Title of the Project Report :

WORKIMG CAPITAL MANAGEMENT ON BOKARO STEEL PLANT (SAIL)

Submitted in Partial fulfillment of the requirement for the award of the

Degree of Master of Business Administration.

Name of the Candidate : MUKESH KUMAR

Reg. No. : 09P35F0462

Name of the Specialization : FINANCE

Partner Institution : IBMR GURGAON

Under the guidance of: Mr. R.B. SHARMA

Designation: Jr. Manager, F & A

Centre for Participatory and Online Programmes

Bharathiar University

Coimbatore – 641 046

(From 5th of June to 31st of july , 2010)

i.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 CERTIFICATE

This is to certify that the project work entitled WORKING CAPITAL

MANAGEMENT ON BOKARO STEEL PLANT (SAIL) submitted to Bharathiar

University in partial fulfillment of the requirements for the award of

the Degree of Master of Business Administration in IBMR GURGAON is

a record of the original work done by MUKESH KUMAR under my

Supervision and guidance and that this project work has not

formed the basis for the award of any Degree/Diploma/Associate

ship/Fellowship or Similar title to any candidate of any University.

(Seal) Signature of the Guide

Name and Designation

ii.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Forwarded by:

Director/Principal

Partner Institution: IBMR GURGAON

Centre for Participatory and Online Programmes

Bharathiar University

Coimbatore -46

Submitted for University Examination held on______________________________

Internal Examiner External Examiner

iii.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 DECLARATION

I hereby declare that this project work titled WORKING CAPITAL

MANAGEMENT ON BOKARO STEEL PLANT (SAIL) is a record of Original

work done by me under the guidance of MR. R.B.SHARMA, Jr Manager F &

A, and that this project work has not formed on the basis for the award of

any Degree/Diploma/Associate ship/Fellowship or similar title to any

candidate of any University.

Signature of the candidate

Name : MUKESH KUMAR

Result :

MBA IN FINANCE

Course with Specialization

Date :

Countersigned by : MR. R.B.SHARMA

Signature of the Guide

iv.
IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 Acknowledgement

At the very outset ,I wish to express my heartily gratitude to all those who extended their

help ,guidance and suggestion and without them it was not possible for me to complete this

project.

I am deeply indebted to my guide Mr. R.B .Sharma, Junior Manager, F&A, ,BSL,SAIL

without support of him it would not have been possible.

I am also thankful to all the employees who provided me with practical information about the

accounting processes in SAIL

I express my deep sense of gratitude to the management of Steel Authority of India

Limited ,Bokaro Steel Plant for allowing me to undertake the project as well as to study the

functions of various departments of the organization.

My project wouldn’t have been successful without the material assistance of a number of

people. I would like to acknowledge the help rendered by each of them .I express profound

gratitude to all the people who have been extremely inspirational in helping me complete this

project.

v.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 Abstract

Analysis of Working Capital Management of BSL,SAIL

Objective : The project aims to analyze the various components of working capital in BSL

i.e. cash , inventory , receivables and payables .It also analyzes the various ratios and also

performs a comparative analysis with the competitors and finally provided recommendations

to manage the working capital more efficiently.

Background : Working capital management has been one of the major concerns of

managers in any organization. Effective management of working capital i.e. cash, inventory ,

account receivables and account payables is very important for a manufacturing concern like

BSL for its proper functioning.

Scope and methodology used : The research began with the study of finance and

accounts department in BSL, their major sections and their respective activities. It was then

followed by the study of various production plants to understand the production flow in the

steel plant. The study of various production plants gave the idea of the inventory levels

maintained in these plants.

The study was directed towards the analysis of working capital management in BSL which

included the analysis of the various components of working capital, the percentage of

various components maintained in BSL, determination of operating cycle and the cash

conversion cycle, the company’s policy towards its various suppliers and customers. The

study further included ratio analysis to determine the liquidity and profitability of the firm.

The data was collected from the following sources:

vi.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Primary sources:

 Records of previous years profit and loss statements, balance sheets and cash flow

statements

 Information provided by the senior finance executives and chartered accountants of

BSL

Secondary sources:

 Secondary data was collected from the internet and various magazines, circulars

issued by SAIL and books.

Conclusion : Inventory in the steel plant consists of three parts : the raw material inventory,

storage and spare inventory and finished goods inventory .Raw material inventory consists

of the major part of the inventory section.

Bokaro Steel plant gives a credit period of 30 days to its customers which sometimes vary

between 25 – 40 days .The credit given by their suppliers is normally 15 days.

The liquidity position of BSL as analyzed by the current ratio and quick ratio says that the

company has sufficient amount of the most liquid assets to meet its contingent liabilities.

Although the company has a huge piling up of inventory due to less demand for flat

products. The quick ratio also showed a decrease from the previous year due to the increase

in current liabilities. However a low quick ratio is not a concern since funds are managed

centrally by the mother unit SAIL.

Finally a comparative of BSL was done with its major competitors i.e. Tata Steel and Essar

Steel .This analysis showed that BSL follows a conservative financing and conservative

investment policy as compared to its competitors. Tata has a negative working capital .It is

managing its inventories well, however it might face a problem in meeting its day to day

financing needs.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 vii.

CONTENTS

1)SAIL Overview 12

2)Bokaro Steel Plant 14

2.1)Major Units of BSL 16

a)Raw material and Material Handling Plant 16

b)Coke Oven and By Product Plant 16

c)Blast Furnace 17

d)Steel Metling Shop 17

e)Continuous Casting Shop 18

f)Slabbing Mill 18

g)Hot Strip Mill 19

h)Hot Rolled Coil Finishing 19

i)Cold Rolling Mill 20

j)Hot Dip Galvanizing Mill 20

2.2)Revenue and Profits of BSL 20

2.3)Product Profile of BSL 23

2.4)Production Process in BSL 23

2.5)Current Market Share of BSL 24

2.6)Manpower of BSL 24

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 viii.

3)Role of Finance and Accounts 25

3.1)Sections in Finance and Accounts 25

3.2)Organization Chart of F&A 29

4)Working Capital Management 30

4.1)Importance of good Working Capital Management 30

4.2)Operating Cycle Period 31

4.3)Inventory Conversion Period 32

4.3.1)Inventory 32

4.3.2)Need to hold Inventories 32

4.3.3)size of inventories 32

4.3.4)Raw Material Inventory 33

4.3.5)Stores and Spares Inventory 34

4.3.6)Finished and Semi-finished Product Inventory 35

4.4)Receivable Conversion Period 36

4.4.1)Objective 37

4.4.2)Credit Policy 37

4.4.3)Size of Receivable 37

4.5)Operating Cycle Period(2008-09) 38

4.6)Operating Cycle Period(2009-10) 39

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 ix.

5)Comparison 41

5.1)Analysis 41

5.1.1)Operating Cycle 41

5.1.2)Holding Period 41

5.2)Working Capital Status of BSL 42

5.3)Working Capital of various units of SAIL 43

6)Ratio Analysis Calculations(2008-09) 45

6.1)Liquidity Ratios 45

6.2)Activity Ratios 45

6.3)Profitability Ratios 46

7) Ratio Analysis Calculations(2000-10) 47

7.1)Liquidity Ratios 47

7.2)Activity Ratios 48

7.3)Profitability Ratios 49

8)Comparative Analysis with previous years figures 50

9)Comparative Analysis with its competitors 51

10)Conclusion and Recommendation 53

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 x.

11)Bibliography 54

12)List of Abbreviations 55

13)Annexure 56

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 xi.

1) SAIL – An Overview

One of the leading producers of steel in the world and the largest steel maker of the country,

SAIL occupies a prime place in the industrial scenario of India. Ranked amongst the top ten

public sector companies in India in terms of turnover, SAIL manufactures and sells a broad

range of steel product including hot and cold rolled sheets and coils, galvanized sheets,

electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other

alloy steels. SAIL produces iron and steel at five integrated plants and three special steel

plants, located principally in the eastern and central regions of India and situated close to

domestic sources of raw materials, including the companies iron ore, limestone and dolomite

mines. The company has the distinction of being India; largest producer of iron ore and of

having the country’s second largest mines network. This gives SAIL a competitive edge in

terms of captive availability of iron ore,

limestone and dolomite which are input of

steel making in the every integrated plant of

SAIL.

SAIL operates and owns four integrated steel

plant at Bhilai, Durgapur, Bokaro, Rourkela

and three speciality steel plants at Salem,. Durgapur and Bhadravati.

SAIL is the single largest investment in public as on date and is also a symbol of country’s

efforts towards indigenization.

Over the years since its inception company has grown in a strength reaching increased

levels of production. Over the years the plant has also made a definite contribution to the

economy of the country.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
SAIL is the leading steel making company in India. It is fully integrated iron and steel maker

producing both basic and special steels for domestic construction, engineering, power,

railway, automotive and defense industries and for sale in export markets

SAIL wide range of long and flat steel products are much in demand in the two clients’ world-

wide domestic as well as international market. This vital responsibility is carried out by SAIL

own Central marketing network of 34 branch offices and 54 stockyards located in major

cities and towns throughout India. With technical and managerial expertise and know-how in

steel making gained over decades, SAIL has a well-equipped Research and Development

Centre for Iron and Steel at Ranchi which helps to produce quality steel and develop new

technologies for steel industry. Besides, SAIL has its own in-house Centre for Engineering

and Technology (CET), Management training institute (MTI) and safety organization at

Ranchi. Our captive mines are under the control of the Raw materials division of SAIL

operate from their headquarter in Kolkata. Almost all our plants and major units are ISO

Certified.

Ownership and Management

The Government of India owns about 86% of SAIL's equity and retains voting control of the

company. However, SAIL, by virtue of its ‘Navratna’ status, enjoys significant operational

and financial autonomy. SAIL has created its own Central Marketing Organization (CMO)

and the International Trade Division to take care of its international and marketing operations

The steel products manufactured by SAIL include:

 Hot and cold rolled sheets and coils

 Galvanized sheets

 Electrical sheets

 Railway products

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
  Plates, bars and rods

 Stainless steel and other alloy steels

Integrated Steel Plants

 Bhilai Steel plant (BSP) in Chhattisgarh

 Durgapur Steel Plant (DSP) in West Bengal

 Rourkela Steel Plant (BSL) in Jharkhand

 IISCO Steel Plant (ISP) in West Bengal

 Bokaro Steel limited (BSL) in Jharkhand

2) BOKARO STEEL PLANT

History

Bokaro steel plant brings out before one’s eyes the vision of a massive giant in the making.

Bokaro Steel Plant - the fourth integrated plant in the Public Sector - started taking shape in

1965 in collaboration with the Soviet Union. It was originally incorporated as a limited

company on 29th January 1964, and was later merged with SAIL, first as a subsidiary and

then as a unit, through the Public Sector Iron & Steel Companies (Restructuring &

Miscellaneous Provisions) Act 1978. The construction work started on 6th April 1968.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
The Bokaro Steel Plant is hailed as the country’s first Swadeshi steel plant, built with

maximum indigenous content in terms of equipment, material and know-how. Its first Blast

Furnace started on 2nd October 1972 and the first phase of 1.7 MT ingots steel was

completed on 26th February 1978 with the commissioning of the third Blast Furnace. All

units of 4 MT stage have already been commissioned and the 90s' modernization has further

upgraded this to 4.5 MT of liquid steel.

Bokaro Steel Plant (BSL) situated in the coal belt of the eastern region, symbolize India’s

advancement in the design, engineering & equipment suppliers & construction of steel

plants. It is the 4th integrated steel plants in the public sector conceived in 1959; it actually

started taking shapes in 1965, with the collaboration of “SOVIET UNION”. It was initially set

up with a capacity of 1.7 million tones (MT) of flat products per annum with a provision to

expand up to 4 million tones .It was incorporated as a limited company. The plant was

conceived as the country’s 1st “SWADESHI” steel plant to be built with maximum

indigenization going into the equipments, materials & know-how.

The Bokaro Steel Plant is an integrated metallurgical unit engaged in the production of

ingots, plates, sheets and coils. In the process, it also produce a number of by -products

crude tar, Ammonium sulphate, Benzene, Xylene, Toluene, Coal Tar , Cresols.

Medical Facilities

The township has a modern 1100-bed Bokaro General Hospital (BGH) with specialized units

like Critical Care Unit, Intensive Coronary Care Unit, Nuclear Medicine Laboratory, Ultra

modern operation theatre complex and eye operation theatre. The child care unit of the

hospital has been recognized as baby friendly hospital by the UNICEF. The blood bank has

been given the status of regional training center by the central government, the only one in

the Jharkhand. To take care of the employees working in plant, an occupational health

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
service center has been provided within the plant premises. BGH has been granted the

status of one of the training centers for students of nursing. The medical team boasts of

around 200 doctors and 1000 paramedic staff.

Vision of Bokaro Steel Plant

To be a respected world class Corporation and the leader in Indian steel business in quality,

productivity, profitability and customer satisfaction.

Mission of Bokaro Steel Plant

 We build lasting relationships with customers based on trust and mutual benefit.

 We uphold highest ethical standards in conduct of our business.

 We create and nurture a culture that supports flexibility, learning and is proactive to

change.

 We chart a challenging career for employees with opportunities for advancement and

rewards.

 We value the opportunity and responsibility to make a meaningful difference in

people’s lives.

Strategic goals

 To continue in the business of steel and steel related activities

 To enhance market share in growth segments

 To improve profits by productivity improvements , cost reduction , high value added

products and customer satisfaction

 To achieve excellence in quality across the value chain

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
  To secure availability of key raw materials and alleviate infrastructure bottleneck

which may constrain long term growth

2.1) Major Units of Bokaro Steel Plant

(a.) Raw Materials and Material Handling Plant

The raw material and material handling plant receives blendes, stores and supplies different

raw materials to Blast Furnace. It also maintains a buffer stock to take care of any supply

interruptions.

Some 9 MT of different raw materials like iron ore fines and lumps, limestones, dolomite

lumps and chips, hard coal and manganese ore are handled every year.

(b.) Coke Oven and By Product Plants

The coke oven complex at Bokaro converts prime coking coal into quality coke for the blast

furnaces. The coke oven battery has 8 batteries with 69 ovens each, maintained in terms of

fugitive emission control, use of phenolic water and other pollution control measures.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
(c.) Blast Furnace

Bokaro Steel Plant has five 2000 cubic meter Blast Furnaces that produce molten iron, hot

metal for steel making. The process of iron making is automated using PLC (Programmable

Logic Control) Charging System and Computer Controlled Supervision system. The waste

products like furnace slag and gas are either used directly within plant or processed for

recycling reuse.

(d.) Steel Melting Shops(SMS)

Hot metal from the blast furnaces is converted into steel by blowing 99.5% pure oxygen

through it in the LD converter. Bokaro has 2 steel melting shops SMS-I and SMS-II. SMS-I

has 5 LD converters of 130T capacity each. It is capable of producing rimming steel through

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
the ingot root. SMS-II has 2 LD converters each of 300T capacity with suppressed

combustion system and continuous casting facility. It produces various killed and semi- killed

steels.

(e.) Continuous Casting Shop

The CCS has two double strand slab casting machines producing high quality slabs of width

ranging from 950mm to 1850mm. The CCS has a ladle furnace and ladle rinsing station for

secondary refining of steel. The ladle furnace is used for homogenizing the chemistry and

temperature. CCS produces steel of drawing, deep drawing, extra deep drawing, boiler and

tin plate quality.

(f.) Slabbing Mill

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Slabbing Mil transforms ingots into slabs by rolling them in its 1250mm Universal Four–High

Mill. The rolling capacity of the mill is 4MT per annum. The shop has hot and cold scarfing

machines and 2800T shearing machine.

(g.) Hot Strip Mill (HSM)

Slabs from CCS and Slabbing Mill are processed in the state- of-the-art hot strip mill. The

fully automated Hot Strip Mill with an annual capacity of 3.363 million tones has a wide range

of products- thickness varying from 1.2 mm to 20 mm and width from 750 mm to 1850 mm.

The mill is equipped with state-of-the-art automation and controls, using advanced systems

for process optimization with on-line real time computer control, PLCs and technological

control systems.

(h.) Hot Rolled Coil Finishing

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
All the Hot Rolled Coils from the Hot Strip Mill are received in HRCF for further distribution or

dispatch. HR Coils rolled against direct shipment orders are sheared and finished to

customers required sizes and dispatched to customers. The shop has two shearing lines

with capacities of 645000T per year and 475000 T per year respectively.

(i.) Cold Rolling Mill

Cold Rolling Mill at Bokaro uses state-of-the-art technology to produce high quality sheet

gauge material, tin mill black plate and galvanized products. Cold Rolling is done to produce

thinner gauge strips of very smooth and dense finish, with better mechanical properties then

Hot Rolling Mill. Rolling is done well below recrystallization temperature without any prior

heating of the material. The products of CRM are used for deep drawing purposes,

automobile bodies, railway coaches and coated steels.

(j.) Hot Dip Galvanizing Complex

The Hot Deep Galvanizing Complex integrated with the CRM produces zinc-coated cold

rolled strips resistant to atmospheric, liquid and soil corrosion. The continuous coil

corrugation line in the HDGC produces corrugative sheets and galvanized sheets.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
2.2) Revenue and Profits of Bokaro Steel Plant

2009-10(in 2008-09(in crores)

crores)
Profits 2830 1345
Turnover 12038 11858

2.3) Product Profile

Products of Bokaro Steel Plant

Bokaro Steel Plant - Product Basket

Mill Capabilities

Shop Products Facility Annual Thickness Width Length

Capacity range range (metre)

(,000 (mm) (mm)

Tonnes)
HSM HR Coils/ Continuous 3955 1.6 -16 900-

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 Sheets/ Mill 1850

Plates
HRCF HR Sheets/ Shearing - 5-10 1800 2.5-12

Plates Line-I
HR Sheets/ Shearing 1.6-4 1500 1.5-4.5

Plates Line-II
HR Coil Slitting Line
CRM 1660
CR Coils/ CRM-I 0.63-2.5 700-

Sheets complex 1850

CR Coils/ CRM-II 0.63-1.6 650-

Sheets complex 1250

CR Coils/ DCR Mill 100 0.22-0.8 650-

Sheets, 1040

TMBP
GP Coils & HDGL 170 0.3-1.6 650-

Sheets GC 1250

Sheets

Special Grades of Steel

As per the demand of the market, Bokaro Steel Plant has the capacity to

produce the special grades of steel.

Application
Special Steel Grades
SAE 1541 Automobile Industry
MC 11 Cycle Industry
SPC 370/390 Cycle Industry
C 15 Cycle Industry
API X-42, X-46, X-52, X-56, X-60 Pipe Line

(SAILAPI)
SAILCOR (corrosion resistant) Railways
SAILMEDSi (Medium Silicon Steel) Heavy Electrical Winding
SAILPROP Propeller Shaft

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 Strapping Steel (for internal use Strapping Finished Products

only)
Full-hard Galvanized Coil Extra hard roof of houses
Cold Rolled Medium Electrical Steel Transformer core
Extra-low Carbon Extra Deep White goods

Drawing (HR & CR)

DMR 249A Grade Steel Defense Research

Development Organization

(DRDO) for fabrication of

Submarine parts (import

substitution)
E460/E500/E550 Floating bridges for Defense.

For M/S BEML; for making.

(import substitution)
IS8500 Fe 540B high strength low Kolkata fly-over

alloy steel with UTS value in excess

of 540 Mpa
Low Carbon, Low Manganese, High Structural purposes. Thermo-

Strength Structural Steel without mechanically Controlled

micro alloying (Carbon 0.10% ) Processing.

2.4) Production Process in Bokaro Steel Plant

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
2.5) Current Market Share of Bokaro Steel Plant

(In percentage)

PRODUCT 09-10 08-09

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
HR coil 26.9 24.9

HR sheet 23.6 23.6

CR coil/sheet 12.1 16.7

GP/GC sheet/ coil 11.0 8.9

2.6) Manpower of Bokaro Steel Plant

EMPLOYEES As on 1st June

2010
Executives (Regular) 3390
Non-Executives 21996

(Regular)
Plant Attendant 474
Trainees (STs, JTs, 153

MTs)
Casual 109
Total 26122

2.7) Competitors of Bokaro Steel Plant

 Essar Steel

 Jindal Steel

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
  Saesa Goa

 Nippon denro ispat

 Usha ispat

 Lanco industries limited

3) Role of Finance and Accounts

Finance is described as ‘science of money’ and involves the process of conversion of

accumulated funds to productive use .The essence of the effective financial management is

that the income generated should be greater than the cost of procuring and processing the

raw materials by optimum utilization of the same.

In the recent changed business scenario which is the outcome of changed Indian economic

policy from command economy to free economy to integrate the Indian economy to the world

economic order .The role of financial manager has become a crucial one since the factor of

efficiency in all productivity field has become paramount.

In a multi process industry like an integrated steel plant like this one where some processes

remain involved in certain endothermic behavior of cost one finds it difficult to prepare the

cost benefit analysis ,hence in deciding the optimum level of activity because each level of

activity can be attained with the various number of alternative resources available at a

particular point in time.

F&A is an important department of BSL headed by ED .There are 34 production cost centers

,24 service centers and 18 job costing centers of engineering shops : Cost and budget

section allows process costing systems for its production and service centers job costing

method for its engineering shops for maintaining its cost record like production and

consumption of RM,power,fuel,stores, spares etc. .In production and service cost per unit is

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
determined upon output and in engineering shop cost is determined upon machine hour rate

.Monthly and annual cost is prepared on actual basis and derivations are reported to higher

management through MIS report.

The reporting of actual business performance and analysis of reason for variance with

planned one is done by use of management accounting techniques like variance analysis

,ratio analysis and sensitivity analysis .Cost reduction activity is being monitored by cost and

budget section and performance in this stage is brought to the notice of higher

management.

Organizations like SAIL which have various units and subsidiaries, finance and accounts

plays an important role.

3.1) Sections in Finance and Accounts

CODE-01 PAY SECTION

It deals with the accounting of employee’s related salary slip .Basically deals with any activity

related to pay.

Loan

Bonus

Any monthly payments taken once in a year

CODE-02 MAIN ACCOUNTS SECTION

It deals with the consolation of accounts with each quarter along with the final close. It

prepares a main ledger, assets ledger, section ledger and trial balance etc..It prepares and

maintains assets register of the company .It facilitates the inter plant reconciliation ,

coordination with the various auditors.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
CODE-03 PURCHASE ACCOUNTS

It basically deals with the payments and accountings of all the goods against which purchase

order has been placed. Its work starts when goods are received and verified with GRN

(goods and returned notes).They receive and verify the bill.

CODE-04 CASH ACCOUNT

It deals with the disbursement and receipt of cash as per the bills passed by the officers of

various sections .Its main function includes monitoring of cash deposit ,liasioning with banks

.They generally prepare the bank reconciliation statements(BRS).They deal with Rs 350-380

crores of expenditure on monthly basis. Whereas the revenue side consists of lease, rent

etc.

CODE-05 PROJECT FINANCE

It deals with the project accounting (not with the project calculation).Basically it deals with

the payments to parties related to different projects.

CODE-06 ESTATE ACCOUNTS

It deals with the accounting of IPU cases.IPU is investment in planning unit and is related to

projects.

CODE-08 STORE ACCOUNTS

It deals with the accounting and maintenance of stores ledger .receipt, balance of inventories

etc. . .Stores department has the custody of around two lakh items. The document raised by

the stores department is:

Issue notes

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Material return notes

Dispatch notes

Goods receipt notes

Stock transfer voucher

Stock adjustment voucher

Provisional voucher

Book transfer voucher

CODE-09 PROVIDENT FUNDS

It deals with the accountings of employee’s provident funds along with the loans taken

against provident funds balance.

CODE-10 FREIGHT ACCOUNTS

It deals with the payments and accounting of freight bills related to raw materials .This

section generally deals with the freight inward whereas outward is dealt by the invoicing

section(which is not the part of sales accounts).

CODE-11 INSURANCE SETION

It deals with the accounting of sales tax matters which are related to steel goods

CODE -12 OPERATIONAL PAYMENTS SECTION

It deals with the payments of those expenditures which are generally not related with any

particular department like

Telephone bills

Water bills-15 crores

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Township management bills

Aviation

Miscellaneous payments

City park (horticulture)

In plant scrape recovery-15 crores

Railways-10 crores

Sports

CMO

Railways-10 crores

Sports

CMO

CODE-14 SALES ACCOUNTS

It deals with the preparation of invoice and accounting thereof.

CODE-15 COST AND BUDGET

There are 77 cost centers .They prepare the budget on monthly ,quarterly and annual

basis .They deal with daily profits.They prepare the MIS reports .They make the valuation of

finished /semi finished stock of plant .Actually this section decides the rate of each output.

CODE -16 RAW MATERIAL

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
It deals with the accounting of raw material consumption including Ferro and non Ferro

items.It deals with evaluation of raw materials as well as payment of bills related to raw

material.

CODE-17 EXCISE ACCOUNTS

It deals with the CENVAT ,Excise duty.

CODE -18 VAT

It deals with the accounting and payments of VAT to central governments.

3.2) Finance and Accounts Department

Organization Chart

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 ED
(F&A)

GM
(F&A)

DGM DGM DGM DGM DGM( DGM DGM

(F&A) (F&A) (F&A) (F&A) F&A) (F&A) (F&A)

OF,Project Pay C&B, Purchase Sales & Kolkata ERP

Finance, A/C,PF Main & Stores Excise A/C
A/C admin, & A/C, A/C,RM ,Service
Cash A/C, Pension, Stock A/C, Tax
Insurance& Time Verificati Railway ,Indirect
Claims, Office, on,MIS, Freight & Taxes –
Hindi Estate Govt. Claim, Report
Cell,Quality A/C, Audit Opas, &
Circle & BGH and Direct Return
Suggestion Internal Taxes
Scheme Audit Report &
Return

4) Working Capital Management

Working Capital

The term working capital refers to the amount of capital that is readily available to the

organization. That is , working capital is the difference between the resources in cash or

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
readily convertible into cash (current assets) and the organizational commitments for which

cash will soon be required ( current liabilities).

Current assets are resources which are in cash or will soon be converted into cash in the

“ordinary course of business”.

Current liabilities are commitments which will soon require cash settlement in the the

“ordinary course of business”.

Thus:

Working capital = current assets – current liabilities

In a department’s Statement of Financial Position, these components of working capital are

reported under the following headings:

Currents assets include:

 Sundry debtors

 Inventories

 Interest receivable

 Cash and balances

 Loans and Advances

Current liabilities include:

 Bank overdraft

 Bill payable

 Creditors

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
  Outstanding expenses

 Short term loans

 Provisions(excluding provisions for gratuity ,VRS, Accumulated leave)

4.1) Importance of Good Working Capital Management

Working capital management constitutes part of the Crown’s investment department

.Associated with this is an opportunity cost to the Crown (money invested in one area may

cost opportunities in other areas).If the department is working with more working capital than

is necessary, this over investment represents an unnecessary cost to the Crown.

From a department’s point of view, excess working capital means operating inefficiencies .In

addition, unnecessary working capital increases the amount of the capital charge which

departments are required to meet since July 1, 1991.

Approaches to Working Capital Management

The approaches of working capital management is to maintain the optimum balance of each

working capital components .This includes making sure that the funds are held as cash as

bank deposits for as long as and in the largest amounts possible to meet the immediate

liabilities .

Working capital can be managed in two ways:

 Ratio analysis can be used to monitor overall trends in working capital and to identify

areas requiring closer management.

 The individual components of working capital can be effectively managed by using

various techniques and strategies.

When considering these techniques and strategies, departments need to recognize that

each department has a unique mix of working capital components .The emphasis that needs

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
to be on each component varies according to the various departments. For example some

departments have significant inventory levels while others have little.

The working capital requirement of a firm depends to a great extent upon the cash

conversion cycle of the firm .The cash conversion cycle may be defined as the time duration

starting from the procurement of the goods and raw materials and the ending with the sales

realization of the finished product(after going through the various stages of production)

Thus the cash conversion cycle of the firm consists of the time required for the completion of

the chronological sequence of the following:

 Procurement of raw materials and services

 Conversion of raw material into work in progress

 Conversion of work in progress into finished goods

 Sale of finished goods

 Conversion of receivable into cash

Cash conversion cycle = Inventory days + Accounts receivable days – Accounts Payable

days

= (inventory *365)/COGS + (Ending A/R *365)/Sales – (A/P

365)/purchases

4.2) Operating Cycle Period

Operating cycle may be defined as the sum of the inventory days and the accounts

receivable days

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Operating cycle = inventory days + Accounts receivable days

= (inventory *365)/COGS + (Ending A/R *365)/Sales

4.3) Inventory Conversion Period

4.3.1) Inventory

Inventory represents one of the most important assets that most businesses posses

because of the revenue generation and subsequent earnings for the companies

shareholders /owners. It consists of raw materials ,work in progress and finished goods

inventories.

Possessing a high amount of inventory for long periods of time is not usually good for a

business because there are inventory storage, obsolescence and spoilage costs .However

possessing not enough good inventory is also not good either because the business runs the

risk of losing out on potential sales and potential market share as well .

Inventory management helps in forecasting the demand and formulating strategies, such as

just in time inventory system can help minimize inventory costs because goods are created

or received inventory only when needed.

4.3.2) Need to hold inventories

Holding inventories involves tying up of company’s funds storage and handling costs .There

are generally three general motives for holding inventories:

1. The transaction motive emphasizes the need to maintain inventories to facilitate

smooth production and sales operation.

2. The precautionary motive emphasizes on the need to maintain inventories in case of

shortage in production.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 3. The speculative motive

4.3.3) Size of inventories

The dominant position of inventories in working capital of Bokaro Steel Plant makes it

relevant to throw light on each component of inventory at BSL.The size of inventory and

percentage of inventory to total current assets in BSL.is presented in the table shown:

YEAR INVENTORIES(in TOTAL CURRENT % Of INVENTORIES

crores) ASSETS(in crores) TO CURRENT

ASSETS

2008 1365.6 1826.1 74.78

2009 1185.5 1835.9 64.59

2010 1755.02 2312.02 75.87

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 2500

2000

1500

inventories
1000 total current
assets

500

0
2008 2009 2010

Size of inventories shows a major portion of current assets consists of inventories. Inventory

in general has decreased in 2009 which because of the increase in sales of steel products.

Similar is the case in the year 2009 while in the year 2010 due to recession the sale of steel

goods declined.

4.3.4) Raw Material Inventory

Raw materials constitute a very small portion of inventories. Raw materials basically includes

coal, coke, iron ore, limestone etc.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Size of raw material to total inventories has been shown below:

YEAR RAW MATERIAL(in INVENTORIES(in % OF RAW

crores) crores) MATERIALS TO

INVENTORIES
2008 256.21 1365.6 18.76
2009 168.28 1185.7 14.19
2010 288.11 1755.02 16.41

2000
1800
1600
1400
1200
1000 Raw Materials(in crores)
Inventories(in crores)
800
600
400
200
0
2008 2009 2010

Raw material inventory increased in the year 2010 due to increase in production of steel

goods. Due to less demand the consumption of flat products has decreased.

4.3.5) Stores and spare inventory

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Inventories of stores and spares form a sizeable portion of the total inventories. The stores

and spares inventory consists of items like mechanical spares, electrical spares, general

spares, refractory, rolls, steel etc.

YEAR STORES AND INVENTORIES(in % Of STORES AND

SPARES(in crores) crores) SPARES TO

INVENTORIES
2008 341.29 1365.6 25
2009 467.98 1185.7 39.47
2010 540.47 1755.02 30.79

2000
1800
1600
1400
1200
Stores and spares(in
1000 crores)
800 Inventory(in crores)

600
400
200
0
2008 2009 2010

The size of stores and spares inventory increased in the year 2009 because of the increase

in the production capacity of the plant. The production capacity was increased to meet the

increased demand for steel hence more stores and spares were required.

4.3.6) Finished and semi-finished product inventory

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
A manufacturing firm cannot do away with this inventory. It introduces flexible business

operation which enables the firm to provide better customer service. This product consists of

pig iron, saleable steel like HR coil,CR coil,CR plate etc.Size of semi-finished inventory is:

YEAR SEMI-FINISHED INVENTORIES(in % OF SEMI-

PRODUCTS(in crores) FINISHED

crores) PRODUCTS TO

INVENTORIES
2008 768.06 1365.6 56.25
2009 549.48 1185.7 46.34
2010 926.44 1755.02 52.78
2000
1800
1600
1400
1200
1000 Semi-finished products(in crores)
Inventories(in crores)
800
600
400
200
0
2008 2009 2010

The similar increasing trend is seen in the year 2009 as in the case of other components of

inventories. The size of semi-finished inventory in the year 2009 was high due to increase in

demand of steel.

Inventory conversion period is the time required for the conversion of raw material into

finished goods for sale.ICP consists of RMCP, WPCP and FGCP.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
  RMCP or raw material conversion period is the time period for which the raw material

is generally kept in stores. It is taken care by the production department.

 WPCP or work in process conversion period is the time period for which the raw

materials remain in the production process before they are taken out as finished

goods.

 FGCP or finished goods conversion period refers to the time period for which the

goods remain in the stores before being sold to the customers.

4.4) Receivable Conversion Period

According to Joseph L.Woods, the purpose of any commercial enterprise is the earning of

profit. Credit in itself is utilized to increase sales but sales must return a profit.

Receivable management also termed as credit management in corporate enterprise has

gained significance on the accounts of its positive contribution towards increasing profitability

through increased turnover.

4.4.1) Objective

1. Reduction in risk due to future payments

2. Increase in profit due to increased sales

3. Maintain sufficient amount of liquidity in order to pay immediate liabilities

The purpose is to maintain optimum level of sales by keeping down the average collection

period, control over the cost of credit, default cost(inability of a customer to pay debts).

4.4.2) Credit policy

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
The important decision variable of a firm’s credit policy is credit standards, credit terms,

quality of trade accounts, length of credit period and collection effort.

4.4.3) Size of receivable

In BSL, the receivable comprises of sundry debtors ,loans and advances. The receivables

constitute a substantial portion in the current assets

YEAR RECEIVABLES(in TOTAL CURRENT %OF RECEIVABLES

crores) ASSETS(in crores) TO TOTAL

CURRENT ASSETS
2008 399.85 1826.1 22.11
2009 595.19 1835.9 21.47
2010 501.99 2312.02 32.42

2500

2000

1500
Receivables(in crores)
total current assets(in
1000 crores)

500

0
2008 2009 2010

Size of receivables increased in the year 2009 due to the delay in the payment of cash by

the customers due to the downturn. However it was managed well in the year

2010.Receivable collection period refers to the period between the occurrences of credit

sales and collection of debtors.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
The operating cycle of a firm can be shown as

RMCP WPCP FGCP

Inv conversion period Receivable collection period

Operating cycle

4.5) Operating Cycle Period (2008-2009)

Raw Material

Holding period= (Raw material*365)/total consumption

Raw material=168.28 crores

Total consumption=3672.8crores

Holding period=(168.28*365)/3672.8

=17 days

Work in progress

WIP=549.48crores

Cost of production=COGS-Excise duty-Freight outward-CMO Expenses

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 =9207.14-1660.95-168.18-63.49

=8808.56crores

Holding period =(inventory *WIP)/COPE

=(549.48*365)/8808.56

= 23 days

Finished goods

Finished goods=549.48 crores

Cost of goods sold= sales – profit

=12037.57-2830.43

=9207.14

Holding period=(Finished goods inventory*365)/COGS

=(549.48*365)/9207.14

=22 days

Company’s Policies

Credit given to customers=30 days

Credit given to suppliers = 15 days

Operating cycle

Operating cycle=RM holding period+WIP holding period Finished goods holding period

Credit given to customers

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 =17+23+22+30

=92 days

Cash conversion cycle= RM holding period+WIP holding period Finished goods holding

period Credit given to customers-credit given to suppliers

=17+23+22+30-15

=77 days

4.6) Operating Cycle Period (2009-2010)

Raw Material

Holding period=(Raw material*365)/total consumption

Raw material=288.11 crores

Total consumption=5458.55crores

Holding period=(288.11*365)/5458.55

=19 days

Work in progress

WIP=926.44crores

Cost of production=COGS-Excise duty-Freight outward-CMO Expenses

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 =10571.19-1394.90-143.63-7.68

=8964.98crores

Holding period =(inventory *365)/COPE

=(926.44*365)/8964.98

= 38 days

Finished goods

Finished goods=926.44 crores

Cost of goods sold= sales – profit

=11857.69-1292.78

=10571.19

Holding period=(Finished goods inventory*365)/COGS

=(926.44*365)/10571.19

=32 days

Company’s Policies

Credit given to customers=30 days

Credit given to suppliers = 15 days

Operating cycle

Operating cycle=RM holding period+WIP holding period Finished goods holding period

Credit given to customers

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 =17+23+22+30

=119days

Cash conversion cycle= RM holding period+WIP holding period Finished goods holding

period Credit given to customers-credit given to suppliers

=17+23+22+30-15

=104 days

5) Comparison

PARAMETER(in 2008-09 2009-2010

days)/YEAR
RM holding period 17 19
WIP holding period 23 38
FG holding period 22 32
Debtor period 30 30
Creditor period 15 15
Operating cycle 92 119

5.1) Analysis

5.1.1) Operating cycle

As per the analysis shown above the operating cycle has increased from 92 days to

119 days in one financial year i.e. from the year 2008-2009 to 2009-2010.This

indicates that if we look at the operating cycle as an indicator of efficiency then

efficiency has declined in the past one year i.e. now they need 27 more days to

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 convert raw materials to finished goods and thus its now adding an extra burden to

their inventory cost of RM, WIP, FG.

5.1.2) Holding period

As observed in the BSL,the holding period of RM,WIP and FG have come up. This

increased holding period indicates that they are now spending more and more money

on storing, maintenance and guarding of their FG and RM. Due to the its excess

operating cycle BSL now needs more borrowing from financial institutes for its day to

day and long term operations because now the conversion to cash takes a longer

time .The demand for flat products has gone down due to the economic recession.

Hence the operating cycle and the holding period of BSL has gone up.

5.2) Working Capital Status of BSL

PARAMETERS 2006-07 2007-08 2008-09 2009-10

(A)CURRENT ASSETS
LOANS & ADVANCES
Cash & bank balance 3790 4108 4400 4660
Raw Materials 25621 25113 16828 28811
Stores & Spare Parts 34129 37846 46798 54047

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 Finished/Semi-finished products 76806 77790 54948 92644
Sundry Debtors 1251 895 774 903
Loans & Advances 39118 39090 58745 49296
Other Current Assets 1896 1402 1095 841
TOTAL 182611 186244 183588 231202

(B)CURRENT LIABILITIES & PROVISIONS

Sundry creditors 30572 32507 43268 45387
Security & other Deposits 4291 6768 2369 13189
Advances received 2427 2568 10404 2789
Other liabilities 38824 38204 35706 28049
Provisions (Excluding Prov. For VRS,Gratuity &

Accumulated Leave) 9482 9151 60254 111898

TOTAL 85596 89198 152001 201312

Working Capital(A-B) 97015 97046 31587 29890

Increase/Decrease in Working Capital over Previous Year 44566 31 -65459 -1697

Working Capital of BSL(in crores)

120000

100000

80000
Working Capital of BSL(in
crores)
60000

40000

20000

0
2006-07 2007-08 2008-09 2009-10

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
From the above graph it can be inferred that the working capital of BSL has decreased over

the previous years .The working capital of BSL in the year 2009-10 has decreased by 16.97

crores since the year 2009-09.It can be seen that there has been a increase in the current

assets as well as the current liabilities but the proportionate increase in the current assets is

less than that of the current liabilities. The increase in the current assets is due to the

increase in the inventories and the cash and bank balances while the increase in the current

liabilities is due to the increase in the security and other deposits and the provisions. The

increase in current assets can be attributed to the fact that the production in BSL is not in

accordance to the demand, there has been a decline in the demand for flat products due to

recession resulting in the piling up of inventories. The current liabilities has gone up due to

the increase in provisions for wage revision .The wage revision happens every 5 years for

non executives and every 10 years for non executives.

5.3) Working Capital of Various Units of SAIL (2009-10)

Source: Balance Sheet of SAIL as on 31st March,2010

BSL ISP ASP SSP RMD VISL BRL

641.94 -115.37 303.98 694.58 -463.62 354.69 -7.93

Looking at the various other units of SAIL, we observe that the working capital of BSL is very

high compared to the other units of SAIL . The plants ISP , RMD ,BRL have negative

working capital which shows that the account payables for these plants is very high or in

other words the working capital needs of these plants is being funded by their suppliers.

Instead of paying to the suppliers these plants reinvest the funds in the plants itself , thus

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
their working capital comes out to be negative. While in the case of Bokaro Steep Plant , the

working capital is very high due to the a very large inventory stock , as well as a high cash

and bank balances . BSL has to reduce these two components of current assets in order to

manage their working capital efficiently. Also the piling up of inventory has taken place due

to the less demand of flat products ( products of BSL) due to economic recession.

6) Ratio Analysis Calculations (2008-09)

6.1)Liquidity Ratios:

a)Current Ratio:

Current Assets =Rs.1835.88 crores

Total current liabilities =Rs.1520.01 crores

Current ratio=current assets/current liabilities and provisions

=1835.88/1520.01

=1.21 times

b)Quick Ratio:

Inventory=Rs.1185.74 crores

Quick ratio=(total CA-inventory,balance with custom and railways)/total current liabilities

=(1835.88-(1185.74+80.34))/1520.01

=569.8/1520.01

=0.37 times

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
6.2)Activity Ratios:

a)Capital turnover ratio:

Net Sales=Rs.12037.57 crores

Working Capital=Total CA-Total CL

=Rs.315.87 crores

Net capital employed=Net block Working Capital(Net Block=Gross block-depreciation)

=2282.24+315.87

=Rs.2598.11 crores

Capital Turnover Ratio=Net sales/Net capital employed

=12037.57/2598.11

=4.63 times

b) Inventory Turnover Ratio:

Net Sales = Rs.12037.57 crores

Inventory=Rs.1185.5 crores

Inventory turnover ratio=Net Sales/Inventory

=12037.57/1185.5

=10.154 times

c) Working Capital Turnover Ratio:

Net sales=Rs.12037.57 crores

Working Capital=Rs.315.87 crores

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 Working Capital turnover ratio=Net sales/WC

=12037.57/315.87

=38.11 times

d) Fixed Asset Turnover Ratio :

Net sales=Rs.12037.57 crores

Net fixed assets=Rs.2658.77 crores

Fixed asset turnover ratio=Net sales/Net fixed assets

=12037.57/2658.77

=4.52 times

6.3)Profitability Ratios:

a)ROI(Return on investment):

PAT=2830.43 crores

Capital employed=Net fixed assets+WC

=2658.77+315.87

=Rs.2974.64 crores

ROI=PAT/capital employed

=2830.43/2974.64

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 =0.476

b) Gross Margin:

Gross margin=Net profit+depreciation+Interest

=2830.43+246.7+40.41

=Rs.3077.17 crores

c) Net Profit Margin:

PAT =Rs.2830.43 crores

Net Sales=12037.57 crores

Net profit margin=PAT/Net sales

=2830.43/12037.57

=0.12 =12%

7) Ratio Analysis Calculations (2009-10)

7.1)Liquidity Ratios:

a) Current ratio:

Current assets =Rs.2312.02crores

Total current liability =Rs.2013.12crores

Current ratio =current assets/total current liabilities

=2312.02/2013.12

=1.14 times

b) Quick Ratio:

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 Inventory =Rs.1755.02crores

Quick ratio = (total CA-inventory, balance with custom

and railways)/total current liabilities

=[2312.02-(1755.02+47.25)]/2013.12

=0.25 times

7.2)Activity Ratio:

a) Capital Turnover Ratio:

Net sales =Rs.11857.69crores

Working capital =total CA-total CL

=Rs.298.90crores

Net capital employed=Net block + Working capital

=2245.71+298.90

=Rs.2544.61 crores

Capital turnover = Net sales/Net capital employed

=11857.69/2544.61

=4.65 times

b)Inventory Turnover Ratio:

Net Sales = Rs.11857.69 crores

Inventory=Rs.1755.02 crores

Inventory turnover ratio=Net Sales/Inventory

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 =11857.69/1755.02

=6.75 times

c) Working Capital Turnover Ratio:

Net sales =Rs.11857.69crores

Working capital =Rs 298.90crores

Working capital turnover ratio=Net sales/WC

=11857.69/298.90

=39.67 times

d ) Fixed Turnover Ratio:

Net sales =Rs.11857.69crores

Net fixed assets =Rs.3424.67crores

Fixed turnover ratio=Net sales/Net fixed assets

=11857.69/3424.67

=3.46 times

7.3)Probability Ratio:

a) ROI (Return on investment)

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
PAT=292.72 crores

Capital employed=Net fixed assets + W.C

=3424.67 + 298.9

=Rs.3723.57crores

ROI =PAT/Capital employed

=1292.78/3723.57

=0.173

b) Gross Margin:

Gross Margin =Net profit + Depreciation + Interest

=1286.50 + 246.74 + 52.77

=Rs.1586.01 crores

c) Net Profit Margin:

PAT=1292.78 crore

Net sales=Rs. 11857.69

Net profit margin =PAT/Net sales

=1292.78/11857.69

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 =0.054=5.4%

8) Comparative Analysis (with previous years figures)

The financial statement analysis of BSL has been shown for two consecutive years. Ratio

analysis has been used adopted as an analytical tool and following ratios have been

analyzed.

PARAMETER/YEAR 2008-09 2009-10

A)LIQUIDITY POSITION

Current ratio 1.21:1 1.14:1

Quick Ratio 0.37:1 0.25:1
B)ACTIVITY RATIO

Capital Turnover Ratio 4.63:1 4.87:1

Inventory Turnover Ratio 10.154 6.75
Working Capital Turnover 38.11:1 39.67:1

Ratio
Fixed Asset Turnover Ratio 4.53:1 3.46:1
C)PROFITABILITY RATIO

ROI 0.476:1 0.176:1

Gross Margin 3077.2 1586.01
Net Profit Margin 0.12:1 0.054:1

Liquidity position: It shows the ability of the firm to pay its obligations as and when they

become due for payments.

Current Ratio: The current ratio for the year 2009-10 has decreased due to the increase in

the provisions which has increased the total current liabilities. The current ratio shows a

decrease in the year 2009-10 due to the increase in the liabilities ( increase in security

deposits and provisions).A current ratio greater than 1 indicates that the company holds a

good liquidity position from the bank’s point of view.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
Quick Ratio: The quick ratio also shows a decline due to the increase in the current

liabilities and due to the increase in the inventories.The low status of the most liquid assets

is not a major concern as it is centrally managed by the mother unit SAIL.

Activity Ratio: The activity ratios suggest that the number of times inventory turns over has

decreased to almost 6 times clearly indicating the fact that the goods of BSL are in less

demand and have been piled up. Similar is the case with working capital turnover ratio and

capital turnover ratio.

Profitability Ratio: The profit of the company has decreased from 2830.43 crores to

1292.78 crores in the year 2009-10 .This has happened due to the economic slowdown

which is a matter of concern.

9) Comparative Analysis (with its competitors)

Investment policy (2009-10)

BSL Essar Tata Steel

Steel
GWC 1237.48 2587.05 4580.03
Net Sales 10376.6 11,717.40 24,348.32

2
GWC/Net Sales 0.11925 0.22078703 0.188104559

From the above table we can see that BSL ,SAIL follows a conservative investment policy

as compared to its competitors .

Financing policy (2009-10)

BSL Essar Steel Tata Steel

STF 0 993.77 23,033.13

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 Current assets 1237.48 2,587.05 4,580.03
.3* current assets 371.244 776.115 1374.009
STF/.3*current 0 1.28044169 16.76344915

assets

From the above table , it can be concluded that BSL,SAIL has a conservative financing

policy as compared to the industry average.BSL has conservative investment as well as

financing policy. This may be due to the to the effect of the economic recession which has

made the market more unpredictable and has increased the risk. Hence the creditors are

less averse in giving credit Also, due to the less demand and hence less production the

inventory stock has decreased leading to a conservative financing policy.

BSL, SAIL depends more on long term financing to support its working capital needs as its

STF is 0.Thus it pays higher interest rates. This makes ROA of the company high thus

decreasing the profits as is evident from the previous calculations.

Liquidity Analysis (2009-10)

BSL SAIL Essar Tata Steel

Steel
Current Ratio 1.14 1.82 0.71 0.91
Quick Ratio 0.25 1.24 0.62 0.57
Inventory Turnover 6.54 5.86 8.69 9.36

Ratio
Number of Days in 48.54 -4.56

Working Capital (in

crores)
Operating cycle 119 days
Cash Conversion Cycle 104 days
Profitability

Current Ratio: A current ratio of 1.14 in BSL and 1.82 in SAIL states that the working capital

status of the two plants is good .They have a good amount of current assets to meet any

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
contingent liabilities .Also this ratio is good from the bank’s point of view. While the current

ratios of Essar Steel and Tata Steel are less than 1 which suggests that these companies

have higher current liabilities than their current assets.

Quick Ratio: BSL has a quick ratio of 0.25 because of its high inventory stock while SAIL

has a better quick ratio of 1.24 which states that it has sufficient amount of the most liquid

assets i.e. cash and receivables. Its competitors on the other hand have a low quick ratio

due to less inventory .It also states that these two companies have high current liabilities.

Inventory Turnover Ratio: The inventory in BSL turns over 6.54 times every year i.e BSL

currently has a stock sufficient for 1.83 months. Similarly SAIL turns its inventory every 2

months in s year. Among its competitors , Tata Steel has the highest turnover ratio i.e.

products move out every 1.28 months .This indicates that Tata Steel maintains a low

working capital .The above scenario states that the steel industry is a highly competitive

sector in India and none of the companies have a monopoly in the market .

Number of Days in Working Capital: Looking at the number of days in working capital, we

find that Tata Steel has a negative working capital which states that it may not be having

sufficient funds to meet its contingent liabilities. Secondly its working capital needs are

funded by its suppliers. While

10) Conclusion and Recommendation

During the year 2008-09, Bokaro Steel Plant notched the impressive gain of 2830.43 crores.

But in the year 2009-10 BSL earned a profit of only 1286.50 crores which shows a loss of

1543.93 crores as compared to the previous year .It was mainly due to the recession which

slowed the demand for flat products.

In the view of the analysis and with the changes in the industry scenario it is felt that the

company should reconstruct its policies for the betterment. The cost of raw materials as

incurred by the Bokaro Steel Plant is very high which has to be brought down through

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
incorporating better technologies and plants .The price of most important raw material coal

went up which has badly effected the profits of BSL.

The study of working capital management in Bokaro Steel Plant was limited to the study of

inventory, receivables, cash and payables. Although no default from the customers or

suppliers side was found during the study, the loyalty of the customers and suppliers could

be increased by giving them proper trade discounts which would increase the goodwill of the

company and hence would prove to be helpful in the long run for the company.

Working capital is managed well in BSL although there has been a net decrease in the net

working capital which has happened due to the increase in the current liabilities (increase in

security and other deposits).There has been a large increase in the security and other

deposits i.e. 456% increase since the previous year .Also there has been an increase of

around 85 % in provisions (excluding provisions for VRS, gratuity and accumulated leave)

since the previous year.

From the ratio analysis it can be seen that the current ratio of BSL is 1.14 which is good

enough. Also there has been a decline in the quick ratio of BSL mainly due to the increase in

inventory of finished goods which are lying in the stockyards due to less demand .This low

quick ratio suggests that there is high current liabilities. However in this case low current

assets is not a major concern since the mother unit of BSL i.e. SAIL is the major provider of

finance .Funds are centrally managed in SAIL .

Declining cost of the products due to stiff competition from China accompanied with the

rising cost of inputs, particularly that of imported coking coal is likely to erode the profit

margin of BSL in the current financial year. The management would try to make up for the

loss by technology up gradation, improvement in coking rate and reduction in the cost of

production.

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
However the 17.6% growth in the industrial sector with the manufacturing sector growing at

19.4% sector fed by an eye popping 72.8% rise in the capital goods might affect the working

capital status of BSL in a good way. This might improve the working capital of BSL.

11) Bibliography

 www.sail.co.in

 www.bokarosteel.com

 www.moneycontrol.com

 www.money.livemint.com

 www.money.rediff.com

 www.nse.com

 www.etintelligence.com

Books and articles referred

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
12) List of Abbreviations

 SAIL – Steel Authority of India Limited

 BSL- Bokaro Steel Limited

 ISP-Indian Iron and Steel Company Steel Plant

 ASP – Alloy Steel Plant

 SSP –Salem Steel Plant

 RMD –Raw Material Division

 VISL –Visvesvaraya Iron and Steel Limited

 BRL- Bharat Refractories Limited

 SMS-Steel Melting Shop

 CCS-Continuous Casting Shop

 CRM-Cold Rolling Mill

 HRM – Hot Rolling Mill

 CR – Cold Rolled

 HR- Hot Rolled

 GP – Galvanised Plate

 GC - Galvanised Coil

 MIS- Management Information System

 CMO- Central Marketing Organisation

 ICP- Inventory Conversion Period

 RMCP-Raw Material Conversion Period

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
  WPCP-Work in Progress Conversion Period

 FGCP-Finished Goods Conversion Period

 COGS- Cost of Goods Sold

 GWC- Gross Working Capital

 STF-Short Term financing

13) Annexure 1

BOKARO STEEL PLANT ,Balance sheet as at 31st March,2010

SOURCES OF FUNDS
Shareholders' Fund
Share Capital 0.00
17480.3

Reserves and Surplus 2

17480.3

2
Loan Funds
Secured Loans 89.26
Unsecured Loans 0.00
89.26

Inter Unit Current Account 4538.70

Deferred Tax Liability ( Net ) 0.00

22108.2

APPLICATION OF FUNDS
Fixed Assets
Gross Block 7226.17
Less: Depreciation 4980.46
Net Block 2245.71
Capital Work-in-Progress 1178.96
Fixed Assets (net) 3424.67

Investments 0.10

Current Assets, Loans & Advances

Inventories 1755.02
Sundry Debtors 9.03

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 Cash & Bank Balances 46.60
Other Current Assets 8.41
Loans & Advances
Subsidiary Companies 0.00
Others 492.96
2312.02
Less:Current Liabilities & Provisions

Current Liabilities 1066.36

Provisions 2512.13
3578.49
-

Net Current Assets 1266.47

Miscellaneous Expenditure 0.00
(to the extent not written
off or adjusted)
Profit & Loss Account 0.00
19949.9

Inter Unit Current Account 8

22108.2

8
0.00
Profit and loss account for the year ended 31st March,2010

INCOME
Sales
Less : Excise Duty

Policy Profit (+) / Loss(-)

Interest earned
Other revenues
Provision no longer required
written back
Stock transfer to other units

EXPENDITURE
Accretion(-)/Depletion to stock
Raw materials consumed
Purchase of semi/finished products
Employees Remuneration & Benefits
Stores & Spares Consumed
Power & Fuel
Repairs & Maintenance
Freight outward
Other expenses
Share of expenditure over income
-Corporate Office

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 -CMO
-CCSO
Interest & finance charges
Depreciation
Total
Less: Transferred to Inter
Account Adjustments
Net Expenditure
Profit/Loss(-) for the year
Adjustments pertaining to
earlier years
Add/Less: Extra Ordinary Items
Profit/Loss(-)

Less : Provision for taxation

Less : Provision for Fringe Benefit tax
Less : Provision for Deferred taxation
Provision(+)Refund(-)of Income tax of earlier years
Profit/Loss(-) after tax

Amount tfd from Bond Redemption Reserve

Less: Extraordinary items

Amount transferred on amalgamation of Bharat Refractories Limited
Impact of merger of BRL with SAIL
Balance of Profit and Loss Account as on 31st March 2008
Profit earned during 2008-09
Profit earned during 2009-10
Income tax benefit on account of amalgamation of Bharat Refractories

Limited
Less:
Write off of advances to employees
Provision for wage revision
Profit/Loss(-) B/F from previous year
Amount Available for Appropriation
Add(+)/Less(-)
Appropriation
Appropriations during the quarter Jan-Mar'09

Trnsfd.to Bonds Redemption Reserve

Trnsfd.to General Reserve
Interim dividend
Proposed dividend ( Final )
Tax on Interim dividend
Tax on Proposed dividend Final
Balance carried over to Balance Sheet
Notes on accounts 3
Schedules 2 and 3 annexed form part of the Balance Sheet.

half year profit

3rd quarter profit

IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)
 IBMR GURGAON
(INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH)