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A STUDY ON WORKING CAPITAL MANAGEMENT

WITH REFERENCE TO BAJRANBALI ALLOYS


PRIVATE LIMITED, ORISSA

A project report submitted to GITAM Institute Of Management, Vishakhapatnam on


partial fulfillment for the award of Degree of

BACHELOR OF BUSINESS MANAGEMENT

Submitted By

CH. PADMA

Under the esteemed guidance of


Mrs.I.Madhvi (M.A.Eng.),
Assistant Professor
CMS, GITAM

COLLEGE OF MANAGEMENT STUDIES


AN AUTONOMOUS & NAAC ACCREDITED ‘A’ GRADE INSTITUTION
GANDHI INSTITUTE OFTECHNOLOGY AND
MANAGEMENT,
GANDHINAGAR CAMPUS,RUSHIKONDA
VISKHAPATNAM- 530045
2006 - 2009

1
DECLARATION

I hereby declare that this project report entitled “WORKING


CAPITAL MANAGEMENT : A study with reference to BAJRANBALI
ALLOYS PRIVATE LIMITED in ORISSA” has been prepared by me
during the period of 45 days of my summer holidays in partial fulfillment of
requirement for the award of Degree of Bachelor Of Business Management
by ANDHRA UNIVERSITY.

I also hereby declare that this project is the result of my own


effort and that it has not been submitted to any other University for the
award of any Degree.

PLACE: Vishakhapatnam NAME: Ch. Padma


DATE: Roll No. :

2
CERTIFICATE

This is to certify that this project report entitled “A STUDY ON STRATEGY RED
OF HINDUSTAN COCO COLA BEVERAGES PVT LTD” With
Respective to Ameenpur Depot is a bonafide work done under my guidance
and direction in partial fulfillment for the award of the post graduation PGDM, during
summer internship for 45 days.

PLACE: Hyderabad Dr. Lakshmi Kumari (economics)


DATE: Assistant Professor,
Institute of Public Enterprise

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ACKNOWLEDGEMENTS

I wish to express my deep sence of gratitude to Prof. K. SHIVARAMA


KRISHNA, director, Gitam institute of management, Gandhi institute of
management and technology, visakhaptnam for permiting me to do the
project.

I would like to express my heartful thanks to Prof. Ram Mohan Rao, Head
of the department, Gitam institute of management, Gandhi institute of
management and technology, visakhapatnam for the necessary cooperation
extended to me in doing my project work.

I first and foremost acknowledge my sincere heartiest thanks to I.Madhavi


(M.A.eng), Gitam institute of management, Gandhi institute of management
and technology, Visakhapatnam, who has been my guide for providing me
constant encouragement and consistent interest towards the effective
presentation of this project report.

With immense pleasure, I would like to express my sincere thanks and


gratitude to Bajrangbali Alloys private limited, Orissa, and my co-guide Mr.
Rajendra Prasad Agarwal for providing necessary information during my
project period.

I would take opportunity to express my deep and profound gratitude to my


family members and friends who have helped me directly and indirectly in
the successful completion of project.

Ch.Padma

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CONTENTS
PAGE NO.
Chapter 1: THEORETICAL FRAMEWORK 8-35

1.1 TOPIC RELATED CONCEPT 9-10


1.2 OBJECTIVES 10-18
1.3 IMPORTANCE 18-19
1.4 PRINCIPLES 20-22
1.5 CASH MANAGEMENT 22-24
1.6 INTERNAL CONTROL SYSTEM 25-28
1.7 WORKING CAPITAL ANALYSIS 29-35

Chapter 2: METHADOLOGY 36-40

2.1 NEED FOR STUDY 36


2.2 SCOPE OF THE STUDY 37
2.3 OBJECTIVES OF THE STUDY 38
2.4 DATABASE AND METHODOLOGY 38-39
2.5 LIMITATION OF THE STUDY 39
2.6 PRESENTATION OF THE STUDY 40

Chapter 3: ORGANISATION PROFILE 41-69

3.1 INDUSTRY PROFILE 41-44


3.2 COMPANY PROFILE 44-69

Chapter 4: ANALYSIS OF NET WOKING 70-108


CAPITAL

Chapter 5: STUDY FINDINGS 109-112

5.1 FINDINGS 109-110


5.2 SUGGESTIONS 111
5.3 CONCLUSION 112

BIBLOGRAPHY 113

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LIST OF TABLES

TABLE NO. DESCRIPTION PAGE NO.

TABLE NO. 4.1 CHANGES IN WORKING CAPITAL 91


(YEAR 2003-2004)

TABLE NO. 4.2 CHANGES IN WORKING CAPITAL 92-93


(YEAR 2004-2005)

TABLE NO. 4.3 CHANGES IN WORKING CAPITAL 94


(YEAR 2005-2006)

TABLE NO. 4.4 CHANGES IN WORKING CAPITAL 95


(YEAR2006-2007)

TABLE NO. 4.5 CONSOLIDATED STATEMENT OF 96


CURRENT ASSETS

TABLE NO. 4.6 CONSOLIDATED STATEMENT OF 98


CURRENT LIABILITIES.

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LIST OF GRAPHS

FIGURE NO. DESCRIPTION PAGE NO.

FIGURE NO. 4.6 CURRENT LIABILITIES 98-99

FIGURE NO. 4.7 COMPARISON OF SUNDRY DEBTORS 100

FIGURE NO. 4.8 COMPARISION OF INVENTORIES 101

FIGURE NO. 4.9 COMPARISION OF CASH AND BANK 102

FIGURE NO. 4.10 COMPARISION OF LOANS AND 103


ADVANCES

FIGURE NO. 4.11 COMPARISION OF LIABILITIES 104


AND PROVISIONS

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CHAPTER – I

THEORITICAL FRAMEWORK:

Working Capital Management is concerned with the problems that


arise in the attempt to manage the current assets, the current liabilities and
the inter-relationship that exists between them. The aim of the working
capital management is to manage the concerns current assets and current
liabilities in such a way that an adequate level of the working capital is
maintained. An adequate level of the working capital provides a business
with operational flexibility. A business with an adequate level of working
capital has more options available to it, and can make its own choices as to
when working capital will be used and how it will be used; on the other
hand, if a firm is short of working capital, it may be forced to limit business
operations, extension of credit to customers and the amount that it invests
inventory. This will adversely affect production as well as sales, which in
turn will affect profitability of the concern.

Working Capital Management is an integral part of overall financial


management. It has been looked upon as the driving seat of the financial
manager. Moves and actions in the operating fields of production,
procurement, marketing and services are ultimately interpreted and viewed
in financial terms. Hence, the preoccupation can be marked with the
financial implications of the management of working capital and its
segments. In the words of Louis Brandt : We need to know when to look for
working capital funds, how to use them, and how to measure, plan and
control them. Thus, it is concerned with obtaining economic funds, using

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them in a profitable manner and controlling them to maintain economy and
profitability. Working Capital Management helps to establish a proper
balance among risk, liquidity and profitability.

Session Objectives:

• Objective of Working Capital Management

• Static view of working capital

• Dynamic view of working capital

• Determination of Operating Cycle

• Evaluating working capital management

TOPIC RELATED CONCEPTS:

Working Capital Management:

Working capital management is concerned with the problems that arise


while managing current assets, current liabilities, and inter-relationship
that exists between them.

Current assets are those assets that, in ordinary course of business, can be
converted into cash within one year without undergoing any diminution in
value. The major current assets are cash, marketable securities, accounts
receivable, and inventory.

In contrast to this, fixed assets are those assets that are permanent in nature
and are held for use in business activities. For example, land, building,
machinery etc.

Current liabilities are those liabilities that are obligations that have to be
paid in a single accounting period. Examples of current liabilities are:
accounts payable, bills receivable, bank over-draft and outstanding

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expenses. Long-term liabilities, on the other hand, are obligations that can
be repaid over a period greater than a single accounting period. Examples
of long-term liabilities are: share capital, debentures, long-term loans etc.

CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital:

a. Gross working capital: It is equal to the total investment in


current assets.

b. Net working capital: It is the difference between current


assets and current liabilities. It can be described as that part of a
firm’s current assets which is financed with the help of long-term
funds.

Both the concepts have equal significance in working capital


management.

Gross working capital helps in analyzing:

a. Ways to optimize investment in current assets and

b. Methods for financing current assets.

Net working capital indicates the liquidity position of the firm. It also
reflects the extent to which the working capital needs should be
financed by long-term sources of funds.

OBJECTIVE OF WORKING CAPITAL MANAGEMENT:

The goal of working capital management is to manage the current assets


and liabilities in such a way that an acceptable level of net working capital
is maintained. There are two issues that are dealt under working capital.
They are:

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1. Determining the level of working capital to be maintained:

The exact amount of working capital that should be maintained varies


from firm to firm and depends on various factors like nature of business,
degree of competition etc. Keeping in view the uncertainty associated
with the dynamic environment in which a firm operates, the amount of
investments in current assets should be made in such a manner that it not
only meets the needs of the forecasted sales but also provides a built-in
cushion in the form of safety stocks to meet unforeseen contingencies
arising out of factors such as delays in the arrival of raw materials,
sudden spurts in sales demand etc.

If a firm follows a conservative approach, then it will make a higher level


of investment in current assets. But this would also mean that the
company will not have sufficient amount to invest in profitable avenues.
On the other hand, if the finance manager opts for an aggressive
approach, the firm will have lesser investment in current assets thus
leaving more amounts for investing in profitable alternatives. Thus,
conservative approach provides more liquidity but less profitability and
aggressive approach provides more profitability and less liquidity.

2. Decision regarding financing of current assets:

Once the appropriate level of working capital is chosen, the next decision
pertains to determining the finance-mix for current assets. Some of the
sources that are used to finance current assets are:

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a. Spontaneous liabilities: Short-term liabilities such as sundry
creditors, accrued expenses, etc. and provisions that arise during
the normal course of business serve as non-interest bearing source
of financing current assets.

b. Bank borrowings, Public deposits and long-term sources


of finance

The difference between the amounts of current assets and liabilities is


usually financed through a combination of bank borrowings by way of
cash credit/overdraft arrangement and long-term sources of finance such
as debentures and equity capital. Companies can also opt for fixed
deposits (obtained for a period of one to three years) for financing
current assets.

The decision regarding the financing of current assets using the above
sources of finance depends on the attitude of the company towards risk.
The financing policy opted by the firm can be classified into two
categories based on its risk attitude:

a. Conservative financing policy: A firm following a


conservative financing policy will use long-term sources like
equity and debentures, for financing current assets. Consequently,
these firms will have a lower risk as there is a reduced probability
of “technical insolvency” that arises when a company is not in a
position to honor its current liabilities.

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But following a conservative policy would imply a higher cost of
financing since:

i. Equity has the highest cost of capital and it does not have the
advantage of tax-deductibility that exists in the case of debt
capital.
ii. The interest on debentures has to be paid irrespective of the
fluctuating needs for financing current assets.

b. Aggressive financing policy: A firm following an aggressive

financing policy will use more of bank borrowings and public


deposits and less of long-term sources of finance for financing its
current assets. Such a policy will be useful for companies that
have a fluctuating need for current assets because usually the bank
borrowings are geared to move in tandem with the fluctuating
level of current assets so that the total interest charge for the
company is likely to be low. But an aggressive financing policy
involves higher risk of “technical insolvency.”
Hence, depending upon the attitude of management towards risk
and keeping in view the constraints imposed by banking sector
with respect to short-term credit, the firm should choose the
appropriate financing policy.

STATIC VIEW OF WORKING CAPITAL

As per the static view, working capital can be defined in two ways:

Gross working capital: It is equal to the total current assets (including


loans and advances).

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Net working capital: It is the difference between current assets and
current liabilities (including provisions). It can be also described as that
part of a firm’s current assets which is financed with the help of long-
term funds. The net working capital of a firm helps in comparing the
liquidity of the same firm over a period of time. The liquidity of a firm
can be defined as the ability of the firm to satisfy short-term obligations
as they become due.

The static view of working capital lays more emphasis on the level of
current assets compared to the level of current liabilities.

Drawbacks of static view of working capital:

The static view of working capital has the following drawbacks:

1. The working capital under this view is computed using the


data given in the balance sheet that is static in nature and fails to
reflect the dynamic nature of working capital that is crucial in
decision making.

2. The net working capital which is computed as the difference


between current assets and current liabilities does not reflect the
correct amount of working capital due to the following reasons:

-Short-term bank borrowings that are used for financing current assets
are shown separately under the heading of secured loans and not as a part
of current liabilities.

-Short-term Public deposits utilized for financing current assets are


shown under the category of unsecured loans and are not included in
current liabilities.

-Short-term marketable securities that are held for the purpose of


providing liquidity to the firm are shown under the heading of
investments and are not included in the current assets.

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The reasons mentioned above lead to a miscalculation of the amount of
working capital.

II. DYNAMIC VIEW OF WORKING CAPITAL

The dynamic view defines working capital as the amount of capital


required for the smooth and uninterrupted functioning of the normal
business operations of the firm encompassing various activities
commencing with the procurement of raw materials, conversion of raw
materials into finished product for sale, creation of accounts receivable
on account of goods sold on credit and finally realization of profits from
sales and cash from accounts receivable. As per this definition of
working capital, the following activities would come under the purview
of working capital management.

1. Determination of the appropriate level of raw material


inventory:

A firm needs to decide the appropriate level of working capital by


keeping in view the following factors:

- Existence of raw materials in the domestic market.

- Need for importing the raw materials if not available indigenously.

- Existence of restrictions imposed by government.

- The time lag between ordering and receiving of raw materials

- Discounts offered by suppliers.

- Price movements of raw materials in a period of high inflation.

2. Determination of appropriate level of work-in-process


inventory:

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Depending on the nature of process technology used, the firm should
decide the required level of work-in-process inventory. The level of
work-in-process inventory will be higher in case of firms where the raw
material has to pass through several stages during the process of
production.

3. Determination of appropriate level of finished goods inventory:

Following are some factors that help in determination of the required


amount of finished goods inventory:

-Degree of accuracy in forecasting sales demand.

-Ability to meet sudden spurt in demand.

-Seasonality of demand.

-Nature of finished goods: For example, if it is a perishable good then


lower inventory should be maintained.

4. Determination of credit policies and credit period to be


extended to customers:

The degree of competition in the industry and the general attitude of the
competitors towards credit sales are two major factors that determine the
credit policies of the firm. Apart from these factors, the credibility of the
customer is also crucial in deciding the credit policy.

5. Determination of the level of cash to be maintained by the firm:

The required level of cash should be decided keeping in view the


following factors:

- Ability to meet cash payments.

- Ability to avail sudden cash discounts offered by the suppliers.

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- Credit period extended to customers.

- Credit period extended by suppliers.

- Degree of synchronization between cash inflows and cash


outflows.

- Minimum amount of cash to be maintained.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

Proper management of working capital is very important for the


success of an enterprise. “It aims at protecting the purchasing power of
assets and maximizing the return on Investment. The manager of
administration of current assets to a very large extent determines the
success of the operations of a firm. Constant management is required to
maintain appropriate levels in the various working capital accounts. The
observation of Kennedy and MC Mullen does not carry weight when they
way that, A study of working capital is of major importance to internal and
external analysis because of its close relationship to current day-to-day
operations of business, Inadequacy or mismanagement of working capital is
the leading cause of business failures. Shortage of working capital, so often
advanced as the main cause of failure of Industrial concerns, is nothing but
the clearest evidence of mismanagement, which is so common.

The current assets and current liabilities flow round in a business like
an electric current. The working capital plays the same role in the business
as the role of the heart in the human body. Just as the heart gets blood and
circulated the same in the body, in the same enterprise, adequate amount of
working capital is pre-requisite. The adequacy of cash and current assets
together with their efficient handing virtually determine the survival or
demise of a concern. Inadequate working capital is a business ailment as

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compared to the availability of excess working capital may lead
carelessness.

About costs and therefore, to inefficiency of operations. Many a


times business failure takes place due to lack of working capital. If a
concern maintains an adequate amount of working capital, it enjoys a good
credit rating and gets discount on payment. It will ensure proper functioning
of the business operations and help in the maximization of threat of return.
A business house can maximize its rate of return on the capital invested
provide in keeps pace with the scientific and technological developments
taking place in the field to which it pertains. As soon as some technological
and scientific development takes place, a business enterprise in order to
accelerate its profitability should immediately introduce the same to its
productive process. In reality, however the sufficiency of working capital
will determine the course of decision in this regard.

PRINCIPLES OF WORKING CAPITAL MANAGEMENT

The following are the general principles of a sound working capital


management policy:

(1) Principle of Risk Variation:-

Risk here refers to the inability of a firm to meet its obligations as


and when they become due for payment. Larger investment in current asset
with less dependence on short term borrowing increases liquidity reduces
risk and thereby decreases that opportunity for gain or loss. On the other
hand less investment in current asset with greater dependence on short-term
borrowings increases risk, reduces liquidity and increases profitability.

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(2) Principle of Cost of Capital:

The various sources of raising working capital finance have different


cost of capital and the degree of risk involved. Generally, higher the risk,
lower is the cost and lower the risk, higher is the cost. A sound working
capital management should always try to achieve a proper balance between
these two.

(3) Principle of Equity Position:

The principle is concerned with planning the total investment in


current assets. According to this principle, the amount of working capital
invested in each component should be adequately justified by a firm’s
equity position. Every rupee invested in the current assets should contribute
to the net worth of the firm. The level of current assets may be measured
with the help of two rations:

(i) Current assets as a percentage of total assets, and

(ii) Current assets as a percentage of total sales. While deciding about the
composition of current assets, the financial manager may consider the
relevant industrial averages.

(4) Principle of Maturity of Payment :

This principle is concerned with planning the sources of finance for


working capital. According to this principle, a firm should make every
effort to related maturities of payment to its flow of internally generated
funds. Maturity pattern of various current obligations is an important factor
in risk assumptions and risk assessments. Generally, shorter the maturity
schedule of current liabilities in relation to expected cash inflows, the
greater the inability to meet its obligations in time.

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To sum up, working capital management should be considered as an
integral part of corporate management. In the words of Louse Brand, “We
need to know when to look for working capital funds, how to use them and
how to measure, plan and control them”. To achieve the above mentioned
objectives of working capital management, the financial manager has to
perform the following basic function.

(i) Estimating the working capital requirements.

(ii) Financing of working capital needs.

(iii) Analysis and control of working capital .

Working capital management involves the management of the three


most important components of the working capital, i.e Cash, Receivables
and Inventory.

CASH MANAGEMENT

Objectives of Cash management

1. To make short-term forecasts about cash inflows and outflows of the


firm.

2. To find profitable avenues for investing surplus cash.


Arranging finance in case of cash deficit.

Cash Forecasting and Budgetting

Cash budget is a vital tool used for planning and controlling cash receipts
and payments. A cash budget is a summary statement about the firm’s
expected cash inflows and outflows over a short period of time. With the
help of the information given in the cash budget, the finance manager can
estimate the timing and magnitude of the expected cash flows and can use

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it to determine the future needs of the firm; for planning the sources of
finance for these needs and for exercising control over the cash and
liquidity of the firm. The time horizon for which the cash budget is
prepared varies from firm to firm.

Firms that are affected by seasonal variations would usually prepare


monthly budgets. Firms whose cash flows are relatively unstable in nature
and are affected by extreme fluctuations prepare daily or weekly cash
budgets.

Short-term forecasts will help in determining the cash requirements for a


pre-determined period by making projections about the expected cash
flows. These forecasted figures are used in the preparation of cash budget.
The other utilities of short-term forecasts are:

1. The short-term forecasts will enable the finance manager to adjust


the differences in the cash receipts and cash payments.

2. They help in planning the investment of surplus cash in marketable


securities.

3. They help in choosing securities with appropriate maturities and


acceptable levels of risk.

4. They help in planning short-term financing arrangements with


banks and are useful in determining the minimum and maximum balances
to be maintained with the bank.

One of the commonly used methods of forecasting short-term cash flows


is the receipts and disbursements method.

Cash Reports:

Cash reports are prepared in situations where cash inflows and outflows do
not fluctuate much and the collection and payment patterns are stable.

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They help in comparing the actual figures with forecasted figures and in
controlling the deviations that exist. If the fluctuations in the cash position
are high, then the reports are prepared on a weekly and sometimes even on
a daily basis. The important categories of cash reports are:

1. Daily Cash Report: It provides information about the daily cash


position. It indicates opening and closing cash balances, payments made to
creditors, repayments of loans and other cash flows.

2. Daily Treasury Report: A daily cash report does not indicate the
position of accounts receivables, accounts payables and marketable
securities. The daily treasury report fulfils the requirement of presenting a
comprehensive statement about the opening, the closing and the net
balances of cash, marketable securities, accounts receivable and accounts
payable.

3. Monthly Cash Report: It shows the cash receipts and payments over
an entire month.

Internal Control system

Need for Internal Control System: Internal control system is needed for
accounting and controlling the deviations of actual cash flows from the
expected cash flows. With an increase in the size of the organization, it is
not possible to scrutinize all aspects of the business. There are various
risks that a large company faces like entry of counterfeit documents into
the accounting system, careless attitude on behalf of the management,
inaccuracy in recording or reporting transactions, loss of vital documents,
etc. In order to prevent the occurrence of such events, it is necessary to
implement an efficient internal control system. The existence of internal
control systems will help in controlling the actions of fraudulent people, as
they will be aware of the fact that their actions are being monitored.

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Formulation of Internal Control System: The formulation of an internal
control system depends on the size of the firm. The treasury department,
audit staff or an outside consultancy can be helpful in framing the design
of an internal control system. The following points should be taken care of
while formulating the internal control system:

 Responsibilities should be categorized based on the functions


performed. Activities related to the maintenance of records should be
assigned to the controller and activities related to custody of cash and
other liquid assets should be allocated to the treasurer.

 It should ensure proper documentation and recording procedures.

 The policies and procedures should be formulated in consensus with


the organization’s long-term goals.

 The system should ensure that jobs are assigned to suitable personnel
on the basis of their qualifications, interest and experience. The treasurer
and controller should list some basic skills that are required for a particular
type of job. Companies should also try to conduct training programs to
familiarize its employees with latest business practices and latest
technology.

Internal audit:

Internal audit is an appraisal activity performed within an organization. It


aims at reviewing the financial aspects and other policies and procedures
of the company. Internal audit becomes more important in case of large
organizations in order to prevent non-compliance of the company’s rules
and regulations. The job of performing internal audit is assigned to the
audit staff or to the internal audit committee.

Objectives of Internal Audit:

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1. Internal audit assesses the effectiveness and adequacy of the control
measures implemented in the areas of accounting, treasury and operations
of the firm. The audit staff should also perform a cost-benefit analysis of
the internal control system.

2. Internal auditors should verify the documents related to the branches


and should check the accuracy of the accounting books and records. They
should also see the extent to which the company’s assets are accounted for
and should review the methods employed to prevent losses.

3. Internal auditors should ensure that the rules and regulations of the
organization are being adhered to. The internal auditors should also try to
identify the flaws existing in the rules and regulations of the firm.

4. Internal audit should also ensure that liabilities have been incurred for
legitimate purpose of the business.

5. Internal audit should help in the preparation of reports that would


provide assistance to the various levels of management and would also
help the external auditor.

Elements of Internal Audit:

For ensuring the effectiveness of internal audit, the following aspects


should be taken care of:

1. Totality: Totality implies that the internal audit should consider all the

aspects of the organization for the purpose of review and control.

2. Expertise: The members appointed as internal auditors should have the

required qualifications, experience and should be thorough with the


principles and practices of internal audit.

3. Independence: The internal auditors should have the freedom to report

directly to the top management.

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4. Objectivity: Besides ensuring the accuracy and reliability of the

records, the internal audit system should also be able to safeguard the
assets.

5. Utility: The system should not be redundant in nature.

Limitations of Internal Audit:

1. If the internal audit staff is inefficient then the whole purpose of


internal audit will fail.

2. Inefficiency creeps into the records if they are not reviewed in time by
the internal audit staff.

3. Proper internal audit will not be performed if the internal audit staff is
assigned other functions of the company.

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WORKING CAPITAL ANALYSIS

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Working capital is one of the most difficult financial concepts to
understand for the small business owner. In fact, the terms means a lot of
different things to a lot of different people.

By definitions, working capital is the amount by which current assets


exceed the current liabilities. However, if you simply run this calculation
each period to try to analyze working capital, you won’t accomplish much
in figuring out what your working capital needs are and how to meet them.

DETERMINANTS OF WORKING CAPITAL ANALYSIS:

The main determinants that affect the working capital of a firm are:

CURRENT ASSETS

Current assets are those which can be converted into cash as and
when needed, i.e., those assets which can turn to cash as per the
requirement of the business within the accounting period.

SUNDRY DEBTORS

Debtors are those to who products are supplied on credit basis. These
amounts are collected within the accounting period. Therefore, they are
converted into cash as per requirement, hence they are considered under
current assets.

INVENTORIES

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Closing stocks or inventory includes raw materials, work in progress
and finished goods, which are needed for the smooth running of the
organization. Generally inventory is maintained by every organization,
which is bound to meet its demand in the market. The amount of inventory
maintained by the firm represents its profitability position. The quality must
not be in excess or inadequate, it must be according to the requirement. The
quality stores must be able to meet the market demand.

CASH AND BANK

Every organization or firm maintains cash reserves in their accounts.


This is the major key on which working of the entire organization is
dependent upon. This is required in every aspect of production, marketing,
financing etc. In other words, it can be said that it plays a vital role in the
functioning of any organization.

LOANS AND ADVANCES

Advances to staff are those advances, which are given to the


employees as festival advances. These advances are treated as current assets
as they are given advance to the employees and are collected with in the
accounting year. It doesn’t result in any default payment as the amount is
deducted from their salaries directly during their payment. Their advances
are prepared and are collected in the accounting year. These are the loans
and advances amount that are given by the organization in procuring of raw
materials. Amount is given in advance to its supplier in supplying the raw
materials required and this is adjusted after receiving the raw material. The
final settlements take place only after deducting the advances amount from
total amount.

CURRENT LIABILITIES

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Current liabilities are those which are payable during an accounting
year. These are paid out of current assets like cash. When current assets
availability is present there exist the current liabilities but current assets
must always be in excess to current liabilities. This provides the
organization to be in a good position.

SUNDRY CREDITORS

Creditors are those from whom products are purchased on credit


basis. These amounts are paid within the accounting period. If the creditors
number increase the amount payable also increases which further increases
the liquidity.

PROVISION

Provisions are those liabilities, which are provided by the


organization to meet its taxes on its income in the future. They include
provision for taxes or provision for dividend. But as this organization need
not provide any dividend to its shareholders but also there is no payment of
taxes, because there is no income or profit to this organization from the past
ten years. A useful tool for the small business owner is the operating cycle
analyses the accounts receivables, inventory and accounts payable cycles in
terms of days. In other words, accounts receivables are analyzed by the
average number of days it takes to collect an amount. Inventory is analyzed
by the average number of days it takes to turn over the sale of a product
(from the point it comes in your door to the point it is converted to cash or
an account receivable). Account is payable are analyzed by the average
number of days it takes to pay a supplier invoice.

Most businesses cannot finance the operating cycle (accounts


receivables inventory days) with accounts payable financing alone.

29
Consequently, working capital financing is needed. This shortfall is
typically covered by the net profits generated internally or by externally
borrowed funds or by a combination of the two. Most businesses need
short-term working capital at some point in their operations. For instance,
retailers must find working capital to fund seasonal inventory buildup
between September and November for Christmas sales. But even a business
that is not seasonal occasionally experiences peak months when orders are
unusually high. This creates a need for working capital to fund the resulting
inventory and accounts receivable buildup. Here are the five most common
sources of short term working capital financing:

EQUITY:

If your business is in its first year of operation and has not yet become
profitable, then you might have to rely on equity funds for short-term
working capital needs. These funds might be injected from your personal
resources or from a family member, friend or third party investor.

TRADE CREDITORS:

If you have a particularly good relationship established with your trade


creditors, you might be able to solicit their help in providing short-term
working capital. If you have paid on time in the past, a trade creditor may
be willing to extend terms to enable you to meet a big order. For instance, if
you receive a big order that you can fulfill, ship out and collect in 60 days,
you could obtain 60-day terms from your supplier if 30-day terms are
normally given. The trade creditor will want proof of the order and may
want to file a lien on it as security, but if it enables you to proceed, that
shouldn’t be a problem.

FACTORING:

30
Factoring is another resource for short term working capital
financing. Once you have filled an order, a factoring company buys your
account receivable and then handles the collection. This type of financing is
more expensive than conventional bank financing but it is often used by
new businesses.

LINE OF CREDIT:

Banks to new business do not often give lines of credit. However, if


your new business is well capitalized by equity and you have good
collateral, your business might qualify for one. A line of credit allows you
to borrow funds for short terms needs when they arise. The funds are repaid
once you collect the accounts receivables that resulted from the short-term
sales peak. Lines of credit typically are made for one year at a time and are
expected to be paid off for 30 to 60 consecutive days sometime during the
year to ensure that the funds are used for short-term needs only.

SHORT TERM LOAN:

While your new business may not qualify for a line of credit from a
bank, you might have success in obtaining a one-time short-term loan (less
than a year) to finance your temporary working capital needs. If you have
established a good banking relationship with a banker, he or she might be
willing to provide a short-terms note for one order or for a seasonal
inventory and/or accounts receivable buildup. In addition to analyzing the
average number of days it takes to make a product (inventory days) and
collect on an account (account receivable days) Vs. the number of days
financed by accounts payable, the operating cycle analysis provides one
other important analysis. From the operating cycle, a computation can be
made of the dollars required to support one day of accounts receivables and

31
inventory and the dollars provided by a day of accounts payable. Working
capital has a different impact on cash flow in a business.

CHAPTER – II

METHODOLOGY

32
NEED FOR THE STUDY:-

Manufacturing Industry is one of the major public sectors in India.


This industry plays a major role in the economic development of a nation.
From the first five year itself the Government of India has emphasized on
the Manufacturing Industry. This industry is considered as the core industry
in every economy of the world.

Working capital gives an idea to the investor as well as the


management of any firm about the functioning of the organization.
Preparation of a separate statement of working capital gives us an idea
about the gross as well as the net working capital of the statement. One can
know or plan about the day-to-day expenses.

Working capital is the difference between the current assets and the
current liabilities. This working capital must also be adequate (i.e.,) not too
high, neither too low. An optimum level of working capital is a good
significance for the progress of the organization. This study of working
capital management would give me the insight about the level of working
capital required in this organization.

A study of working capital management in BAJRANGBALI


ALLOYS PRIVATE LIMITED gives out the exact idea of working capital
because it is an organization with huge requirement of working capital. This
is life blood without which the organization may not be able to perform its
responsibilities.

SCOPE OF THE STUDY:-

33
The study was conducted in the BAJRANGBALI ALLOYS
PRIVATE LIMITED in ORISSA. The aim of the study is to analyze the
working capital management of the firm.

Working Capital is the difference between the current assets and


current liabilities of a firm. The current assets and the current liabilities of
the firm were taken into account and the computation of the working capital
was made. The study comprises of the working capital of five consecutive
financial years of the firm.

The importance of the study is very significant. This is because


without the working capital no company can continue its day-to-day
business activity.

The use of the study is that by following the methodology of this


study one can get a hint of the working capital of any firm in the
engineering industry as well as in the plastic industry. Moreover, this
method of study can be used to find out the management of working capital
in other organizations.

OBJECTIVES OF THE STUDY:-

The present study “Working Capital Management of BAJRANGBALI


ALLOYS PRIVATE LIMITED” is intended to analyze the practice of
Working Capital Management. The efficiency of the Working Capital

34
Management is determined by the efficient administration of its various
components.

The study has been carried out with following objectives: -

 To know the process of Working Capital Management in


BAJRANGBALI ALLOYS PRIVATE LIMITED in ORISSA.

 To study the Cash Management, Receivables Management and


Inventory Management in detailed manner.

 To understand the ability of BAJRANBALI ALLOYS


PRIVATE LIMITED in ORISSA to meet its obligations.

 To know the extent to which the BAJRANBALI ALLOYS


PRIVATE LIMITED in ORISSA is efficiently using its
resources.

DATABASE AND METHODOLOGY :-

35
Any financial survey collects data systematically and analyses it to
meet the objectives. The data can be broadly classified into two types, i.e.,
Primary data and Secondary data.

The primary data was collected through personal discussion and


contacts with the concerned executives of the unit BAJRANBALI
ALLOYS PRIVATE LIMITED in ORISSA.

The secondary data was collected through journals and annual reports
of the unit and published and unpublished records of Unit BAJRANBALI
ALLOYS PRIVATE LIMITED in ORISSA.

LIMITATIONS OF THE STUDY:-

 Time factor is the most crucial one. The study was conducted
within a short period of one month.

 The investigator has to wait for a long time to make contact


with the executives, they being busy with their work.

 To collect information from persons involved in their working


hours all against their threat of being exposed in case of
employees and reserved and resisting attitude of managers was
a very critical job.

 It is also found that some of the executives lack interest,

enthusiasm, initiative and involvement, which in turn


demotivates the researchers.

 The final and foremost thing is that very often the organization
secrecy stands on the way to find out the organizational
information regarding some aspects of the study. But in spite

36
of these limitations, attempts have been taken to make the
study a scientific and reliable one.

PRESENTATION OF THE STUDY: -

The study of working capital management in BAJRANBALI


ALLOYS PRIVATE LIMITED is made into a report consisting of five
chapters.

Chapter 1 : Theoretical Framework of Working Capital management

Chapter 2 : Deals with the introduction need for the study, objectives,
methodology and limitation of the study.

Chapter 3 : Describes the profile of BAJRANGBALI ALLOYS PVT.


LTD, organizational set up and the functional areas.

Chapter 4 : Analysis of Working capital Management. Explains the


Working Capital Management in Unit BAJRANBALI
ALLOYS PRIVATE LIMITED, ORISSA.

Chapter 5 : Documents the summary of findings, suggestions and


conclusions.

37
CHAPTER – III

ORGANISATION PROFILE:

INDUSTRY PROFILE:

INTRODUCTION

Steel is the metal of the new millennium. It is the world's most useful,
economical & suitable building material. Icon Steel, with its continuous
improvement in the production process, modernization and introduction of
state-of-the-art technology, has evolved as a supplier of choice who profits,
cares and promises for a safer, stronger and better tomorrow. It is one of
those few prestigious steel producing companies of the country to obtain the
ISO 9002 certification. The combination of superior technology, quality
control and experienced workforce has helped (he company develop value-
added steel which caters to residential as well as industrial requirement and
at the same time maintains customers' i. At Icon Steel, the quest for
excellence is not just a process, but a way of life….

1. Over the last few years, there has been a great deal of change in the
Indian economic scenario which has concomitant impact on
industries. From a protected, inward looking economy, with an
inefficient and highly protected industrial sector, it has quickly
become a market driven and internationally competitive economy.
Under the spell of liberalization, the Indian steel industry has
witnessed a rapid growth. Fortunes of this industry started to look up
from late 1993, with a revival in demand and prices, strong growth in

38
end user industries such as constructive, infrastructure, automobiles
and white goods have been responsible for this upsurge.

2. Bajrangbali Alloys (p) ltd. Incorporated on 03.09.1993,set up an 3.50


Mt induction furnace at India manguli chhak near NH 5 with term
loan assistance from union Bank of. The unit commenced operation
from January, 1995. In their forward integration programme, the
company set up a re rolling mill with a capacity of 10,2000 TPA with
term loan assistance of 100 lac from SIDBI from October, 1998. The
Company was registered as an SSI unit, the DIC PMT no. being
151600567 dt.06.04.99. The products of the company have been
approved by Bureau of Indian Standard. The Quality Management
System of the unit has been certified by NQRQSR Ltd. As ISO
9001:2000 Standard.

3. The Performance of the company has remained very satisfactory over

the years. The term loans of both Union Bank of India & SIDBI have
been fully repaid within the scheduled time. The company availed a
STWC loan of Rs.50 lace from SIDBI in January 2004 & has, so far,
repaid the monthly installment(s) amounting Rs.8.40 lac. Working
capital; loan facility to the tune of Rs.125.lac has been extended by
Union Bank of India who has security charge over the assets of the
induction furnace division. SIDBI has security charge over the Re-
Rolling Mill division assets.

4. The Company now intends to modernize their re-rolling mill whereby


the capacity shall increase by 9000 TPA. Besides the existing activity
of manufacturing of CTD Bars, the Company proposes to include the

39
TMT Section, Angles, and Channels & Sections in their re-rolling
mill. The additional raw material. That may be required for this
activity shall be met either from internal production or from open
market.

5. Considering the above factors and future prospects of the Sponge


Iron Industry, the Promoters, all of whom hell from a successful
business family and have themselves in the present line of activity
decided to set an additional capacity of 100TPD Sponge Iron Unit at
its present factory location.

MARKET:

The up-ward trend in steel production, increasing importance of


Induction furnaces, recent use of sponge in Blast Furnace as intermediary
raw-materials, scarce availability of scrap, lack of uniform & good quality
scrap, existence of less tramp material is making sponge iron an ideal
substitute for scrap. The change in Govt policy and liberalization process
will go a long way in boosting the demand for sponge iron. The market for
sponge iron is very bright in the coming years.

The Integrated Setup

Located on the banks of river Birupa besides National Highway -5 & about
12 km* away from the Silver city Cuttack, the Icon Steel manufacturing
plant facilitates a melting shop, a double drive ten stand steel mill, double
roller bearing water cooled driving rolls, natural cooled cooling bed with
necessary processing line - all integrates through automated control
systems.

40
Advanced Level-1 and two semi-automated systems, AC main drive & AC
auxiliary drive control are provided for fully semi-automatic process with
The objective of achieving strict tolerance for nominal sizes, shapes, length
and strength The setup function is designed to perform the rolling strategy
over a wide range of products using mathematical module and semi-
autoadaptive algorithms. Hydraulic conveyor is developed to reach high
performances under all rolling conditions. Data exchange with production
planning, melt shop and semi-automation completes the system in all
respects.

PROFILE OF THE COMPANY

“BAJRANG”, the RUDRA God, is the strength behind BAJRANG


STEEL.
Conceived in 1992 by two young relatives – a businessman of long standing
& one project financier, who traveled the nook & corner of Andhra Pradesh
& other parts of the country to gain practical knowledge on industries –
M/S. Bajrangbali Alloys (p) Ltd. Started its commercial production on
02.01.95 in the ingot division with financial assistance from Union Bank of
India, College Square, Cuttack – 3 Branch to the tune of Rs. 65.00 lac as
term loan & Rs. 35.00 lace as working capital loan. Although the unit
suffered from the initial jolts of the operational aspect for quite some time,
it has overcome the same over the years & is now marching ahead to meet
its social & economic goals. Initially, the unit was manufacturing
M.S.ingot/billets of 3”*4”*4’6” size with one 10,800 M.T./P.A. capacity
induction furnace from scrap collected from local market. Through the unit
was not free from the ups & downs that the iron & steel sector witnessed
during the last decade, M/S. Bajrangbali Alloys (p) Ltd. has, to its credit,
added the expansion in the re-rollable items i.e M.S. rods & M.S. tort or

41
varying from 8mm dais to 20 mm dais having an installed capacity of
10,200 M.T./P.A. with effect from 19.10.98. And with the setting up of a
sponge iron unit in collaboration with another relative entrepreneur, the unit
is now producing the re-rollable M.S. items from iron ore; thereby assuring
the best quality to the ultimate consumers.BAPL, thus, takes pride in being
the 1st unit of this type in the state of orissa to convert iron ore to sponge
iron to ingots &then to M.S rod &tor. The present project envisages
installation of a Thermo Mechanical Treatment plant in the unit which shall
be the 1st of its kind in the state of Orissa for better mechanical properties of
the product manufactured. Bajrangbali Alloys (p) ltd. is promoted by two
groups of established & renowned business houses & is now handling the
following Promoter directors.
1.Mr.Rajendra Prasad Agarwal.
2.Mr.Dindayal Agarwal.
3.Mr.Deepak Agarwal.
4.Mr.Dinesh Agarwal.
Situated on the side of N.H5 on the bank of the river “Birupa”, the unit is
12k.m.away from the silver city of Cuttack quite away from inhabitant area
& thus does not pos any problem to the populace. The regd.office of the
company is at Malgodown,Cuttack-753003.

OUR VISION:

Our Vision is to be an ever-growing company of quality, economy and


reliance. Out Cote Values include commitment, continuous improvement
through Research & Development, technical Upgradation, use of cutting-
edge technology for strategic advantage, setting and surpassing world-class
benchmarks, concern for environment, innovation and Customer

42
satisfaction. We are committed to providing quality products at affordable
prices and customer service round the clock.

Apart from the above our aim is to expand out supply network so as to
make our products available at each and every corner of urban as well as
rural areas.

INDUSTRY AT A GLANCE

1. NAME OF THE COMPANY : BAJRANGBALI ALLOYS


PVT. LTD.

2. CONSTITUTION : PRIVATE LIMITED


COMPANY

3. COMPANY REGD. NO : 15 – 03400 OF 1993 – 94.

Date : 03.09.1993

4. REGD. OFFICE FACTORY : MALGODOWN, CUTTACK –


753003

: N.H. – 5, MANGULI, P.O. –


CHOUDWAR, CUTTACK-754025

5. POWER : CESCO / GENERATOR

6.Govt.consent : OBTAINED.(EXISTING)

7.INSTALLED CAPACITY : EXISTING(ROLLING MILL)

10,200 TPA.

PROPOSED ADDL. 9,000 TPA

43
8. PRODUCT : TMT BARS, ANGLES,
CHANNELS & SECTIONS

9. CAPACITY UTILISATION : 1ST 2ND 3RD

65% 75% 85%

10.PRODUCTION : 12,480 14,400


16,236.99

11.TURNOVER IN QTY. : 11,967.12 14,300.02


16,236.99

12. TURNOVER [IN LACS] : 2405.39 2945.80


3426.00

13. SELLING PRICE/MT. : RS19,500.00 RS20,000.00


RS20,500.00

ANGLES, CHANNELS & SECTION: RS21,500.00 RS22,000.00


RS22,500.00

14. WORKING CAPITAL [IN LACS]: 1ST 2ND 3RD

TOTAL 171.81 211.32


245.53

BANK 126.00 155.00


180.00

MARGIN 45.81 56.32 65.53

15. PROJECT COST.

44
PARTICULAR AMOUNT[IN LACS]

Land & land development Existing

Civil & structural works 38.60

Plant & machinery 220.42

Electricals & Fittings. 50.00

Contingency 9.27

Prel. & pre-operative exps. 12.00

Margin Money for working cap 45.81

Total 376.10

16. MEAN OF FINANCE. AMOUNT

promoter’ contribution 176.10

Term loan 200.00


Total 376.10

17.FINANCIAL PARAMETER :

DEBT EQUATY RATIO. 1.14:1

DSCR 2.03

BREAK EVEN POINT. 59%

18. PROFITABILITY

45
RETAINED EARNINGS AFTER TAX 315.49

ADD.DEPRECIATION 99.84

415.33

TERM LOAN REPAYMENT 200.00

AVAILABLE NET SURPLUS 215.33

CORE VALUES :

Honesty: To be principled, straight-forward and fair in all dealings.

Integrity: Maintaining the highest standards of professional adaptability.

Flexibility: Adapting to stay a step ahead of change.

Respect: Giving each person room to contribute and grow.

Knowledge: To acquire and adopt leading edge expertise in all aspects of


concerned business.

Performance: The team comes first; none of us is as good as all of us!

Strategic Intent

Bajrangbali Alloys (P) Ltd.,{BAPL}, in the recent years has evolved


as a more dynamic, knowledge-driven organization. Aimed at making the
organization more market-oriented and customer-centric, the following
initiatives are to drive Bajrangbali Alloys (p) Ltd. ,{BAPL}forward in the
rapidly changing business environment:

46
Consolidation: A continuous streamlining of capacity and product in core
business area.

Brand Building

Increasing brand involvement for the products amongst customers, to


reduce market fragmentation and to attain ‘generic-brand’ status for
Bajrangbali Alloys (pvt) Ltd., {BAPL} is planned through strategic
branding.

Product-mix rationalization

Maintaining an intelligent product-mix based on value and demand curves


to maximize returns.

Exploring global markets

Reaching out to international markets with world-class products while by


maintaining leadership in India is the goal of Bajrangbali Alloys (pvt) Ltd.,
{BAPL}.

Operational Improvements & Cost-competitiveness

To attain higher efficiency levels and world-class quality in production


processes.

Increasing capacities

Expansion of manufacturing and processing capabilities across product


range, in line with market dynamics is the aim to increase the capabilities.

47
Sound Investments

Accelerate growth by way of investments into focused, synergetic


acquisitions.

Captive Market Share

Sustaining and strengthening Bajrangbali Alloys (p) Ltd., leadership


position in its market segments way ahead of competitors.

Extending ‘Touch-Points’

Building a wider and ‘intelligent’ distribution network that enables


Bajrangbali Alloys (p) Ltd., to serve its markets in a customized and
localized manner and attain higher penetration, without losing the
economies of scale.

Corporate Milestones

Bajrangbali Alloys (p) Ltd.,{BAPL}have demonstrated a sensation in


traditional leadership. Over the year, it has only emerged as a more
dynamic, focused corporate.

LOCATIONAL ADVANTAGE:

Bajrangbali Alloys Pvt.Ltd is an existing unit with its factory location at the
side of N.h-5, Manguli Choudwar Cuttack . it has Started Operation Initially
with a 3.5 Ton capacity Induction furnace in the Year 1995 . Subsequently,
Forward integration in the shape of Setting up of a rolling Mill with a 5
MT/hour capacity was installed at the site which started production during
1998. It has now been Proposed to enhance the capacity of the Rolling Mill
& add TMT bar, angles Channels & section.

48
The new location of the plant has been considered in the State of Orissa.
Orissa is endorsed with rich mineral deposits like Iron Ore, Bauxite, and
Manganese Ore, Chromites etc. which has enabled the State to have Core
Industries like steel Plant, Aluminum Smelter, Charge Chrome Plants, and
Sponge Iron Plants etc.

Power Situation in Orissa is aloes Fair. Power being one of the prime
movers of the economy, State Government has been endeavoring
substantial investments in Power Sector to step up generating capacity in
the state.
The Plant is situated at an approximate distance of 12km from the silver
city of Cuttack towards Balasore. The Plant site is very close to the coal and
iron ore mines, by which the company is able to save a lot towards
transportation cost. Labour is being available cheaply. The Finished Product
is being sold to units inside & outside orissa without any transportation
problem. Since the unit is in operation since last 5/6 years it has all location
advantages.

HISTORY AND BACKGROUND


THE PROJECT

The company is presentely engaged in the production of pencil steel ingot


having production capacity of 10800 tones per annum & CTD bars with an
installed capacity of 10200 TPA. The project envisages enhancing and
diversifying the production capacity of the existing Re-Rolling Mill plabt
for manufacture of rerolled products like CTD bars, a Thermo Mechanical
Treatment Plant with addition of Flats, Channells, Angles & sections. The
proposed production capacity of the plant after expansion and
diversification have been narrated else where.

49
History and Background:

Bajrangbali Alloys (p) Ltd. ,{BAPL}is an existing unit engaged in


manufacturing of pencil steel Ingots & RE-Rolling items since last 10
years.The promoters of the company Mr.Ranjendra Prasad Agarwal,
Mr.Dindyal Agarwal, Mr.Dinesh Agarwal & Mr.Deepak Kumar Agarwal
are highly experienced & one of the leading group in both steel trading and
manufacturing in Orissa since last many years. After having successfully
established their unit, infrastructure, market & all that is required for
successful operation of the unit, the promoters have mooted the idea of
enhancing the capacity in the rolling mill unit with additional items having
more value added for a still better viability of the unit. This strategy
emerging from the past experience of the promoters will not only ensure
lower cost of inputs via-a-vis cost of production but also will enhance ppofit
by value addition and reaching to still a larger clientel.

NAME OF THE CONSTITUTION:

The company was incorporated as a private limited company duly


registered with the Registrar of companies, Orissa bearing registration
No.15-03400 dated 03.09.1993. The company has obtained the permanent
registration certificate from Dic, Cuttack (earlier-Jagatpur) bearing
No.151600567.

RESUME ON THE PROMOTERS.

The promoters of the project are highly experienced in business and are also
financially sound. They are capable enough to bring-in their equity

50
& run the project successfully. The brief bio-data of each promoter is given
here after.

FINANCIAL ASSISTANCE.

The initial term loan availed from union bank of India has been fully
Liquidated. However; the company enjoys a working capital term loan of
RS.125.00 lac from the said bank. The company had availed a term loan of
RS.65.75 lac from SIDBI during January,1998 to March,1999 which has
since been prepaid by November,2003.All the institutional loan dues were
paid regularly & on before the due dates. Mean while, BAPL has availed a
short term working capital loan of RS.50.00 lac from SIDBI& the
installments are being paid regularly with the interest dues. The outstanding
in this account is RS.41.60 lac as on date.
Electrical/ Controls:
Power
The Company draws electricity from the 33 KV feeders at Tangi-Choudwar
sub-station. The company is playing a monthly electricity charge of around
Rs. 35.00 lac to Rs. 40.00. lac on an average.
The total connected load for operation of Blast Furnace, Pig Casting
Machine, pumps, Compressors, E.O.T. Crane ventilation and air
conditioning system, plant lighting etc is estimated as 1500kw with the
maximum demand of 1700 KVA. Power will be drawn at 33KV from
CESCO and necessary step down facilities have been provided in estimate.
Electricity supply system shall comprise switchgear, transformer with
substation and distribution line and circuit breaker has been provided in the
project cast estimate.

51
Power supply and distribution:
The power requirement of the proposed plant is estimated at 350 KVA on
30 mm maximum demand with an annual energy consumption of 1.95
million KWH. Power would be tapped from Orissa State Electricity Board
[OSEB] grid at 33 KV and stepped down to 415 V in the substation to be
installed inside the plant premises. A DG set of 5QO KVA rating would be
provided to cater to the emergency power requirement of critical equipment
of the plant requiring uninterrupted power supply.
Shop Electricals:
AC motors will normally be used in the plant. Drives requiring variable
speed like to kiln / cooler would be with AC motors with variable controls.
Motor control centers have been planned m different areas.

SOCIAL ACTIVITIES:

The operations in all section inside the factory are taking place in a very
congenial atmosphere. The safety of the workers as also the supervisors has
been the prime focal point of the management. Safety shoes, gloves,
helmets and the likes are regularly supplied to the field personnel besides
continuous supply of drinking water, lemon/salt water during summer
season & regular health check-up.
The manufacturing operation of the factory is being done on contract basis
under the registered contractors.
The workers are covered under ESI & regular health check-ups are being
done. They are also covered under the EPF & the monthly contributions are
deposited with the appropriate authority regularly.
The management is very much serious on the pollution aspect & anti
pollution equipments have been installed besides plantation of trees inside

52
the factory premises and the periphery areas. The unit has obtained
necessary certificate from State Pollution Control Board

REGISTRATION ETC:
The unit is registered with the Directorate of Industries, Orissa, under the
factories Act & other Govt. agencies as per the provision. The products
manufactured confirm to B.I.S.specification under IS 1786:1985 having the
licence no. CM/L – 5136050. BAPL has been certified as on ISO-9001 :
Company by M/S.NQA Quality System Registrar Ltd for manufacture &
supply of cold twisted deformed bar. The quality policy of the company is
to satisfy the customers by supplying qualitative C.T.D bar conforming to
the agreed specification at all the times.The company is having a web site
with the address as www.info_steel.com.

RAW MATERIALS:

As has been explained earlier, ingots were manufactured from heavy &
commercial scrap at the initial period. After setting up of the sponge iron
unit near Byree as a sister concern, the unit now manufactures the re-
rollable items mostly from iron ore directly. BAPl had also imported quality
scrap from the United Kingdom during 2001-02 to the tune of RS.121.64
lac & is now planning to import further scrap from foreign countries.

PLANT ARCHITECTURE:

The plant is designed to combine production characteristics of m line


process with the high flexibility of rolling mill, which consists of the
following.

53
⇒ SF6 Breaker, coupled with 33KV power system fitted with air
circuit breaker of L & T make assembled with automatic power
factor controllers.
⇒ Medium frequency induction furnace of ABB make having twin
crucibles {1500KW] with digital regulators for refinement sponge
iron of maximum 85%.
⇒ 3x4 size Ingot caster with capability to produce Ingots up to 60"
length.
⇒ Reheating tunnel-type double row pusher furnace of 20ft width and
80 ft length with a heating capacity upto 1200oC temperature and
output capacity of 10 MT per hour.
⇒ Ten stand double drive mill coupled with reduction gear, pinion
stand, roll-cooling system and online roll grinding.
⇒ Hot flying shear (drum-type rotary) for end cutting and sizing.
⇒ Natural-cooled cooling bed having transfer capacity of 5 MT per
hour with maximum bed length of 150 ft..

MARKET.

In all ventures, market plays a vital roll for continuous sustenance of an


enterprise. The steel sector is very much venerable to the ups&down of
market end. After witnessing a bleak period, this sector is also not free from
these ups & down of the market.
Besides catering to the requirement of steel trading concerns, the unit has
cuctomers in up state Bridge corporation Ltd, Methodist Engineering Co.(p)
Ltd., Metro Builders ,Z Engineering Corporation Ltd, Methodist
Engineering Co.etc. The product has reached the common man in the

54
districts of Mayurbhanj , Keonjhar , all the areas of the undivided districts
of Balasore , Cuttack ,puri , Dhenkanal & Ganjam through numerous retail
trading outlets. From July-August, 2003, BAPL is supplying bulk quantities
of their product to the four southern states viz:Andhar Pradesh, Tamil Nadu,
Karnatak & Kerala where the product have received & high demand.

AWARDS :

BAPL has received the “NATIONAL AWARD” to small scale


Entrepreneure-2000 for their Performance as small entrepreneur. Sri
Dindayal Agarwal, Director of the company, received the trophy & the
certificate from Honble Sri Jaswant Singh , the then Finance Minister of
Govt. of India on 28th August , 2002.
Orissa has recognized the role of BAPL in the small sector by honouring
them in FUSION-2002 on 20.09.2002.
The Company has also been awarded with Prestigious “RASHTRIYA
UDYOG AWARD , 2002 -2003 “ by International Integration And
Growth Society , New Delhi for the excellence in the field & for the
growth of Indian Economy .Other awards best owed the company fpr its
excellent performance include:-
1.Dhatu Nayak Award – 2002 by the Indian Society for Industry &
Intellectual Development, New Delhi.
2.Rashtriya Udyog Ratan Award – 2002 by the Indian Society for
Industry & Intellectual Development, New Delhi. Bajrang steel has never
failed in discharging its social responsibility. Over the years, BAPL has
organized eye camp, health check up camps, blood donation camps etc.
During 2002 , Bajrang Steel Organised a talent hunt Competition amongst
the School & College going Students of the twin cities of Cuttack &

55
Bhubaneswar at saheed Bhawan & Sri Ramchandra Bhawan. The event ,
which was spread over 3 days , attracted a large no. enthusiastic budding
citizens to come out with their hidden talents.

TECHNICAL SPECIFICATIONS

Here are some of the grades that Icons Steel Specification in:

Cold Twisted Deformed Bars TMT (Terncore processed) Bar

Designation : Fe 310, Fe415, Fe 500, Confirms to

fe S5Q etc specifications under 15:1786, Fe415

Confirms to :IS226, JS1977r IS1786, The high Strength


JS7887 & reinforcement bar, produced

IS2062 having yield strength of 250 using the Temp core

MPa to 550 process, ensures high

MPa according to the designation. ductility & tensile strength.

Sizes: 3, 10,12,16, 20, 25, 28 & 32mm Sizes:8, 10,12, 16, 20, 25, 28 &
32m

56
Organization & Manpower:

Manpower requirement of the plant including executives, supervisors, and


skilled, semi-skilled, unskilled arid clerical staff would be about 64.
Construction Planning:

The project is expected to be commissioned in 6 months from the ‘Zero


date' i.e. from end of May – 2004.

Capital costs:

The estimated capital cost of the proposed plant is Rs.545.68 lakhs. The
break-up of the capital cost with details of civil construction. Main Plant &
Machinery, Electrification and Installation & Misc. Fixed assets have been
elaborated hereafter.
The capital cost is based on the prices prevailing during the First quarter of
calendar year 2004 and also takes into account any minor variations. It,
however, does not include any provision for future escalation in steel,
cement, consumables, labour etc.

FINANCIAL AND ECONOMIC ANALYSIS


PROJECT COST
The total cost of the project under expansion including margin money for
working capital is estimated to be amount Rs. 376.10 lacs. The details of the
project cost are given in annexure.
The promoter has already taken up the project construction work & the
implementation is in cull swing.

57
LAND AND SITE DEVELOPMET:
The existing land of the company at Manguli Chhak is sufficient and no
additional expenditure will be incurred under this head for the purpose of
the expansion project.
BUILDING
As the unit is an existing one, it has already got a factory shed and some
other miscellaneous construction. However cost of 38.06 lacs.
PLANT AND MACHINERIES
The promoters have already finalized the suppliers of the machines. The
total cost of the plant and machinery including its accessories, misc. fixed
assets, electrical installation and auxiliary equipments is projected at Rs.
270.42 lacs. This amount includes the duties, packing and forwarding and
also the installation charges. This value has been finalized with the
suppliers after due deliberations and negotiations. The suppliers of the plant
and machinery are most reputed in this line.
PROVISION FOR PRICE ESCALATION
Considering the registration period, a nominal escalation of 5% on building
and the cost of plant and machinery including electricals & installation are
included in the project cost.
MEANS OF FINANCE
The total requirements for the project, Rs. 200.00 lacs is proposed to be
financed by way of term loan arrived at Rs. 176.10 lac. The loan component
works out to be 63% of financiable assets or 53% of the total project cost.
WORKING CAPITAL FINANCE & MARGIN
The total working capital requirement has been estimated at Rs. 171.81 for
the 1st year. For the 3rd year, when maximum capacity utilization is
estimated, the total requirement has been arrived at Rs.245.53 lac. The
promoters’ margin for the 1st year working out is to be Rs. 45.81 lacs.

58
The details of the calculation of the working capital are given in Annexure
attached to this project report.

Presently the unit is enjoying working capital limit of Rs. 125.00 lacs with
Union Bank of India, College Square Branch, Cuttack and the account is
regular. The promoters are negotiating with 2 / 3 nationalized banks for
sanction of substantial enhanced working capital limit & switch over from
the existing bank i.e. Union Bank of India. The response has very
encouraging.
PROJECT PROFITABILITY
The detailed computation of projected profitability is given in Annexure.
PROJECTED DSCR
The DSCR of the project has been estimated at 2.0 and the detailed
computation is given in Annexure.
PROJECT FUND FLOW
The projected fund flow is given in Annexure.
PROJECTED BALANCE SHEET
The project Balance-sheet is given in Annexure.
PROJECT BREAK EVEN ANALYSIS
The projected break even analysis is given in Annexure. The break even
point has been arrived at 56% of the installed capacity & 66% of the
maximum utilized capacity.

NATURE OF ACTIVITIES:

Types of Product:

All the products made by Bajrangbali Alloys (p) Ltd.,{BAPL} are made
according to the needs of the customer or the clients of the company. The
main products are:

59
a. Different sizes of Iron Rod

b. Nail

MANUFACTURING PROCESS:

The product is basically formed in different parts. Each and every part of
the final product is made at different places simultaneously. Grooving,
Sizing are the main steps in this. Then the different parts are assembled
together at the end. The manufacturing process undertaken by the company
is given below:

The Ingots is shown on 1000 c heat, and then this is placed down to
the Roll stands .which is further divided to different steps:

1. Roughing stage: 3 stands are used in this process

2. Intermediary stage: 8 stands are used in this process

3. Finished goods: 2 stands are used in this process. 750 c is used


to produce the rods.

BASIC RAW MATERIALS:

As the products are made according to the specifications given


by the clients the raw materials are also not too much in number. Four basic
raw materials are used by the company in the manufacturing process. The
lists of the basic raw materials are given below:

a. Silicon Manganese.

b. Ferro Silicon.

c. Sponge Iron

60
d. Aluminum

e. Ramming Mass

f. Boric Acid

g. Mould

MAJOR CLIENTS:

Bajrangbali Alloys (P) Ltd.,{BAPL}has a range of clients both in the


national and international market. The company’s electrical product clients
are all placed in the international market while in the plastic division the
company resorts to domestic wholesalers and distributors which cater to the
domestic market.

DESCRIPTION OF VARIOUS DEPARTMENTS:

A brief description of all the departments of Bajrangbali Alloys (p) Ltd.,


{BAPL} are given below :

Purchase Department:

The production supervisor prepares the INDANE (requirement list) and


gives it to the purchase department who does the necessary purchases of the
company. The purchase department then receives the TENDERS /
QUOTATIONS from other companies who are willing to supply in this
organization. The company who quotes the least price for supplying the
material is given the order by the purchase department. Then the stores
department of Bajrangbali Alloys (p) Ltd.,{BAPL} receives the material
and sends it to the quality control(QC) department for checking the quality
of the material purchased. After checking the material the QC department

61
sends the material back to the stores department for issuing according to the
needs of the organization.

Finance Department:

Fund is maintained by the cash department of each of the four factories for
the day to day expenses incurred. Loans to the workers, emergency
payment to suppliers, emergency expenditure in case of accident, all these
expenses are taken from the account of the organization.

Marketing Department:

The marketing team goes to different international locations to understand


the needs of the various companies. Moreover Bajrangbali Alloys (P) Ltd.,
{BAPL} has mediators who help them to get international orders. In the
domestic market Bajrangbali Alloys (P) Ltd.,{BAPL}wholly depends on
the wholesalers for the sale.

Inventory Department:

Iron rods being the primary raw material for the production is stored in
large quantities as orders keep on flowing. The stores department plays a
vital role as many other secondary raw materials are used in the production
process viz, nuts, bolts, screws, hammers, gloves and so on. The foreign
clients report to those warehouses (office) about their requirements and
after the production they get the delivery from those warehouses.

Human Resource Department:

This department plays a vital role for the day to day working of Bajrangbali
Alloys (p) Ltd.,{BAPL}. Maintaining four manufacturing units at different
places without any hassle is not an easy task to accomplish. Bajrangbali

62
Alloys (p) Ltd.,{BAPL} has over 800 employees in all. Managing all of
them towards the positive growth of the company is a very difficult task. To
Bajrangbali Alloys (p) Ltd.,{BAPL} human capital is very important.
Training and developmental activities are a continuous process in the
organization. Dynamic professionals are recruited viz, engineers, hr
executives, front office executives, MBAs, CAs and so on. International
students from Turkey, Switzerland, Malaysia, Mexico and Singapore come
to take internship at Bajrangbali Alloys (p) Ltd.,{BAPL}.

SOCIAL RESPONSIBILITY:

Company has contributed immensely towards the benefit of the society as a


whole and towards the needy in specific. Constructed road dividers, donated
ambulances to different municipal corporations, sponsored different events
which contribute to the society both culturally and socially.

OVERVIEW:

The manufacturing industry is the basic industry in any developing or


developed economy. It is considered as the backbone of the economy.
Manufacturing industry is considered as the core industry. The
manufacturing industry contributes around to 50% to the GDP of any
developing nation and 30% in case of a developed nation.

Manufacturing is the organized activity devoted to the transformation of


raw materials into marketable goods. In technical parlance, marketable
goods are known as economic goods. They cannot be obtained without
paying a price. This is in contrast to free goods, which are available at no
cost. The manufacturing system usually employs a series of value-adding
processes to convert raw materials into more useful forms, and eventually
into finished products.

63
The outputs from one manufacturing system may be utilized as the inputs to
another. A manufacturing system is, therefore, a typical input-output
system, which produces outputs (economic goods) through activities of
transformation from inputs (raw materials).

In an industrialized country, the manufacturing industries are the backbone


of the national economy, because it is mainly through their activities that
the real wealth is created. Recently, there has been what may be termed as a
revolution in the fundamental ways of thinking about manufacturing
management.

This has received its impetus and inspiration from the Chinese management
system, wherein such manufacturing activities which do not add value to
the product are meticulously eliminated. One of the direct consequences of
this revolution has been the much greater emphasis on the simplification of
products set-ups, and the smooth flow of materials through the factory.

Such innovative and productive techniques have given China a clear,


competitive edge over others in the global market: and this has created an
urge among industries in other countries, including India, to follow the
Chinese pattern.

64
CHAPTER – IV
WORKING CAPITAL MANAGEMENT [ANALYSIS]

WORKING CAPITAL/OPERATING CYCLE

The time period between the purchase of raw materials and the collection
of cash for sales is referred to as operating cycle. It consists of the
following components:

1. Raw Material Storage Period: The raw material storage

period is computed as:

where,

Average stock of
raw materials =
And Average daily consumption of raw
materials =

2. Conversion Period: The average work-in-process inventory period

can be computed as:

65
where,

Average
stock of
work-in-
process =

and Annual cost of production = Opening stock of work-in-process +


Annual consumption of raw materials + Manufacturing costs such as
wages and salaries, power and fuel etc. + Depreciation –Closing work-in-
process.

Average Daily cost of production


=

3. Finished Goods Storage Period:

The finished goods storage period is computed


as:

where, Average
stock of finished
goods =

66
Annual cost of sales = Opening stock of finished goods + Annual cost of
production + Excise Duty + Selling and Distribution costs + General
administrative costs + Financial costs – Closing stock of finished goods.

Average daily cost of sales =

4. Average Collection Period: It is computed as:

Average
balance
of
sundry
debtors
=

Average daily credit sales of the


company =

67
5. Average Payment Period: The average payment period is

computed as:

Average
balance of
sundry
creditors =

Average daily credit purchases made


by the company =

Computation of Operating Cycle:

Gross Operating Cycle = Raw material storage period + Conversion


period + Finished goods storage period + Average collection period

Net Operating Cycle = Gross operating cycle – Average payment period

Uses of Operating Cycle: It helps in comparing each component of


working capital cycle with standards and helps in exercising control if
any deviations exist.

1. For implementing better control measures, separate working capital


cycles can be prepared for the slack season and the busy season.

2. It helps in estimating the future requirements needed to support the


forecasted sales of the company.

Insurance

68
Insuring the assets of the company also comes under the purview of the
internal control of the firm. Several companies take the assistance of
consultants who specialize in the field of insurance. The company should
make a proper analysis about the issues related to insurance of its assets
like maintaining a proper list of all the policies that the company has;
ensuring that all policy documents are safely kept; ensuring that no two
policies cover the same risk; and preparing a statement to declare that the
cover provided by the policy is adequate and not excessive. Conducting an
analysis of this kind will help the company in making the required changes
in the insurance provided for its assets.

Types of Insurance Coverage:

i. Blanket Policies: These policies insure all those risks that are not covered

under any other policy.

ii. Business Interruption Policy: This policy protects the company against

losses that occur as a result of a sudden break in the operations of the firm.
For example, financial losses caused by interruption of production due to
machinery breakdown are covered under this policy.

iii. Employees Health Insurance Policies: The Employees State


Insurance Act has made it compulsory for all organizations to cover their
employees under this act. Under the Employees Health Insurance policy,
the employer and the employee contribute to the premium.

iv. Insurance against Non-Performance: These policies cover material


damages arising as a result of non-performance of tasks.

v. Fidelity Guarantee Policy: This policy provides cover with respect to


direct pecuniary loss suffered by the insured as a result of acts of
dishonesty, forgery, fraud and larceny that are committed by the
employees in connection with their opportunities and duties.

69
vi. Life Insurance of the Key Personnel: This policy covers the loss
arising as a result of the death of the key-personnel.

Information Systems and Reporting:

Information systems provide the managers with vital information that is


useful in planning and controlling the operations of the firm. With the help
of information systems, reports about the investments, income and
expenditure of the organization are prepared. Result orientation, totality,
accuracy, promptness, proper forecasting of funds for the future, are some
essential features of an effective reporting system.

Formal Methodology of reporting involves the following steps:

1. Programming: It involves formulation of various strategies to achieve


the long-term policies of the company.

2. Budgeting: Budgets reflect the forecasted income and expenditure


over a period of time.

3. Accounting for the deviations: Once the actual expenses and revenue
figures are available, they are compared with the forecasted figures to
check for any deviations. The actual data is also used for future
programming and in evaluating the performance of managers of each
responsibility centre.

4. Reporting and analysis: Once all the transactions are analyzed,


various reports are prepared for reviewing the performance of various
responsibility centres. Daily stock report on raw materials, reports
regarding bank deposits and withdrawals, reports related to accounts
receivables, cash inflows and outflows etc. are certain classes of reports
generated by the treasury department.

Measuring the Performance of the Treasury Department:

70
In order to measure the performance of treasury we need to analyze the
extent to which it has achieved the goals of the firm. A goal is a future
target set by an organization. In order to be effective, goals should be
challenging, attainable, specific, quantifiable, time bound and relevant.
After setting the goals, the finance managers should develop the plans to
achieve the goals. They should also analyze the costs and risks involved in
achieving the goals. In order to review the achievement of goals, the
profits generated in the current year should be compared with previous
years. The performance of the treasury can be maximized by constantly
reviewing the progress of the company’s policies.

INVENTORY MANAGEMENT

Purpose behind maintaining Inventories

1. To avoid lost sales: If the firms do not hold adequate amount of goods,
then there is a probability that the firm might lose some business.

2. To gain quantity discounts: Many suppliers provide goods at reduced


prices if the firm orders for a large amount of goods.

3. To reduce ordering costs: When the firm places fewer orders of large
quantities, the ordering costs will reduce.

To achieve efficient production run: In order to have an uninterrupted


production process, a firm needs to maintain a buffer stock. Also it needs
to maintain a stock of certain vital raw materials and many other
components so that their shortage does not halt the production.

Classification of Inventories:

71
Inventories may be classified into three categories.

1. Raw Material Inventory: It consists of the basic materials that have


not been committed to the production process. It helps in uncoupling the
production function from the purchasing function so that any delay in
shipment of raw materials does not cause production delay.

2. Work-in-Process Inventory: It consists of those materials that have


been committed to the production process but have not been completely
converted into finished goods.

3. Finished goods Inventory: It consists of completed products that are


awaiting sale. This inventory uncouples the production and sales functions
so that it is no longer necessary to produce the goods before a sale can
occur.

Cost Associated with Inventories:

There are three direct costs and two indirect costs that are associated with
inventories:

Direct Costs associated with inventories:

1. Material Costs: These include purchasing costs, transportation costs


and handling costs.

2. Ordering costs: Ordering costs include the entire cost of acquiring the
raw material, i.e. all the costs associated with activities like:
requisitioning, purchase ordering, transporting, inspecting and handling
costs at the warehouse for storing. Ordering costs would increase with an
increase in number of orders i.e. higher the frequency of acquiring the
inventory, greater will be the ordering costs. If the firm maintains a large
inventory, only a few orders will have to be placed and ordering costs will

72
be relatively less. Thus ordering costs decrease with an increase in the size
of the inventory.

3. Carrying costs: These are the costs that are incurred for maintaining a
given level of inventory. They include storage costs, insurance, taxes,
deterioration and obsolescence. The storage costs include cost of storage
space, handling costs and administrative costs like salaries to staff and
workers etc. Carrying costs increase with an increase in the inventory size.

Indirect Costs associated with inventories:

1. Cost of funds tied up in inventory: Maintaining inventories involves


certain costs as funds that might have been used for other purposes are
locked up in the form of inventory.

2. Costs of running out of goods: If the firm is not able to provide


materials to the production department, or supply finished goods to the
marketing department, then the firm will have to incur some costs in the
form of loss of production due to stoppage of work, uneconomical prices
associated with cash purchases etc. Apart from these quantitative
aspects, there are certain qualitative aspects related to these costs in the
form of adverse effect on the relationship with the customer, and damage
done to the image of the company when the demand is not met.
Inventory management aims at minimizing the total costs associated with
holding inventories. The firm faces two conflicting needs with respect to
management of inventories:

a. To maintain a sufficient size of inventory for efficient and smooth

production and sales operations. Maximization of profit is done by


maintaining minimum investment in inventories. Hence, keeping in view
these two conflicting goals, the firm should try to strike a trade-off

73
between the ordering and carrying costs so that the costs are minimized
and the profitability is maximized.

Inventory Management Techniques:

Inventory management includes three sub-systems or techniques that help


in the efficient utilization of inventories. They are:

1. Economic Order Quantity

2. Reorder-point subsystem

3. Stock-level subsystem.

Economic Order Quantity (EOQ): One of the major problems


associated with inventory management is with regard to the quantity of
inventory that should be added to replenish it. The Economic Order
Quantity (EOQ) is the optimal order size that minimizes the total costs
(ordering costs + carrying costs) associated with maintaining inventory.
The total costs associated with inventories are computed as:

Total costs = Total inventory costs + Total Ordering costs

Total Costs =

where,

U is the annual usage

Q is the quantity ordered

F is the fixed cost per order

P is the purchase price per unit

C is the carrying costs expressed as a percentage of purchase prices.

We know that the ordering costs decrease with an increase in size of the
inventory and carrying costs increase with an increase in the size of the
inventory. This can be graphically represented as:

74
From the above graph, we can infer that the total costs will be minimum
when the ordering costs are equal to carrying costs. The point Q* at
which the total cost is minimum is known as Economic Order Quantity.
It can be derived in the following manner:

At Q* (i.e EOQ) Ordering costs will be equal to carrying costs,


i.e.
Hence EOQ or Q* =

where, U is the annual usage of material

F is the fixed cost per unit

P is the purchase price per unit

C is the carrying costs.

Reorder Point Subsystem:

75
The EOQ model assumes that the reorder point for replenishment of stock
is when the inventory level reaches zero and the time taken to procure the
stock is zero but such a situation does not exist in reality. There is always
a time lag between the date on which the order is placed and the date on
which the order is received. Consequently the reorder point is set at a level
greater than zero so that the new goods that are ordered at this time will
reach before the firm runs out of the existing stock.

The reorder point is computed on the basis of the following factors:

a. The inventory required during the lead time (also known as


procurement or delivery time stock): If the replenishment system is
efficient then less delivery time stock will be required.

b. The minimum level of inventory held to prevent shortage (known as


safety stock): The level of safety stock will be decided by weighing the
probability of a stock-out that will lead to customer dissatisfaction and
lost sales, against the increased costs associated with maintaining a high
safety stock.

Thus, when the usage rate and the lead time for procurement are likely to
vary, the Reorder Point = Normal consumption during lead time + Safety
stock where, normal consumption = Average daily usage rate x lead time
in days If the usage rate and lead time for procurement are known with
certainty, the Reorder level = Average daily usage rate x lead time in
days.

From the above formula it can be inferred that the reorder level will be
fixed at a point where the level of inventory is just adequate to meet the
production requirements during the lead time.

Another formula that can be used for computing the reorder point is:

Reorder Point = S x L + F

76
where,

S is the usage in units

L is the lead time in days

R is the average number of units per order

F is the stock out acceptance factor

The stock out acceptance factor is based on the stock-out percentage rate
specified and the probability distribution of the usage.

Stock-level subsystem:

The functions performed by this sub-system are:

• Keeping a record of the existing level of inventory

• Issuance of goods

• Maintaining a record of the arrival of goods

It is on the basis of the reports of this sub-system that the firm will place
an order for replenishing the stock.

The total inventory management system consists of all the three


subsystems: EOQ subsystem, Reorder point subsystem and stock-level
subsystem.

Inventory Planning

The level of inventory should match with the firm’s planning and
budgeting process. The inventory level should not be too high or too low
and should commensurate with the requirements of the production and
marketing side.

• Inventory planning should commence with planning the mix of the


components that are required for making the finished product. Each
component is then assigned a value and the materials cost for each

77
product is computed as the weighted average of the value of the
components.

• A forecast of the future unit requirements is then made depending upon


the future sales opportunities, estimated on the basis of a sales forecast
and safety level.

Inventory planning also involves the development of an inventory data-


base. An inventory database is a collection of inventory data items stored
in a structured format. It provides information about classification of
inventories, level of inventories, demand for the items, ordering costs,
carrying costs etc.

ABC System

According to this technique a firm should not exercise the same degree
of control over all inventory items. It should exercise more control over
items which are more expensive while less control should be exercised
on items that are less expensive.

On the basis of the cost involved, items are classified into three
categories:

1. Category A: Items included in this class are those that require


the largest investment. Therefore, these items require more rigorous and
intensive control.

2. Category B: Items in this group are comparatively less


expensive than the items in the group A and require relatively less
control.

3. Category C: Items in this group involve relatively small


investments although the number of items will be fairly large. Minimum
control is required for items in this category.

78
Receivable management:

Trade credit arises when a firm sells its products or services on credit and
does not receive cash immediately. Trade credit is used by the firm to
protect its sales from the competitors and to attract potential customers to
buy its products at favorable terms. Trade credit creates receivables or
book debts that the firm is expected to collect in the near future. The
customers from whom book debts have to be collected in the future are
known as trade debtors.

Receivables help the firm in increasing the sales level, as clients will
prefer credit sales to cash sales. It also helps the firm in maintaining the
sales at an appropriate level in situations where there is intense
competition. As credit sales comprise a high profit margin, they generate
more profit than cash sales.

The objective of receivables management is to help the firm to manage the


receivables in an efficient manner such that the benefits arising as a result
of extending credit sales should be more than the costs associated with it.

1. Capital cost: Increase in the level of accounts receivables implies an

investment in current assets. There is a time gap between the sale of goods
on credit and payment by the customers. During this time gap, the firm’s
funds are blocked in the form of receivables and so it will have to arrange
for additional finance for meeting its own obligations. The cost involved
in financing the additional capital can be in the form of interest payments
in case of external finance or opportunity cost of capital in case of internal
sources that could have been put to some other use. The cost associated
with the use of additional capital to support credit sales, which could have
been profitably employed in other alternatives, is a part of the cost of
extending trade credit.

79
2. Administrative costs: These are the costs related to the maintenance of

records related to receivables and also the expenses incurred for obtaining
information about the creditworthiness of the customer.

3. Collection costs: These are the costs that are incurred while collecting

the receivables from the debtors.

4. Default costs: If the customer does not pay the dues within the

specified period, then the receivables are treated as bad-debts and have to
be written-off as they cannot be realized.

Any business firm operates by selling goods on credit. Thus, finished


goods sold on credit become receivables, which again form a major part of
the current assets of a firm. The main objective of receivables
management is to boost sales to a point where the returns that the
company gets from the receivables is less than the cost that the company
has to incur in order to fund these receivables.

Maintaining receivables is no free job. The cost of maintaining receivables


includes, the additional funding required by the company, administrative
costs, collection costs and default costs. Every company requires a proper
credit policy to make sure that the cost of maintaining receivables is
minimum.

The credit policy looks at ways for a trade-off between increase credit
sales leading to increased profits and the cost of having a larger amount of
cash locked up in receivables as well as the losses due to bad debts. The
variables associated with credit policy include credit standards, credit
period, cash discount and collection program. While application of stiff
credit standards might lead to lower receivables, it also reduces sales. On
the other hand, liberal credit standards increase sales, but also have a high
incidence of bad debts.

80
Credit period refers to the time period allowed for customers to pay for
their purchases. Increasing the credit normally increases sales as well as
the incidence of bad debts and vice-versa. Cash discounts are the discounts
offered by companies to induce customers to pay much earlier than the
normal credit period. A liberal cash discount policy involves increasing
the discount percentage or lengthening the period of discount period.

Collection program is the efforts made by a company to collect its


payments that are due. This includes monitoring the state of receivables,
dispatching letters reminding customers of their due dates, telegraphic and
telephonic advice to customers, threat of legal action against overdue
payment.
MATERIAL INFLOW:

Ingots produced by the electric furnace are charged into the reheating
furnace and heated up to the required specific products and grade to be
rolled. Hot ingots are driven through conveyer to the 1st stand, then moved
to the other path via repeater system When the rolled bar reaches to the
requisite nominal sizes, the head and tail of the bar can be cut at the alligator
machine. The hot materials pass through the pinch roll & allowed to cool on
cooling bed. Through the flying shear materials are cut into the desired
length and carried to the twisting yard for further process and bundle.
Moreover, automated feedback and control units ensure adherence to
specified size, shape & strength of the product and thereby total quality
control.

ANALYSIS OF NET WORKING CAPITAL

81
Working capital is one of the most difficult financial concepts to
understand for the small business owner. In fact, the term means a lot of
different things to a lot of different people. The need for working capital to
run the day-to-day business activities cannot be overemphasized. We will
hardly find a business firm which does not require any amount of working
capital. Indeed; firms differ in their requirements of the working capital.
Briefly, this is no precise way to determine the exact amount of gross or net
working capital for every enterprise.

Working Capital can be viewed as the amount of capital required for the
smooth and uninterrupted functioning of the normal business operation of a
company ranging from the procurement of raw material, converting the
same into finished products for sale and realizing cash along with profit
from accounts receivable that arise from sale of finished goods on credit.
The need for working capital by a typical manufacturing and selling
company becomes self-evident. In order to meet the production plans of a
company some quantity of raw materials have to be maintained in the form
of inventory as there will usually be a time lag from the moment an order is
placed for raw material with suppliers till the same is received by the
company. Absence of raw material inventory may result in stoppage of
production for want of raw material. The role of working capital plays in
supporting the normal business operation of a typical manufacturing and
trading company

The date and problem of each company should be analyzed to


determine the amount of working capital. The current assets and current
liabilities flow round in a business like an electric current. The working
capital plays the same role in the business as the role of the heart in the
human body. Just as the heart gets blood and circulates the same in the

82
body, in the same enterprise, adequate amount of working capital is pre-
requisite. The firm’s net working capital refers to the difference of current
assets and the current liabilities. The following table shows the net working
capital of Unit Bajranbali Alloys Private Limited of Orissa for the past five
years, i.e., from 2004-2008.

Years 2003 2004 2005 2006 2007


Total
Current 32,860,599.86 44,098,144.77 102,602,517.86 90,069,854.80 143,477,154.80
Assets
Total
Current 16,447,724.67 7,821,287.07 20,566,911.08 12,277,951.92 19,962,962.61
Liabilities
Net
Working 16,412,875.19 36,276,857.70
Capital 82,035,606.78 77,791,902.88 123,514,192.19

TABLE NO. 4.1: CHANGES IN WORKING CAPITAL


DURING THE FINANCIAL YEAR 2003-2004

83
PARTICULARS AS ON 31ST AS ON 31ST DEFFERENCE (Rs)
MARCH, 2003 MARCH, 2004
in Rs. in Rs.
1. CURRENT ASSETS INCREASE DECREASE

a. Sundry Debtors 2,199,199.30 7,554,494.32 5,355,295.02


b. Inventories 17,010,735.18 16,841,878.30 168856.88
c. Cash & Bank 2,325,864.36 7,893,059.68 5567195.32
d. Loans & advances 11,324,801.02 11,808,712.47 483911.45
Short Term
Total Current Assets 32,860,599.86 44,098,144.77
2.CURRENT
LIABILITIES
a. Liabilities & 16,447,724.67 7,821,287.07 8626437.6
Provisions
Total Current Liabilities 16,447,724.67 7,821,287.07
Working Capital 16,412,875.19 36,276,857.70 20,032,839.39 168856.88

Increase in Working 19,863,982.51 19,863,982.51


NET TOTAL 19,863,982.51 19,863,982.51

The above table shows the changes in the working capital during the
financial year 2003 –2004. We can easily figure out that there is a Increase
of Rs. 19,863,982.51 which shows the application of funds in the working
capital of the firm for this particular period.

TABLE NO. 4.2: CHANGES IN WORKING CAPITAL


DURING THE FINANCIAL YEAR 2004 – 2005
PARTICULARS AS ON 31ST AS ON 31ST DEFFERENCE (Rs)
MARCH, 2004 MARCH, 2005
in Rs. in Rs.

84
1. CURRENT INCREASE DECREASE
ASSETS
a. Sundry Debtors 7,554,494.32 12,757,922.07 5,203,427.75
b. Inventories 16,841,878.30 37,267,825.23 20,425,946.93
c. Cash & Bank 7,893,059.68 13,664,046.31 5,770,986.63
d. Loans & advances 11,808,712.47 38,912,724.25 27,104,011.78
Short Term
Total Current Assets 44,098,144.77 102,602,517.86
2. CURRENT
LIABILITIES
a. Liabilities & 7,821,287.07 20,566,911.08 12,745,624.01
Provisions
Total Current 7,821,287.07 20,566,911.08
Liabilities
Working Capital 36,276,857.70 82,035,606.78 58,504,373.09 12,745,624.01
Increase in 45,758,749.08 45,758,749.08
Working Capital
NET TOTAL 45,758,749.08 45,758,749.08

From the above table we can analyse change in working capital during the
financial year 2004-2005. We can easily notice out that there is an increase
of Rs. 45,758,749.08 which shows an application of funds in the working
capital of the firm for this particular period.

TABLE NO. 4.3: CHANGES IN WORKING CAPITAL


DURING THE FINANCIAL YEAR 2005 – 2006
PARTICULARS AS ON 31ST AS ON 31ST DEFFERENCE (Rs)
MARCH, 2005 MARCH, 2006
in Rs. in Rs.
1. CURRENT ASSETS INCREASE DECREASE
a. Sundry Debtors 12,757,922.07 16,063,569.42 3,305,647.35
b. Inventories 37,267,825.23 33,425,828.28 3,841,996.95
c. Cash & Bank 13,664,046.31 12,961,095.04 702,951.27
d. Loans & advances Short 38,912,724.25 27,619,362.06 11,293,362.19
Term
Total Current Assets 102,602,517.86 90,069,854.80

85
2. CURRENT
LIABILITIES
a. Liabilities & Provisions 20,566,911.08 12,277,951.92 8,288,959.16
Total Current Liabilities 20,566,911.08 12,277,951.92
Working Capital 82,035,606.78 77,791,902.88 11,594,606.51 15,838,310.41

Decrease in Working 4,243,703.90 4,243,703.90


NET TOTAL 4,243,703.90 4,243,703.90

The above table helps in analyzing the working capital during the financial
year 2002-2003. We can easily find out that there is a decrease of Rs.
4,243,703.90 which shows the sources of funds in the working capital of the
firm for this particular period.

TABLE NO. 4.4: CHANGES IN WORKING FINANCIAL


CAPITAL DURING THE YEAR 2006 – 2007
PARTICULARS AS ON 31ST AS ON 31ST DEFERENCE (Rs)
MARCH, 2006 MARCH, 2007
in Rs. in Rs.
1. CURRENT ASSETS INCREASE DECREASE

a. Sundry Debtors 16,063,569.42 21,539,580.61 5,476,011.19


b. Inventories 33,425,828.28 73,541,461.76 40,115,633.48
c. Cash & Bank 12,961,095.04 17,637,670.12 4,676,575.08
d. Loans & advances Short 27,619,362.06 30,758,442.31 3,139,080.25
Term
Total Current Assets 90,069,854.80 143,477,154.80
2. CURRENT
LIABILITIES

86
a. Liabilities & Provisions 12,277,951.92 19,962,962.61 7,685,010.69
Total Current Liabilities 12,277,951.92 19,962,962.61

Working Capital 77,791,902.88 123,514,192.19 53,407,300.00 7,685,010.69

Increase in Working 45,722,289.31 45,722,289.31


NET TOTAL 45,722,289.31 45,722,289.31

From the above table we can analyse working capital during the financial
year 2003-2004. We can easily analyse out that there is a decrease of Rs.
45,722,289.31 which shows the application of funds in the working capital
of the firm for this particular period.

STATEMENT OF CHANGES IN NET WORKING


CAPITAL:-

The statement of changes of working capital is prepared with the help


of the current assets and the current liabilities of two or more periods. The
working capital flow arises when the net effect of a transaction is to
increase or decrease the amount of working capital. Normally, a firm will
have some transactions that will have an effect on the firm or the business
as a whole, thus increasing or decreasing the net working capital. The net
working capital increases or decreases when a transaction involves a current
and a non current asset account.

FIGURE NO. 4.4

87
Comparison of Net Working Capital

140,000,000.00 123,514,192.19
120,000,000.00
100,000,000.00 82,035,606.78
77,791,902.88
80,000,000.00
Net Working Capital
60,000,000.00 36,276,857.70
40,000,000.00
16,412,875.19
20,000,000.00
0.00
Capi
king
Wor

2003 2004 2005 2006 2007


Net
(in cr)

tal

Years

From the above graph, we can see that the Net Working Capital of the firm
was very low in 2003. The value came to negative in the year 2006, but
after that there was boom in the net working capital in 2006 & 2007.

88
TABLE NO. 4.5: CONSOLIDATED STATEMENT OF
CURRENT ASSETS :-

The table below gives us a clear view of the Current Assets of the firm.
Current Assets 2003 2004 2005 2006 2007
a. Sundry 2,199,199.30 7,554,494.32 12,757,922.07 16,063,569.42 21,539,580.61
Debtors

b. Inventories 17,010,735.18 16,841,878.30 37,267,825.23 33,425,828.28 73,541,461.76


c. Cash & Bank 2,325,864.36 7,893,059.68 13,664,046.31 12,961,095.04 17,637,670.12
d. Loans & 11,324,801.02 11,808,712.47 38,912,724.25 27,619,362.06 30,758,442.31
advances Short
Term
Total Current 32,860,599.86 44,098,144.77 102,602,517.86 90,069,854.80 143,477,154.80
Assets
Each of them is compared for a period of five consecutive financial years.
This consolidated statement of Current Assets helps us to know and
determine the changes in the value of the Current Assets over the five
financial years of the firm. The various current assets of the firm include
sundry debtors, inventories, cash & bank balances and loans & advances.
From the above given table, we can also find out that the total current assets
of the firm were always increasing in the five financial years. For ex, in
2003 the total current assets were Rs. 32,860,599.86 which increased to Rs.
44,098,144.77 in 2004 and to Rs. 102,602,517.86 in the year 2005. There
was a sudden decline in 2006 for Rs. 90,069,854.80 but then the company
rose in 2007 with Rs.143, 477,154.80.

TABLE NO. 4.6: CONSOLIDATED STATEMENT OF


CURRENT LIABILITIES

89
Current Liabilities 2003 2004 2005 2006 2007
a. Liabilities & 16,447,724.67 7,821,287.07 20,566,911.0 12,277,951.9 19,962,962.61
Provisions 8 2
Total Current 16,447,724.67 7,821,287.07 20,566,911.0 12,277,951.9 19,962,962.61
Liabilities 8 2

FIGURE NO.4.6

Current Liabilities

25,000,000.00
20,566,911.08
19,962,962.61
20,000,000.00
16,447,955
15,000,000.00 12,277,951.92
Current Liabilities
7,821,287.07
10,000,000.00 24.67
T (in cr)

5,000,000.00
M
O
A

U
N

0.00
2003 2004 2005 2006 2007
Years

90
Each of them is compared for a period of five consecutive financial years.
This consolidated statement of Current Liabilities helps us to know and
determine the changes in the value of the Current Liabilities over the five
financial years of the firm. We can also figure out that the value of total
Current Liabilities was not stable. The total current liabilities was
Rs.16,447,955 in the year 2003, Rs.7,821,287.07 in the year 2004, Rs.
20,566,911.08, in the year 2005, 12,277,951.92 in the year 2006 and
Rs.19,962,962.61 in the year 2007. This shows that the total current
liabilities of the firm decreased in the year 2004 and again in the year 2006.

91
COMPARISON OF SUNDRY DEBTORS

Comparison of Sundry Debtors

25,000,000.00
21,539,580.61

20,000,000.00
16,063,569.42

15,000,000.00
12,757,922.07
(in cr)

Sundry Debtors
10,000,000.00
M
O
A

U
N
T

7,554,494.32

5,000,000.00
2,199,199.30

0.00
2003 2004 2005 2006 2007
Years

FIGURE NO.4.7

92
The above graph shows that there was a constant rise in the value of the
sundry debtors from Rs.2.199,199.30 to 21,539,580.61 over the five
financial years. There was continuously increase in debtors between 2003-
2007.

COMPARISON OF INVENTORIES

COMPARISON OF INVENTORIES

80,000,000.00 73,541,461.76
cr) 70,000,000.00
(in
T 60,000,000.00
N
U 50,000,000.00
37,267,825.23
40,000,000.00 Inventories
O
33,425,828.28
M
A 30,000,000.00
17,010,735.18
20,000,000.00 16,841,878.30

10,000,000.00
0.00
2003 2004 2005 2006 2007
Years

93
FIGURE NO. 4.8

This graph reveals that there was always an increase in the value of the
inventories of the firm. There was a marginal drop in the level of inventory
in 2004 and 2006 to 16,841,878.30 and 33,425,828.28 respectively, but
after then the inventory level increased rapidly by 73,541,461.76.

COMPARISON OF CASH & BANK BALANCES

Comparison of Cash & Bank Balances

20,000,000.00
17,637,670.12

13,664,046.31
15,000,000.00 12,961,095.04

10,000,000.00 Cash & Bank


7,893,059.68

5,000,000.002,325,864.36
(in cr)
M
O
A

U
N
T

0.00
2003 2004 2005 2006 2007
Years

FIGURE NO. 4.9

94
The above graph shows the imbalanced behavior of cash and bank balances
of the firm. The balance dropped down in 2003, but recovered in the next
financial year. There was a decrease in 2006 to 12,961,095.04, as shown in
the above figure. But there after it increased rapidly in 2007 by
17,637,670.12.

COMPARISON OF LOANS & ADVANCES

Comparison of Loans and Advances

45,000,000.00 38,912,724.25
40,000,000.00
30,758,442.31
35,000,000.00
27,619,362.06
30,000,000.00
25,000,000.00 Loans and Advances
T (in cr)

20,000,000.00
11,324,801.02
15,000,000.00 11,808,712.47
M
O
A

U
N

10,000,000.00
5,000,000.00
0.00
2003 2004 2005 2006 2007
Years

95
FIGURE NO. 4.10

The graph shows that the loans and advances of the firm were very high on
2005 by 38,912,724.25. This decreased during 2006 by 27,619,362.06. The
amount of loans and advances was not uniform in the five financial years,
with a continuous rise and fall in the value of it.

COMPARISON OF LIABILITIES & PROVISIONS:-

Comparison of Liabilities and Provision

25,000,000.00
20,566,911.08 19,962,962.61
20,000,000.00
16,447,724.67
15,000,000.00 12,277,951.92
T (in cr)

Liabilities and Provision


10,000,000.00 7,821,287.07
M
O
A

U
N

5,000,000.00

0.00
2003 2004 2005 2006 2007
Years

FIGURE NO. 4.11

96
We can gather from the above graph that the liabilities of the company were
not uniform and there was sudden drop in the liabilities during the year
2004 and 2006 by 7,821,287.07 and 12,277,951.92 respectively.

SWOT ANALYSIS

⇒ The company is an existing profit making one


having BIS and ISO 9001:2000 and making
annual cash generation.

⇒ Promoters are resourceful. The promoters shall


bring in sufficient funds out of their
contribution before their availing
disbursement. The company has already
STRENGTS started investing in the project

⇒ Saving in transportation, handling,


administrative overheads, marketing and

97
collection expenses.

⇒ It has already paid the entire Term Loan of


Union Bank of India for the Induction Furnace
Division and only their working capital loan
exists. It has also paid the entire Term Loan of
SIBID of Rs. 65 lakhs for the re-rolling mill
division. The STWC loan a/c. of SIDBI is
very regular as also the W.C loan a/c. of UBI.

⇒ Promoters have several years of experience in


re-rolling and iron and steel marketing.

⇒ Raw materials like Sponge Iron, Ingots etc. are


available from associate company and own
plant respectively.

⇒ Available infrastructure facilities like land,


power, telephone, water, road, etc.

⇒ National award holder of Small Scale


Entrepreneurs, 2000, Dhatu Nayak Award-
2002, Rashtriya Udyog Ratan Award –2002,
Rashtriya Udyog Award-2002 and many
more.

⇒ De Ratio at 1.14 : 1. (Expansion)

98
⇒ Due to modernization, the life of roll can be
saved up to a minimum of 2%

⇒ End cuttings to extent of 050% to 1% can be


saved & break down can be minimized y 20%

⇒ Higher sizes of CTD / TMT bars can be


manufactures & power & F.O can be saved to
a minimum of 10% from the present
consumption.

WEAKNESS ⇒ Fluctuating selling price of sponge iron and


metallic scrap.

OPPORTUNITIES ⇒ Diversification into structural steel, power


plant, DRI plant etc.

⇒ A few rolling mills at Tangi (Cuttack),


THEATS Jagatpur and Khurda and nearby states shall provide
competition.

99
CHAPTER V:

FINDINGS-
 The net working capital of the unit has shown a gradual increase.
Only in the year 2006 the level of net working capital fell to
Rs.77,791,902.88 from Rs.82,035,606.78 in 2005. which then
increased to Rs.19,962,962.61 in 2007.

 There was a increase of rupees Rs.19,863,982.51 in the net working


capital during the financial year 2003-2004 which shows the
application of funds

 There was an increase of rupees Rs.45,758,749.08 in the net working


capital during the financial year 2004-2005 which shows the
application of funds.

 There was a decrease of rupees Rs.4,243,703.90 in the net working


capital during the financial year 2005-2006 which shows the sources
of funds.

 There was an increase of rupees Rs.45,722,289.31 in the net working


capital during the financial year 2006-2007 which shows the

100
application of funds.

 The net working capital of the firm was at a very low level during the
year 2003 was Rs.16,412,875.19 gradually it increased every year till
it reached Rs.82,035,606.78 in 2005, then on 2006 it decreased up to
Rs.77,791,902.88. There was a sudden rise immediately on 2007
where the net working capital is Rs.123,514,192,19

 There was a sudden decrease in the inventory in 2004 from


Rs.17,010,735.18 to Rs.16,841,878.30. Then gradually it increased to
Rs.37,267,825.23 in 2005, and a decline again in 2006 for
Rs.33,425,828.28. The company again increased its inventories by
Rs.73,541,461.76 in 2006-2007.

 The amount of current assets increased continuously during the year


2003-2007except for a slight decline in 2006 by Rs.90, 069,854.80.

 The level of current liabilities of the firm was not uniform. The
liabilities showed a decrease in 2004 to Rs.7, 821,287.07 and again
decline in 2006 by Rs.12, 277,951.92.

 There is an imbalance behavior of cash and bank balances of the


firm. The balance dropped but increased in 2004 to Rs.7, 893,058.68.
Then there was again a decline in 2006 for Rs.12, 961,095.04 from
Rs.13, 664,046.31 in 2005.

 The loans and advances of the firm were very high in the year 2005
by 38,912,724.25. There was a slight decrease in 2004 and 2006 by

101
Rs.11,808,712.47 and Rs.27, 619,362.06 respectively.

 Sundry debtors increased continuously between 2003-2007 from


Rs.2,199,199.30 to Rs.21,539,580.61.

SUGGESTION-

• From the analysis of working capital, the liabilities are very high
each and every year. This should be lessened so as to earn profits.

• The company sells its products on cash basis mostly whereas the
major procurements of raw materials are on 30 days credit basis. The
necessary steps have been taken by the company to reduce the inventory
holding period over the years. As a multi-national company, the
procurement planning should be made in advance. The intend for
procurement must be done in such a way so that items should be
available in minimum stock at right time. The items available should be
accessible to all through computers. All the concerned departments can
access the software on inventory of raw material and spares. So all care
should be taken to reduce unnecessary inventory holding and resultant
consequential loss to the company.

• The need for working capital by a typical manufacturing and selling


company becomes self-evident. In order to meet the production plans of
a company some quantity of raw materials have to be maintained in the
form of inventory as there will usually be a time lag from the moment an

102
order is placed for raw material with suppliers till the same is received
by the company. Absence of raw material inventory may result in
stoppage of production for want of raw material. The role of working
capital plays in supporting the normal business operation of a typical
manufacturing and trading company.

• In view of the above facts, it was found that there was decrease in
liabilities and provision, loans and advances, inventories in the year
2004 and 2006. So necessary steps should be taken.

• There was a continuous increase in number of debtors from 2003 and


2007. This should be taken care.

CONCLUSION-

To conclude, we can say that Unit Bajrangbali Alloys (p) Ltd ,BAPL has
continued to take on the competition, in spite of slow down in the overall
performance. However, the outstanding loans and advances recorded a
growth of 10% as against the all region average of 9%, mainly due to the
difficulties experienced by the Manufacturing industry in the past years.

The unit has a large amount of man power, which it can aim to utilize in the
best possible manner. As the Unit is not deprived of skilled labour, it should
always aim at increasing the profits of the firm.

There is an imbalance behavior of current asstes and current liabilities of


the company by which the total working capital fluctuates every financial
years

103
Working capital management involves not only managing the different
components of current assets, but also managing the current liabilities or to
be more precise the financial aspects of current assets. It is therefore
appropriate to provide a brief description of current assets and current
liabilities.

The Unit went on increasing the production in the subsequent years. This
unit produces different quality of Manufacturing goods and Sponge iron
according to the customer specifications.

This chapter also deals with the practical part, i.e., it deals with the analysis
of the current assets and the current liabilities of the Unit for a period of
five consecutive financial years to determine the net working capital of the
Unit. The comparison of the net working capital of the firm is also
mentioned with the help of a few tables and graphs.

104
BIBLIOGRAPHY

BOOKS

1. I .M Pandey,2005,Financial Management, New Delhi, Vikas

Publication.
2. L.S. Porwal ,2001, Accounting Theory and Introduction, New Delhi,

TATA Mc. Graw hill.


3. S.C. Shukla , T.S. Gerewal, 1999,Advanced Accounting, New

Delhi,S.Chand.

WEB-SITES REFERRED

 www.google.com
 www.altavista.com
 Annual reports of last 5 years

MAGAZINES

 Business world.

 Business today.

 ICON Steel magazine.

105
 India today.

 Bajrangbali Alloys (P) Ltd.,{BAPL} magazine.

106