Working Capital Management in Durgapur Steel Plant:

An Evaluation
 ACKNOWLEDGEMENT

SELF DECLEARATION

I here by declare that this project report entitled as” Working Capital Management in Durgapur
Steel Plant : An Evaluation ” has been prepared by me during the year 2006. I also here by declare
that this project report has not been submitted at any time at any other University or Institute for the
award of any degree or diploma.

Registration no:

Roll no:
Place:
Signature
 CHAPTER 1

Index Content

General Introduction

OBJECTIVE OF THE STUDY

Main Objective
Specific Objective
Rational of the Study

CHAPTER 2

Litarature Reading on Working Capital Management

2.1 Introduction to Working Capital

Gross Working Capital

Net working Capital

Current Assests
Current Liabilities

2.2 Concept of Working Capital

Gross Working Capital

Net Working Capital

2.3 Types of Working Capital

2.4 Operating Cycle
Accounts Payable Periods
Inventory Period
Accounts Receivable Periods

2.5 Factors Influencing Working Capital Requirements

Nature of Business
Seasonal of Operations
 Production Policy
Market Conditions
Conditions of Supply

2.6 Optimum Level of Current Assets

Carrying Cost
Shortage Cost
2.7 Cash Management

(a) Introduction of Inventory Management

(b) Objective of Cash Management
(c) Cash Management Techniques
(d) Optimal Cash Balance
(i) Opportunity Cost Curve
(ii) Transaction Cost Curve
(e) Practical Implication: Daily Cash Transaction Management at Durgapur Steel Plant

2.8 Inventory Management

(a) Introduction of Inventory Management

(b) Kinds of Inventories
(c) Benefits of Holdings Inventories
(d) Cost of Holding Inventories
(e) Management of Inventory
(f) Objective of Inventory Management
(g) Practical Implication of Inventory Management at Durgapur Steel Plant

2.9 Management of Account Receivable

(a) Introduction to Account Receivable
(b) Purpose of Receivable
2.10 Accounts Payable Management
2.11 Financing of Working Capital

CHAPTER 3
Database and Methodology
CHAPTER 4
4.1 Profile of Durgapur Steel Plant
4.2 Product Mix
4.3 Description of the Plant

CHAPTER 5
Analysis and Findings of the various components of Working Capital at Durgapur Steel Plant
with Graphical Representation

5.1 Working Capital table for 5 years

5.2 Analysis of Debtors
5.3 Analysis of Cash And Bank
5.4 Analysis of Interest Receivable
5.5 Analysis of Loans and Advances
5.6 Analysis of Inventory
5.7 Analysis of Raw Materials
5.8 Analysis of Finished and Sami-finished goods
5.9 Analysis of Stores and Spares
5.10 Analysis of Current Liability
5.11 Analysis of Sundry Creditors
5.12 Analysis of Security Deposits
5.13Analysis of Other Deposits
5.14 Analysis of Provisions

CHAPTER 6
Evaluation of the Working Capital Management in Durgapur Steel Plant through Ratio Analysis

6.1 Inventory turnover Ratio

6.2 Debtors turnover Ratio
6.3 Current Ratio
6.4 Quick Ratio
6.5 Working Capital turnover Ratio

CHAPTER 7
Limitation of the Study

CHAPTER 8
Conclusion and Recommendation
 CHAPTER 1

GENERAL INTRODUCTION

The term Working Capital Management refers to the plants, techniques and policies adopted to
manage the working capital. To be precise, by Working Capital Management is meant the systematic
process, plants and techniques of managing the current assets and liabilities of the concern and
establishing and effective link between current assets and current liabilities. It has the ultimate
objectives of maintaining the liquidity and attaining the financial goal of increasing the net worth of
the business.
The above definition of working capital management speaks of its following components:
(i) Determining the size of total current assets and each of the components by means of
forecasting,
(ii) Fixing up the maintainable quantum of current liabilities in relation to long term liabilities,
(iii) Planning the inflow and outflow of current assets,
(iv) Estimating the utilization of current assets,
(v) Setting up an optimum link between current assets and current liabilities,
(vi) Maintaining a balance between liquidity and profitability and risk and return

The objectives of the working capital management are as follows:

(i) To set up the required fund for running the operating activities of the firm
(ii) To forecast the require amount of gross and net working capital with individual break up of
the components.
(iii) To fix up the optimum level of working capital and to change the same according to the need
of the situation.
(iv) To take care for maintaining the liquidity position of the firm up to the desired level.
(v) To increase the profitability of the firm by striking a balance between liquidity and
profitability.

In this back drop, I have undertaken a project study to evaluate the existing working capital
management of Durgapur Steel Plant. For conducting this study I have visted the finance
Department of DSP and gained thorough few knowledge on Working Capital Management.
OBJECTIVE OF THE STUDY

Main objective :-
To find out the efficiency of Working Capital Management at Durgapur Steel Plant.

Specific objectives: -
To gain familiarity with the components of Working Capital in Durgapur Steel Plant.
To find out the different components of current assets and current liabilities.
To find out how different components of Working Capital are managed at Durgapur Steel Plant.
To come out with any solution for improvement in current Working Capital Management at
Durgapur Steel Plant.
To know the practical practices followed, related to various current assets, in Durgapur Steel Plant.

RATIONALE OF THE STUDY

From this project, we can have a broad knowledge on different aspects of Working Capital
Management. Some of the aspects of Working Capital Management are:-
Concepts of Working Capital.
Need of Working Capital.
Types of Working Capital.
Operating cycle/ Working capital cycle.
Factors affecting Working Capital Requirements.
The project will surely extend the scope of our knowledge from the theoretical
philosophies of the book to the pragmatic implementations in the existing industries scenario. It will
also enhance our capability in the near future in making an appropriate analysis of the company’s
inner path of career development.

SCOPE OF THE STUDY

Technical decisions:-
Decisions determining the size of inventories, amount of debtors, extent of credit, Economic Order
Quantity, Reorder level, safety level, minimum level and maximum level or inventory are taken.
Commercial decisions:-
Decisions involving debtors’ collection period, creditors payment period, work in process period,
finished stock storage period.
Administrative decisions:-
Decisions relating recruitment, selection, and training, placement of key personnel’s acquisition of
software and hardware and other resources required for the working capital management.
Financial decisions:-
Determining the amount and sources of funds, long term sources and short term sources, budgetary
allocation maintaining adequate cash flow and legal provisions.

CHAPTER 2

LITARATURE READING ON WORKING CAPITAL MANAGEMENT

2.1 INTRODUCTION TO WORKING CAPITAL

Working Capital Management refers to management of current assets and current liabilities. Working
Capital is mainly the investment in current assets which include short term assets such as cash and
bank balances, inventories, receivables and other marketable securities.

There are two types of Working Capital:-

Gross Working Capital
Net Working Capital.

Gross Working Capital:-

Gross is the total of all current assets. It is the total investment in short term current assets.

Net Working Capital:-

Net Working Capital is the difference between current assets and current liabilities. Some of the
current assets and current liabilities are as follows:-

CURRENT ASSETS
Raw materials and components of Current Assets are:-
Work in process.
Finished goods.
Trade debtors.
Loans and advances.
Cash and bank balances.
Inventories

CURRENT LIABILITIES
Sundry creditors
Trade advances
Borrowings (short term)
(i)Commercial Bank
(ii)Others
Provisions

Generally any organization uses the concept of Net Working Capital because they have some current
liabilities with the help of which they make investments in current assets. So practically the concept
of (Current assets – Current liabilities) is applicable.

Working Capital Management is a significant facet of financial management. Its importance stems
from the following reasons:-
Investment in current asset represents a substantial portion of total investment .Existence of Working
Capital is imperative in any firm. Fixed asset generally consume a large chunk of total funds that can
be used at optimum level supported by sufficient Working Capital.
Investment in current assets and the level of current liabilities have to be geared quickly to change in
sales. Fixed asset investment and long term financing are also responsive to variation in sales.
However this relation is not as close and direct as in the case of Working Capital components.
The Working Capital component involves investment of funds of firm. If Working Capital level is
not properly maintained and managed, then it may result in unnecessary blockage of scarce
resources of the firm.

2.2 CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:-
Gross Working Capital:-
It refers to the firm’s investment in total current or circulating assets.
The concept of Gross Working Capital is applied where the firm has no current liabilities. The
investment what the firm has made in current assets are from their own internal source and they have
not taken any short term loan or they have not incurred any current liabilities.
Net Working Capital:-
Net Working Capital is the difference between current assets and current liabilities. Normally any
organization incurs some current liabilities to finance their current assets. So, after realization of
investment on current assets (in cash) in due course of operating cycle, they deduct the current
liabilities from the total current assets (realized in cash), in order to get the Net Current Assets.
Formula of Net Working Capital:-
NET WORKING CAPITAL = (CURRENT ASSET – CURRENT LIABILITIES)

2.3 TYPES OF WORKING CAPITAL:-

Permanent Working Capital
Temporary Working Capital.

Permanent Working capital:-

This represents what the firm requires even at the bottom of it sales cycle. It refers to the minimum
amount of investment in current assets which is required at all time to carry out the minimum level
of business activities .In other words ,it represents the current assets required on current basis over
the entire year .
Temporary Working Capital:-
It reflects a variable component that moves in line with seasonal fluctuations. This is the amount of
working capital that keeps on fluctuating on the basis of business activity .In other words, it
represents additional current assets required at different times during the operating period.
2.4 OPERATING CYCLE

Raw Materials (production)

(Realization)
Work In Progress

Cash

( production)

(realization) (Cash sale)

Semi Finished Goods

(credit sale)

Accounts
Receivable Finished Goods

(Credit sale)

Working Capital Cycle is required because of the time gap between sales and actual sales realization
in cash. This gap is technically known as Operating Cycle.

In a manufacturing unit, operating cycle goes like this:-

Conversion of cash into raw materials.
Conversion of raw materials into work in process.
Conversion of work in process into semi-finished goods.
Conversion of semi-finished goods into finished goods.
Conversion of finished goods into debtors.
Conversion of debtors into cash.
 The total operating cycle can be divided into following periods:-
Accounts Payable Period:-
The firm generally begins with the purchase of raw materials which are not generally paid instantly
but after some time gap. The time lag between the purchase of raw materials and payment for the
raw materials is known as Accounts Payable Period.

Credit purchase
Purchase of Accounts Payable Cash payment
raw materials

Inventory period :-
Firm purchases raw materials and converts these raw materials into finished goods and sell the same.
The time lag between the purchase of raw materials and the sale of finished goods is the Inventory
Period.

Purchase of Raw Production

Sale
Materials Finished goods

Account Receivable Period:-

When the finished goods are sold, all the goods are not sold for cash .Some are sold on credit and are
realized later. The period that elapses between the date of sales and the date of collection of
receivables is known as Account Receivable Period.

Account Receivable Cash receipt

Sale
Realization
 Operating cycle:-
The time that elapses between the purchase of Raw Materials and collection of cash from sales is
referred to as Operating Cycle.

Purchase of Production
raw Finished Sale Accounts Realisation Cash Receipt
materials goods Receivable

Thus , we can say that :-

Operating cycle = inventory period + account receivable period

Cash cycle:-
The time lag between the payment for raw material purchased and the collection of cash for sales is
referred to as Cash Cycle.
Thus, we can say that :-

Cash Cycle = Operating Cycle – Accounts Payable Period

OR

Cash Cycle =(Inventory Period + Accounts Receivable Period ) – Accounts Payable

Period

NOTE:-

In some manufacturing unit, the semi finished goods are also sold on cash basis or on credit basis.
As in Durgapur Steel Plant, semi finished goods like slab, blooms; billades are sold either on cash
basis or on credit basis.
Finished goods are not always sold for cash .They are also sold on credit which gets converted into
Accounts Receivable which after realization gets converted into cash. As in Durgapur Steel Plant,
they directly sell some finished products on cash basis and some finished products on credit basis.

2.5 FACTORS INFLUENCING WOKING CAPITAL REQUIREMENTS

The working capital needs of a firm are influenced by numerous factors. The important factors are:-
Nature of Business:-
The working capital requirement of a firm is closely related to the nature of its business .a service
firm generally has a short operating cycle and sells on cash basis and has a modest working capital
requirement. On the other hand, a manufacturing unit has a long operating cycle which sells largely
on credit and has a substantial working capital requirement.

Seasonality of operations:-
Firms which have seasonal sales or firms which deal in seasonal products have highly
fluctuating working capital requirement .The working capital requirement of such a firm increases
significantly during the peak season when there is a demand for the product and again decreases
during off season. On the other hand, firms having even sale during the year tends to have stable
working capital requirements.

Production policy:-
Firms which are having seasonal fluctuation in working capital requirements may
follow a production policy which may reduce the variations in working capital requirements. For
example, manufacturers of a seasonal products may maintain a steady production through out the
year rather than to intensify the production activity during the peak business season. Such a
production policy may result in decrease in fluctuations in working capital requirements.

Market conditions:-
Degree of competition in the market has also its effect on working capital needs. When the
competition is high, huge inventory of finished goods have to be maintained to meet the demand of
customers as customers will not wait for that specific brand as goods from different brands are
available in the market. Moreover generous credit terms should be extended to attract customers in a
highly competitive market. Again, if competition is low, a firm can manage with a smaller inventory
of finished products because in this situation customers can be served with delay. Also, in this
situation a firm can insist on cash payment and avoid lock up of funds in accounts receivable.
Thus, in a competitive market, working capital requirements are more because of more
investment in finished product, inventory and accounts receivable whereas in the market where the
competition is weak, the situation is reverse.

Conditions of supply:-
Level of inventory managed by a firm also depends on conditions of supply. If the supply
is regular and adequate, a firm can manage with a low level of inventory .If the situation is reverse
i.e., if the supply is irregular, unpredictable and scant, a firm has to acquire large volume of
inventories whenever they are available .A similar policy should be followed when raw materials are
available only seasonally and productions operations are carried round the year.
2.6 OPTIMUM LEVEL OF CURRENT ASSETS

Total Cost

Carrying Cost

Shortage Cost

Determining the optimum level of current assets involve a trade off between cost that rise
with increase in current assets and cost that fall with increase in current asset. The above diagram
shows the point where the total costs for holding current assets are minimum.

Carrying cost:-
The cost which increase with the increase in the current asset is known as current assets is known as
current asset, the cost which is required to hold current asset or uit is the cost of financing a higher
level of current assets.

Shortage cost:-
Shortage cost as the name indicate , are costs that arise from the shortage of current assets
.Shortage costs are mainly in the form of disruption in production schedule , loss of sales and loss of
customer goodwill.

So wherever, the carrying cost curve and shortage cost curve will cut each other, the total
cost for current assets will be lowest at that point and that point will be the optimum level of current
assets.
 2.7 CASH MANAGEMENT

(a) Introduction to Cash Management

Cash is the most liquid asset and it is of vital importance to the daily operations of business
firm. The term “cash” with reference to cash management is used in two senses. In narrower sense, it
includes near cash, currency, notes, cheques, bank drafts held by a firm.
In broader sense , it includes near cash assets such as marketable securities and time deposits
with bank .Such securities or deposits can be easily sold or converted into cash as the circumstances
requires.

(b) Objectives of Cash Management

Meeting cash disbursements:-

Cash is always required for making unanticipated and anticipated operational needs. It is also meant
to meet the needs of knowable outflows like taxes, dividend, interest payment and repayment of
borrowings.
Minimizing locking of funds as cash balance:-
Effective cash management reduces the chance of locking of funds and also explores the option of
investing surplus or idle cash in short term securities.

(c)Cash Management Techniques:-

(1) CONTROLLING THE LEVEL OF CASH:-

(a) Preparing cash budget:-
Cash budget is the principal tool of cash management .Cash budget mainly prepared by business
firms are helpful in
(i) Estimating cash requirements
(ii) Planning short term financing.
(iii) Scheduling payments in connection with capital expenditure projects.
(iv) Planning purchases of materials.
(v) Developing credit policies.
(vi) Checking the accuracy of long term forecast.
(b) Providing for unpredictable discrepancies:-
Reasonable and safety amount of cash should be kept as a reserve to meet unanticipated needs
and unpredictable discrepancies and to ensure liquidity of the firm.
(c) Average daily cash outflow:-
It is important to determine the average daily cash outflow to have an idea of what amount of
cash should be kept as a safety level.

SAFETY LEVEL OF CASH = DESIRED DAYS OF CASH * AVERAGE DAILY CASH OUTFLOW
(2) CONTR OLLING THE INFLOW OF CASH:-

(a) Concentration banking: -

In this type of banking, customers of a company send his payment to a local branch office rather
than to corporate headquarters. The cheques received by the local branch office are deposited for
 collection in a local bank account. Surplus funds from various local bank accounts are transferred
regularly to a Concentration account at one of company’s principal banks.
(b)Lock box system:-
In the lock box system customers mail their payments (via cheque) to a respective bank’s lock box
(the bank where the company maintain its lock box). Company also deposits their cheques in the
lock box which they receive from customers. At the end of the day, banks open the lock box and
furnish details to the firm and then bank encashes it

(2) CONTROL OVER CASH OUTFLOW:-

(a) Centralized disbursements:-

Centralized disbursements mean that whatever due a company has in its different units, all the
payments will be made from a single unit or its head office. This leads to efficient and effective
controlling of cash disbursement.
(b) Payment on due dates :-
A company should make its payment on due date. A company should always try to make its
collections earlier and delay its payment so as to increase its net float.

(d) OPTIMAL CASH BALANCE

Total Cost

Opportunity Cost Curve

Transaction Cost Curve

In the above diagram, optimal cash balance is shown at C. At this point, the total cost of holding cash
balance is minimum. The point of minimum total cost comes from trade off between two cost curves:-
Opportunity Cost Curve
Transaction Cost Curve
(1) OPPORTUNITY COST CURVE:-

Opportunity cost is the profit foregone by the firm which the firm would have earned if they would
have invested the cash. Opportunity cost of maintaining cash rises as the cash balance increases.

(2) TRANSACTION COST CURVE:-

Transaction cost is mainly in the form of selling marketable securities when the cash balance is low.
Normally when the cash balance is low, a firm has to sell its marketable securities more frequently
than if it holds a larger cash balance. Thus the trading or transaction cost will diminish if the cash
balance increase
Thus, the point of trade off between the transaction cost and opportunity cost , the total
cost is minimum . This point indicates the optimum level of cash.

(e) PRACTICAL IMPLICATION:

DAILY CASH TRANSACTION MANAGEMENT AT DURGAPUR STEELPLANT

Durgapur Steel Plant maintains their Current Account or rather Cash Credit Account in SBI branch
of Durgapur .Headquarter or registered office of SAIL in New Delhi allocate an amount for
expenditure and other outlays of Durgapur Steel Plant which the State Bank Of India Of New Delhi
(where the registered office maintains its account) will be crediting in the SBI branch of Durgapur
according to expenditures made by Durgapur Steel Plant. But head office will not credit the amount
in the SBI branch of Durgapur before the expenditure actually incurred by Durgapur Steel Plant.
The daily regulation and maintenance of cash go like this:-
Everyday Durgapur Steel Plant incur several expenditure and indulge in several outlays .It make
payment to its suppliers and other agencies in the form of cheques and also receive payment from its
customers. So, SBI (Durgapur Branch) maintains an account of total receipts and expenditures in the
form of cheques on a daily basis. At the end of day, SBI (Durgapur branch) gives intimation to
Durgapur Steel Plant and SBI (Delhi Branch) furnishing the details of net expenditures or income on
that particular day. After that SBI (Delhi Branch) credit the account of SBI (Durgapur Branch) with
the amount actually expended. Again if, on any day receipts become more than payments, then the
surplus amount (Receipt – Payment) gets credited in the account of SBI (Delhi Branch) by SBI
(Durgapur branch).
Thus at the end of any day, account of Durgapur Steel Plant becomes zero .This practice is
done on a daily basis.

2.8 INVENTORY MANAGEMENT

(a) Introduction to Inventory Management:-

Inventories are goods hold for eventual sale of a firm. Inventories are thus one of the major elements
which help a firm to obtain desired level of sales.
(b) Kinds of Inventories:-
(a)Raw materials:-
Raw materials are materials or components that are used as input for making final product.
(b)Work in process:-
Work in process also known as stock in process refers to goods in intermediate stages of production.
(c) Finished goods:-
Finished goods consist of final products that are ready for sale.

(c) Benefits of holding inventories:-

Avoid loses of sales:-

Sufficient level of inventories leads to uninterrupted production which in turn leads to more
production of finished goods. Thus there will be no losses on account of shortage of finished goods
(especially in a competitive market situation).

Reducing order cost:-

If inventories are maintained at a comfortable level, then there is no need of ordering inventories
frequently. So as the number of order reduces, ordering cost will also reduce.

Achieving efficient production runs:-

If the level of inventory maintained is sufficient, production system will not come to a halt due to
lack of inventories. Thus production runs will go smoothly.

(d) Cost of Holding Inventories

Ordering cost:-
Ordering costs are those costs which are associated with orders made by any firm for inventories.
Ordering cost include expenses on requisition, preparation of purchase orders, expediting transport
and receiving and placing in storage.

Carrying cost:
Carrying costs are those costs which are incurred due to holding of inventories for production
purposes. Carrying cost include expenses on Interest on Capital of funds locked up in inventories,
storage, insurance, obsolescence and taxes. Carrying costs are generally about 25 % of the value of
inventories hold.

Shortage cost:-
Shortage costs are those cost arising from shortage of raw materials. Shortage costs arise when
inventories fall short of meeting the needs of production or the demand of customers. Inventory
shortages may result in high cost concomitant with crash procurement, less efficient and uneconomic
production schedules and customer d8issatisfaction and loss of sales.

(e) Management of Inventory

(1)Maintaining sufficient level of inventories for efficient and smooth production and sales
operations and to avoid shortage costs.
(2)Maintaining a minimum investment in inventories to minimize direct and indirect carrying costs
associated with holding inventories to maximize profitability.
Inventories should be maintained at an optimal level to avoid excessive carrying cost and
excessive shortage carrying cost.

(f) Objective of Inventory Management

Ensuring continuous supply of material to production department:-

There should be continuous supply of inventories to production department to ensure that production
department does not face any shortage of inventories.

Maintaining sufficient level of finished products:-

Finished products which constitute an important part of total inventories should be maintained at a
sufficient level to ensure smooth sales. Especially in a competitive environment, firm should
maintain a good stock of finished goods because customers will not wait for any product of
particular brand because competitor’s goods will be available to him.

Maintaining sufficient stock of raw materials:-

In the period of hot supply, sufficient stock of raw materials should be maintained to ensure smooth
production. And to avoid any type of interruptions in production.

Minimizing carrying costs:-

Inventories should be hold at optimal level to minimize cost associated with holding inventories.

Keeping investment in inventories at optimum level:-

Investment in inventories should be maintained at an optimum level. Investment in inventories
should not be more otherwise the carrying cost will increase .Also the volume of inventories should
not be maintained at a minimum level which will increase carrying cost.

(g) PRACTICAL IMPLICATION OF INVENTORY MANAGEMENT AT DURGAPUR

STTEL PLANT

Finished goods or saleable steel are manufactured in the plant. After manufacturing, some saleable
steel or finished products are sold directly from Durgapur Steel Plant to its customers on credit or on
cash basis. The rest of saleable steel are sent to Central marketing Organization (Transport and
Shipping), CMO (T&S).CMO is a department of SAIL which deals in transport and shipping of
steel. After the saleable steel are taken over by CMO (in New Delhi), CMO takes the responsibility
of selling those saleable steel either on cash or credit basis. As the finished goods of Durgapur Steel
Plant are sold, CMO send detailed information related to sales to Durgapur Steel Plant. In this way
CMO takes the finished goods from all the steel plants and market those finished products centrally
and send the status of the products to the respective plants. Thus the ultimate responsibility of
Durgapur Steel Plant lies in producing quality products and sending those products to CMO who
will sell those products centrally.
2.9 MANAGEMENT OF ACCOUNT RECEIVABLE:-

(a) Introduction to Account Receivable: -

Account Receivable is the direct result of credit sales. Credit sales are restored to by firm to push up
sales which ultimately result in pushing up of profits of the firm .At the same time, selling goods on
credit results in blocking of funds in Account Receivable.
Thus the objective of receivable management is to promote sales and profit.

(b) Purpose of receivable:-

Achieving growth in sales:-

If a firm extend its liberal credit facilities to its customers, then naturally the firm will have more
sales or more customers than if they have transaction strictly based on cash payment. Every
customer wants to enjoy full credit facilities and the firm should take full opportunity of this by
extending them generous credit facilities or by issuing accounts receivable.

Increasing profit:-
If a firm is able to sell more by extending credit facilities, then off course it is going to multiply its
profit with these additional sales.

Meeting competitions:-
In today’s competitive era, a customer does not wait for any particular product of a particular brand
because market is full of substitute products and they can use similar product of other brands. So in
order to survive in this competitive market and to make its product sell in the market, firm has to
resort to credit sale.

2.10 ACCOUNTS PAYABLE MANAGEMENT:-

Management of Accounts Payable is as important as Accounts Receivable. Off course, there is a

basic difference between the approaches adopted by finance manager in two cases. Objective in case
of accounts receivable is to maximize the acceleration of collection program, the objective in case of
accounts payable is to slow down the payment processes as much as possible. But it should be noted
that delay in accounts payable may result in delay in some interest cost but it can prove very costly
to the firm in the form of loss of credit in the market. The finance manager has therefore to ensure
that the payment on the creditors are made at the stipulated time periods after obtaining the best
credit terms possible.

2.11 FINANCING OF WORKING CAPITAL

Working capital requirements can be met both from both short term sources and long term sources
of fund. It will be appropriate to meet at least 2/3rd of permanent working capital requirement from
long term sources of fund.
Some of the sources of finance that are used to support current assets:-
Accruals
Trade credit
Working capital advance by commercial banks
Regulation of bank finance
Public deposit
Inter corporate deposit
Short term loans from financial institutions
Debentures for working capital
Commercial paper
Factoring

Methods of financial statements analysis:

A number of methods are used to study the relationship between different statements. An effort is made
to use those methods which clearly analise the position of the enterprise. The following are the methods
of analysis which are generally used they are
Comparative statements: - The simple method of tracing periodic changes in financial performance of
a company is to prepare comparative statements. Comparative financial statements will contain items at
least for two periods. Changes-increases and decreases-in income statement and balance sheet over a
period can be shown in two ways 1) Aggregate changes and 2) proportional changes.
Aggregate changes can be indicated by drawing special columns for aggregate amount or percentage, or
both of increase and decreases. Relative or proportional changes on the other hand are shown by
recording percentage calculated in relation to a common base in special columns.
Trend Analysis: - In financial analysis the direction of changes over the
period of year is crucial importance. Time series or trend analysis of
ratios indicates the direction of change. This kind of analysis is particularly applicable to the items of
profit and loss account. It is advisable that trend of sales and net income may be studied in the light of
two factors: the rate of fixed expansion or secular trend in the growth of the business and the general
price level. It might be found in practice that a number of firms would show a persistent growth over a
period of years but to get a true trend of growth the sales figures should be a suitable index of general
prices. For trend analysis the use of index numbers is generally advocated. The procedure followed is to
assign the number 100 to items of the base year and to calculate percentage changes in each item of
other years in relation to the base year. The procedure may be called as “trend-percentage method”.
Ratio Analysis: - Ratio analysis is the powerful tool of financial analysis. A Ratio is defined as “the
indicated quotient of two mathematical expressions” and as “the relationship between two or more
things”. In financial analysis a ratio is used as a bench mark for evaluating the financial position and
performance of a firm. The absolute accounting figures reported in the financial statements do not
provide a meaningful understanding of the performance and financial position of a firm. An accounting
figure conveys meaning when it is related to some other relevant information. The relationship between
two accounting figures expressed mathematically is known as financial ratio. Ratio helps to summaries
large quantities of financial data to make qualitative judgment about the firm’s financial performance.
Introduction to Ratio Analysis:

Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of
establishing and interpreting various ratios for helping in making certain decisions. However, ratio
analysis is not an end in itself. It is only a means of better understanding of financial strengths and
weakness of a firm. Calculation of mere ratios does not serve any purpose, unless several appropriate
ratios are analysed and interpreted. There are number of ratios which can be calculated from the
information given in the financial statements.

Use and significance of Ratio Analysis:

The use of ratio is not confined to financial mangers only. There are different parties interested in the
ratio analysis for knowing the financial position of a firm for different purpose. The supplier of goods on
credit, banks, financial institutions, investors, shareholders and management all make use of ratio
analysis as a tool in evaluating the financial position and performance of a firm for granting credit,
providing loans or making investments in the firm. With the use of ratio analysis one can measure the
financial condition of a firm and can point out whether the condition is strong, good, questionable or
poor. Following are the some of the uses
Helps in decision-making: - Financial statements are prepared preliminary for decision-making. But the
information provided in financial statements is not an end in itself and no meaningful conclusion can be
drawn from these statements alone. Ratio analysis helps in making decision from the information
provided in these financial statements.
Helps in financial forecasting and planning: - Ratio analysis is of much help in financial forecasting and
planning. Planning is looking ahead and the ratios calculated for a number of years work as a guide for
the future. Meaningful conclusion can be drawn for future from ratios.

Helps in communicating: - The financial strength and weakness of a firm are communicated in a more
easy and understandable manner by the use of ratios. The information contained in the financial
statements is conveyed in a meaningful manner to the one for whom it is meant. Thus ratio helps in
communication and enhances the value of financial statements.
Helps in co-ordination: - Ratios even help in co-ordination, which is of most important in effective
business management. Better communication of efficiency and weakness of an enterprise results in
better co-ordination in the enterprise.
Helps in control: - Ratio analysis even helps in making effective control of the business. Standard ratios
can be based upon proforma financial statements and variance or deviations, if any can be found by
comparing the actual with the standard so as to take a corrective action at the right time.

Types of Ratios:

Ratios can be grouped into different classes according to the financial activity to be evaluated. Short –
term creditors are mainly interested in the liquidity position i.e. the short – term solvency of a firm,
while long term creditors are more interested in the long – term solvency as well as the profitability of
the firms. Management is interested in every aspect of the firm’s performance.
Ratios may be classified into the following four important categories.
Liquidity Ratios
Leverage Ratios
Turnover Ratios
Profitability Ratios
The liquidity ratios measure the firms ability to meet current obligations, leverage ratios show the
proportion of debt and equity, turnover ratios reflect a firm’s efficiency in utilizing its assets and finally
profitability ratios measure the over all performance and effectiveness of a firm.
1) Liquidity Ratio: - It is extremely essential for a firm to be able to meet its obligation as they become
due. Liquidity ratios measure the ability of the firm to
meet its current obligations. In fact, analysis of liquidity needs the preparation of cash budgets and cash
and fund flow statements but liquidity ratios by establishing a relationship between cash and other
current assets to current obligations provide a quick measure of liquidity. A firm always has to ensure
that it does not suffer from lack of liquidity while at the same time does not have excess liquidity. It is
necessary for a firm to strike a proper balance between high liquidity lack of liquidity. The most
important ratios which indicate the extent of liquidity are:
Current Ratio: - This ratio may be defined as the relationship between current assets and current
liabilities. This ratio also known as “working capital ratio” it is a measure of general liquidity and is
most widely used to make the analysis of short – term financial position or liquidity of a firm. It
calculated by dividing the total of current assets by total of the current liabilities.

CURRENT ASSETS / CURRENT LIABILITIES

Current assets include cash and those assets, which can be converted into cash with in a year. Current
assets include marketable securities, debtors, stock and prepaid expenses. Current liabilities include all
the obligations maturing with in a year. They include creditors, bills payable, outstanding expenses, short
– term loan, income tax liability and long – term debt maturing in the current year.The standard or ideal
current ratio is 2:1 if the actual current ratio is less than the standard current ratio, the logical conclusion
is that the firm does not enjoy sufficient liquidity and there is shortage of working capital. Too much of
reliance should not be placed on current ratio, because the current ratio is a test of quantity and not
quality. Further information about the quality of the items in the current assets is necessary current ratio
is a crude and quick measure of the firms liquidity.
Quick Ratio or Liquid Ratio: - Current ratio is not sufficient measure of the liquidity of a firm because
current assets include items like stock and prepaid expenses which are not easily converted into cash.
Hence an improvement over the current ratio has been evolved called quick ratio or liquid ratio.

QUICK ASSETS / CURRENT LIABILITIES

Quick assets are those assets, which can be converted into cash with in a very short period without much
loss. They include all current assets except stock and prepaid expenses.
Interpretation. Generally the quick ratio of 1:1 is considered satisfactory if the actual quick ratio is equal
to or more than the standard, it may be reasonably concluded that the firm is liquid and it can meet its
short term obligations quickly. Due importance is to be given to the amount locked up in debtors while
interpreting quick ratio.

3.Activity Ratios:
Turn over ratio indicates the speed with which assets are being converted or turned over into sales. They
are also called as activity ratios. They are calculated to evaluate the efficiency with which the firm
manages and utilizes its assets.
Inventory Turn over or Stock Turnover: -
It is the ratio, which indicates the number of times the average stock is turned over during a year. It is
given by

COST OF GOODS SOLD / AVE. STOCK

The average stock refers to the average of opening and closing stock.
(OPENING STOCK + CLOSING STOCK) / 2

It may be noted that if opening stock figure is not available, we may simply use the closing stock value
as the value of average stock. Cost of goods sold refers to cost of sales. It is given by.

Cost of goods sold = Opening Stock + Purchases +Direct expenses – Closing Stock
Or / Cost of goods sold = Sales – Gross Profit

If cost of goods sold cannot be computed for lack of information, we may take the figure of sales. The
stock turn over ratio may also be expresses in terms of Days of Inventory Holding (DIH). It is given by

360 days / Stock Turnover Ratio

Stock turn over ratio of 8 times a year is considered ideal. A high stock turn over is indicative of good
inventory management.

Working Capital Turnover: - It is the ratio between sales and working capital. This ratio indicates the
efficiency with which working capital is utilized. It is given by

SALES / WORKING CAPITAL

Working capital is excess of current assets over current liabilities. Sales refers to the net sales.There is
no standard working capital turn over ratio. A higher ratio indicates the efficiency of the management in
utilization of working capital. How ever it is stated that working capital turn over ratio should neither be
very high nor very low.

Debtors or Receivables Turnover:-It is used to measure the short term solvency and overall actiivy
of the firm. It measures the debt collection period and reveals weather the debtors are also paying or
quick paying.
A high debtors turnover in comparison to the industry standard indicates quick
collection from debtors i.e. short credit period, quick recycling of Working Capital and efficiency in
debt management.
A low debtors turnover reveals slow realization from debtors i.e. long-credit period,
slow recycling of Working Capital and inefficiency in receivables management.

Average Debtors= (Opening Debtors+ Closing Debtors)/2

Average Receivables=(Opening Receivables+ Closing Receivables)/2
Here, Receivables stands for the summation of debtors and bills receivables.
 CHAPTER 3

DATA BASE AND METHODOLOGY

DATA COLLECTION

Data that I have received for making the project is a combination of both primary and secondary
data.

(1)Primary data:-
The data collected through meetings and interviews with various managers and employees of finance
department located in administrative building of Durgapur Steel Plant (ISPAT BHAWAN).

The departments I have visited are:-

Main Cash Account Department, Billing and Operation Department, Cash and Budget Department,
Raw Materials Department, Cash Department, Purchase Department, Sales Department,
Project Management Department

(2)Secondary data:-

Balance Sheet, Profit and Loss Account, Annual Reports, Schedules, Budget, Accounting Reports
Cost and Budget Report, Cash Report, Creditor’s Report, Debtor’s Report, Raw Material Report
Inventory Report, Stock Report, Production Report, Sales Report, Financial Year Book

The above data have been analysed through the Statistical tools like Bar Diagram, Bar chart etc.

On the other hand ,under Traditional System, some financial and statistical tools have been used to
evaluate the Working capital management of DSP. Some of these tools are Ratio Analysis and Trend
Analysis. Ratio Analysis used to study the Liquidity and activity position for the general efficiency of
the DSP over the year and the Trend Analysis used to indicate the direction of change in the working
capital management performance over a time period i,e whether there is an improvement,
deterioration or consistency. However, the working capital management of the DSP measured through
the following Ratios :

1. Liquidity Ratio :

(a) Current Ratio (b) Quick Ratio and (c) Inventory Turnover ratio, (d) Working Capital Turnover
Ratio and (e) Debtor Turnover ratio.
 CHAPTER 4

(4.1) PROFILE OF DURGAPUR STEEL PLANT

Durgapur Steel Plant (DSP) as the nucleus of Durgapur Industrial Complex started taking shape in
1957.The Colombo Plan Mission headed by Sir Eric Coates visited India in 1955 and recommended
Durgapur as the choice for setting up of the Integrated Steel Plant to be built with British
Collaboration. The location was considered highly desirable because of its proximity to the coal
fields, grand trunk road, Calcutta – Delhi railway mainline, Kolkata port power from Damodar
Valley Corporation and water from Durgapur Barriage.Durgapur Steel Plant was the third largest
integrated steel plant of Hindustan Steel Limited, the first two being Rourkela Steel Plant and
Bhilai Steel Plant .The Hindustan Steel Limited was later on merged into Steel Authority Of India
Limited.
The plant is spread over an area of 6.4 sq.km and within its parameter there are about 32
km of roads and 180 km of railway tracks.

All the production units of the plant are covered by ISO 9001:2002 certification.
The modernized DSP now has state-of –the-art technology for quality steel making. The
modernized units have brought about improved productivity, substantial improvement in energy
conservation and better quality products. DSP’s Steel Making complex and the entire mills zone,
comprising its Blooming & Billet Mill, Merchant Mill, Skelp Mill, Section Mill and Wheel & Axle
Plant, are covered under ISO: 9002 quality assurance certification.
With the successful commissioning of the modernized units, DSP is all set to produce 2.088
million tones of hot metal, 1.8 million tones of crude steel and 1.586 million tones of saleable steel
annually.
4.2 PRODUCT MIX

PRODUCT MIX TONES PER ANNUM

Merchant Products 2,80,000
Structural 2,07,000
Skelp 1,80,000
Wheels and Axles 58,000
Semis 8,61,000
Total Saleable Steel 15,86,000

4.3 DESCRIPTION OF THE PLANT

MAJOR PLANT UNITS:-

COKE OVEN:-
Target Activity:-
To produce coke by removing volatile matter from coal.

Number of batteries 5.5 (Each Battery having 78 ovens)

Capacity 20 tones /oven
Coaking time 18 – 20 hours
Fuel temperature 1250o c
Total pushing capacity 307 per day
Gross coke capacity 2.0011 million tones per annum
]

BLAST FURNACE:-
Target activity:-
 To reduce iron ore (oxides of iron) to get liquid metallic iron called Hot Metal.
Number of furnace: - 4
No.1 No.2 No.3 No.4
Capacity (Ton per day) 1250 1820 1820 2340
Useful Volume 1323 1400 1400 1800
Stoves 3 3 3 3
Productivity 1.0 MT 1.3MT 1.3MT 1.3MT

Gross Hot Metal Capacity – 2.088 million tones /annum

SINTER PLANT
Target Activity:-
To mix and treat iron ore fines, coke fines and other waste materials for making solid lumps called
sinter. This sinter is used in blast furnace to improve furnace productivity.
Machine Hearth Area 2 ×142.7m2 (for two old machines)
Machine Capacity 1 × 180 m2 (for new machines)
Plant Capacity 3.009 million tones per annum

Machine Hearth Area

Machine Capacity 1 × 180 m2 (for new machines)

Plant Capacity 3.009 million tones per annum

STEEL MELTING SHOP (SMS) COMPLEX

Target activity:-
To convert the hot metal (liquid iron) as received from blast furnace into liquid steel. This is done by
taking the hot metal into vessels called converter and intense blowing of oxygen through the metal.
The liquid steel thus produced is then either directly cast into billets in CCP or is cast into ingot
moulds for making steel ingots. These ingots will be rolled in rolling mills for making blooms,
billets and slabs.

Converters 3 converters (Basic Oxygen Furnace)

Capacity 110 tones each
Vacuum Arc Degassing Unit
New Lime Calcinations Plant with Argon
Production facilities
2 × 1300 tones capacity mixtures
Gas cleaning plant
Control Facilities

Process Control Computer System

CONTINUOUS CASTING PLANT
Target Activity:-
It takes the crude steel from Basic Oxygen Furnace (BOF) and cast billets.
Machines 2 numbers
Strands M/CS 6 numbers
Casting Radius 6 meters
Capacity 0.773 MT per annum
Length and Cross Section 6 – 12 meter
Length and Cross Section of billets 100 mm ×100 mm

NEW LIME CALCINATION PLANT (NLCP)

Target Activity:-
Here burn soft lime is produced from limestone .This lime is used in Basic Oxygen Furnace (BOF)
shop for controlling the composition of steel.
Number of Kilns 3
Capacity 300 tons per day
Calcinations Temperature 1200 – 1250oc (For Jaisalmer grade
limestone)

OXYGEN PLANT
Target Activity:-
To produce oxygen for consumption mainly at Basic Oxygen Furnace (BOF) shops for steel making.
Argon and Nitrogen are also produced and supplied to Basic Oxygen Furnace (BOF) for Sealing and
Stirring purposes.
Number of units 2
Capacity 35 tones per day
Liquid Oxygen Tanks 2 × 100m3 capacity

BLOOMING MILL:-
Target Activity:-
Steel Ingot cast in Steel Melting Shop (SMS) are rolled here to produce blooms, billets and slabs
.The ingot are first taken out of the ingot mould in a place called Stripper Bay, then the ingot are
soaked (reheated in furnace) before rolling.
Mill Capacity 0.950 MT per annum
Mill Type 42” × 102” reverse blooming mill
Capacity 240 tones / hour (output bloom size
– 350×350mm)
Intermediate Mill 32” × 84”reversible
Capacity 200 tones / hour(output bloom size -
180×180mm)
BILLET MILL
Target Activity :-
Here bloom produced in Blooming Mill Re furthur rolled into billets and slabs.
MILL CAPACITY 0.975 tones per annum
MILL TYPE Continuous Morgan Design
PRODUCT RANGE Billets- 50mm2 – 125 mm2
Skelp slabs – 140 to 240 mm × 75 –
80 mm

SECTION MILLS
Target Activity:-
Bloom from blooming mill are taken and rolled here to produce light and medium structures like
joists, channels and angles.
MILL CAPACITY 0.212 MT per annum
ROUGHING MILL 26”2 High reversible
INTERMEDIATE MILL 2 strand of 24”3 – high non
reversible
FINISHING STAND 24” 2 – high non reversible

PRODUCT RANGE:-

JOIST 100 × 175 × 85 , 175 × 75 , 116 ×

110
CHANNELS 200 × 75 ,175 × 75 , 150 × 75 , 125
× 65
ANGLES 150 × 150 ,130 × 130 ,110 ×110
,100 × 100

MERCHANT MILL
Target Activity:-
Here billet of size 100 × 100 mm are taken from CCP and BBM and are rolled into plain round bars
ribbed TMT bars of various diameters.
MILL 0.28 MT per annum
CAPACITY
MILL TYPE Continuous Morgan Design with 4 repeaters
PRODUCT 12mm,14mm,16mm,18mm,20mm,22mm,25mm,28.32mm
RANGE
SKELP MILL
Target Activity:-
The mill produces steel strips of width 147 mm to 256 mm for making tubes and pipes. Slabs and
billets are used as input materials.
MILL CAPACITY 0.25 MT per annum
MILL TYPE Continuous loewy design
Product Range:-
Width – 147 mm –234 mm
Thickness – 1.78 mm – 4.8 mm

WHEEL AND AXLE PLANT

Target Activity:-
Loose wheels axles and sets of wheels and axles are made here for railway wagons and coaches.
PLANT CAPACITY 58000 tones /annum
WHEEL CAPACITY 42000 tones /annum
AXLE CAPACITY 16000 tones/ annum
INPUT FOR WHEELS Fluted Ingot
INPUT FOR AXLES Blooms of Special Steel

DIFFERENT SUPPORTING UNITS

In addition to the production unit of plant, there are supporting units which caters to the4 need of
technical service of various production departments. Some of them are as follows:-
Refractory
Foundry
Electrical repair shop
Captive power plant
Plant design and drawing department
Loco repair shop
Wagon repair shop
Traffic
Oxygen plant
Industrial engineering department
Instrumentation and Research & Control laboratory.

These departments help the plant run smoothly with rendering the services wherever need.
The work of these departments in conjunction with the works department for overall favorable
growth in productivity of the plant. These departments provide auxiliary services and materials to
production departments of the plant for efficient functioning of the plant without disrupting smooth
operation.
 CHAPTER-5

ANALYSIS AND FINDINGS OF THE VARIOUS COMPONENTS

OF WORKING CAPITAL
AT DURGAPUR STEEL PLANT WITH GRAPHICAL
REPRESENTATION
 The trends of components of working capital are given up to the FY 2004 – 2005.But the analysis is
mainly done taking into consideration two years i.e., 2002 – 2003 and 2003 – 2004.
We have not taken the latest year i.e.2004 – 2005 for analysis because the figures are all
budgeted . Those are not actual figures.And we cannot make our analysis based on budgeted figures
Actual results of SAIL for the year 2004 -2005 has come out a few days before.So, it has not
become possible to include the actual figures of FY 2004 – 2005.

5.1 WORKING CAPITAL FOR 5 YEARS AND BUDGETED VALUE FOR 2004 – 2005

Budget
In Lakhs
Particulars 1999- 2000- 2001- 2002- 2003- 2004-
2000 2001 2002 2003 2004 2005
A. Current Assets Loans &
Advances

Cash & bank Balance

660 58 104 90 540 40
Raw materials 6487 4390 3350 4876 2960 2170
Stores & spares 18813 13185 12202 11514 9650 9419
Finished & Semi- finished
products 28797 21996 21933 23577 26160 24161
Sundry Debtors 1395 2028 2395 3213 3570 3000
Loans & Advances 11563 12634 7145 6066 5960 6000
Other Current Assets 261 371 237 213 185 160
Interest receivable
Total 67976 54662 47366 49549 49025 44950
B. Current Liability & Provisions

Sundry Creditors 13711 12927 11760 11575 11350 12000

Sundry debtors 1987 2052 2043 1949 1960 1500
Other deposits 15576 15812 20749 15597 11635 4500
Provisions 2740 14156 3829 5602 19375 4500
Total 34014 44947 38381 34723 44320 35700
Working Capital(A-B) 33962 9715 8985 14826 3705 9250
Increase or Decrease over
provisions year -25803 -24247 -730 5841 -11121 4516
 In Lakhs
5.2 ANALYSIS OF DEBTORS
YEARS 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
AMOUNT 1395 2028 2395 3213 3580 3000
CHANGE - 633 367 818 367 -580
% CHANGE - 45.37 18.04 34.15 11.42 -16.2

ANALYSIS OF DEBTORS

4000
3500
3000
2500
2000
DEBTORS
1500
BALANCE
1000
500
0
-500
-1000
00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 1395 2028 2395 3213 3580 3000
CHANGE - 633 367 818 367 -580
% CHANGE - 45.37 18.04 34.15 11.42 -16.2
YEARS

CONCEPT ON DEBTORS:-
Debtors or Accounts Receivable is an important component of Working Capital and fall under
Current Assets. Debtors will arise only when a firm will make credit sale. Terms of payment are
made clear in the bill (drawn by the firm) to the debtors regarding date of payment, time of payment
and mode of payment.If there is no chance of realizing the money in future , the total debtor amount
becomes bad debt.If any debtors show any doubts regarding their payment , then a provision is
created in the name “ Provision For Bad Debt ”.
TREND OF DEBTORS SHOWN IN THE TABLE :-
There is a continuous increase in debtors of Durgapur Steel Plant in the last 5 years starting from
1999 till 2004.Debtors stood at Rs 3213 lakhs in the year 2002 – 2003 and it increased to Rs 3580
lakhs in the year 2003 – 2004. There is a net increase of Rs 367 lakhs of debtors in the year 2003 –
2004 , an increase of 11.42 %.

DISCUSSIONS ON THE TREND OF DEBTORS:-

Detailed study revealed that the :-
Debt to railways has increased from Rs 35 lakhs in 2002 – 2003 to Rs 62 lakhs in 2003 – 2004.
Debt to Public Sector Undertaking (PSU) has increased from Rs 14 lakhs in 2002 – 2003 to Rs 491
lakhs in 2003 – 2004 .
Though other debts declined from Rs 7.88 lakhs in 2002 – 2003 to Rs 7.83 lakhs in 2003 - 2004 ,
but the net effect resulted in an increase in debtors by Rs 367 lakhs.

5.3 ANALYSIS OF CASH AND BANK In Lakhs

YEARS 1999 2000 2001 2002 2003- 2004

- - - - 2004 -
2000 2001 2002 2003 2005
AMOUN 660 58 104 90 544 40
T
CHANG - -602 46 -14 454 -505
E
% - 91.2 79.3 13.4 504.4 92.6
CHANG 1 1 6 4 4
E
 ANALYSIS OF CASH AND BANK

800
600
400
CASH AND
200
BANK 0
BALANCE
-200
-400
-600
-800 99-'00 00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 660 58 104 90 544 40
CHANGE 0 -602 46 -14 454 -505
% CHANGE 0 91.21 79.31 13.46 504.44 92.64

YEARS

CONCEPT ON CASH :-
Cash is called the most liquid asset and a vital current asset. It is an important component of working
capital.
In narrow sense , cash includes notes , bank drafts, cheques etc while in broader sense it
includes near cash assets such as marketable securities and time deposits with bank .
There should be adequate cash in a firm i.e., a firm should maintain a comfortable level of cash
because only cash can be used for any unanticipated needs or transactions or any type of cash
disbursements.At the same time , adequate cash balance also indicates the liquidity of firm.The
more cash balance a firm holds, the more liquid it is.

TREND OF CASH BALANCE SHOWN IN THE TABLE

Cash balance shows an uneven fluctuation during the past 5 years .In one year it increases ,but
decreases in the consecutive year and again increases in the next year .In 2002 –2003 ,cash balance
stood at Rs 90 lakhs but in the next year i.e., in the year 2003 – 2004 , it increased to a huge amount
of Rs 544 lakhs, a huge increase of Rs 454 lakhs. Thus cash balance in the year 2003 – 2004
increased by about 504.44 %.

DISCUSSION ON THE TRENDS OF CASH BALANCE

Detailed study revealed that :-
There is an increase of term deposits.Term deposit stood at Rs 55 lakhs in 2002 – 2003 and it
increased to Rs 535 lakhs in 2003 – 2004, a huge increase of Rs 480 lakhs.
There is a small increase in cash and stamps in hand from Rs 6 lakhs in 2002 – 2003 to Rs 9 lakhs in
2003 – 2004.
On the other hand , cheque in hand has reduced to nil in 2003 – 2004 from Rs 29 lakhs in 2002 –
2003.

5.4 ANALYSIS OF INTEREST RECEIVABLE

In Lakhs
YEAR 2000 2001 2002 2003 2004-
- - - - 2005
2001 2002 2003 2004
AMOUNT 26 237 213 182 160
0
CHANGE - -23 -24 -31 -22
% - -8.84 -10.1 -14.5 -12.0
CHANGE 2 5 8
 ANALYSIS OF INTEREST RECEIVABLE

300
250
200
INTEREST 150
RECEIVABLE
BALANCE 100
50
0
-50 00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 260 237 213 182 160
CHANGE 0 -23 -24 -31 -22
% CHANGE 0 -8.84 -10.12 -14.55 -12.08

YEARS

CONCEPT ON INTEREST RECEIVABLE

Interest Receivable is the accrued interest , the interest that is to due to be received but still not
received.Durgapur Steel Plant gives short term loans to various parties ( customers, employees) .
After giving loans , the interest on loan becomes due which Durgapur Steel Plant will receive.Thus ,
Interest Receivable here indicates the amount of accrued interest on loan.

TREND OF INTEREST RECEIVABLE SHOWN IN THE TABLE

Interest Receivable has continuously decreased during the last 4 years from year 2000- 2004.In the
year 2002 – 2003 , Interest Receivable stood at Rs 213 lakhs and it decreased to Rs 182 lakhs in the
year 2003 – 2004 which indicates a net decline of Interest Receivable by about 31 lakhs or by 14.55
%.

DISCUSSION ON THE TREND OF INTEREST RECEIVABLE

The amount of Interest Receivable is mainly due to the loans given by Durgapur Steel Plant to its
employees because of which the interest becomes due . It has decreased mainly because of the
recovery of short term loans from employees.
5.5 ANALYSIS OF LOANS AND ADVANCES In Lakhs

YEARS 1999 2000 2001 2002 2003 2004

- - - - - -
2000 2001 2002 2003 2004 2005
AMOUN 1158 1263 7145 6066 5957 6000
T 3 4
CHANG - 1051 5489 1079 109 43
E
% - 9.07 -43.4 -15.1 -1.79 0.72
CHANG 4 0
E

ANALYSIS OF LOANS AND

ADVANCES
14000

12000

10000

8000
LOANS AND
ADVANCES 6000
BALANCE 4000

2000

-2000
99-'00 00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 11583 12634 7145 6066 5957 6000
CHANGE 0 1051 5489 1079 109 43
% CHANGE 0 9.07 -43.44 -15.1 -1.79 0.72

YEARS

CONCEPT ON LOANS AND ADVANCES

Loans here refers to any amount given by Durgapur Steel Plant to different parties for a specified
time .And in return , parties , customers and employees will be liable to make timely repayment of
that amount in addition to interst on this loan.Loans and Advances here refers to current assets hold
by Durgapur Steel Plant as the loan amount is accrued i.e., the full loan amount will be received by
Durgapur Steel Plant.
TREND OF LOANS AND ADVANCES SHOWN IN THE TABLE
Loans and advances show a decreasing trend from the year 2000 –2001 and till 2003 -2004.Loans
and advances balance stood at Rs 6066 lakhs in the year 2002 -2003 while it decreased to Rs 5957
lakhs in the year 2003 – 2004 , a net decline of loans and advances balance by Rs 109 lakhs.

DISCUSSIONS ON THE TREND OF LOANS AND ADVANCES

Detailed study on loans and advances revealed that :-
Loans to employees declined from Rs 1157 Lakhs in 2002 -2003 to Rs 659 lakhs in 2003 – 2004, a
net decline of Rs 498 lakhs.
Advances to its customers and suppliers increased from Rs 489 lakhs in 2002 – 2003 to Rs 538 lakhs
in 2003 – 2004, an increase of 49 lakhs.
Advances to employees increased by Rs 10 lakhs from Rs 3 lakhs in 2002 – 2003 to Rs 13 lakhs in
2003 – 2004.
Claims recovered from missing wagons reduced by Rs 711 lakhs in 2003-2004.
Disputed claims increased from Rs 1642 lakhs in 2002 – 2003 to Rs 2235 lakhs in 2003 – 2004, an
increase of Rs 593 lakhs.

5.6 ANALYSIS OF INVENTORY In Lakhs

YEARS 1999 2000 2001 2002 2003 2004

- - - - - -
2000 2001 2002 2003 2004 2005
AMOUN 5409 3957 3748 3996 3878 3575
T 7 1 5 7 2 0
CHANG - 1452 2086 2482 1185 3032
E 6
% - -26.8 -5.27 6.62 -2.96 -7.81
CHANG 5
E
 ANALYSIS OF INVENTORIES

60000

50000

40000

30000
INVENTORY
BALANCE 20000

10000

-10000
99-'00 00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 54097 39571 37485 39967 38782 35750
CHANGE 0 14526 2086 2482 1185 3032
% CHANGE 0 -26.85 -5.27 6.62 -2.96 -7.81

YEARS

CONCEPT ON INVENTORY
Inventories are stocks of several materials that aid in uninterrupted production. Inventories are a
must for carrying out production run in a smooth way.
Inventories in Durgapur Steel Plant consists of :-
Raw Materials
Stores and Spares
Refractories
General Stores
Rolls
Pig Iron
Thus adding up all these items, we can arrive at Inventory . So we can say that , inventories are
inevitable for smooth and uninterrupted production runs as well as smooth production processes.

TRENDS OF INVENTORY SHOWN IN THE TABLE

Inventory has shown a decreasing trend during the past 5 years except the year 2002 – 2003.
Inventory stood at Rs 39,967 lakhs in the year 2002-2003 and it decreased to Rs 38782 lakhs in the
year 2003 – 2004. This indicates a net decrease of Inventory by Rs 1185 lakhs or a decline by 2.96
% in the year 2003 - 2004 .
DISCUSSIONS ON THE TREND OF INVENTORIES
Detailed study reveals that inventory has mainly decreased because of decrease in its two major
components i.e., raw materials and stores & spares
[ NOTE :- Reasons for decline in raw materials and stores and spares are discussed in their
respective tables ].

5.7 ANALYSIS OF RAW MATERIAL In Lakhs

YEAR 1999 2000 2001 2002 2003 2004

- - - - - -
2000 2001 2002 2003 2004 2005
AMOUN 6487 4390 3350 4876 2970 2170
T
CHANG - -209 -104 1526 -190 -800
E 7 0 6
% - -32.3 -23.6 45.5 -39.0 -26.9
CHANG 2 9 5 8
E

ANALYSIS OF RAW MATERIAL

8000

6000

4000
RAW MATERIAL
2000
BALANCES
0

-2000

-4000
99-'00 00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 6487 4390 3350 4876 2970 2170
CHANGE 0 -2097 -1040 1526 -1906 -800
% CHANGE 0 -32.32 -23.69 45.55 -39.08 -26.9

YEARS

CONCEPTS ON RAW MATERIALS :-

Raw Materials are those materials that act as an input for the production process.These raw materials
serve as input for production and after passing through the production process , gets converted into
finished products. Raw materials are those materials which are used in making the final
product.Some of the raw materials used in Durgapur Steel Plant are as follows :-
Coal
Iron ore
Manganese ore
Limestone
Dolomite
Bauxite
Quartzite
Ferro alloys
Sand
Raw Materials have a major share in total inventories and is an important component of Working
Capital. Durgapur Steel Plant consume a large number of raw materials .Thus it is necessary to
maintain proper balance between all these raw materials and maintain a proper level of raw
materials.
TREND OF RAW MATERIAL SHOWN IN THE TABLE
Raw material of Durgapur Steel Plant shows a decreasing trend for the past 5 years except the year
2002 – 2003. Raw material stood at Rs 4876 lakhs in the year 2002 – 2003 and it decreased to Rs
2970 lakhs in the year 2003 -2004 , a net decline of Rs 1906 lakhs i.e., a decline by about 39.08 %.

DISCUSSIONS ON THE TREND OF RAW MATERIALS

Detailed study shows that :-
Raw material as imported coal decreased by Rs 728 lakhs in the year 2003-2004.
Indigenous coal decreased by Rs 18 lakhs.
Limestone decreased by Rs73 lakhs.
Dolomite decreased by Rs 32 lakhs.
Iron ore increased by about 228 lakhs in 2003-2004 .

Though the Iron Ore is increasing , but this increase is negligible as compared to the decrease of
Imported Coal , Limestone, Indigenous coal, Dolomite . So the net effect came to a decrease of Raw
Material by Rs 1906 lakh

5.8 ANALYSIS OF FINISHED AND SEMI FINISHED GOODS In Lakhs

YEARS 1999 2000 2001 2002 2003 2004

- - - - - -
2000 2001 2002 2003 2004 2005
AMOUN 2879 2199 2193 2357 2616 2416
T 7 6 3 7 1 1
CHANG - -680 -63 1644 2584 -200
E 1 0
% - -23.6 -0.28 7.49 10.9 -7.64
CHANG 1 5
E
 ANALYSIS OF FINISHED AND SEMI
FINISHED GOODS
30000

25000

20000

FINISHED AND 15000

SEMI FINISHED
10000
GOODS
5000
BALANCE
0

-5000

-10000
99-'00 00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 28797 21996 21933 23577 26161 24161
CHANGE 0 -6801 -63 1644 2584 -2000
% CHANGE 0 -23.61 -0.28 7.49 10.95 -7.64

YEARS

CONCEPT ON FINISHED PRODUCT:-

Finished products are those products which are ready for sale .Finished products of Durgapur
includes :-
Joists
Channels
Angles
Bars,rods and rebars
Skelp
Wheels, axles and wheel sets

The above products are ready for sale and are called saleable steel.Finished products also constitute
a vital part of total inventories.
 CONCEPT ON SEMI FINISHED PRODUCT:-
Semi finished products are not fully finished product .They are taken out of the production process
in the middle .These semi finished goods are also sold by some firm .In Durgapur Steel Plant , semi
finished goods are manufactured and sold. Those semi finished products are :-
Blooms
Billets
Slabs

TREND OF FINISHED AND SEMI FINISHED GOODS AS SHOWN IN THE TABLE

Semi finished goods and finished goods started decreasing from 1999-2000 to 2001 – 2002. But
after that again it started increasing . It was Rs 23,577 lakhs in the year 2002 -2003 and it further
increased to Rs 26,161 lakhs in the year 2003 – 2004, a net increase of about Rs 2,584 million.

DISCUSSION ON THE TREND OF FINISHED GOODS AND SEMI FINISHED GOODS

Detailed study showed that , inventories at export yard and stockyard has increased .These are as
follows :-
Inventories of finished and semi finished products at stockyard increased by Rs 1607 lakhs in the
year 2003-2004.
Inventories of finished and semi finished goods at export yard increased by Rs 1747 lakhs in the year
2003 – 2004.
On the other hand , inventories of finished and semi finished goods at plant has decreased by Rs 706
lakhs.
Thus finished goods and semi finished goods have increased due to increase in the inventories of
finished and semi finished products both at export yard and stock yard.In addition to these factors ,
increase in price of steel in the international market has also led to increase in balance of finished
and semi finished products.

5.9 ANALYSIS OF STORES AND SPARES

YEARS 2000- 2001- 2002- 2003

In Lakhs 2004-
2001 2002 2003 -2004 2005

AMOUNT 13185 12202 11514 9651 9419

CHANGE - 983 -688 -1863 232

% CHANGE - 7.45 5.63 16.18 2.40

 ANALYSIS OF STORES AND
SPARES
14000

12000

10000

8000
STORES AND
SPARES 6000
BALANCE
4000

2000

-2000
00-'01 01-'02 02-'03 03 -'04 04-'05
AMOUNT 13185 12202 11514 9651 9419
CHANGE 0 983 -688 -1863 232
% CHANGE 0 7.45 5.63 16.18 2.4

YEARS

CONCEPT ON STORES AND SPARES :-

Stores and spares are impotant parts of total inventories and is an important component of working
capital. Stores and Spares are used to aid the production of the plant. Sufficient stock of stores and
spares are to be maintained so as to ensure a healthy flow of production and to increase the
efficiency of the production.

TRENDS OF STORES AND SPARES AS SHOWN IN THE TABLE

There is a continuous decrease in the stock of Stores and Spares from the last 5 years from the year
1999-2000 to 2003 – 2004. Stores and spares stood at Rs 11514 lakhs in the year 2002 – 2003 and it
decreased to Rs 9651 lakhs in the year 2003 – 2004, a net decrease of Rs 1863 lakhs and by 16.18
%.
DISCUSSION ON THE TRENDS OF STORES AND SPARES
Detailed study showed that :-
Mechanical spares decreased by Rs 495 lakhs in the year 2003 – 2004
Electrical spares decreased by Rs 365 lakhs in the year 2003 – 2004
Refractore decreased by Rs 408 lakhs in the year 2003 – 2004
SIT decreased by Rs 481 lakhs in the year 2003 – 2004
There is an increase in General Stores by 131 lakhs in the year 2003 – 2004
IMBP also increased by Rs 220 lakhs in the year 2003 – 2004

Though there is an increase of General Stores in the year 2003 – 2004 , but the net effect comes to a
decrease in the value of Stores and Spares in the year 2003 – 2004.

5.10 ANALYSIS OF CURRENT LIABILITY

In Lakhs
YEARS 1999 2000 2001 2002 2003 2004
- - - - - -
2000 2001 2002 2003 2004 2005
AMOUN 3127 3079 3455 2912 2494 3120
T 4 1 2 1 1 0
CHANG - -483 3761 -543 -418 6529
E 1 0
% - -1.54 12.2 -15.7 1.90 26
CHANG 1 1
E
 ANALYSIS OF CURRENT LIABILITY
35000

30000

25000

20000

CURRENT 15000
LIABILITY
10000
BALANCE
5000

-5000

-10000
99-'00 00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 31274 30791 34552 29121 24941 31200
CHANGE 0 -483 3761 -5431 -4180 6529
% CHANGE 0 -1.54 12.21 -15.71 1.9 26

YEARS

CONCEPT ON CURRENT LIABILITY

Current liabilities are any liabilities that are incurred by the firm on a short term basis or current
liabilities are those liabilities that have to be paid by the firm within 1 year. Current liabilities are
incurred by the firm because many times the firm is not able to meet all the expenses and other
manufacturing outlays from its own funds. Current liabilities also include all those loans taken and
borrowings made by a firm to invest on current assets. Current liabilities are an important part of
working capital as we cannot arrive at the final Working Capital Balance or Net Current Asset
Balance if we do not deduct current liabilities incurred by the firm from the total Current Assets
Balance.

Here Current Liabilities have been arrived at by adding up the followings items:-
Sundry Creditors
Security and Other Deposits
Other Deposits
 TREND OF CURRENT LIABILITIES AS SHOWN IN THE TABLE
Current Liability shows a continuous decreasing trend during the past 3 years from the year 2001-
2002 to 2003-2004.Current liability stood at Rs 29121 lakhs in the year 2002-2003 and it decreased
by Rs 4180 lakhs to Rs 24941 lakhs in the year 2003 -2004. Or it can be said that Current Liability
decreased by about 1.9 % in the year 2003-2004.

DISCUSSIONS ON THE TREND OF CURRENT LIABILITIES

The decrease of Current Liabilities by Rs 4180 lakhs in the year 2003-2004 is mainly attributed to
the decrease in its one of its important component “ Other Deposits ”.Other deposits decreased by
Rs 3963 lakhs in the year 2003-2004 and it left its impact on Current Liability.

5.11 ANALYSIS OF CREDITORS

YEARS 1999 2000 2001 2002 2003 2004
- - - - - -
2000 2001 2002 2003 2004 2005
AMOUN 1371 1292 1176 1157 1135 1200
T 1 7 0 5 1 0
CHANG - -784 1167 -185 -224 649
E
% - -5.71 -9.02 -1.57 -1.93 5.71
CHANG
E
 ANALYSIS OF CREDITORS

14000

12000

10000

8000

CREDITORS 6000

4000

2000

-2000
00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 13711 12927 11760 11575 11351 12000
CHANGE - -784 1167 -185 -224 649
% CHANGE - -5.71 -9.02 -1.57 -1.93 5.71

YEARS

CONCEPT ON CREDITORS
Creditors are those to whom the firm is liable to pay . It is a very important component of Working
Capital and a part of Current Liabilities.Creditors are created when firm purchase anything on credit
basis and decided to pay for it later. Increase in creditors means increase in liabilities of the firm or
increase in current liabilities.Creditors may be suppliers and other parties from whom firm has
borrowed money.

TREND OF CREDITORS AS SHOWN IN THE TABLE

There is a continuous decrease in creditors from 1999-2000 to 2003-2004.Creditors stood at Rs
11575 lakhs in 2002-2003 and it reduced to Rs 11351 lakhs in the year 2003-2004 , a decrease of Rs
224 lakhs in the year 2003-2004. Thus creditors decreased by 1.93 in the year 2003-2004.

DISCUSSIONS ON TREND OF CREDITORS

Sundry creditors arise when firm take loans or any type of advances from any party to meet its
expenses or to invest in current asset. If the firm has enough fund to meet its expenses, then
obviously the firm would not have incurred the liability. The decreasing trend of current liability of
Durgapur Steel Plant is due to the fact that Durgapur Steel Plant is now able to meet its expenses and
invest on current assets from its own internal funds. Due to the increasing utilization of internal
funds of Durgapur Steel Plant , the current liability of Durgapur Steel Plant is decreasing.

In Lakhs
5.12 ANALYSIS OF SECURITY DEPOSITS

YEARS 1999 2000 2001 2002 2003 2004

- - - - - -
2000 2001 2002 2003 2004 2005
AMOUN 1987 2052 2043 1949 1956 1500
T
CHANG - 65 -9 -94 7 -456
E
% - 3.27 -0.43 -4.60 0.35 -23.3
CHANG
E
 ANALYSIS OF SECURITY DEPOSIT

2500

2000

1500

SECURITY
DEPOSIT 1000
BALANCE
500

-500
99-'00 00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 1987 2052 2043 1949 1956 1500
CHANGE 0 65 -9 -94 7 -456
% CHANGE 0 3.27 -0.43 -4.6 0.35 -23.3

YEARS

CONCEPT ON SECURITY DEPOSITS

Security deposit is a type of deposit that Durgapur Steel Plant used to take from any party at the
time of contract .The reason for keeping this security deposit is that , if the purpose for which the
parties have entered into contract are not serving well , then the amount will be adjusted from this
deposit. Different parties include contractors , customers etc. Thus this security deposit is totally
dependent on the contracts . More the contract , more the deposits and vice versa.

TREND OF SECURITY DEPOSITS AS SHOWN IN THE TABLE

Security does not show any continuous trend in the last 5 years.It shows a fluctuating trend. Security
Deposit stood at Rs 1949 lakhs in the year 2002-2003 and it increased to Rs 1956 lakhs in the year
2003-2004.It increased by Rs 7 lakhs in the year 2003-2004, an increase of 7 percent.
 DISCUSSIONS ON THE TREND OF SECURITY DEPOSITS

As mentioned above , amount of Security Deposit entirely depends on contract with parties .
Increase in contract with parties lead to increasing Security Deposits and vice versa.Thus the
increase in Security Deposit balance clearly indicates that there is an increase in contract of
Durgapur Steel Plant with various parties .

5.13 ANALYSIS OF OTHER DEPOSITS

YEARS 1999 2000 2001 2002 2003

In Lakhs 2004
- - - - - -
2000 2001 2002 2003 2004 2005
AMOUN 1557 1581 2074 1559 1163 1770
T 6 2 9 7 4 0
CHANG - 236 4937 -515 -396 6066
E 2 3
% - 1.51 31.2 -24.8 -25.4 52.1
CHANG 5 3 3 0 4
E
 ANALYSIS OF OTHER DEPOSITS
25000

20000

15000

OTHER 10000
DEPOSIT
5000
BALANCE
0

-5000

-10000
99-'00 00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 15576 15812 20749 15597 11634 17700
CHANGE 0 236 4937 -5152 -3963 6066
% CHANGE 0 1.515 31.23 -24.83 -25.4 52.14

YEARS

CONCEPT ON OTHER DEPOSITS

Durgapur Steel Plant gives permission to various institutions and other entities like schools and
hospitals for their establishment inside the township. So for providing them with various facilities
like electricity and water supply ( after their establishment ), Durgapur Steel Plant takes a deposit
from them , from where they make all the expenditures .After all expenditures are over , if there
remains anything in the deposit , Durgapur Steel Plant will be liable to pay back the unnecessary and
surplus deposit to the party. And this is the liability of Durgapur Steel Plant and it should pay it
within time.

TREND OF OTHER DEPOSITS AS SHOWN IN THE TABLE

Security Deposit was , at first , increasing from 1999-2000 to 2001-2002.But after that , it started
decreasing till 2003-2004. Other Deposit balance stood at Rs 15597 lakhs in the year 2002-2003 and
it decreased to Rs 11634 lakhs in the year , a net decrease of Rs 3963 lakhs i.e., Other Deposit
decreased by about 25.4% in the year 2003-2004.
 DISCUSSIONS ON THE TREND OF OTHER DEPOPSITS
Other deposit has mainly decreased because Durgapur Steel Plant has been refunding back the
unnecessary liability or surplus deposit to those parties from whom Durgapur Steel Plant had taken
advance.
The reasons are stated more clearly below :-
Advances from customers declined from Rs 3533 lakhs in the year 2002-2003 to Rs 3395 lakhs in
the year 2003-2004 , a net decrease of Rs 138 lakhs .
Other liabilities i.e., advances from other parties decreased. It stood at Rs 12,064 lakhs in the year
2002 -2003 and it decreased to Rs 8239 lakhs in the year 2002-2004 , a net decrease of Rs 3825
lakhs.
Thus the main reason for decrease in other deposit is reduction in deposits from other parties with
Durgapur Steel Plant.

In Lakhs
5.14 ANALYSIS OF PROVISIONS

YEAR 1999 2000- 2001 2002 2003- 2004

- 2001 - - 2004 -
2000 2002 2003 2005
AMOUN 2740 1415 3829 5602 2840 4500
T 6
CHANG -00 1141 1032 1773 -2762 -148
E 6 7 70
% -00 416.6 -72.9 46.3 245.7 76.7
CHANG 4 5 0 6 7
E
 ANALYSIS OF PROVISIONS
15000

10000

5000

PROVISION
0
BALANCE

-5000

-10000

-15000
99-'00 00-'01 01-'02 02-'03 03-'04 04-'05
AMOUNT 2740 14156 3829 5602 2840 4500
CHANGE 0 11416 10327 1773 -2762 -14870
% CHANGE 0 416.64 -72.95 46.3 245.76 76.77

YEARS

CONCEPT ON PROVISIONS
Provisions are mainly accumulated funds formed by keeping aside a certain percentage of
employees’ salary for various purposes. Here , provisions have been arrived at by adding up the
following :-
Voluntary Retirement Scheme
Employee Family Benefit Scheme
Wage Revision
Other Provisions
Here we have not included the following items as these are considered to be long term liabilities:-
Gratuity
Accrued Leave Liability
Post Retirement Medical Benifits

TRENDS OF PROVISIONS AS SHOWN IN THE TABLE

Provision does not follow any particular trend but rather shows a fluctuating trend . Provision stood
at Rs 5602 lakhs in the year 2002-2003 and it decreased to 2840 lakhs in the year 2003-2004.It
decreased by Rs 2762 lakhs in the year 2003-2004 , a decrease by 245.76% in the year 2003-2004.
 DISCUSSIONS ON THE TREND OF PROVISIONS
Detailed study revealed that :-
The reduction is mainly due to reduction in Voluntary Retirement Scheme ( VRS) . It stood at Rs
3037 lakhs in the year 2002-2003 and it decreased to Rs 1840 lakhs in the year 2003-2004, a net
decrease of 1197 lakhs.
Again, other provisions also reduced to Rs 1.4 lakhs in the year 2003 -2004 from Rs 18.89 lakhs in
the year 2002-2003.
Thus the reduction is mainly due to reduction in Voluntary Retirement Scheme and other provisions.
 CHAPTER 6

Evaluation of the working capital management in Durgapur Steel

Plant through Ratio Analysis
The ratios which we have taken are:-
Current Ratio:-
We have worked on this ratio to find out the liquidity position of Durgapur Steel plant
whether the plant is liquid enough to meet unexpected cash outlays in an effective and economical
manner.

Liquid Ratio:-
We have worked on this ratio to find out the liquidity position of Durgapur Steel Plant. But
here, we have not taken inventories as inventories are considered to be “not so liquid asset” because
we cannot liquidate inventories or we cannot receive cash by selling inventories in a very short time.

Inventory Turnover Ratio:-

We have solved this ratio to find out, how efficiently Durgapur Steel Plant is managing its
inventories. The ratio will reflect the true position of Inventory Management in Durgapur Steel
Plant.

Debtors Turnover Ratio:-

We have found out this ratio to find out the Account Receivable Management of Durgapur
Steel Plant, whether they are managing the debtors effectively and involving in timely collection of
dues.

Working Capital Turnover Ratio:-

We have worked on this ratio to find out the efficiency of Working Capital Management in
Durgapur Steel Plant. This ratio is very vital for this project as this project is based on Working
Capital Management of Durgapur Steel Plant. With the help of this ratio , we have found out how
efficient was the Working capital Management of Durgapur Steel Plant in the year 2002-2003 and
how efficient it is in 2003-2004 .
Particulars 2001-2002 2002-2003 2003-2004 2004-2005
Inventory turnover Ratio
5.42 6.08 7.35 9.41
Debtors turnover ratio
8.83 13.75 12.688 110.61
Current ratio
1.27 1.42 1.69 1.59
Liquid ratio
25% 27% 35% 29%
Working Capital turnover ratio
20.74 15.90 14.42 18.50

Analysis and Interpretation require from financial view point

for the evaluation of working capital management at DSP
 CHAPTER 7

LIMITATIONS OF STUDY

Components of inventories are huge in number .So, it is not possible to study deep into each of those
inventories.
Exact figures are not available in some cases.
Calculation is confusing in some cases.
Some data are extremely confidential, so it is not easy to get it.

CHAPTER 8
 CONCLUSION
AND
RECOMENDATION
 RECOMENDATION AND SUGGESTION

(1) The company does not categorized the raw materials on the basis of its value. It should Mark A
for most costly items, mark B for next costly items and C for least costly items.
Item A , Item B ,Item C raw materials are as follows :-
ITEM A :-
Coal
Ferro Manganeese
Ferro Silicon
Silica Manganeese
Petroleum Coke
Graphite Powder
Aluminum
Copper
ITEM B :-
Iron Ore
Limestone
Dolomite
Bauxite
ITEM C :-
River Sand
Moulding Sand
High Silica Sand
Plastic Clay
Management should give more attention to ITEM A , then ITEM B and finally ITEM C.
(2) Company should concentrate more on JIT ( Just In Time ) delivery system .This will minimize
the cost of holding inventory which consume a lot of Working Capital.
(3) Company should search for more supply source ( other than the available source ) so that they
can get the supply of Raw Materials at a cheaper rate .
(4)Time value of money should be considered while making the analysis so that the real profit
can be
ascertained.
Company should concentrate more on JIT ( Just In Time ) delivery system.It will minimize the
carrying or holding cost of inventories.
TQM ( Total Quality Management) should be the essence of all departments.
Wastage of electricity ,raw materials , labour hour should be minimized.
IMIS ( Inventory Management Information System) should be introduced for efficient Inventory
Management.
Security should be made stricter to control the theft.
 CONCLUSION

(1) After analysis of components of Working Capital and trends in the last five years, we can
conclude that Durgapur Steel Plant is managing its Working Capital efficiently. It has reduced
Inventory and Raw Materials and increased stock of Finished and Semi Finished products .It has
also reduced Stores and Spares thus investing reasonable working capital.
(2) Again from the Working Capital Turnover Ratio, we can see the performance of
Durgapur Steel Plant in the FY 2002-2003 and FY 2003-2004 and thus we can say that Durgapur
Steel Plant fails to improved its Working Capital Management in the year 2003-2004 than the
previous year.In the year 2002-2003.Durgapur Steel Plant has been quite successful in employing
required amount of Working Capital and generating high sales.
(3) I have also done Inventory Analysis and have shown the components of Inventories
separately and have seen that mostly the stock of these different components in terms of number of
months consumption has decreased in consecutive years ( except in some cases ).Thus we can say
that Durgapur Steel Plant holds these materials for lesser time than before. Holding of these
materials for lesser time means, these materials are turning over more quickly which will result in
more sales.
(4) I have analyzed the trend of turnover of different products. Here, i have seen that the
turnover of most of the products are increasing (except in 3 cases).So Durgapur Steel Plant is
increasing its turnover in each product.
Thus , by making a complete analysis of Working Capital Management of Durgapur Steel
Plant by giving individual focus on Working Capital Turnover Ratio , Inventory Analysis , Trend of
Turnover of different products , ultimately , we have concluded that Durgapur Steel Plant have a
good Working Capital Management and it is in the developing stage.

Analysis of Debtors
CONCLUSION:-
Durgapur Steel Plant mostly follows the policy of cash selling .Infact , it takes the advance from the
customers and delivers the goods within 30 days.An increase in debtors is not a good sign for
Durgapur Steel Plant as it blocks a lot of working capital .And also, it increases the probability of
bad debt i.e., the risk of not being able to realize the total accrued money. Though the amount of
Debtors of Durgapur Steel Plant has increased from 2002 -2003 to 2003 – 2004, but in addition to
those factors , reason for rise in amount of debtors partly goes to increase in market price of steel or
international steel price.

Analysis of Cash and Bank

CONCLUSION
Increase in cash balance is a good sign for Durgapur Steel Plant because it indicates a healthy
increase in the liquidity of the plant.But holding of too much cash balance is also not profitable as
the cash lay idle there. So, the required amount of cash balance should be kept so as to maintain a
good liquidity position of the plant and at the same time not to hold too much idle cash.
Analysis of Interest Receivable

CONCLUSION
Decline in Interest Receivable is a positive sign for Durgapur Steel Plant as the plant gives loans to
different parties i.e., to customers, employees , suppliers etc and also indulge in timely recovery of
these loans and collection of interest.

Analysis of Loans and Advances

CONCLUSION
Decline in Interest Receivable is a positive sign for Durgapur Steel Plant as the plant gives loans to
different parties i.e., to customers, employees , suppliers etc and also indulge in timely recovery of
these loans and collection of interest.

Analysis Inventory
CONCLUSION
The declining trend of inventory in Durgapur Steel Plant is a positive trend for the plant as the
working capital locked up in inventories get locked up .Maintaining a low level of inventories is a
healthy sign for a firm , provided it is not hampering production and also it will facilitate smooth
production or uninterrupted production.

Analysis of Raw Material

CONCLUSION : -
Decrease in Raw Materials is a good sign for Durgapur Power Plant as it reduces blocking of
working capital in Raw Materials. But Raw Material should be at that level which will support
continuous production runs. Thus Durgapur Steel Plant has been efficiently managing its raw
materials.

Analysis of Finished and Sami-Finished

CONCLUSION
The trend is a positive sign for Durgapur Steel Plant which indicates that the demand of steel of
SAIL is increasing and it has resulted in decrease of stocks in the plant and increase of stocks in
export yard and stock yard.

Analysis of Stores and Spares

CONCLUSION
Decline in Stores and Spares indicates a positive sign for Durgapur Steel Plant as it reduces the
working capital blocked in stores and spares. If by employing low amount of inventories , a firm can
earn a good return on its investment , then the firm can be said to have in a comfortable position.
Analysis of Current Liability

CONCLUSION
Durgapur Steel Plant shows a positive trend in Current Liability as Current Liability is decreasing.
Decrease in Current Liability is a healthy trend for the plant as it indicates that the plant is
increasingly able to meet its expenses from its internal sources of funds.This also proves that the
liquidity position of Durgapur Steel Plant is quite good.

Analysis of Sundry Creditors

CONCLUSION
Decrease in creditors is a positive trend for Durgapur Steel Plant as it is reducing its current
liabilities. Decrease in creditors in each consecutive years of Durgapur Steel Plant is really a
noticeable trend as the firm has been incurring less current liabilities in each year .This also indicates
strong internal fund of Durgapur Steel Plant.

Analysis of Security Deposits

CONCLUSION
Security Deposit, though a current liability , its increase is not a negative sign for Durgapur Steel
Plant rather its increase is a positive sign for Durgapur Steel Plant because it indicates an increasing
number of contracts with different parties. It also shows that outsiders have confidence on Durgapur
Steel Plant . Thus Durgapur Steel Plant is in a booming stage.

Analysis of Other Deposits

CONCLUSION
The decreasing trend of other deposit is appositive sign for Durgapur Steel Plant as current liabilities
are decreasing. It indicates that Durgapur Steel Plant has been reducing its liabilities by paying off
the excess deposit balance (Total deposit – all expenditures incurred) to different parties from whom
Durgapur Steel Plant has taken deposit. From this we can also conclude that , Durgapur Steel Plant is
having a good liquidity position.

Analysis of Provisions
CONCLUSION
Decline in provision this year is a positive and good sign for Durgapur Steel Plant as decline in
provisions will lead to decline in the total Current Liabilities and decrease in current liabilities
indicate Durgapur Steel Plant’s strong liquidity position.