

Second

Financial Management Principles & Practice

Sri Kotari C.R. Internet

Research Methodoly Google : Financial Ratios

Chapter No.V

SUMMARY AND
The Project study entitled Working Capital Management & Ratio

Analysis. A case study on Rain CII Carbon (India) Limited, - The Rain Commodities Limited Group.

The Rain Commodites Ltd has divided into 2 Categories : 1. Calcining process 2. Cement units.

An over view & Organization structure, Theoretical Back ground, Working Capital Management , Ratio Analysis of Rain Calcining Limited and

Summary Findings, Suggestions and conclusion.

The unit wise report of this project is briefly explained here under.

In Chapter one the Introduction to Ratio Analysis, objective, need for the study. Methodology and Limitation of this project explained. The main objectives of the study Company. Methodology are to analyze the financial position of the

use was study by Primary and Secondary

method that is by Books, Annual Reports of the Rain Calcining Limited and books related to Ratio Analysis.

Operating Cycle:

The operating cycle data of M/s Rain calcining Ltd is improved by increasing the creditor cycle from 72.5 days to 116.56 and to 142.04 days in the year 2003-2004 there by the operation cycle has been improved from 72.8 days to 30.75 days and to 8.52 in the year 2005-2006. It is a

good improvement but one should able to check the costs associated with the increase of the credit cycle. It also seen from the data that the debtors cycle have increased from the 18.57 days to 23.85. This shows that more efforts to put on the debt collection now a small improvement of this cycle will improve the operation cycle. In turn will reduce the working capital requirement. Raw material cycle of the company is increasing to be

checked and reduced to 90days. This also shows the capability of the company to get the credit.

Receivables management:

It seen from the records the company is not having any bad debit as on date. The company can extend credit to its customers as along as the sales are rising. It also shows that the credit period can be varied from 30 to 70 days this will not effect the Profitability of the company.

The credit cycle is maintained at less than 30 days even the sales were almost doubled period. This is very good condition. This shows that company is having good Market demand and the customers are of good category.

Findings:
The Company has achieving the Net profits increasing mode from the Financial year 2003 -04 and The Earning per share from 2003-04 is

EPS Rs.2.59 to 2006 07 EPS is Rs.5.41.

Rs. in Crores

Net Profit (crores) Number of Equity shares (crores) Earning per share

2003-04 33.59 12.948 2.59

2004-05 2005-06 12.00 41.27 12.948 12.948 0.93 3.19

2006-07 70.04 12.948 5.41

Conclusions & Suggestions:The Liquidity position of Rain Calcining Limited as very good in the year 2007 it is 2.35 times.

The Earning per Share of the Company has also increased. The Organization merged with Rain Commodities Limited &

Acquired on 23rd November 2007 -- CII Carbon Inc. The Organization name also changed RAIN CII Carbon Limited. The present Global Scenario of Calcined Petroleum Coke. In recently announced two more companies also the World largest of Producer

acquiring /Starting. The Company also maintained all the books of account

IGAAP as well as US GAAP.